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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, 2016o

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


COMMISSION FILE NUMBER: 814-00841



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





Delaware(State or other jurisdiction of
incorporation or organization)

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

19112(Zip Code)


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



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

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

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



Large accelerated filer o

Accelerated filer o

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

Smaller reporting company o


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

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

The
issuer had 430,438,096 common shares of beneficial interest outstanding as of October 25, 2016.





---





Table of Contents



TABLE OF CONTENTS





PagePART IFINANCIAL INFORMATIONITEM 1.

FINANCIAL STATEMENTSConsolidated Balance Sheets as of September 30, 2016 (Unaudited) and December 31, 2015


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


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


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


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


5Notes to Unaudited Consolidated Financial Statements


19ITEM 2.

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


54ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


78ITEM 4.

CONTROLS AND PROCEDURES


79PART IIOTHER INFORMATIONITEM 1.

LEGAL PROCEEDINGS


80ITEM 1A.

RISK FACTORS


80ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


80ITEM 3.

DEFAULTS UPON SENIOR SECURITIES


80ITEM 4.

MINE SAFETY DISCLOSURES


80ITEM 5.

OTHER INFORMATION


80ITEM 6.

EXHIBITS


81SIGNATURES


87


---





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, 2016
(Unaudited)

December 31,
2015AssetsInvestments, at fair valueNon-controlled/unaffiliated investments (amortized cost$3,258,182 and $3,267,830, respectively)

$
2,977,197

$
2,518,595Non-controlled/affiliated investments (amortized cost$702,648 and $356,188, respectively)


770,227


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


252


273,910​
​
​
​
​
​
​
​Total investments, at fair value (amortized cost$3,987,369 and $3,894,407, respectively)


3,747,676


3,069,498Cash


271,317


368,867Receivable for investments sold and repaid


295


13,792Interest receivable


48,981


34,921Receivable for common shares purchased





6,915Deferred financing costs


3,195


3,865Deferred offering costs


2,222


Prepaid expenses and other assets


67


247​
​
​
​
​
​
​
​Total assets

$
4,073,753

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

$
8,075

$
Credit facilities payable (net of deferred financing costs of $1,113 and $1,094, respectively)


538,759


714,416Repurchase agreement payable (net of deferred financing costs of $123 and $220, respectively)(1)


324,877


324,764Shareholder distributions payable


28


48Management fees payable


20,086


18,338Subordinated income incentive fees payable(2)





12,048Administrative services expense payable


1,556


1,872Interest payable


3,824


3,046Trustees' fees payable


245


254Other accrued expenses and liabilities


4,504


5,458​
​
​
​
​
​
​
​Total liabilities


901,954


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





Common shares, $0.001 par value, 450,000,000 shares authorized, 431,453,607 and 372,210,264 shares issued and outstanding, respectively


431


372Capital in excess of par value


3,830,129


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


(396,184
)

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


(22,818
)

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


(239,759
)

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


3,171,799


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

$
4,073,753

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

$
7.35

$
6.50


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




See notes to unaudited consolidated financial statements.

1

---



Table of Contents



FS Energy and Power Fund

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





Three Months Ended
September 30,

Nine Months Ended
September 30,2016

2015

2016

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

$
75,293

$
82,469

$
225,944

$
237,077Fee income


2,624


10,096


5,251


23,741From non-controlled/affiliated investments:Interest income


11,465


5,512


37,067


15,256Fee income





681


7,356


681​
​
​
​
​
​
​
​
​
​
​
​
​
​Total investment income


89,382


98,758


275,618


276,755​
​
​
​
​
​
​
​
​
​
​
​
​
​Operating expensesManagement fees


20,086


19,522


55,725


57,659Subordinated income incentive fees(1)





9,611


5,774


18,968Administrative services expenses


1,118


892


2,885


3,153Share transfer agent fees


750


767


2,134


2,199Accounting and administrative fees


384


361


994


1,082Interest expense


8,921


7,627


27,200


22,351Trustees' fees


245


246


757


736Offering costs


755





1,378


Other general and administrative expenses


1,370


1,020


3,523


3,348​
​
​
​
​
​
​
​
​
​
​
​
​
​Total operating expenses


33,629


40,046


100,370


109,496Income taxes


22


76


101


234​
​
​
​
​
​
​
​
​
​
​
​
​
​Total expenses


33,651


40,122


100,471


109,730​
​
​
​
​
​
​
​
​
​
​
​
​
​Net investment income


55,731


58,636


175,147


167,025​
​
​
​
​
​
​
​
​
​
​
​
​
​Realized and unrealized gain/lossNet realized gain (loss) on investments:Non-controlled/unaffiliated


(118,187
)

(100,813
)

(196,536
)

(159,323
)Non-controlled/affiliated


(1,699
)




572


Net realized gain (loss) on foreign currency





(63
)




(210
)Net change in unrealized appreciation (depreciation) on investments:Non-controlled/unaffiliated


194,873


(226,650
)

454,465


(165,859
)Non-controlled/affiliated


19,447


(13,133
)

147,788


(5,534
)Controlled/affiliated


(3,837
)




(17,037
)

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


(2
)

59


12


(82
)​
​
​
​
​
​
​
​
​
​
​
​
​
​Total net realized and unrealized gain (loss) on
investments


90,595


(340,600
)

389,264


(331,008
)​
​
​
​
​
​
​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations

$
146,326

$
(281,964
)
$
564,411

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

$
0.35

$
(0.81
)
$
1.41

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


421,515,796


348,739,636


400,151,400


329,564,799​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


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




See notes to unaudited consolidated financial statements.

2

---



Table of Contents



FS Energy and Power Fund

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





Nine Months Ended
September 30,2016

2015OperationsNet investment income

$
175,147

$
167,025Net realized gain (loss) on investments and foreign currency


(195,964
)

(159,533
)Net change in unrealized appreciation (depreciation) on investments


585,216


(171,393
)Net change in unrealized gain (loss) on foreign currency


12


(82
)​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations


564,411


(163,983
)​
​
​
​
​
​
​
​Shareholder distributions(1)Distributions from net investment income


(211,989
)

(161,150
)Distributions from net realized gain on investments





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


(211,989
)

(174,741
)​
​
​
​
​
​
​
​Capital share transactionsIssuance of common shares(2)


313,739


410,987Reinvestment of shareholder distributions(2)


132,928


111,606Repurchases of common shares(2)


(45,151
)

(18,659
)Offering costs





(7,150
)​
​
​
​
​
​
​
​Net increase in net assets resulting from capital share transactions


401,516


496,784​
​
​
​
​
​
​
​Total increase (decrease) in net assets


753,938


158,060Net assets at beginning of period


2,417,861


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

$
3,171,799

$
2,723,781​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Accumulated undistributed (distributions in excess of) net investment income(1)

$
(22,818
)
$
10,216​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(1)See
Note 5 for a discussion of the sources of distributions paid by the Company.(2)See
Note 3 for a discussion of the Company's common share transactions.




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 30,2016

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

$
564,411

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


(679,004
)

(1,113,391
)Paid-in-kind interest


(24,314
)

(19,292
)Proceeds from sales and repayments of investments


425,906


622,847Net realized (gain) loss on investments


195,964


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


(585,216
)

171,393Accretion of discount


(11,514
)

(5,990
)Amortization of deferred financing costs


2,355


1,954Amortization of deferred offering costs


1,378


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


13,497


29,381(Increase) decrease in interest receivable


(14,060
)

61(Increase) decrease in prepaid expenses and other assets


180


(79
)Increase (decrease) in payable for investments purchased


8,075


4,901Increase (decrease) in management fees payable


1,748


1,610Increase (decrease) in subordinated income incentive fees payable


(12,048
)

(2,531
)Increase (decrease) in administrative services expense payable


(316
)

174Increase (decrease) in interest payable(1)


778


(586
)Increase (decrease) in trustees' fees payable


(9
)

37Increase (decrease) in other accrued expenses and liabilities


(954
)

1,070​
​
​
​
​
​
​
​Net cash provided by (used in) operating activities


(113,143
)

(313,101
)​
​
​
​
​
​
​
​Cash flows from financing activitiesIssuance of common shares


320,654


415,103Reinvestment of shareholder distributions


132,928


111,606Repurchases of common shares


(45,151
)

(18,659
)Offering costs incurred


(3,600
)

(7,150
)Shareholder distributions


(212,009
)

(174,741
)Borrowings under credit facilities





20,000Borrowings under repurchase agreement


16


135,871Repayments under credit facilities


(175,638
)

(197,287
)Deferred financing costs paid


(1,607
)

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


15,593


283,553​
​
​
​
​
​
​
​Total increase (decrease) in cash


(97,550
)

(29,548
)Cash at beginning of period


368,867


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

$
271,317

$
195,582​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Supplemental disclosureExcise and state taxes paid

$
109

$
315​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Non-cash purchases of investment

$
(309,593
)
$
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Non-cash sales of investment

$
309,593

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


(1)See
Note 8 for a discussion of the Company's credit facilities and repurchase transaction. During the nine months ended September 30, 2016 and 2015,
the Company paid $15,751 and $14,101, respectively, in interest expense on the credit facilities. During the nine months ended September 30, 2016 and 2015, the Company paid $8,316 and $6,882,
respectively, in interest expense pursuant to the repurchase agreement.




See notes to unaudited consolidated financial statements.

4

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Table of Contents

FS Energy and Power Fund

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



Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured LoansFirst Lien27.8%Abaco Energy Technologies LLC

(g)(i)(j)

Service & Equipment

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


1.0
%
11/20/20

$
60,471

$
57,903

$
39,306Allied Wireline Services, LLC

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

Service & Equipment

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


1.5
%
2/28/19


107,426


106,525


103,398Alon USA Partners, L.P.

(g)(i)(j)(m)(bb)

Downstream

L+800


1.3
%
11/26/18


11,092


11,243


11,064Altus Power America, Inc.

(j)

Power

L+750


1.5
%
10/10/21


84,375


84,375


86,062AP Exhaust Acquisition, LLC

(g)(l)

Service & Equipment

L+775


1.5
%
1/16/21


15,811


15,811


13,755BL Sand Hills Unit, L.P.

(l)

Upstream

Prime+650


3.5
%
12/17/17


40,821


35,451


37,760BL Sand Hills Unit, L.P.

(e)

Upstream

Prime+650


3.5
%
12/17/17


15,000


13,027


13,875Brock Holdings III, Inc.

(f)

Service & Equipment

L+450


1.5
%
3/16/17


1,978


1,935


1,960Cactus Wellhead, LLC

(g)(i)(j)

Service & Equipment

L+600


1.0
%
7/31/20


55,536


53,868


43,423Cimarron Energy Inc.

(g)(bb)

Service & Equipment

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


1.0
%
12/15/19


24,724


24,724


24,847CITGO Holding, Inc.

(f)

Downstream

L+850


1.0
%
5/12/18


16,865


17,010


17,099Crestwood Holdings LLC

(f)(g)

Midstream

L+800


1.0
%
6/19/19


29,788


29,887


27,679EnergySolutions, LLC

(i)(j)

Service & Equipment

L+575


1.0
%
5/29/20


18,193


17,951


18,170Gulf Finance, LLC

(f)(i)

Midstream

L+525


1.0
%
8/25/23


19,000


18,434


18,531Industrial Group Intermediate Holdings, LLC

(i)

Service & Equipment

L+800


1.3
%
5/31/20


22,262


22,262


22,596Lusk Operating LLC

(r)(z)(aa)

Upstream

Prime+500 PIK (8.3% Max PIK)


3.3
%
10/31/16


26,831


25,539


899Lusk Operating LLC

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

Upstream

Prime+500 PIK (8.3% Max PIK)


3.3
%
10/31/16


669


669


22MB Precision Holdings LLC

(g)

Service & Equipment

L+725, 1.5% PIK (1.5% Max PIK)


1.3
%
1/23/20


12,838


12,838


12,260Moxie Liberty LLC

(g)(j)

Power

L+650


1.0
%
8/21/20


32,236


32,328


31,833P2 Upstream Acquisition Co.

(f)

Service & Equipment

L+400


1.0
%
10/30/20


5,114


4,797


4,797Panda Temple Power, LLC

(j)

Power

L+625


1.0
%
3/6/22


9,850


9,695


8,865Panda Temple Power II, LLC

(g)(j)

Power

L+600


1.3
%
4/3/19


27,601


27,853


25,737ProPetro Services, Inc.

(i)

Service & Equipment

L+625


1.0
%
9/30/19


11,043


11,035


9,221Stonewall Gas Gathering LLC

(j)(bb)

Midstream

L+775


1.0
%
1/28/22


16,470


16,051


16,841Sunnova Asset Portfolio 5 Holdings, LLC

(j)(l)(p)

Power

12.0% PIK (12.0% Max PIK)




11/14/21


149,850


147,542


151,349Swift Worldwide Resources US Holdings Corp.

(g)(j)

Service & Equipment

L+1100


1.0
%
7/20/21


58,762


58,762


56,705UTEX Industries, Inc.

(f)

Service & Equipment

L+400


1.0
%
5/21/21


5,446


4,239


4,064Warren Resources, Inc.

(k)(z)

Upstream

L+850


1.0
%
5/22/20


131,175


131,175


93,423​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansFirst Lien
















992,929


895,541Unfunded Loan Commitments
















(13,696
)

(13,696
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Senior Secured LoansFirst Lien
















979,233


881,845​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


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, 2016
(in thousands, except share amounts)



Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured LoansSecond Lien29.0%Alison US LLC

(f)(j)(m)

Service & Equipment

L+850


1.0
%
8/29/22

$
21,722

$
20,644

$
20,111Ameriforge Group Inc.

(g)

Service & Equipment

L+750


1.3
%
12/21/20


35,950


36,373


5,752AP Exhaust Acquisition, LLC



Service & Equipment

12.0% PIK (12.0% Max PIK)




9/28/21


3,654


3,654


3,014Arena Energy, LP

(i)(k)

Upstream

L+900, 4.0% PIK (4.0% Max PIK)


1.0
%
1/24/21


102,375


102,375


101,925Ascent ResourcesMarcellus, LLC



Upstream

L+750


1.0
%
8/4/21


10,000


9,874


938Ascent ResourcesUtica, LLC

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

Upstream

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


1.5
%
9/30/18


285,037


284,167


280,761Brock Holdings III, Inc.

(g)(j)

Service & Equipment

L+825


1.8
%
3/16/18


29,605


29,717


28,125Chief Exploration & Development LLC

(f)(i)

Upstream

L+650


1.3
%
5/16/21


36,576


35,075


34,473Consolidated Precision Products Corp.

(g)(j)(bb)

Service & Equipment

L+775


1.0
%
4/30/21


14,074


13,820


12,772Emerald Performance Materials, LLC

(f)(bb)

Downstream

L+675


1.0
%
8/1/22


11,819


11,752


11,819Fieldwood Energy LLC



Upstream

L+713


1.3
%
9/30/20


41,047


41,830


16,555Granite Intermediate Holdings, Inc.

(f)

Power

L+725


1.0
%
12/19/22


13,150


13,057


12,471Gruden Acquisition, Inc.

(j)

Service & Equipment

L+850


1.0
%
8/18/23


15,000


14,349


11,611Horn Intermediate Holdings, Inc.

(g)(j)

Service & Equipment

L+775


1.3
%
10/2/18


50,250


50,250


50,501Jonah Energy LLC

(f)(i)(bb)

Upstream

L+650


1.0
%
5/12/21


29,293


28,594


26,218Neff Rental LLC

(f)(j)

Service & Equipment

L+625


1.0
%
6/9/21


33,789


33,059


33,113Oxbow Carbon LLC

(g)

Midstream

L+700


1.0
%
1/17/20


15,000


14,921


14,675P2 Upstream Acquisition Co.

(f)(g)(j)

Service & Equipment

L+800


1.0
%
4/30/21


34,099


34,147


29,751Titan Energy Operating, LLC

(i)(k)(p)

Upstream

2.0%, L+900 PIK (L+900 Max PIK)


1.0
%
2/23/20


101,814


83,387


84,322Total Safety U.S., Inc.

(g)(j)

Service & Equipment

L+800


1.3
%
9/13/20


14,795


14,952


6,115UTEX Industries, Inc.

(f)(j)

Service & Equipment

L+725


1.0
%
5/20/22


36,192


36,228


17,644Vantage Energy, LLC

(i)(j)

Upstream

L+750


1.0
%
12/20/18


32,329


31,675


31,117Vantage Energy II, LLC

(i)(j)(l)

Upstream

L+750


1.0
%
5/8/17


85,000


85,000


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
















1,028,900


918,783​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


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, 2016
(in thousands, except share amounts)



Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured Bonds11.4%Calpine Corp.

(f)(m)

Power

5.3%




6/1/26

$
19,800

$
19,809

$
20,060Cheniere Corpus Christi Holdings, LLC

(f)

Midstream

7.0%




6/30/24


4,000


4,136


4,328CITGO Holding, Inc.

(f)

Downstream

10.8%




2/15/20


9,000


9,070


9,034FourPoint Energy, LLC

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

Upstream

9.0%




12/31/21


235,125


227,523


232,774Lightstream Resources Ltd.

(k)(m)(r)(z)

Upstream

9.9%




6/15/19


62,400


62,400


55,848Mirant Mid-Atlantic Trust

(f)(h)(o)

Power

10.1%




12/30/28


30,651


32,970


23,946SandRidge Energy, Inc.

(r)(z)

Upstream

8.8%




6/1/20


46,700


46,600


16,929​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured Bonds
















402,508


362,919​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Subordinated Debt31.3%Alta Mesa Holdings, LP

(h)

Upstream

9.6%




10/15/18


43,300


39,051


40,756Archrock Partners, L.P.

(h)(m)

Midstream

6.0%




4/1/21


8,555


7,456


8,063Archrock Partners, L.P.

(h)(m)

Midstream

6.0%




10/1/22


14,283


12,338


13,297Bellatrix Exploration Ltd.

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

Upstream

8.5%




5/15/20


46,590


45,680


43,465Brand Energy & Infrastructure Services, Inc.

(f)(h)

Service & Equipment

8.5%




12/1/21


43,311


42,444


43,564Calpine Corp.

(f)(m)

Power

5.8%




1/15/25


5,100


5,094


5,053Canbriam Energy Inc.

(f)(h)(j)(m)

Upstream

9.8%




11/15/19


115,200


112,133


121,537Compressco Partners, LP

(f)(h)(m)

Service & Equipment

7.3%




8/15/22


20,050


19,903


18,772Crestwood Equity Partners L.P.

(f)(m)

Midstream

6.1%




3/1/22


5,500


5,500


5,556Dynegy Finance I/II Inc.

(f)(m)

Power

7.6%




11/1/24


22,542


21,956


22,180Eclipse Resources Corp.

(f)(h)(m)

Upstream

8.9%




7/15/23


59,745


53,764


58,401EV Energy Partners, L.P.

(h)(o)

Upstream

8.0%




4/15/19


38,814


28,337


25,811Everest Acquisition LLC

(h)(m)(o)

Upstream

9.4%




5/1/20


19,970


15,906


14,204Extraction Oil & Gas Holdings, LLC

(h)

Upstream

7.9%




7/15/21


37,500


37,500


39,047


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, 2016
(in thousands, except share amounts)



Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

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

(f)(m)

Midstream

6.8%




8/1/22

$
23,540

$
22,927

$
24,285Genesis Energy, L.P.

(f)(m)

Midstream

6.0%




5/15/23


15,280


14,080


15,221GenOn Energy, Inc.

(h)

Power

7.9%




6/15/17


5,000


4,895


4,144GenOn Energy, Inc.

(h)(o)

Power

9.9%




10/15/20


42,698


44,417


32,077Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




1/30/25


705


705


705Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




4/30/25


4,478


4,478


4,478Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




9/3/25


925


925


925Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




9/29/25


871


871


871Global Partners L.P.

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

Midstream

6.3%




7/15/22


69,435


69,258


64,675Global Partners L.P.

(h)(m)

Midstream

7.0%




6/15/23


2,824


2,408


2,619Great Western Petroleum, LLC

(f)

Upstream

9.0%




9/30/21


20,830


20,623


20,921Gulfport Energy Corporation

(f)(m)

Upstream

7.8%




11/1/20


6,229


6,345


6,475Jupiter Resources Inc.

(h)(m)

Upstream

8.5%




10/1/22


71,125


67,682


59,967Laredo Petroleum, Inc.

(f)(m)

Upstream

7.4%




5/1/22


25,384


25,083


26,272Lonestar Resources America Inc.

(h)(o)

Upstream

8.8%




4/15/19


21,500


21,573


13,599Martin Midstream Partners L.P.

(f)(h)(m)

Midstream

7.3%




2/15/21


29,660


29,076


28,140NRG Energy, Inc.

(f)(m)

Power

7.3%




5/15/26


25,000


24,876


25,578ONEOK, Inc.

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

Midstream

7.5%




9/1/23


28,000


26,858


31,465Synergy Resources Corp.

(j)(m)

Upstream

9.0%




6/14/21


40,000


40,000


40,800Talos Production LLC

(h)(o)

Upstream

9.8%




2/15/18


43,250


43,251


20,219Tenrgys, LLC

(i)(j)

Upstream

L+900


2.5
%
12/23/18


75,000


75,000


73,125Whiting Petroleum Corp.

(h)(m)

Upstream

5.0%




3/15/19


11,685


10,439


11,349Zachry Holdings, Inc.

(f)

Service & Equipment

7.5%




2/1/20


23,925


23,934


24,294​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Subordinated Debt
















1,026,766


991,910​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


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, 2016
(in thousands, except share amounts)



Portfolio Company(a)

Footnotes

Industry







Number of
Shares

Amortized
Cost

Fair
Value(d)Equity/Other18.7%(n)Abaco Energy Technologies LLC, Common Equity

(r)

Service & Equipment









6,944,444

$
6,944

$
Abaco Energy Technologies LLC, Preferred Equity

(r)

Service & Equipment









28,942,003


1,447


1,447Allied Downhole Technologies, LLC, Common Equity

(k)(q)(r)

Service & Equipment









7,431,113


7,223


5,573Allied Downhole Technologies, LLC, Warrants, 2/28/2019

(k)(q)(r)

Service & Equipment









5,344,680


1,865


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

(l)

Power









28,125,000


27,052


46,406Altus Power America Management, LLC, Class B Units

(r)(s)

Power









2,250





AP Exhaust Holdings, LLC, Common Equity

(k)(q)(r)

Service & Equipment









811


811


Ascent Resources Utica Holdings, LLC, Common Equity

(r)(t)

Upstream









148,692,909


44,700


32,712BL Sand Hills Unit, L.P., Net Profits Interest

(r)(v)

Upstream









N/A


5,180


1,599BL Sand Hills Unit, L.P., Overriding Royalty Interest

(v)

Upstream









N/A


740


258Cimarron Energy Holdco Inc., Common Equity

(r)

Service & Equipment









3,201,631


2,991


1,761Extraction Oil & Gas Holdings, LLC, Common Equity

(k)(q)(r)

Upstream









4,191,800


11,250


19,408Fortune Creek Co-Invest I L.P., LP Interest

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

Midstream









N/A


16,697


566FourPoint Energy, LLC, Common Equity, Class C-II-A Units

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

Upstream









66,000


66,000


28,875FourPoint Energy, LLC, Common Equity, Class D Units

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

Upstream









12,374


8,176


5,475FourPoint Energy, LLC, Common Equity, Class E-II Units

(p)(r)(cc)

Upstream









274,688


68,672


114,682FourPoint Energy, LLC, Common Equity, Class E-III Units

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

Upstream









222,750


55,688


97,453Global Jet Capital Holdings, LP, Preferred Equity

(r)

Service & Equipment









2,448,883


2,449


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

(k)(q)(r)

Service & Equipment









472,755


473


875Lusk Operating LLC, Common Equity

(r)(u)(aa)

Upstream









2,000


1,000


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

(k)(q)(r)

Service & Equipment









490,213


490


74Plains Offshore Operations Inc., Preferred Equity

(l)

Upstream









21,067


27,678


25,868Plains Offshore Operations Inc., Warrants, 11/18/2019

(r)

Upstream









427,005


689


Summit Midstream Partners, LLC, Preferred Equity

(l)

Midstream









28,830


28,830


28,830Sunnova Energy Corp., Common Equity

(p)(r)

Power









6,667,368


25,026


35,804Sunnova Energy Corp., Preferred Equity

(p)(r)

Power









578,468


3,080


3,106Swift Worldwide Resources Holdco Limited, Common Equity

(m)(r)(x)

Service & Equipment









3,750,000


6,029


1,689Synergy Offshore LLC, Preferred Equity

(k)(y)

Upstream









57,500


73,436


81,765TE Holdings, LLC, Common Equity

(r)(cc)

Upstream









2,225,950


18,921


16,138TE Holdings, LLC, Preferred Equity

(r)

Upstream









1,475,531


14,734


14,386Titan Energy Operating, LLC, Common Equity

(k)(p)(r)

Upstream









555,497


17,554


16,387White Star Petroleum Holdings, LLC, Common Equity

(r)(cc)

Upstream









4,867,084


4,137


4,624​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Equity/Other
















549,962


592,219​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​TOTAL INVESTMENTS118.2%















$
3,987,369


3,747,676​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​LIABILITIES IN EXCESS OF OTHER ASSETS(18.2%)



















(575,877
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​NET ASSETS100.0%


















$
3,171,799​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


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, 2016
(in thousands, except share amounts)






(a)Security
may be an obligation of one or more entities affiliated with the named company.(b)Certain
variable rate securities in the Company's portfolio bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread. As of
September 30, 2016, the three-month London Interbank Offered Rate, or LIBOR, was 0.85% and the U.S. Prime Lending Rate, or Prime, was 3.50%.(c)Denominated
in U.S. dollars, unless otherwise noted.(d)Fair
value determined by the Company's board of trustees (see Note 7).(e)Security
is an unfunded commitment. The stated rate reflects the spread disclosed at the time of commitment and may not indicate the actual rate received upon
funding.(f)Security
or portion thereof held within FSEP Term Funding, LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit
facility with Deutsche Bank AG, New York Branch (see Note 8).(g)Security
or portion thereof held within Energy Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility
with Natixis, New York Branch (see Note 8).(h)Security
or portion thereof held within Berwyn Funding LLC and is pledged as collateral supporting the amounts outstanding under the prime brokerage facility
with BNP Paribas Prime Brokerage, Inc., or BNP. Securities held within Berwyn Funding LLC may be rehypothecated from time to time as permitted under Rule 15c-1(a)(1) of the
Securities Exchange Act of 1934, as amended, or the Exchange Act, subject to the terms and conditions governing the prime brokerage facility with BNP (see Note 8).(i)Security
or portion thereof held within Wayne Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit facility
with Wells Fargo Securities, LLC (see Note 8).(j)Security
or portion thereof held within Gladwyne Funding LLC and is pledged as collateral supporting the obligations outstanding under the repurchase
transaction with Goldman Sachs Bank USA (see Note 8).(k)Security
or portion thereof held within Foxfields Funding LLC and is pledged as collateral supporting the obligations outstanding under the term loan facility
with Fortress Credit Co LLC (see Note 8).(l)Security
or portion thereof held within Bryn Mawr Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit
facility with Barclays Bank PLC (see Note 8).(m)The
investment is not a qualifying asset under the Investment Company Act of 1940, as amended, or the 1940 Act. A business development company may not acquire any
asset other than a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company's total assets. As of
September 30, 2016, 81.4% of the Company's total assets represented qualifying assets.(n)Listed
investments may be treated as debt for U.S. generally accepted accounting principles, or GAAP, or tax purposes.(o)Security
or portion thereof held within Berwyn Funding LLC has been rehypothecated under Rule 15c-1(a)(1) of the Exchange Act, subject to the terms and
conditions governing the prime brokerage facility with BNP (see Note 8). As of September 30, 2016, the fair value of securities rehypothecated by BNP was $111,168.(p)Under
the 1940 Act, the Company generally is deemed to be an "affiliated person" of a portfolio company if it owns 5% or more of the portfolio company's voting
securities and generally is deemed to "control" a portfolio company if it owns more than 25% of the portfolio company's voting securities or it has the power to exercise control over the management or
policies of such portfolio company. As of September 30, 2016, the Company held investments in portfolio companies of which it is deemed to be an "affiliated person" but is not deemed to
"control". The following table presents certain information with respect to such portfolio companies for the nine months ended September 30, 2016:


Portfolio Company

Fair Value at
December 31, 2015

Purchases,
Paid-in-Kind
Interest and
Other

Sales,
Repayments
and Other

Accretion
of Discount

Net Realized
Gain (Loss)

Net Change in
Unrealized
Appreciation
(Depreciation)

Fair Value at
September 30, 2016

Interest
Income

Fee
IncomeSenior Secured LoansFirst LienSunnova Asset Portfolio 5 Holdings, LLC




$
256,897

$
(112,836
)
$
1,901

$
566

$
4,821

$
151,349

$
16,693

$
7,356Senior Secured LoansSecond LienTitan Energy Operating, LLC




$
83,014




$
373




$
935

$
84,322

$
1,383


Senior Secured BondsFourPoint Energy, LLC

$
222,069




$
(55,688
)
$
1,199




$
65,194

$
232,774

$
18,991


Equity/OtherFourPoint Energy, LLC, Common Equity, Class C-II-A Units

$
46,200













$
(17,325
)
$
28,875





FourPoint Energy, LLC, Common Equity, Class D Units

$
8,724













$
(3,249
)
$
5,475





FourPoint Energy, LLC, Common Equity, Class E-II Units




$
68,672










$
46,010

$
114,682





FourPoint Energy, LLC, Common Equity, Class E-III Units




$
55,688










$
41,765

$
97,453





Sunnova Energy Corp., Common Equity




$
25,026










$
10,778

$
35,804





Sunnova Energy Corp., Preferred Equity




$
46,196

$
(43,122
)



$
6

$
26

$
3,106





Titan Energy Operating, LLC, Common Equity




$
17,554










$
(1,167
)
$
16,387








(q)Security
held within FSEP Investments, Inc., a wholly-owned subsidiary of Foxfields Funding LLC.(r)Security
is non-income producing.


See notes to unaudited consolidated financial statements.

10

---



Table of Contents

FS Energy and Power Fund

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






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






Portfolio Company

Fair Value at
December 31, 2015

Purchases,
Paid-in-Kind
Interest and
Other

Sales,
Repayments
and Other

Accretion
of Discount

Net Realized
Gain (Loss)

Net Change in
Unrealized
Appreciation
(Depreciation)

Fair Value at
September 30, 2016

Interest
Income

Fee
IncomeSenior Secured LoansFirst LienLusk Operating LLC




$
17,289










$
(17,037
)
$
252





Sunnova Asset Portfolio 5 Holdings, LLC

$
244,349




$
(244,349
)
















Equity/OtherLusk Operating LLC, Common Equity


























Sunnova Holdings, LLC, Common Equity

$
29,561




$
(29,561
)



















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


See notes to unaudited consolidated financial statements.

11

---



Table of Contents

FS Energy and Power Fund

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



Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

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

(g)(i)(j)

Service & Equipment

L+700


1.0
%
11/20/20

$
60,938

$
57,911

$
31,383Allied Wireline Services, LLC

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

Service & Equipment

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


1.5
%
2/28/19


103,061


101,930


96,234Alon USA Partners, L.P.

(g)(i)(l)

Downstream

L+800


1.3
%
11/26/18


7,158


7,342


7,140Altus Power America, Inc.

(j)

Power

L+750


1.5
%
10/10/21


46,555


46,555


46,090Altus Power America, Inc.

(e)

Power

L+750


1.5
%
10/10/21


37,820


37,820


37,441AP Exhaust Acquisition, LLC

(g)

Service & Equipment

L+775


1.5
%
1/16/21


15,811


15,811


14,842BBH Operating LLC



Upstream

Prime+500 PIK (8.25% Max PIK)


3.3
%
2/26/16


24,441


24,441


17,719BBH Operating LLC

(e)

Upstream

Prime+500 PIK (8.25% Max PIK)


3.3
%
2/26/16


5,559


5,559


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



Upstream

Prime+650


3.5
%
12/17/17


36,626


31,807


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

(e)

Upstream

Prime+650


3.5
%
12/17/17


19,367


16,819


17,987Cactus Wellhead, LLC

(g)(i)(j)

Service & Equipment

L+600


1.0
%
7/31/20


51,844


51,012


37,457Cimarron Energy Inc.

(g)

Service & Equipment

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


1.0
%
12/15/19


24,250


24,250


24,129Crestwood Holdings LLC

(f)(g)(j)

Midstream

L+600


1.0
%
6/19/19


30,565


30,689


19,816EnergySolutions, LLC

(i)(j)

Service & Equipment

L+575


1.0
%
5/29/20


20,462


20,150


18,211EP Acquisition LLC

(q)(y)

Upstream

Prime+500 PIK (8.25% Max PIK)


3.3
%
2/26/16


525


525


Industrial Group Intermediate Holdings, LLC

(i)

Service & Equipment

L+800


1.3
%
5/31/20


14,951


14,951


14,801MB Precision Holdings LLC

(g)

Service & Equipment

L+725


1.3
%
1/23/20


12,855


12,855


12,726Moxie Liberty LLC

(g)(j)

Power

L+650


1.0
%
8/21/20


32,432


32,540


30,162Panda Sherman Power, LLC

(g)(j)

Power

L+750


1.5
%
9/14/18


22,643


22,937


20,492Panda Temple Power, LLC

(j)

Power

L+625


1.0
%
3/6/22


9,925


9,747


8,188Panda Temple Power II, LLC

(g)(j)

Power

L+600


1.3
%
4/3/19


27,809


28,132


24,750ProPetro Services, Inc.

(i)

Service & Equipment

L+625


1.0
%
9/30/19


11,612


11,599


7,838Stallion Oilfield Holdings, Inc.

(g)(i)(j)

Service & Equipment

L+675


1.3
%
6/19/18


45,025


45,045


24,404Stonewall Gas Gathering LLC

(j)

Midstream

L+775


1.0
%
1/28/22


26,794


25,803


26,727Sunnova Asset Portfolio 5 Holdings, LLC

(j)(z)

Power

12.0% PIK (12.0% Max PIK)




11/14/21


250,138


245,363


244,510Sunnova Asset Portfolio 5 Holdings, LLC

(e)(z)

Power

12.0% PIK (12.0% Max PIK)




11/14/21


7,167


7,167


7,006Swift Worldwide Resources US Holdings Corp.

(g)(j)

Service & Equipment

L+800


1.3
%
4/30/19


59,057


59,057


59,057UTEX Industries, Inc.

(f)

Service & Equipment

L+400


1.0
%
5/21/21


4,485


3,443


3,091Warren Resources, Inc.

(k)

Upstream

L+850


1.0
%
5/22/20


131,175


131,175


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
















1,122,435


997,155Unfunded Loan Commitments
















(67,365
)

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
















1,055,070


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


See notes to unaudited consolidated financial statements.

12

---



Table of Contents

FS Energy and Power Fund

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



Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

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

(f)(j)(l)

Service & Equipment

L+850


1.0
%
8/29/22

$
17,222

$
16,641

$
13,993American EnergyMarcellus, LLC



Upstream

L+750


1.0
%
8/4/21


10,000


9,874


233Ameriforge Group Inc.

(f)(g)

Service & Equipment

L+750


1.3
%
12/21/20


35,950


36,433


2,831AP Exhaust Acquisition, LLC



Service & Equipment

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




9/28/21


3,243


3,243


2,959Arena Energy, LP

(i)(k)

Upstream

L+1000


1.0
%
1/24/21


65,000


65,000


59,854Ascent ResourcesUtica, LLC

(g)(j)(k)

Upstream

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


1.5
%
9/30/18


280,735


279,572


251,258Atlas Resource Partners, L.P.

(i)(k)

Upstream

L+900


1.0
%
2/23/20


100,000


97,489


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

(f)(i)

Upstream

L+650


1.0
%
7/30/21


31,519


30,708


25,268Brock Holdings III, Inc.

(f)(g)(j)

Service & Equipment

L+825


1.8
%
3/16/18


29,605


29,766


22,796Chief Exploration & Development LLC

(f)(i)

Upstream

L+650


1.0
%
5/16/21


19,576


19,504


13,143Consolidated Precision Products Corp.

(g)(j)

Service & Equipment

L+775


1.0
%
4/30/21


11,574


11,529


10,532Emerald Performance Materials, LLC

(j)

Downstream

L+675


1.0
%
8/1/22


5,319


5,296


5,055Extraction Oil & Gas Holdings, LLC

(i)(j)

Upstream

11.0%




5/29/19


74,186


74,186


74,650Extraction Oil & Gas Holdings, LLC

(i)(j)

Upstream

10.0%




5/29/19


32,462


32,462


32,259Fieldwood Energy LLC

(f)(i)

Upstream

L+713


1.3
%
9/30/20


41,047


41,951


6,547Granite Intermediate Holdings, Inc.

(f)

Power

L+725


1.0
%
10/15/22


13,150


13,047


10,257Gruden Acquisition, Inc.

(j)

Service & Equipment

L+850


1.0
%
8/18/23


15,000


14,281


14,288Horn Intermediate Holdings, Inc.

(g)

Service & Equipment

L+775


1.3
%
10/2/18


50,250


50,250


49,496Jonah Energy LLC

(i)(j)

Upstream

L+650


1.0
%
5/12/21


25,133


24,821


15,960MD America Energy, LLC

(f)(g)(j)

Upstream

L+850


1.0
%
8/4/19


41,612


40,121


34,815Neff Rental LLC

(j)

Service & Equipment

L+625


1.0
%
6/9/21


15,145


15,182


12,570Oxbow Carbon LLC

(g)

Midstream

L+700


1.0
%
1/19/20


15,000


14,904


12,631P2 Upstream Acquisition Co.

(g)(j)

Service & Equipment

L+800


1.0
%
4/30/21


32,599


32,862


27,302Templar Energy LLC

(f)(g)(i)

Upstream

L+750


1.0
%
11/25/20


89,923


88,451


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

(f)(g)(j)

Service & Equipment

L+800


1.3
%
9/13/20


14,795


14,978


8,335UTEX Industries, Inc.

(f)(j)

Service & Equipment

L+725


1.0
%
5/20/22


36,192


36,232


23,706Vantage Energy, LLC

(i)(j)

Upstream

L+750


1.0
%
12/20/18


30,078


29,933


19,325Vantage Energy II, LLC

(i)(j)

Upstream

L+750


1.0
%
5/8/17


85,000


85,000


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
















1,213,716


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


See notes to unaudited consolidated financial statements.

13

---



Table of Contents

FS Energy and Power Fund

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



Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

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

(h)(q)(y)

Upstream

12.0% PIK (12.0% Max PIK)




12/30/20

$
7,806

$
5,662

$
1,112FourPoint Energy, LLC

(j)(k)(o)

Upstream

8.0%




12/31/20


290,813


282,012


226,107FourPoint Energy, LLC

(e)(o)

Upstream

8.0%




12/31/20


18,563


18,470


14,432Gastar Exploration USA, Inc.

(h)

Upstream

8.6%




5/15/18


5,690


5,393


2,902Light Tower Rentals, Inc.

(h)(n)

Service & Equipment

8.1%




8/1/19


17,500


17,313


8,947Lightstream Resources Ltd.

(k)(l)

Upstream

9.9%




6/15/19


62,400


62,400


52,104Mirant Mid-Atlantic Trust

(f)(h)(n)

Power

10.1%




12/30/28


23,344


26,097


22,556SandRidge Energy, Inc.

(h)(n)

Upstream

8.8%




6/1/20


46,700


46,598


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
















463,945


342,418Unfunded Bond Commitment
















(18,470
)

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
















445,475


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

(h)(n)

Upstream

9.6%




10/15/18


18,451


18,376


6,481Archrock Partners, L.P.

(h)(l)

Midstream

6.0%




4/1/21


3,055


2,625


2,452Archrock Partners, L.P.

(h)(l)

Midstream

6.0%




10/1/22


10,533


8,858


8,124Atlas Energy Holdings Operating Co., LLC

(h)

Upstream

7.8%




1/15/21


28,285


25,869


5,648Atlas Energy Holdings Operating Co., LLC

(h)

Upstream

9.3%




8/15/21


24,460


23,574


5,022Bellatrix Exploration Ltd.

(f)(h)(l)

Upstream

8.5%




5/15/20


45,590


44,731


30,716Brand Energy & Infrastructure Services, Inc.

(f)(h)

Service & Equipment

8.5%




12/1/21


27,500


27,261


23,684Calpine Corp.

(f)(l)

Power

5.8%




1/15/25


5,100


5,093


4,501Canbriam Energy Inc.

(h)(j)(l)

Upstream

9.8%




11/15/19


115,200


111,556


104,256Chaparral Energy Inc.

(h)(n)

Upstream

7.6%




11/15/22


15,225


16,150


3,191Compressco Partners, LP

(f)(h)(l)

Service & Equipment

7.3%




8/15/22


20,050


19,889


14,862Crestwood Equity Partners L.P.

(f)(l)

Midstream

6.1%




3/1/22


5,500


5,500


3,827Dynegy Finance I/II Inc.

(f)(l)

Power

7.6%




11/1/24


17,080


16,654


14,603Eclipse Resources Corp.

(h)(l)

Upstream

8.9%




7/15/23


27,500


26,949


13,234EV Energy Partners, L.P.

(h)(n)

Upstream

8.0%




4/15/19


25,560


21,221


12,716Everest Acquisition LLC

(f)(l)

Upstream

9.4%




5/1/20


14,250


14,250


9,054


See notes to unaudited consolidated financial statements.

14

---



Table of Contents

FS Energy and Power Fund

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



Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

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

(f)(l)

Midstream

6.8%




8/1/22

$
12,100

$
11,688

$
10,179GenOn Energy, Inc.

(f)(h)(n)

Power

9.9%




10/15/20


42,698


44,669


31,383GenOn Energy, Inc.

(h)

Power

7.9%




6/15/17


5,000


4,795


4,371Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




1/30/25


635


635


635Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




4/30/25


4,030


4,030


4,030Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




9/3/25


828


828


828Global Jet Capital Inc.



Service & Equipment

15.0% PIK (15.0% Max PIK)




9/29/25


779


779


779Global Partners L.P.

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

Midstream

6.3%




7/15/22


68,350


68,350


54,424Jones Energy, Inc.

(h)(n)

Upstream

6.8%




4/1/22


8,000


8,000


4,345Jupiter Resources Inc.

(h)(l)

Upstream

8.5%




10/1/22


71,125


67,291


28,539Kenan Advantage Group, Inc.

(f)

Service & Equipment

7.9%




7/31/23


11,970


11,970


11,820Legacy Reserves LP

(h)

Upstream

8.0%




12/1/20


16,750


16,499


3,371Legacy Reserves LP

(h)

Upstream

6.6%




12/1/21


14,000


13,847


3,028Lonestar Resources America Inc.

(h)(n)

Upstream

8.8%




4/15/19


21,500


21,591


13,231Martin Midstream Partners L.P.

(f)(l)

Midstream

7.3%




2/15/21


15,658


16,144


13,877Memorial Production Partners L.P.

(h)

Upstream

6.9%




8/1/22


12,250


12,059


3,690ONEOK, Inc.

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

Midstream

7.5%




9/1/23


28,000


26,771


23,363Seven Generations Energy Ltd.

(f)(l)

Upstream

6.8%




5/1/23


6,150


5,612


5,220Talos Production LLC

(f)(h)(n)

Upstream

9.8%




2/15/18


43,250


43,258


17,841Tenrgys, LLC

(i)(j)

Upstream

L+900


2.5
%
12/23/18


75,000


75,000


64,875Whiting Petroleum Corp.

(f)(l)

Upstream

5.0%




3/15/19


4,685


4,124


3,562Zachry Holdings, Inc.

(f)

Service & Equipment

7.5%




2/1/20


14,300


14,376


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
















860,872


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


See notes to unaudited consolidated financial statements.

15

---



Table of Contents

FS Energy and Power Fund

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



Portfolio Company(a)

Footnotes

Industry







Number of
Shares

Amortized
Cost

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

(q)

Service & Equipment









6,944,444

$
6,944

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

(k)(p)(q)

Service & Equipment









6,600,000


6,600


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

(k)(p)(q)

Service & Equipment









5,344,680


1,865


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



Power









15,518,478


15,464


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

(q)(r)

Power









2,250





AP Exhaust Holdings, LLC, Common Equity

(k)(p)(q)

Service & Equipment









811


811


405Ascent Resources Utica Holdings, LLC, Common Equity

(q)(s)

Upstream









15,657,194


14,900


3,131BBH Operating LLC, Common Equity

(q)(t)

Upstream









1,000


1,000


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

(q)(u)

Upstream









N/A


4,677


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

(u)

Upstream









N/A


668


227Cimarron Energy Holdco Inc., Common Equity

(q)

Service & Equipment









2,500,000


2,500


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

(k)(p)(q)

Upstream









4,191,800


11,250


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

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

Midstream









N/A


16,697


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

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

Upstream









66,000


66,000


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

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

Upstream









12,374


8,176


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

(q)

Service & Equipment









2,448,883


2,449


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

(k)(p)(q)

Service & Equipment









371,901


372


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

(q)

Service & Equipment









490,213


490


466Plains Offshore Operations Inc., Preferred Equity

(f)

Upstream









21,067


26,321


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

(f)(q)

Upstream









427,005


689


Summit Midstream Partners, LLC, Preferred Equity



Midstream









39,163


39,163


37,205Sunnova Holdings, LLC, Common Equity

(q)(z)

Power









1,074,951


25,026


29,561Swift Worldwide Resources Holdco Limited, Common Equity

(l)(q)(w)

Service & Equipment









3,750,000


6,029


3,870Synergy Offshore LLC, Preferred Equity

(k)(x)

Upstream









50,000


61,183


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
















319,274


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















$
3,894,407


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



















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


















$
2,417,861​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to unaudited consolidated financial statements.

16

---



Table of Contents

FS Energy and Power Fund

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






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


Portfolio Company

Purchases

Sales and
Repayments

Interest
Income

Fee
Income

Net
Realized
Gain (Loss)

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

$
67,722




$
21,503

$
681




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
















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
















$
(7,177
)


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


See notes to unaudited consolidated financial statements.

17

---



Table of Contents

FS Energy and Power Fund

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






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


Portfolio Company

Purchases

Sales and
Repayments

Interest
Income

Fee
Income

Net
Realized
Gain (Loss)

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

$
187,636




$
19,950

$
2,162




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

$
25,026







$
6,523




$
4,535




See notes to unaudited consolidated financial statements.

18

---



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, 2016, the Company had eight wholly-owned financing
subsidiaries, seven wholly-owned subsidiaries through which it holds interests in certain portfolio companies and one wholly-owned subsidiary through which it expects to hold interests in certain
portfolio companies. The unaudited consolidated financial statements include both the Company's accounts and the accounts of its wholly-owned subsidiaries as of September 30, 2016. All
significant intercompany transactions have been eliminated in consolidation. Certain of the Company's consolidated subsidiaries are subject to U.S. federal and state income taxes.

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

Note 2. Summary of Significant Accounting Policies

Basis of Presentation:The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with
U.S.
generally accepted accounting principles, or GAAP, for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. For a more complete discussion of significant accounting policies and certain other information, the Company's interim
unaudited consolidated financial statements should be read in conjunction with its audited consolidated financial statements as of and for the year ended December 31, 2015 included in the
Company's annual report on Form 10-K. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2016. The December 31, 2015 consolidated balance sheet and consolidated schedule of investments are derived from the Company's audited consolidated financial
statements as of and for the year ended December 31, 2015. The Company is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment
companies under Accounting Standards Update No. 2013-08,Financial ServicesInvestment Companies. The Company

19

---



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)

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.

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

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

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

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

20

---



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)

Offering Costs:The Company's offering costs primarily include, among other things, marketing expenses and printing, legal and due
diligence fees and
other costs pertaining to the Company's continuous public offering of its common shares. Historically, the Company charged offering costs against capital in excess of par value on its consolidated
balance sheets. Following discussions with the Staff of the Division of Investment Management of the SEC, the Company determined to change its accounting treatment of offering costs and defer and
amortize such costs as an expense over twelve months. The Company evaluated this change in accounting treatment of offering costs, which it implemented effective January 1, 2016, and determined
that it did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

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

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

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

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

21

---



Table of Contents

FS Energy and Power Fund

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



Note 3. Share Transactions

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



Nine Months Ended September 30,2016

2015Shares

Amount

Shares

AmountGross Proceeds from Offering


46,441,062

$
343,786


47,279,557

$
450,747Reinvestment of Distributions


19,503,968


132,928


13,030,574


111,606​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Gross Proceeds


65,945,030


476,714


60,310,131


562,353Commissions and Dealer Manager Fees





(30,047
)




(39,760
)​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Proceeds to Company


65,945,030


446,667


60,310,131


522,593Share Repurchase Program


(6,701,687
)

(45,151
)

(2,122,814
)

(18,659
)​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Proceeds from Share Transactions


59,243,343

$
401,516


58,187,317

$
503,934​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


Status of Continuous Public Offering

Since commencing its continuous public offering and through October 25, 2016, the Company sold 444,115,900 common shares (as adjusted for
share distributions) for gross proceeds of $4,319,069, including common shares issued under its distribution reinvestment plan. As of October 25, 2016, the Company had raised total gross
proceeds of $4,339,273, 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, 2016 and 2015, the Company sold 65,945,030 and 60,310,131 common shares for gross proceeds of $476,714 and $562,353, respectively, at an
average price per share of $7.23 and $9.32, respectively. The gross proceeds received during the nine months ended September 30, 2016 and 2015 include reinvested shareholder distributions of
$132,928 and $111,606, respectively, for which the Company issued 19,503,968 and 13,030,574 common shares, respectively. During the period from October 1, 2016 to October 25, 2016, the
Company sold 1,968,410 common shares for gross proceeds of $16,037 at an average price per share of $8.15.

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 $30,047 and $39,760 for the nine months ended September 30, 2016 and 2015, respectively.

Based
on and subject to market conditions and the pace of capital raising, the Company expects to close its public offering to new investors in mid to late November 2016.

Share Repurchase Program

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



22

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Table of Contents

FS Energy and Power Fund

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



Note 3. Share Transactions (Continued)



The
Company currently intends to limit the number of common shares to be repurchased during any calendar year to the number of common shares it can repurchase with the proceeds it
receives from the issuance of common shares under its distribution reinvestment plan. At the discretion of the Company's board of trustees, the Company may also use cash on hand, cash available from
borrowings and cash from the liquidation of securities investments as of the end of the applicable period to repurchase common shares. In addition, the Company will limit the number of common shares
to be repurchased in any calendar year to 10% of the weighted average number of common shares outstanding in the prior calendar year, or 2.5% in each quarter, though the actual number of common shares
that the Company offers to repurchase may be less in light of the limitations noted above.

On
October 13, 2016, the Company amended the terms of its share repurchase program, or the amended share repurchase program, which will first be effective for the Company's
quarterly repurchase offer for the fourth quarter of 2016. Prior to the amendment of the share repurchase program, the Company offered to repurchase common shares at a price equal to 90% of the
offering price in effect on the date of repurchase. Under the amended share repurchase program, the Company intends to offer to repurchase common shares at a price equal to the price at which common
shares are issued pursuant to the Company's distribution reinvestment plan on the distribution date coinciding with the applicable share repurchase date. The price at which common shares are issued
under the Company's distribution reinvestment plan is determined by the Company's board of trustees or a committee thereof, in its sole discretion, and will be (i) not less than the net asset
value per common share as determined in good faith by the Company's board of trustees or a committee thereof, in its sole discretion, immediately prior to the payment date of the distribution and
(ii) not more than 2.5% greater than the net asset value per common share as of such date. 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,
2016 and 2015:



For the Three Months Ended

Repurchase Date

Shares
Repurchased

Percentage
of Shares
Tendered
That Were
Repurchased

Percentage of
Outstanding
Shares
Repurchased
as of the
Repurchase
Date

Repurchase
Price
Per Share

Aggregate
Consideration
for Repurchased
SharesFiscal 2015December 31, 2014

January 7, 2015


450,293


100
%

0.15
%
$
8.820

$
3,972March 31, 2015

April 1, 2015


716,857


100
%

0.22
%
$
8.730

$
6,258June 30, 2015

July 1, 2015


955,664


100
%

0.28
%
$
8.820

$
8,429Fiscal 2016December 31, 2015

January 6, 2016


2,716,924


100
%

0.73
%
$
6.750

$
18,339March 31, 2016

April 6, 2016


2,196,742


100
%

0.56
%
$
6.345

$
13,938June 30, 2016

July 6, 2016


1,788,021


100
%

0.43
%
$
7.200

$
12,874


23

---



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)

On
October 5, 2016, the Company repurchased 2,983,921 common shares (representing 100% of common shares tendered for repurchase and 0.69% of the shares outstanding as of such
date) at $7.425 per share for aggregate consideration totaling $22,156.

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 proceeds from its distribution reinvestment plan) reduced for distributions from non-liquidating dispositions of the Company's investments paid to shareholders and amounts paid for share
repurchases pursuant to the Company's share repurchase program. Once the Company's pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FS Advisor is entitled to a
"catch-up" fee equal to the amount of the pre-incentive fee net investment income in excess of the hurdle rate, until the Company's pre-incentive fee net investment income for such quarter equals
2.031%, or 8.125% annually, of adjusted capital. This "catch-up" feature allows FS Advisor to recoup the fees foregone as a result of the existence of the hurdle rate. Thereafter, FS Advisor is
entitled to receive 20.0% of pre-incentive fee net investment income.

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

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

The
Company reimburses FS Advisor for expenses necessary to perform services related to the Company's administration and operations, including FS Advisor's allocable portion of the
compensation and related expenses of certain personnel of Franklin Square Holdings, L.P., or FS Investments, the Company's sponsor and an affiliate of FS Advisor, providing administrative
services to the Company on

24

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Table of Contents

FS Energy and Power Fund

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



Note 4. Related Party Transactions (Continued)

behalf
of FS Advisor. The amount of the reimbursement payable to FS Advisor is the lesser of (1) FS Advisor's actual costs incurred in providing such services and (2) the amount that the
Company estimates it would be required to pay alternative service providers for comparable services in the same geographic location. FS Advisor is required to allocate the cost of such services to the
Company based on factors such as assets, revenues, time allocations and/or other reasonable metrics. The Company's board of trustees reviews the methodology employed in determining how the expenses
are allocated to the Company and the proposed allocation of the administrative expenses among the Company and certain affiliates of FS Advisor. The Company's board of trustees then assesses the
reasonableness of such reimbursements for expenses allocated to the Company based on the breadth, depth and quality of such services as compared to the estimated cost to the Company of obtaining
similar services from third-party providers known to be available. In addition, the Company's board of trustees considers whether any single third-party service provider would be capable of providing
all such 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, FS Investments 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 FS Investments were recorded by the Company as a contribution to capital. These offering costs were offset against capital in excess of par value on the consolidated financial
statements and organization costs were charged to expense as incurred by the Company. All other offering costs, including costs incurred directly by the Company, amounts reimbursed to FS Advisor for
ongoing offering costs and any reimbursements paid to FS Investments for organization and offering costs previously funded, are recorded as a reduction of capital. Commencing January 1, 2016,
offering costs incurred by the Company are deferred and amortized as an expense over twelve months (see Note 2).

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

25

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Table of Contents

FS Energy and Power Fund

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



Note 4. Related Party Transactions (Continued)

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



Three Months Ended
September 30,

Nine Months Ended
September 30,Related Party

Source Agreement

Description

2016

2015

2016

2015FS Advisor

Investment Advisory and Administrative Services Agreement

Base Management Fee(1)

$
20,086

$
19,522

$
55,725

$
57,659FS Advisor

Investment Advisory and Administrative Services Agreement

Subordinated Incentive Fee on Income(2)




$
9,611

$
5,774

$
18,968FS Advisor

Investment Advisory and Administrative Services Agreement

Administrative Services Expenses(3)

$
1,118

$
892

$
2,885

$
3,153FS Advisor

Investment Advisory and Administrative Services Agreement

Offering Costs(4)

$
950

$
840

$
3,320

$
3,873FS Investment Solutions

Dealer Manager Agreement

Dealer Manager Fee(5)

$
1,704

$
2,276

$
5,822

$
7,622


(1)During
the nine months ended September 30, 2016 and 2015, $53,977 and $56,049, respectively, in base management fees were paid to FS Advisor. As of
September 30, 2016, $20,086 in base management fees were payable to FS Advisor.(2)During
the nine months ended September 30, 2016 and 2015, $17,822 and $21,499, respectively, of subordinated incentive fees on income were paid to FS Advisor.
As of September 30, 2016, the Company did not have a subordinated incentive fee on income payable to FS Advisor.(3)During
the nine months ended September 30, 2016 and 2015, $2,784 and $2,940, 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 $3,201 and $2,979 in
administrative services expenses to FS Advisor during the nine months ended September 30, 2016 and 2015, respectively.(4)During
the nine months ended September 30, 2016 and 2015, the Company incurred offering costs of $3,600 and $7,150, respectively, of which $3,320 and $3,873,
respectively, related to reimbursements to FS Advisor for offering costs incurred on the Company's behalf, including marketing expenses, salaries and other direct expenses of FS Advisor's personnel
and employees of its affiliates while engaged in registering and marketing the Company's common shares. See Note 2 for a discussion regarding the Company's change in accounting treatment of
offering costs.(5)Represents
aggregate dealer manager fees retained by FS Investment Solutions and not re-allowed to selected broker-dealers or financial representatives.


Capital Contribution by FS Advisor and GSO

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

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

26

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Table of Contents

FS Energy and Power Fund

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



Note 4. Related Party Transactions (Continued)

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 25, 2016, the Company has issued an aggregate of 5,754,140 common shares (as adjusted for share distributions) for aggregate
gross proceeds of $48,311 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 FS Investments' other
affiliated BDCs and affiliated closed-end management investment company. As a result, such personnel provide investment advisory services to the Company and each of FS Investment Corporation, FS
Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV and FS Global Credit Opportunities Fund. While none of FS Advisor, FB Income Advisor, LLC, FSIC II
Advisor, LLC, FSIC III Advisor, LLC, FSIC IV Advisor, LLC or FS Global Advisor, LLC is currently making private corporate debt investments for clients other than the
Company, FS Investment Corporation, FS Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV or FS Global Credit Opportunities Fund, respectively,
any, or all, may do so in the future. In the event that FS Advisor undertakes to provide investment advisory services to other clients in the future, it intends to allocate investment opportunities in
a fair and equitable manner consistent with the Company's investment objectives and strategy, if necessary, so that the Company will not be disadvantaged in relation to any other client of FS Advisor
or its management team. In addition, even in the absence of FS Advisor retaining additional clients, it is possible that some investment opportunities may be provided to FS Investment Corporation, FS
Investment Corporation II, FS Investment Corporation III, FS Investment Corporation IV and/or FS Global Credit Opportunities Fund rather than to the Company.

Exemptive Relief

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

27

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Table of Contents

FS Energy and Power Fund

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



Note 4. Related Party Transactions (Continued)

Expense Reimbursement

Pursuant to an expense support and conditional reimbursement agreement, amended and restated as of May 16, 2013, or, the expense
reimbursement agreement, FS Investments 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, FS Investments 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, FS Investments 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 FS Investments for any amounts funded by FS Investments under such agreement if
(and only to the extent that), during any fiscal quarter occurring within three years of the date on which FS Investments 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 FS Investments for expense support payments made by FS Investments 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 FS Investments was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense
support payment from FS Investments made during the same fiscal year) and (ii) the Company will not reimburse FS Investments for expense support payments made by FS Investments if the aggregate
amount of distributions per share declared by the Company in such calendar quarter is less than the aggregate amount of distributions per share declared by the Company in the calendar quarter in which
FS Investments made the expense support payment to which such reimbursement relates. The Company is not obligated to pay interest on the payments it receives from FS Investments. "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

28

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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)

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

FS
Investments 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 FS Investments will reimburse any portion of the Company's expenses in future quarters.

As
of September 30, 2016, the Company had no reimbursements due from FS Investments and no further amounts remained subject to repayment by the Company to FS Investments 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 FS Investments and its affiliates. During the nine months ended September 30, 2016 and 2015, FS Benefit Trust purchased $142 and $104, respectively, of the Company's common shares
at a purchase price equal to 90% of the public offering price in effect on the applicable purchase date.

Note 5. Distributions

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



DistributionFor the Three Months Ended

Per Share

AmountFiscal 2015March 31, 2015

$
0.1771

$
54,825June 30, 2015

$
0.1771

$
58,250September 30, 2015

$
0.1771

$
61,666Fiscal 2016March 31, 2016

$
0.1771

$
66,720June 30, 2016

$
0.1771

$
70,788September 30, 2016

$
0.1771

$
74,481


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.

In
connection with the anticipated closing of the Company's public offering, the Company further amended and restated its distribution reinvestment plan, or the amended distribution
reinvestment plan, which will first apply to the reinvestment of cash distributions paid on or after November 30,

29

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Table of Contents

FS Energy and Power Fund

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



Note 5. Distributions (Continued)

2016.
Prior to the amendment to the distribution reinvestment plan, the Company authorized and declared ordinary cash distributions on a weekly basis and paid such distributions on a monthly basis. On
October 3, 2016 and October 26, 2016 the Company's board of trustees declared regular weekly cash
distributions for October 2016 and November 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. Following the closing of the Company's public offering, the Company intends to declare regular cash distributions on a quarterly basis
and pay such distributions on a monthly basis. 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 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 FS Investments. 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 FS Investments 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, 2016 or 2015 was funded through the reimbursement of operating expenses by FS Investments. During
the nine months ended September 30, 2016 and 2015, the Company did not repay any amounts to FS Investments 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. FS Investments and its
affiliates have no obligation to waive advisory fees or otherwise reimburse expenses in future periods.

30

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Table of Contents

FS Energy and Power Fund

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



Note 5. Distributions (Continued)

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, 2016 and
2015:



Nine Months Ended September 30,2016

2015Source of Distribution

Distribution
Amount

Percentage

Distribution
Amount

PercentageOffering proceeds

$





$



Borrowings











Net investment income(1)


209,564


99
%

161,150


92
%Short-term capital gains proceeds from the sale of assets











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








13,591


8
%Non-capital gains proceeds from the sale of assets











Distributions on account of limited partnership interest


2,425


1
%




Expense reimbursement from sponsor











​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
211,989


100
%
$
174,741


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


(1)During
the nine months ended September 30, 2016 and 2015, 81.5% and 89.9%, respectively, of the Company's gross investment income on a tax basis was
attributable to cash income earned and 5.0% and 0.1%, respectively, was attributable to non-cash income earned. In addition, 10.6% and 8.2%, respectively, was attributed to paid-in-kind, or PIK,
interest and 2.9% and 1.8%, respectively, was attributed to accretion of discount during the nine months ended September 30, 2016 and 2015.


The
Company's net investment income on a tax basis for the nine months ended September 30, 2016 and 2015 was $198,465 and $164,105, respectively. As of September 30, 2016
and December 31, 2015, the Company had $1,972 and $15,496, respectively, of undistributed ordinary income on a tax basis and distributable income received from a limited partnership interest.
During the last twelve months, the Company's distributions exceeded tax-basis net investment income by $7,558. Over the same period, $15,728 of the Company's tax-basis net investment income was
generated by fee income, which is generally non-recurring in nature and the full amount of which is recorded as revenue when earned. Excluding fee income from net investment income during the last
twelve months, the Company would have had distributions in excess of tax-basis net investment income of $23,286. No portion of the distributions paid during the nine months ended September 30,
2016 or 2015 was funded from offering proceeds or borrowings.

During
the nine months ended September 30, 2016, the Company saw positive developments in its investment portfolio and a subsequent increase in its net asset value. However,
certain investments in the portfolio were restructured or experienced defaults due to the recently depressed prices of oil and natural gas, and the Company may experience additional restructurings or
defaults in the future. These restructurings and defaults may have an impact on the level of income received by the Company. As a result, the Company is evaluating the current distribution rate
payable on its common shares and there can be no assurance that the Company will be able to maintain a weekly cash distribution amount of $0.013625 per common share (or the quarterly equivalent
thereto following the closing of the Company's public offering). FS Advisor will waive its incentive fees and may waive a portion of its management fee through the fourth quarter of 2016 to ensure
that no portion of the Company's distributions to shareholders is paid from offering proceeds or borrowings.

The
difference between the Company's GAAP-basis net investment income and its tax-basis net investment income was primarily due to the reclassification of unamortized original issue
discount and

31

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Table of Contents

FS Energy and Power Fund

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



Note 5. Distributions (Continued)

prepayment
fees recognized upon prepayment of loans from income for GAAP purposes to realized gains for tax purposes, the impact of certain subsidiaries that are consolidated for purposes of computing
GAAP-basis net investment income but are not consolidated for purposes of computing tax-basis net investment income and income recognized for tax purposes on certain transactions but not recognized
for GAAP purposes.

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, 2016 and
2015:



Nine Months Ended
September 30,2016

2015GAAP-basis net investment income

$
175,147

$
167,025Reclassification of unamortized original issue discount and prepayment fees


(3,503
)

(9,549
)GAAP vs. tax-basis consolidation of subsidiaries


11,343


6,889Income subject to tax not recorded for GAAP


14,118


Other miscellaneous differences


1,360


(260
)​
​
​
​
​
​
​
​Tax-basis net investment income

$
198,465

$
164,105​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


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



September 30, 2016
(Unaudited)

December 31, 2015Distributable ordinary income, net of cash received on limited partnership interest

$


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


(338,153
)

(200,191
)Other temporary differences


74


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


(327,465
)

(831,920
)​
​
​
​
​
​
​
​Total

$
(665,544
)
$
(1,022,477
)​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(1)Under
the Regulated Investment Company Modernization Act of 2010, net capital losses recognized for tax years beginning after December 22, 2010, may be
carried forward indefinitely, and their character is retained as short-term or long-term capital losses, as applicable. As of September 30, 2016 and December 31, 2015, the Company had
capital loss carryforwards available to offset future capital gains of $338,153 and $200,191, respectively.(2)As
of September 30, 2016 and December 31, 2015, the gross unrealized appreciation on the Company's investments and unrealized gain on foreign currency
was $142,743 and $44,089, respectively. As of September 30, 2016 and December 31, 2015, the gross unrealized depreciation on the Company's investments and unrealized loss on foreign
currency was $470,208 and $876,009, respectively.


32

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Table of Contents

FS Energy and Power Fund

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



Note 5. Distributions (Continued)

The aggregate cost of the Company's investments for federal income tax purposes totaled $4,079,222 and $3,895,733 as of September 30, 2016 and December 31, 2015,
respectively. The aggregate net
unrealized appreciation (depreciation) on a tax basis was $(327,465) and $(831,920) as of September 30, 2016 and December 31, 2015, respectively.

As
of September 30, 2016 and December 31, 2015, the Company had deferred tax liabilities of $47,450 and $23,252, respectively, resulting from unrealized appreciation on
investments held by the Company's wholly-owned taxable subsidiaries and deferred tax assets of $80,945 and $33,224, respectively, resulting from net operating and capital losses of the Company's
wholly-owned taxable subsidiaries. As of September 30, 2016 and December 31, 2015, certain wholly-owned taxable subsidiaries anticipated that they would be unable to fully utilize their
generated net operating and capital losses, therefore the deferred tax assets were offset by valuation allowances of $33,495 and $9,972, respectively. For the three and nine months ended
September 30, 2015, the Company did not record a provision for taxes related to wholly-owned taxable subsidiaries.

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, 2016 and December 31, 2015:



September 30, 2016
(Unaudited)

December 31, 2015Amortized
Cost(1)

Fair Value

Percentage
of Portfolio

Amortized
Cost(1)

Fair Value

Percentage
of PortfolioSenior Secured LoansFirst Lien

$
979,233

$
881,845


24
%
$
1,055,070

$
929,790


30
%Senior Secured LoansSecond Lien


1,028,900


918,783


24
%

1,213,716


923,402


30
%Senior Secured Bonds


402,508


362,919


10
%

445,475


323,948


11
%Subordinated Debt


1,026,766


991,910


26
%

860,872


579,740


19
%Equity/Other


549,962


592,219


16
%

319,274


312,618


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

$
3,987,369

$
3,747,676


100
%
$
3,894,407

$
3,069,498


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


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


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

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

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 6. Investment Portfolio (Continued)

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

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

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, 2016, the Company had two senior secured
loan investments with aggregate unfunded commitments of $13,696 and three equity/other investments with aggregate unfunded commitments of $8,924. As of September 30, 2016, these unfunded
equity/other investments were BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest and Synergy Offshore LLC. As of
December 31, 2015, the Company had four senior secured loan investments with aggregate unfunded commitments of $67,365, one senior secured bond investment with an unfunded commitment of $18,470
and five equity/other investments with aggregate unfunded commitments of $33,890. As of December 31, 2015, these unfunded equity/other investments were Altus Power America Holdings, LLC,
BL Sand Hills Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest, Sunnova Holdings, LLC and Synergy Offshore LLC. The Company maintains
sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise.

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



September 30, 2016
(Unaudited)

December 31, 2015Industry Classification

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of PortfolioUpstream

$
2,174,721


58
%
$
1,689,705


55
%Midstream


304,771


8
%

215,906


7
%Downstream


49,016


1
%

12,195


0
%Power


534,671


15
%

519,593


17
%Service & Equipment


684,497


18
%

632,099


21
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,747,676


100
%
$
3,069,498


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


Note 7. Fair Value of Financial Instruments

Under existing accounting guidance, fair value is defined as the price that the Company would receive upon selling an investment or pay to transfer a liability in an orderly transaction
to a market participant in the principal or most advantageous market for the investment. This accounting guidance emphasizes that valuation techniques maximize the use of observable market inputs and
minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be
observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use

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)

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



Valuation Inputs

September 30, 2016
(Unaudited)

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

$
16,387

$
Level 2Significant other observable inputs





Level 3Significant unobservable inputs


3,731,289


3,069,498​
​
​
​
​
​
​
​Total

$
3,747,676

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


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

The
Company's investments as of December 31, 2015 consisted primarily of debt investments that were acquired directly from the issuer. Twenty senior secured loan investments, two
senior secured bond investments and five subordinated debt investments were valued by independent valuation firms, which determined the fair value of such investments by considering, among other
factors, the borrower's ability to adequately service its debt, prevailing interest rates for like investments, call features, anticipated prepayments and other relevant terms of the debt. All of the
Company's equity/other investments were valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to
such investments,

35

---



Table of Contents

FS Energy and Power Fund

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



Note 7. Fair Value of Financial Instruments (Continued)

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 other method is appropriate. The Company periodically benchmarks the valuations provided by the
independent valuation firms against the actual prices at which it purchases and sells its investments. The valuation committee of the board of trustees, or the valuation committee, and the board of
trustees reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Company's valuation policy.

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



For the Nine Months Ended September 30, 2016Senior
Secured
Loans
First Lien

Senior
Secured
Loans
Second Lien

Senior
Secured
Bonds

Subordinated
Debt

Equity/
Other

TotalFair value at beginning of period

$
929,790

$
923,402

$
323,948

$
579,740

$
312,618

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


3,352


1,528


1,133


4,145


1,356


11,514Net realized gain (loss)


(18,725
)

(72,127
)

(10,043
)

(95,075
)

6


(195,964
)Net change in unrealized appreciation (depreciation)


27,892


180,197


81,938


246,276


50,080


586,383Purchases


164,903


178,067


44,470


296,960


286,643


971,043Paid-in-kind interest


11,782


6,526


468


784


4,754


24,314Sales and redemptions


(237,149
)

(298,810
)

(78,995
)

(40,920
)

(79,625
)

(735,499
)Net transfers in or out of Level 3

















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

$
881,845

$
918,783

$
362,919

$
991,910

$
575,832

$
3,731,289​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​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

$
(464
)
$
107,781

$
18,520

$
182,255

$
68,922

$
377,014​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


36

---



Table of Contents

FS Energy and Power Fund

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



Note 7. Fair Value of Financial Instruments (Continued)





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
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


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



Type of Investment

Fair Value at
September 30, 2016
(Unaudited)

Valuation Technique(1)

Unobservable Input

Range

Weighted
AverageSenior Secured Loans
First Lien

$
603,003

Market Comparables

Market Yield (%)

8.0% - 17.8%


11.8
%Production Multiples (Mboe/d)

$10,500.0 - $12,000.0

$
11,156.0Proved Reserves Multiples (Mmboe)

$4.3 - $4.8


$4.4EBITDA Multiples (x)

4.0x - 4.5x


4.4xPV-10 Multiples (x)

1.8x - 1.9x


1.8x252

Other(2)

Other(2)

N/A


N/A278,590

Market Quotes

Indicative Dealer Quotes

60.0% - 102.8%


88.9
%Senior Secured LoansSecond Lien


520,523

Market Comparables

Market Yield (%)

8.3% - 20.7%


14.3
%85,000

Other(2)

Other(2)

N/A


N/A313,260

Market Quotes

Indicative Dealer Quotes

8.1% - 100.3%


85.2
%Senior Secured Bonds


288,622

Market Comparables

Market Yield (%)

9.0% - 9.5%


9.3
%Production Multiples (Mboe/d)

$42,500.0 - $47,500.0

$
45,000.0Proved Reserves Multiples (Mmboe)

$14.3 - $14.8


$14.5EBITDA Multiples (x)

6.5x - 7.0x


6.8xPV-10 Multiples (x)

0.8x - 0.9x


0.9x74,297

Market Quotes

Indicative Dealer Quotes

36.0% - 108.3%


79.3
%Subordinated Debt


120,904

Market Comparables

Market Yield (%)

8.3% - 15.3%


11.4
%871,006

Market Quotes

Indicative Dealer Quotes

45.8% - 112.8%


94.6
%Equity/Other


487,595

Market Comparables

EBITDA Multiples (x)

6.8x - 18.0x


10.3xProduction Multiples (Mboe/d)

$37,500.0 - $97,072.0

$
43,775.6Proved Reserves Multiples (Mmboe)

$6.5 - $16.0


$8.4PV-10 Multiples (x)

0.3x - 3.0x


0.9xCapacity Multiple ($/kW)

$1,750.0 - $2,250.0


$2,000.0Undeveloped Acreage Multiple ($/Acre)

$8,000.0 - $10,000.0


$9,000.0Discounted Cash Flow

Discount Rate (%)

9.3% - 25.0%


23.8
%57,713

Other(2)

Other(2)

N/A


N/A30,524

Market Quotes

Indicative Dealer Quotes

$6.8 - $10.3


$8.4​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,731,289​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


37

---



Table of Contents

FS Energy and Power Fund

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



Note 7. Fair Value of Financial Instruments (Continued)




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




Type of Investment

Fair Value at
December 31, 2015

Valuation Technique(1)

Unobservable Input

Range

Weighted
AverageSenior Secured Loans
First Lien

$
670,131

Market Comparables

Market Yield (%)

8.5% - 19.0%


13.0
%Production Multiples (Mboe/d)

$95,000.0 - $100,000.0

$
97,500.0Proved Reserves Multiples (Mmboe)

$7.8 - $8.3


$8.0PV-10 Multiples (x)

0.4x - 0.4x


0.4x259,659

Market Quotes

Indicative Dealer Quotes

46.5% - 100.3%


77.8
%Senior Secured Loans
Second Lien


632,912

Market Comparables

Market Yield (%)

9.3% - 19.9%


14.8
%290,490

Market Quotes

Indicative Dealer Quotes

1.8% - 96.0%


73.1
%Senior Secured Bonds


274,173

Market Comparables

Market Yield (%)

14.0% - 16.5%


14.6
%49,775

Market Quotes

Indicative Dealer Quotes

14.0% - 96.8%


65.0
%Subordinated Debt


64,875

Market Comparables

Market Yield (%)

17.3% - 17.8%


17.5
%508,593

Market Quotes

Indicative Dealer Quotes

19.9% - 99.0%


73.2
%6,272

Other(2)

Other(2)

N/A


N/AEquity/Other


284,300

Market Comparables

Market Yield (%)

13.0% - 14.0%


13.5
%EBITDA Multiples (x)

5.0x - 14.3x


9.9xProduction Multiples (Mboe/d)

$50,000.0 - $100,000.0

$
56,271.9Proved Reserves Multiples (Mmboe)

$7.8 - $14.0


$9.0PV-10 Multiples (x)

0.4x - 1.0x


0.5xCapacity Multiple ($/kW)

$2,000.0 - $2,500.0


$2,250.0Discounted Cash Flow

Discount Rate (%)

12.0% - 31.3%


30.1
%28,318

Other(2)

Other(2)

N/A


N/A​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

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


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


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

The following tables present a summary of information with respect to the Company's outstanding financing arrangements as of September 30, 2016 and December 31, 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 year ended
December 31, 2015 and the additional disclosure set forth in this Note 8.



As of September 30, 2016
(Unaudited)Facility

Type of
Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity DateBarclays Facility

Revolving

L+3.25%




$
100,000

May 18, 2021BNP Facility

Prime Brokerage

L+1.10%

$
113,737

$
186,263

June 27, 2017(1)Deutsche Bank Credit Facility

Revolving

L+2.05%(2)

$
200,000

$
115,000

June 11, 2017Fortress Facility

Term

L+5.00%(3)

$
89,600

$
65,400

November 6, 2020Goldman Facility

Repurchase

L+3.38%(4)

$
325,000




September 15, 2018Natixis Credit Facility

Revolving

CP+2.25%

$
51,435




July 11, 2023Wells Fargo Credit Facility

Revolving

L+2.50% to 2.75%

$
85,100
(5)
$
39,900
(5)
September 9, 2019(6)


(1)As
described below, the BNP facility generally is terminable upon 270 days' notice by either party. As of September 30, 2016, neither Berwyn Funding
nor BNP had provided notice of its intent to terminate the facility.(2)Prior
to June 11, 2016, borrowings under the Deutsche Bank credit facility accrued interest at a rate equal to the London Interbank Offered Rate, or LIBOR,
plus 1.80% per annum. Beginning on June 11, 2016, borrowings under the Deutsche Bank credit facility accrue interest at a rate equal to LIBOR plus 2.05% per annum.(3)As
described below, borrowings under the Fortress facility accrue interest at a rate equal to LIBOR plus 5.00%, subject to a floor of 0.75%(4)Before
September 21, 2016, borrowings under the Goldman facility accrued interest at a rate equal to LIBOR, plus 2.75% per annum. Beginning on
September 21, 2016, borrowings under the Goldman facility accrue interest at a rate equal to LIBOR plus 3.38% per annum.(5)On
October 13, 2016, the maximum commitment under the Wells Fargo credit facility was reduced to $60,000.(6)On
October 13, 2016, the Wells Fargo credit facility was amended to shorten the maturity date from September 9, 2019 to September 9, 2018.


The
Company's average borrowings and weighted average interest rate, including the effect of non-usage fees, for the nine months ended September 30, 2016 were $936,542 and 3.49%,
respectively. As of September 30, 2016, the Company's weighted average effective interest rate on borrowings was 3.53%.



As of December 31, 2015Facility

Type of
Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity DateBNP Facility

Prime Brokerage

L+1.10%

$
113,737

$
186,263

September 26, 2016(1)Deutsche Bank Credit Facility

Revolving

L+1.80%

$
280,000

$
60,000

June 11, 2016Fortress Facility

Term

L+5.00%(2)

$
89,600

$
65,400

November 6, 2020Goldman Facility

Repurchase

L+2.75%

$
324,984

$
16

September 15, 2017Natixis Credit Facility

Revolving

CP+2.25%

$
92,173




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 December 31, 2015, neither Berwyn Funding nor
BNP had provided notice of its intent to terminate the facility.(2)As
described below, borrowings under the Fortress facility accrue interest at a rate equal to LIBOR, plus 5.00%, subject to a floor of 0.75%.


39

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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)

The
Company's average borrowings and weighted average interest rate, including the effect of non-usage fees, for the year ended December 31, 2015 were $1,010,699 and 2.77%,
respectively. As of December 31, 2015, the Company's weighted average effective interest rate on borrowings was 2.95%.

Barclays Facility

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

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

As
of September 30, 2016, no amount was outstanding under the Barclays facility. The carrying amount outstanding under the facility approximates its fair value. The Company
incurred costs of $283 in connection with obtaining the facility, which the Company recorded as deferred financing costs on its consolidated balance sheet and amortizes to interest expense over the
life of the facility. As of September 30, 2016, $273 of such deferred financing costs had yet to be amortized to interest expense.

For
the three and nine months ended September 30, 2016, the components of total interest expense for the Barclays facility were as follows:



Three Months Ended
September 30, 2016

Nine Months Ended
September 30, 2016Non-usage fees

$
97

$
142Amortization of deferred financing costs


8


10​
​
​
​
​
​
​
​Total interest expense

$
105

$
152​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


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

40

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Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

BNP Facility

On December 11, 2013, Berwyn Funding LLC, or Berwyn Funding, the Company's wholly-owned, special-purpose financing subsidiary,
entered into a committed facility arrangement, or the BNP facility, with BNP Paribas Prime Brokerage, Inc., or BNP. As amended to date, Berwyn Funding can borrow, from time to time, up to
$300,000 from BNP. The BNP facility was effected through a committed facility agreement by and between Berwyn Funding and BNP, or the committed facility agreement, a U.S. PB Agreement by and between
Berwyn Funding and BNP and a special custody and pledge agreement by and among Berwyn Funding, BNP and State Street Bank and Trust Company, or State Street, as custodian, each dated as of
December 11, 2013, as amended to date, and which are collectively referred to herein as the BNP financing agreements.

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

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

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

41

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Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

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



Three Months Ended
September 30,

Nine Months Ended
September 30,2016

2015

2016

2015Direct interest expense

$
548

$
798

$
1,547

$
2,334Non-usage fees


262


111


779


324Amortization of deferred financing costs











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

$
810

$
909

$
2,326

$
2,734​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


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



Nine Months Ended
September 30,2016

2015Cash paid for interest expense(1)

$
2,341

$
2,662Average borrowings under the facility

$
113,737

$
222,280Effective interest rate on borrowings


1.95
%

1.43
%Weighted average interest rate (including the effect of non-usage fees)


2.69
%

1.59
%


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


Under
the terms of the BNP financing agreements, BNP has the ability to borrow a portion of the pledged collateral, or, collectively, the rehypothecated securities, subject to certain
limits. Berwyn Funding may designate any security within the pledged collateral as ineligible to be a rehypothecated security, provided there remain securities eligible to be rehypothecated within the
segregated custody account in an amount equal to the outstanding borrowings owed by Berwyn Funding to BNP. Berwyn Funding may recall any rehypothecated security at any time and BNP must return such
security or an equivalent security within a commercially reasonable period. In the event BNP does not return the security, Berwyn Funding will have the right to, among other things, apply and set off
an amount equal to 100% of the then-current fair market value of such rehypothecated securities against any outstanding borrowings owed to BNP under the facility. Rehypothecated securities are
marked-to-market daily and if the value of all rehypothecated securities exceeds 100% of the outstanding borrowings owed by Berwyn Funding under the facility, BNP may either reduce the amount of
rehypothecated securities to eliminate such excess or deposit into the segregated custody account an amount of cash equal to such excess. Berwyn Funding will continue to receive interest and the
scheduled repayment of principal balances on rehypothecated securities. For the nine months ended September 30, 2016 and 2015, Berwyn Funding received a fee of $0 and $1, respectively, from BNP
for securities that had been rehypothecated pursuant to the BNP financing agreements. As of September 30, 2016 and December 31, 2015, the fair value of those securities rehypothecated by
BNP was $111,168 and $108,340, respectively.

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

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)

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, 2016 and December 31, 2015, no amounts remained outstanding under the Citibank credit facility. The carrying amount outstanding under the facility
approximated its fair value. The Company incurred costs of $657 in connection with obtaining the facility, which the Company recorded as deferred financing costs on its consolidated balance sheets and
amortized to interest expense over the life of the facility.

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



Nine Months Ended
September 30, 2015Direct interest expense

$
471Amortization of deferred financing costs


130​
​
​
​
​Total interest expense

$
601​
​
​
​
​​
​
​
​
​​
​
​
​
​


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 Citibank
credit facility were as follows:



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

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

$
70,020Weighted average interest rate (including the effect of non-usage fees)


2.99
%


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

Deutsche Bank Credit Facility

On June 24, 2011, FSEP Term Funding, LLC, or FSEP Funding, the Company's wholly-owned, special-purpose financing subsidiary,
entered into a revolving credit facility, or the Deutsche Bank credit facility, with Deutsche Bank AG, New York Branch, or Deutsche Bank, as administrative agent and the lender party thereto. The
Deutsche Bank credit facility subsequently was amended multiple

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)

times,
most recently, to set the maximum commitments under the facility at $315,000 and extend the maturity date to June 11, 2017.

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

During
the period from June 24, 2011 to June 10, 2016, interest on borrowings under the Deutsche Bank credit facility accrued at a rate equal to LIBOR for an interest
period closest to the weighted average LIBOR interest period of eligible securities owned by FSEP Funding plus 1.80% per annum. Beginning June 11, 2016, interest on borrowings under the
Deutsche Bank credit facility is based on LIBOR for an interest period closest to the weighted average LIBOR interest period of eligible securities owned by FSEP Funding plus 2.05% per annum. FSEP
Funding is subject to a non-usage fee of 0.75% per annum to the extent that the aggregate principal amount available under the facility is not borrowed. Any amounts borrowed under the Deutsche Bank
credit facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on June 11, 2017.

As
of September 30, 2016 and December 31, 2015, $200,000 and $280,000, respectively, was outstanding under the Deutsche Bank credit facility. The carrying amount
outstanding under the facility approximates its fair value. The Company incurred costs of $4,443 in connection with obtaining and amending the facility, which the Company has recorded as deferred
financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the facility. As of September 30, 2016, $763 of such deferred financing costs had yet to be
amortized to interest expense.

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



Three Months Ended
September 30,

Nine Months Ended
September 30,2016

2015

2016

2015Direct interest expense

$
1,389

$
1,495

$
4,257

$
4,383Non-usage fees


220


115


614


341Amortization of deferred financing costs


276


297


869


737​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
1,885

$
1,907

$
5,740

$
5,461​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


44

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Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

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



Nine Months Ended
September 30,2016

2015Cash paid for interest expense(1)

$
4,941

$
4,702Average borrowings under the facility

$
222,190

$
280,000Effective interest rate on borrowings


2.71
%

2.09
%Weighted average interest rate (including the effect of non-usage fees)


2.88
%

2.25
%


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


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

Fortress Facility

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

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

As
of September 30, 2016 and December 31, 2015, $89,600 was outstanding under the Fortress facility. The carrying amount outstanding under the facility approximates its
fair value. The Company incurred costs of $1,342 in connection with obtaining and amending the Fortress facility, which the Company has recorded as deferred financing costs on its consolidated balance
sheets and amortizes to interest expense over the life of the facility. As of September 30, 2016, $1,113 of such deferred financing costs had yet to be amortized to interest expense.

45

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Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

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



Three Months Ended
September 30, 2016

Nine Months Ended
September 30, 2016Direct interest expense

$
1,316

$
3,924Non-usage fees


179


556Amortization of deferred financing costs


68


202​
​
​
​
​
​
​
​Total interest expense

$
1,563

$
4,682​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


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



Nine Months Ended
September 30, 2016Cash paid for interest expense(1)

$
3,580Average borrowings under the facility

$
89,600Effective interest rate on borrowings


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


6.57
%


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


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

Goldman Financing

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

Under
the financing arrangement, assets in the Company's portfolio may be sold and/or contributed by it from time to time to Gladwyne Funding, pursuant to an Amended and Restated Sale
and Contribution Agreement, dated as of September 11, 2014, between the Company and Gladwyne Funding, or the Sale and Contribution Agreement. As of September 30, 2016, the fair value of
assets held by Gladwyne Funding was $802,936, 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 Second Supplemental Indenture dated as of September 21, 2016, or the Indenture, with Citibank, as trustee. Pursuant to the
Indenture, the aggregate principal amount of Notes that may be issued by Gladwyne Funding from time to time is $577,750. Interest on the Notes under the Indenture accrues at three-month LIBOR plus a
spread of 4.00% per annum. Principal and any unpaid interest on the Notes will be due and payable on the stated maturity date of November 15, 2025. As of September 30, 2016, Strafford
Funding had

46

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Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

purchased
$577,750 of Notes, the maximum principal amount of Notes that may be purchased under the Goldman facility (as defined below).

Strafford
Funding, in turn, entered into a repurchase transaction with Goldman, pursuant to the terms of a master repurchase agreement and the related annex thereto, each dated as of
September 11, 2014, as supplemented by the second amended and restated master confirmation dated as of September 21, 2016, 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, 2016, Goldman had purchased Notes in the principal amount of $577,750 from Strafford Funding, the maximum principal amount of Notes
available to be purchased under the Goldman facility, for a total purchase price equal to $325,000.

Strafford
Funding will repurchase the Notes sold to Goldman under the Goldman facility no later than September 15, 2018. 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, 2018 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, 2018 had the acceleration not occurred. The financing fee under the Goldman facility is
equal to three-month LIBOR plus a spread of up to 3.38% 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 September 21, 2016, 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, 2016, Notes in an aggregate principal amount of $577,750 had been purchased by Strafford Funding from Gladwyne Funding and subsequently sold to Goldman under
the Goldman facility for aggregate proceeds of $325,000. 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, 2016, Strafford Funding's liability under the Goldman facility was $325,000, plus $543 of accrued interest
expense. The Notes issued by Gladwyne Funding and purchased by Strafford Funding eliminate in consolidation on the Company's financial statements.

47

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Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

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, 2016, $123 of such deferred financing costs had yet to be amortized to interest expense.

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



Three Months Ended
September 30,

Nine Months Ended
September 30,2016

2015

2016

2015Direct interest expense

$
2,879

$
2,521

$
8,384

$
6,876Amortization of deferred financing costs


33


32


97


96​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
2,912

$
2,553

$
8,481

$
6,972​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


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



Nine Months Ended
September 30,2016

2015Cash paid for interest expense(1)

$
8,316

$
6,882Average borrowings under the facility

$
324,985

$
226,639Effective interest rate on borrowings


4.03
%

3.04
%Weighted average interest rate


3.39
%

4.05
%


(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, 2016, the Company repaid $40,738 of outstanding borrowings under the facility.

The
Company contributed cash and debt securities to Energy Funding from time to time prior to the commencement of the amortization period under the facility, subject to certain
restrictions set forth in the Natixis credit facility. The Company continues to retain a residual interest in any assets contributed through its ownership of Energy Funding or it received fair market
value for any debt securities sold to Energy Funding. Energy Funding was also permitted to purchase additional debt securities from various sources prior to the commencement of the amortization period
under the

48

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Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

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.

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

As
of September 30, 2016 and December 31, 2015, $51,435 and $92,173, respectively, was outstanding under the Natixis credit facility. The carrying amount outstanding under
the facility approximates its fair value. The Company incurred costs of $2,544 in connection with obtaining the facility, which the Company has recorded as deferred financing costs on its consolidated
balance sheets and amortizes to interest expense over the life of the facility. As of September 30, 2016, $605 of such deferred financing costs had yet to be amortized to interest expense.

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



Three Months Ended
September 30,

Nine Months Ended
September 30,2016

2015

2016

2015Direct interest expense

$
460

$
650

$
1,783

$
2,411Amortization of deferred financing costs


262


263


781


520​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
722

$
913

$
2,564

$
2,931​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


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



Nine Months Ended
September 30,2016

2015Cash paid for interest expense(1)

$
1,881

$
2,557Average borrowings under the facility

$
78,700

$
123,964Effective interest rate on borrowings


3.32
%

2.59
%Weighted average interest rate


2.98
%

2.62
%


(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

49

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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)

facility,
with Wells Fargo Securities, LLC, as administrative agent, each of the conduit lenders and institutional lenders from time to time party thereto and Wells Fargo Bank, National
Association, collectively referred to herein as Wells Fargo, as the collateral agent, account bank and collateral custodian under the Wells Fargo credit facility. The Wells Fargo credit facility
originally provided for borrowings in an aggregate principal amount up to $200,000 on a committed basis, subject to Wayne Funding's option to reduce the commitment amount as provided in the Wells
Fargo credit facility. Wayne Funding elected to reduce the commitment amount on February 23, 2016 to $125,000. On October 13, 2016, the Wells Fargo credit facility was further amended to
(1) reduce the maximum commitment from $125,000 to $60,000; (2) shorten the maturity date from September 9, 2019 to September 9, 2018; and (3) eliminate the
non-usage fee.

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 of 0.50%
per annum on the unborrowed principal amount available under the Wells Fargo credit facility. Beginning June 6, 2015 and through October 12, 2016, the non-usage fee was equal 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, 2018. Borrowings under the Wells Fargo credit facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Wayne Funding varies
depending upon the types of assets in Wayne Funding's portfolio.

As
of September 30, 2016 and December 31, 2015, $85,100 and $140,000, respectively, was outstanding under the Wells Fargo credit facility. The carrying amount outstanding
under the facility approximates its fair value. The Company incurred costs of $2,641 in connection with obtaining the facility, which the Company has recorded as deferred financing costs on its
consolidated balance sheets and amortizes to interest expense over the life of the facility. As of September 30, 2016, $1,554 of such deferred financing costs had yet to be amortized to
interest expense.

50

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Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

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



Three Months Ended
September 30,

Nine Months Ended
September 30,2016

2015

2016

2015Direct interest expense

$
740

$
981

$
2,690

$
2,835Non-usage fees


51


230


169


422Amortization of deferred financing costs


133


134


396


395​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
924

$
1,345

$
3,255

$
3,652​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


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



Nine Months Ended
September 30,2016

2015Cash paid for interest expense(1)

$
3,008

$
3,169Average borrowings under the facility

$
107,330

$
126,062Effective interest rate on borrowings


3.47
%

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


3.50
%

3.44
%


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


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

Note 9. Commitments and Contingencies

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

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

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

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Table of Contents

FS Energy and Power Fund

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



Note 10. Financial Highlights

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



Nine Months Ended
September 30, 2016
(Unaudited)

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

$
6.50

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


0.44


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


0.97


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


1.41


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


(0.53
)

(0.67
)Distributions from net realized gain on investments





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


(0.53
)

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





0.18Repurchases of common shares(5)





Other


(0.03
)

Offering costs(2)





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


(0.03
)

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

$
7.35

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


431,453,607


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


22.23
%

(17.34
)%​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Total return (without assuming reinvestment of distributions)(7)


21.23
%

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

$
3,171,799

$
2,417,861​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Ratio of net investment income to average net assets(8)


6.51
%

8.31
%Ratio of total expenses to average net assets(8)


3.74
%

5.55
%Portfolio turnover(9)


22.51
%

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

$
864,872

$
1,040,494Asset coverage per unit(10)


4.67


3.32


(1)Per
share data may be rounded in order to recompute the ending net asset value per share.(2)The
per share data was derived by using the weighted average shares outstanding during the applicable period.(3)The
per share data for distributions reflects the actual amount of distributions paid per share during the applicable period.(4)The
issuance of common shares on a per share basis reflects the incremental net asset value changes as a result of the issuance of common shares in the Company's
continuous public offering and pursuant to the Company's distribution reinvestment plan. The issuance of common shares at an offering price, net of selling commissions and dealer manager fees, that is
greater than the net asset value per share results in an increase in net asset value per share. The per share impact of the Company's issuance of common shares was an increase in net asset value of
less than $0.01 per share during the nine months ended September 30, 2016.(5)The
per share impact of the Company's repurchases of common shares was a reduction to net asset value of less than $0.01 per share during each period.


52

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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 based on the change in net asset value during the applicable period, including the impact of distributions
reinvested in accordance with the Company's distribution reinvestment plan. The total return does not consider the effect of any sales commissions or charges that may be incurred in connection with
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 return 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. The total return for the year ended December 31, 2015 was unaudited.(7)The
total return (without assuming reinvestment of distributions) 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 (without assuming reinvestment of distributions) does not consider the effect of any sales commissions or charges that may be incurred in connection with the sale
of the Company's common shares. The total return (without assuming reinvestment of distributions) 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 (without assuming reinvestment of distributions) in the table should not be
considered a representation of the Company's future total return (without assuming reinvestment of distributions), which may be greater or less than the return 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.(8)Weighted
average net assets during the applicable period are used for this calculation. Ratios for the nine months ended September 30, 2016 are not
annualized. The following is a schedule of supplemental ratios for the nine months ended September 30, 2016 and year ended December 31, 2015:


Nine Months Ended
September 30, 2016
(Unaudited)

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


0.21
%

1.13
%Ratio of interest expense to average net assets


1.01
%

1.12
%Ratio of offering costs to average net assets


0.05
%

Ratio of income and excise taxes to average net assets


0.00
%

0.01
%


(9)Portfolio
turnover for the nine months ended September 30, 2016 is not annualized.(10)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.


53

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Table of Contents

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

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

Forward-Looking Statements

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



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



54

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Table of Contents

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

Overview

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

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

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

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

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

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

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

55

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Table of Contents

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 or any restructuring of these debt investments, we may on occasion receive equity interests, including warrants or options, as additional consideration or otherwise in
connection with a restructuring.

Revenues

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

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

56

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

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

Expense Reimbursement

Pursuant to an expense support and conditional reimbursement agreement, amended and restated as of May 16, 2013, or the expense
reimbursement agreement, FS Investments 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, FS Investments 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, FS Investments 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 FS Investments for any amounts funded by FS Investments under such agreement if (and only
to the extent that), during any fiscal quarter occurring within three years of the date on which FS Investments 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 FS Investments for expense support
payments made by FS Investments with respect to any calendar quarter beginning on or after July 1, 2013 to the extent that

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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 FS Investments was made (provided, however, that this clause (B) shall not apply to any reimbursement payment which relates to an expense support
payment from FS Investments made during the same fiscal year) and (ii) we will not reimburse FS Investments for expense support payments made by FS Investments 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 FS Investments made the
expense support payment to which such reimbursement relates. We are not obligated to pay interest on the payments we receive from FS Investments. "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 FS Investments may terminate the expense reimbursement agreement at any time. The specific amount of expenses reimbursed by FS Investments, if any, will be determined at the end of
each quarter. Upon termination of the expense reimbursement agreement by FS Investments, FS Investments will be required to fund any amounts accrued thereunder as of the date of termination.
Similarly, our conditional obligation to reimburse FS Investments pursuant to the terms of the expense reimbursement agreement shall survive the termination of such agreement by either party.

FS
Investments 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 FS Investments will reimburse any portion of our expenses in future quarters.

As
of September 30, 2016, we had no reimbursements due from FS Investments and no further amounts remained subject to repayment by us to FS Investments in the future.

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

During the nine months ended September 30, 2016, we made investments in portfolio companies totaling $988,597. During the same period, we
sold investments for proceeds of $361,229 and received principal repayments of $374,270. As of September 30, 2016, our investment portfolio, with a total fair value of $3,747,676 (24% in first
lien senior secured loans, 24% in second lien senior secured loans, 10% in senior secured bonds, 26% in subordinated debt and 16% in equity/other), consisted of interests in 86 portfolio companies.
The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $317.0 million. As of September 30, 2016, the debt investments in our
portfolio were purchased at a weighted average price of 97.2% of par value, and our estimated gross annual portfolio yield, prior to leverage (which represents the expected annualized yield to be
generated by us on our investment portfolio based on the composition of our portfolio as of such date), was 8.6% 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, 2016 and our public offering price of $8.25 per share as of such date, the annualized
distribution rate to shareholders as of September 30, 2016 was 8.59%. The distribution rate to shareholders may include income, realized capital gains and a return of investors' capital.

During
the year ended December 31, 2015, we made investments in portfolio companies totaling $1,195,947. During the same period, we sold investments for proceeds of $590,726 and
received principal repayments of $209,808. As of December 31, 2015, our investment portfolio, with a total fair value of $3,069,498 (30% in first lien senior secured loans, 30% in second lien
senior secured loans, 11% in senior secured bonds, 19% in subordinated debt and 10% in equity/other), consisted of interests in 90 portfolio companies. The portfolio companies that comprised our
portfolio as of such

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date
had an average annual EBITDA of approximately $244.8 million. As of December 31, 2015, the investments in our portfolio were purchased at a weighted average price of 98.4% of par
value and our estimated gross annual portfolio yield, prior to leverage, was 9.3% based upon the amortized cost of our investments.

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

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

Total Portfolio Activity

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



Net Investment Activity

For the
Three Months Ended
September 30, 2016

For the
Nine Months Ended
September 30, 2016Purchases

$
363,309

$
988,597Sales and Redemptions


(260,320
)

(735,499
)​
​
​
​
​
​
​
​Net Portfolio Activity

$
102,989

$
253,098​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​






For the
Three Months Ended
September 30, 2016

For the
Nine Months Ended
September 30, 2016New Investment Activity by Asset Class

Purchases

Percentage

Purchases

PercentageSenior Secured LoansFirst Lien

$
39,931


11
%
$
164,903


17
%Senior Secured LoansSecond Lien


151,314


42
%

178,067


18
%Senior Secured Bonds








44,470


4
%Subordinated Debt


122,527


34
%

296,960


30
%Equity/Other


49,537


13
%

304,197


31
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
363,309


100
%
$
988,597


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


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



September 30, 2016
(Unaudited)

December 31, 2015Amortized
Cost(1)

Fair Value

Percentage
of Portfolio

Amortized
Cost(1)

Fair Value

Percentage
of PortfolioSenior Secured LoansFirst Lien

$
979,233

$
881,845


24
%
$
1,055,070

$
929,790


30
%Senior Secured LoansSecond Lien


1,028,900


918,783


24
%

1,213,716


923,402


30
%Senior Secured Bonds


402,508


362,919


10
%

445,475


323,948


11
%Subordinated Debt


1,026,766


991,910


26
%

860,872


579,740


19
%Equity/Other


549,962


592,219


16
%

319,274


312,618


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

$
3,987,369

$
3,747,676


100
%
$
3,894,407

$
3,069,498


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


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


59

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Table of Contents

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



September 30, 2016

December 31, 2015Number of Portfolio Companies


86


90% Variable Rate (based on fair value)


45.9
%

50.9
%% Fixed Rate (based on fair value)


38.3
%

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


4.9
%

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


10.9
%

4.3
%Average Annual EBITDA of Portfolio Companies

$
316,984

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


97.2
%

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


4.5
%

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


8.6
%

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


9.9
%

9.8
%


Direct Originations

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



New Direct Originations

For the
Three Months Ended
September 30, 2016

For the
Nine Months Ended
September 30, 2016Total Commitments (including unfunded commitments)

$
220,553

$
558,606Exited Investments (including partial paydowns)


(276,987
)

(604,978
)​
​
​
​
​
​
​
​Net Direct Originations

$
(56,434
)
$
(46,372
)​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​






For the
Three Months Ended
September 30, 2016

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

Commitment
Amount

Percentage

Commitment
Amount

PercentageSenior Secured LoansFirst Lien

$





$
66,495


12
%Senior Secured LoansSecond Lien


202,375


92
%

202,375


36
%Subordinated Debt








40,000


7
%Equity/Other


18,178


8
%

249,736


45
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
220,553


100
%
$
558,606


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






For the
Three Months Ended
September 30, 2016

For the
Nine Months Ended
September 30, 2016Average New Direct Origination Commitment Amount

$55,138

$42,970Weighted Average Maturity for New Direct Originations

8/10/20

11/22/20Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Funded during Period

14.6
%
8.0
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Funded during PeriodExcluding Non-Income Producing
Assets

15.9
%
13.5
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Exited during Period

11.1
%
9.6
%


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Table of Contents

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



Characteristics of All Direct Originations held in Portfolio

September 30, 2016

December 31, 2015Number of Portfolio Companies


28


27Average Annual EBITDA of Portfolio Companies

$
74,526

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


5.5x


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


6.8
%

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


8.6
%

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


11.5
%

10.9
%


Portfolio Composition by Strategy and Industry

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



September 30, 2016

December 31, 2015Portfolio Composition by Strategy

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of PortfolioDirect Originations

$
2,191,610


58
%
$
1,975,269


64
%Opportunistic


819,972


22
%

567,149


19
%Broadly Syndicated/Other


736,094


20
%

527,080


17
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,747,676


100
%
$
3,069,498


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


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,
2016 and December 31, 2015:



September 30, 2016
(Unaudited)

December 31, 2015Industry Classification

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of PortfolioUpstream

$
2,174,721


58
%
$
1,689,705


55
%Midstream


304,771


8
%

215,906


7
%Downstream


49,016


1
%

12,195


0
%Power


534,671


15
%

519,593


17
%Service & Equipment


684,497


18
%

632,099


21
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,747,676


100
%
$
3,069,498


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


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

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

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

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

Our
investment portfolio may contain loans or bonds that are in the form of lines of credit or revolving credit facilities, or other investments, which may require us to provide funding
when requested by portfolio companies in accordance with the terms of the underlying agreements. As of September 30, 2016, we had two senior secured loan investments with aggregate unfunded
commitments of $13,696 and three equity/other investments with aggregate unfunded commitments of $8,924. As of September 30, 2016, these unfunded equity/other investments were BL Sand Hills
Unit, L.P., net profits interest, BL Sand Hills Unit, L.P., overriding royalty interest and Synergy Offshore LLC. As of December 31, 2015, we had four senior secured loan
investments with aggregate unfunded commitments of $67,365, one senior secured bond investment with an unfunded commitment of $18,470 and five equity/other investments with aggregate unfunded
commitments of $33,890. As of December 31, 2015, these unfunded equity/other investments were Altus Power America Holdings, LLC, BL Sand Hills Unit, L.P., net profits interest, BL
Sand Hills Unit, L.P., overriding royalty interest, Sunnova Holdings, LLC and Synergy Offshore LLC. We maintain sufficient cash on hand, available borrowings and liquid securities
to fund such unfunded commitments should the need arise.

Portfolio Asset Quality

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



Investment Rating

Summary Description1

Investment exceeding expectations and/or capital gain expected.2

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

Performing investment requiring closer monitoring.4

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

Underperforming investment with expected loss of interest and some principal.


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



September 30, 2016

December 31, 2015Investment Rating

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of Portfolio1

$
264,816


7
%
$
159,204


5
%2


1,896,839


51
%

1,340,637


44
%3


1,367,160


37
%

1,288,144


42
%4


55,848


1
%

203,084


7
%5


163,013


4
%

78,429


2
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,747,676


100
%
$
3,069,498


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


62

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Table of Contents

The
amount of the portfolio in each grading category may vary substantially from period to period resulting primarily from changes in the composition of the portfolio as a result of new
investment, repayment and exit activities. In addition, changes in the grade of investments may be made to reflect our expectation of performance and changes in investment values. As of
September 30, 2016, 37% of our portfolio consisted of investments with an investment rating of three, 1% of our portfolio consisted of investments with an investment rating of four and 4% of
our portfolio consisted of investments with an investment rating of five, in each case, based on fair value.

Results of Operations

After briefly rising above $52 per barrel in June, oil prices remained largely range-bound between $40 per barrel and $50 per barrel through
August and September 2016, generally helping energy high yield bonds and energy senior secured loans to build on the momentum sustained through the second quarter. The "spread-to-worst" of the Bank of
America Merrill Lynch High Yield Energy Index, or the Energy Index, which measures the difference from the Energy Index's worst performing security to Treasuries, tightened over the quarter ended
September 30, 2016 from 834 basis points as of June 30, 2016 to 643 basis points as of September 30, 2016. Overall, the Energy Index ended the third quarter of 2016 with a
yield-to-worst of 7.67% after reaching levels earlier in the year not seen since November 2008.

West
Texas Intermediate (WTI) crude prices, which began the year at $36.76 per barrel, reached an eleven month high on June 8, 2016 and ended at $48.24 per barrel as of
September 30, 2016. The average par weighted price of the Energy Index began the year at $64.89, reached a year-to-date low of $52.17 on February 11, 2016 and significantly rebounded to
$92.53 as of September 30, 2016. Rising asset prices resulted in unrealized appreciation on investments during the quarter ended September 30, 2016. Since September 30, 2016,
OPEC's agreement in principle to cut production continued to push oil prices higher, though details of the arrangement were largely left to its next meeting in late November 2016.

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

Revenues

We generated investment income of $89,382 and $98,758 for the three months ended September 30, 2016 and 2015, respectively, in the form
of interest and fees earned on senior secured loans (first and second lien), senior secured bonds and subordinated debt investments in our portfolio. Such revenues represent $75,249 and $90,073 of
cash income earned as well as $14,133 and $8,685 in non-cash portions relating to accretion of discount, PIK interest and accrual of limited partnership income for the three months ended
September 30, 2016 and 2015, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized.

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

During
the three months ended September 30, 2016 and 2015, we generated $2,624 and $10,777 of fee income, which represented 2.9% and 10.9%, respectively, of total investment
income. Such fee income is transaction based, and typically consists of amendment and consent fees, prepayment fees, structuring fees, upfront fees and other non-recurring fees. As such, future fee
income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees. The decrease in fee income during the three
months ended September 30, 2016 compared to three months ended September 30, 2015 was primarily due to the prepayment of several large investments during the three months ended
September 30, 2015.

Expenses

Our total expenses were $33,651 and $40,122 for the three months ended September 30, 2016 and 2015, respectively. Our expenses include
base management fees attributed to FS Advisor of $20,086 and

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$19,522
for the three months ended September 30, 2016 and 2015, respectively. Our expenses also include administrative services expenses attributed to FS Advisor of $1,118 and $892 for the
three months ended September 30, 2016 and 2015, respectively.

FS
Advisor is eligible to receive incentive fees based on our performance. We did not accrue any subordinated incentive fee on income during the three months ended September 30,
2016. During the three months ended September 30, 2015, we accrued a subordinated incentive fee on income of $9,611. During the three months ended September 30, 2016 and 2015, we did not
accrue any capital gains incentive fees. See "Critical Accounting PoliciesCapital Gains Incentive Fee" and "Critical Accounting PoliciesSubordinated
Income Incentive Fee" for additional information about how the incentive fees are calculated.

We
recorded interest expense of $8,921 and $7,627 for the three months ended September 30, 2016 and 2015, respectively, in connection with our financing arrangements. For the
three months ended September 30, 2016 and 2015, fees and expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $384 and
$361, respectively, and fees and expenses incurred with our share transfer agent totaled $750 and $767, respectively. Fees for our board of trustees were $245 and $246 for the three months ended
September 30, 2016 and 2015, respectively. Amortization of our deferred offering costs was $755 and $0 for the three months ended September 30, 2016 and 2015, respectively.

Our
other general and administrative expenses totaled $1,370 and $1,020 for the three months ended September 30, 2016 and 2015, respectively, and consisted of the following:



Three Months Ended
September 30,2016

2015Expenses associated with our independent audit and related fees

$
114

$
54Legal fees


132


221Printing fees


727


225Insurance expense


56


80Other


341


440​
​
​
​
​
​
​
​Total

$
1,370

$
1,020​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


During
the three months ended September 30, 2016 and 2015, the ratio of our total expenses to our average net assets was 1.10% and 1.42%, respectively. During the three months
ended September 30, 2016 and 2015, our ratio of total expenses to average net assets included $8,921 and $7,627, respectively, related to interest expense, $0 and $9,611, respectively, related
to accruals for incentive fees, $755 and $0, respectively, related to amortization of deferred offering costs and $22 and $76, respectively, related to accruals for income taxes. Without such
expenses, our ratio of expenses to average net assets would have been 0.78% and 0.81% for the three months ended September 30, 2016 and 2015, respectively. Incentive fees and interest expense,
among other things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance and changes in benchmark interest rates such as LIBOR, among other
factors.

Net Investment Income

Our net investment income totaled $55,731 ($0.13 per share) and $58,636 ($0.17 per share) for the three months ended September 30, 2016
and 2015, respectively. The decrease in net investment income on a per share basis can be attributed primarily to a decrease in fee income, a decrease in investment income resulting from the
restructuring of certain investments in the portfolio, an increase in the percentage of non-income producing equity securities held in the portfolio and an increase in the percentage of income
producing assets on non-accrual held in the portfolio.

Net Realized Gains or Losses

We sold investments and received principal repayments of $10,159 and $250,161, respectively, during the three months ended September 30,
2016, from which we realized a net loss of $119,886. We sold investments and received principal repayments of $155,343 and $87,424, respectively, during the

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three
months ended September 30, 2015, from which we realized a net loss of $100,813. We realized a net loss of $63 from settlements on foreign currency during the three months ended
September 30, 2015.

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

For the three months ended September 30, 2016 and 2015, the net change in unrealized appreciation (depreciation) on investments totaled
$210,483 and $(239,783), respectively, and the net change in unrealized gain (loss) on foreign currency was $(2) and $59, respectively. The change in unrealized appreciation (depreciation) on our
investments during the three months ended September 30, 2016 was primarily driven by a general improvement in the energy markets, a tightening of credit spreads and the performance of our
anchor order and broadly syndicated investments. 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.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the three months ended September 30, 2016 and 2015, the net increase (decrease) in net assets resulting from operations was $146,326
($0.35 per share) and $(281,964) ($(0.81) per share), respectively.

Comparison of the Nine Months Ended September 30, 2016 and 2015

Revenues

We generated investment income of $275,618 and $276,755 for the nine months ended September 30, 2016 and 2015, respectively, in the form
of interest and fees earned on senior secured loans (first and second lien), senior secured bonds and subordinated debt investments in our portfolio. Such revenues represent $242,463 and $252,509 of
cash income earned as well as $33,155 and $24,246 in non-cash portions relating to accretion of discount, PIK interest and accrual of limited partnership income for the nine months ended
September 30, 2016 and 2015, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized.

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

During
the nine months ended September 30, 2016 and 2015, we generated $12,607 and $24,422 of fee income, which represented 4.6% and 8.8%, 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. The decrease in fee income during the nine
months ended September 30, 2016 compared to nine months ended September 30, 2015 was primarily due to the prepayment of several large investments during the nine months ended
September 30, 2015.

Expenses

Our total expenses were $100,471 and $109,730 for the nine months ended September 30, 2016 and 2015, respectively. Our expenses include
base management fees attributed to FS Advisor of $55,725 and $57,659 for the nine months ended September 30, 2016 and 2015, respectively. Our expenses also include administrative services
expenses attributed to FS Advisor of $2,885 and $3,153 for the nine months ended September 30, 2016 and 2015, respectively.

FS
Advisor is eligible to receive incentive fees based on our performance. During the nine months ended September 30, 2016 and 2015, we accrued a subordinated incentive fee on
income of $5,774 and

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$18,968,
respectively. During the nine months ended September 30, 2016 and 2015, we did not accrue any capital gains incentive fees. See "Critical Accounting
PoliciesCapital Gains Incentive Fee" and "Critical Accounting PoliciesSubordinated Income Incentive Fee" for additional information about how the incentive fees
are calculated.

We
recorded interest expense of $27,200 and $22,351 for the nine months ended September 30, 2016 and 2015, respectively, in connection with our financing arrangements. For the
nine months ended September 30, 2016 and 2015, fees and expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $994 and
$1,082, respectively, and fees and expenses incurred with our share transfer agent totaled $2,134 and $2,199, respectively. Fees for our board of trustees were $757 and $736 for the nine months ended
September 30, 2016 and 2015, respectively. Amortization of our deferred offering costs was $1,378 and $0 for the nine months ended September 30, 2016 and 2015, respectively.

Our
other general and administrative expenses totaled $3,523 and $3,348 for the nine months ended September 30, 2016 and 2015, respectively, and consisted of the following:



Nine Months Ended
September 30,2016

2015Expenses associated with our independent audit and related fees

$
360

$
426Compensation of our chief compliance officer(1)





10Legal fees


516


565Printing fees


1,527


865Insurance expense


174


232Other


946


1,250​
​
​
​
​
​
​
​Total

$
3,523

$
3,348​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(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 FS Investments and will not receive any direct compensation from us in this capacity.


During
the nine months ended September 30, 2016 and 2015, the ratio of our total expenses to our average net assets was 3.74% and 3.96%, respectively. During the nine months ended
September 30, 2016 and 2015, our ratio of total expenses to average net assets included $27,200 and $22,351, respectively, related to interest expense, $5,774 and $18,968, respectively, related
to accruals for incentive fees, $1,378 and $0, respectively, related to amortization of deferred offering costs and $101 and $234, respectively, related to accruals for income taxes. Without such
expenses, our ratio of expenses to average net assets would have been 2.46% and 2.46% for the nine months ended September 30, 2016 and 2015, respectively. Incentive fees and interest expense,
among other things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance and changes in benchmark interest rates such as LIBOR, among other
factors.

Net Investment Income

Our net investment income totaled $175,147 ($0.44 per share) and $167,025 ($0.51 per share) for the nine months ended September 30, 2016
and 2015, respectively. The decrease in net investment income on a per share basis can be attributed primarily to a decrease in fee income, a decrease in investment income resulting from the
restructuring of certain investments in the portfolio, an increase in the percentage of non-income producing equity securities held in the portfolio and an increase in the percentage of income
producing assets on non-accrual held in the portfolio.

Net Realized Gains or Losses

We sold investments and received principal repayments of $361,229 and $374,270, respectively, during the nine months ended September 30,
2016, from which we realized a net loss of $195,964. 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

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net
loss of $210 from settlements on foreign currency during the nine months ended September 30, 2015.

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

For the nine months ended September 30, 2016 and 2015, the net change in unrealized appreciation (depreciation) on investments totaled
$585,216 and $(171,393), respectively, and the net change in unrealized gain (loss) on foreign currency was $12 and $(82), respectively. The change in unrealized appreciation (depreciation) on our
investments during the nine months ended September 30, 2016 was primarily driven by a general improvement in the energy markets, a tightening of credit spreads and the performance of our
directly originated and anchor order investments. 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.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the nine months ended September 30, 2016 and 2015, the net increase (decrease) in net assets resulting from operations was $564,411
($1.41 per share) and $(163,983) ($(0.50) per share), respectively.

Financial Condition, Liquidity and Capital Resources

Based on and subject to market conditions and the pace of capital raising, we expect to close our public offering to new investors in mid to
late November 2016. Improving energy market conditions since the middle of February 2016 through September 30, 2016, have led to positive developments in the portfolio and a subsequent increase
in our net asset value per common share. However, certain investments in the portfolio were restructured or experienced defaults due to the recently depressed prices of oil and natural gas, and we may
experience additional restructurings or defaults in the future. These restructurings and defaults may have an impact on the level of income received by us. As a result, we are evaluating the current
distribution rate payable on our common shares and there can be no assurance that we will be able to maintain a weekly cash distribution amount of $0.013625 per common share (or the quarterly
equivalent thereto following the closing of our public offering). FS Advisor will waive its incentive fees and may waive a portion of its management fee through the fourth quarter of 2016 to ensure
that no portion of our distributions to shareholders is paid from offering proceeds or borrowings.

Overview

As of September 30, 2016, we had $271,317 in cash, which we or our wholly-owned financing subsidiaries held in custodial accounts, and
$506,563 in borrowings available under our financing arrangements, subject to borrowing base and other limitations. To seek to enhance our returns, we employ leverage as market conditions permit and
at the discretion of FS Advisor, but in no event may leverage employed exceed 50% of the value of our assets, as required by the 1940 Act. See "Financing Arrangements." As of
September 30, 2016, we also had broadly syndicated investments and opportunistic investments that could be sold to create additional liquidity. As of September 30, 2016, we had two
senior secured loan investments with aggregate unfunded commitments of $13,696 and three equity/other investments with aggregate unfunded commitments of $8,924. We maintain sufficient cash on hand,
available borrowings and liquid securities to fund such unfunded commitments should the need arise.

During
the nine months ended September 30, 2016, we sold 65,945,030 common shares for gross proceeds of $476,714 at an average price per share of $7.23. The gross proceeds
received during the nine months ended September 30, 2016 include reinvested shareholder distributions of $132,928, for which we issued 19,503,968 common shares. The sales commissions and dealer
manager fees related to the sale of our common shares were $30,047 for the nine months ended September 30, 2016. These sales commissions and fees include $5,822 retained by the dealer manager,
FS Investment Solutions, which is one of our affiliates.

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Since commencing our continuous public offering and through October 25, 2016, we sold 444,115,900 common shares (as adjusted for share distributions) for
gross proceeds of $4,319,069, including common shares issued under our distribution reinvestment plan. As of October 25, 2016, we have raised total gross proceeds of $4,339,273, including $200
of seed capital contributed by the principals of FS Advisor in December 2010 and $20,004 in proceeds raised from the principals of FS Advisor, other individuals and entities affiliated with FS
Advisor, certain members of our board of trustees and certain individuals and entities affiliated with GSO in a private placement conducted in April 2011.

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

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

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.

On
October 13, 2016, we amended the terms of our share repurchase program, or the amended share repurchase program, which will first be effective for our quarterly repurchase
offer for the fourth quarter of 2016. Prior to the amendment of the share repurchase program, we offered to repurchase common shares at a price equal to 90% of the offering price in effect on the date
of repurchase. Under the amended share repurchase program, we intend to offer to repurchase common shares at a price equal to the price at which common shares are issued pursuant to our distribution
reinvestment plan on the distribution date coinciding with the applicable share repurchase date. The price at which common shares are issued under our distribution reinvestment plan is determined by
our board of trustees or a committee thereof, in its sole discretion, and will be (i) not less than the net asset value per common share as determined in good faith by our board of trustees or
a committee thereof, in its sole discretion, immediately prior to the payment date of the distribution and (ii) not more than 2.5% greater than the net asset value per common share as of such
date.

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



For the Three Months Ended

Repurchase Date

Shares
Repurchased

Percentage
of Shares
Tendered
That Were
Repurchased

Percentage of
Outstanding
Shares
Repurchased
as of the
Repurchase
Date

Repurchase
Price
Per Share

Aggregate
Consideration
for Repurchased
SharesFiscal 2015December 31, 2014

January 7, 2015


450,293


100
%

0.15
%
$
8.820

$
3,972March 31, 2015

April 1, 2015


716,857


100
%

0.22
%
$
8.730

$
6,258June 30, 2015

July 1, 2015


955,664


100
%

0.28
%
$
8.820

$
8,429Fiscal 2016December 31, 2015

January 6, 2016


2,716,924


100
%

0.73
%
$
6.750

$
18,339March 31, 2016

April 6, 2016


2,196,742


100
%

0.56
%
$
6.345

$
13,938June 30, 2016

July 6, 2016


1,788,021


100
%

0.43
%
$
7.200

$
12,874


On
October 5, 2016, we repurchased 2,983,921 common shares (representing 100% of common shares tendered for repurchase and 0.69% of the shares outstanding as of such date) at
$7.425 per share for aggregate consideration totaling $22,156.

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Financing Arrangements

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



Facility

Type of
Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity DateBarclays Facility

Revolving

L+3.25%




$
100,000

May 18, 2021BNP Facility

Prime Brokerage

L+1.10%

$
113,737

$
186,263

June 27, 2017(1)Deutsche Bank Credit Facility

Revolving

L+2.05%(2)

$
200,000

$
115,000

June 11, 2017Fortress Facility

Term

L+5.00%(3)

$
89,600

$
65,400

November 6, 2020Goldman Facility

Repurchase

L+3.38%(4)

$
325,000




September 15, 2018Natixis Credit Facility

Revolving

CP+2.25%

$
51,435




July 11, 2023Wells Fargo Credit Facility

Revolving

L+2.50% to 2.75%

$
85,100
(5)
$
39,900
(5)
September 9, 2019(6)


(1)The
BNP facility generally is terminable upon 270 days' notice by either party. As of September 30, 2016, neither Berwyn Funding nor BNP had provided
notice of its intent to terminate the facility.(2)Prior
to June 11, 2016, borrowings under the Deutsche Bank credit facility accrued interest at a rate equal to LIBOR plus 1.80% per annum. Beginning on
June 11, 2016, borrowings under the Deutsche Bank credit facility accrue interest at a rate equal to LIBOR plus 2.05% per annum.(3)As
described in Note 8, borrowings under the Fortress facility accrue interest at a rate equal to LIBOR plus 5.00%, subject to a floor of 0.75%.(4)Before
September 21, 2016, borrowings under the Goldman facility accrued interest at a rate equal to LIBOR plus 2.75% per annum. Beginning on
September 21, 2016, borrowings under the Goldman facility accrue interest at a rate equal to LIBOR plus 3.38% per annum.(5)On
October 13, 2016, the maximum commitment under the Wells Fargo credit facility was reduced to $60,000.(6)On
October 13, 2016, the Wells Fargo credit facility was amended to shorten the maturity date from September 9, 2019 to September 9, 2018.


Our
average borrowings and weighted average interest rate, including the effect of non-usage fees, for the nine months ended September 30, 2016 were $936,542 and 3.49%,
respectively. As of September 30, 2016, our weighted average effective interest rate on borrowings was 3.53%.

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

RIC Tax Treatment and Distributions

We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a RIC under Subchapter M of the
Code. As a RIC, we generally do not have to pay
corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute as dividends to our shareholders. To maintain our qualification as a RIC, we must, among
other things, meet certain source-of-income and asset diversification requirements. In addition, in order to maintain RIC tax treatment, we must distribute to our shareholders, for each tax year,
dividends generally of an amount at least equal to 90% of our "investment company taxable income," which is generally the sum of our net ordinary income plus the excess, if any, of realized net
short-term capital gains over realized net long-term capital losses, determined without regard to any deduction for dividends paid. In addition, we may, in certain cases, satisfy the Annual
Distribution Requirement by distributing dividends relating to a tax year after the close of such tax year under the "spillover dividend" provisions of Subchapter M of the Code. If we
distribute a spillover dividend, such dividend will be included in a shareholder's gross income for the tax year in which the spillover distribution is paid. We intend to make sufficient distributions
to our shareholders to maintain our RIC tax treatment each tax year. We will also be subject to nondeductible U.S. federal excise taxes on certain undistributed income unless we distribute in a timely
manner to our shareholders of an amount at least equal to the sum of (1) 98% of our net ordinary taxable income (taking into account certain deferrals and elections) for the calendar year,
(2) 98.2% of our capital gain net income, which is the excess of capital gains over capital losses (adjusted for certain ordinary losses), for the one-year period ending October 31 of
that calendar year and (3) any ordinary income and capital gain net income for the preceding years that were not distributed during such years and on which we paid no U.S. federal income tax.
Any distribution declared by us during October, November or December of any calendar year, payable to our shareholders of record on a specified date in such a month and actually paid during January of
the

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following
calendar year, will be treated as if it had been paid by us, as well as received by our U.S. shareholders, on December 31 of the calendar year in which the distribution was declared.
We generally will endeavor in each tax year to avoid any material U.S. federal excise tax on our earnings.

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

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

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



DistributionFor the Three Months Ended

Per Share

AmountFiscal 2015March 31, 2015

$
0.1771

$
54,825June 30, 2015

$
0.1771

$
58,250September 30, 2015

$
0.1771

$
61,666Fiscal 2016March 31, 2016

$
0.1771

$
66,720June 30, 2016

$
0.1771

$
70,788September 30, 2016

$
0.1771

$
74,481


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. Although distributions paid in the form of additional
common shares will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, shareholders who elect to participate in our distribution reinvestment plan
will not receive any corresponding cash distributions with which to pay any such applicable taxes. Shareholders receiving distributions in the form of
additional common shares will generally be treated as receiving a distribution in the amount of the fair market value of our common shares.

In
connection with the anticipated closing of our public offering, we have further amended and restated our distribution reinvestment plan, or the amended distribution reinvestment plan,
which will first apply to the reinvestment of cash distributions paid on or after November 30, 2016. Prior to the amendment to the distribution reinvestment plan, we authorized and declared
ordinary cash distributions on a weekly basis and paid such distributions on a monthly basis. On October 3, 2016 and October 26, 2016 our board of trustees declared regular weekly cash
distributions for October 2016 and November 2016, respectively. These distributions have been or will be paid monthly to shareholders of record as of weekly record dates previously determined by our
board of trustees in the amount of $0.013625 per share. Following the closing of our public offering, we intend to declare regular cash

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distributions
on a quarterly basis and pay such distributions on a monthly basis. 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
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 FS Investments. 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 FS
Investments 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, 2016 or 2015 was funded through the reimbursement of operating expenses by FS Investments. During
the nine months ended September 30, 2016 and 2015, we did not repay any amounts to FS Investments 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. FS Investments 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, 2016 and 2015:



Nine Months Ended September 30,2016

2015Source of Distribution

Distribution
Amount

Percentage

Distribution
Amount

PercentageOffering proceeds

$





$



Borrowings











Net investment income(1)


209,564


99
%

161,150


92
%Short-term capital gains proceeds from the sale of assets











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








13,591


8
%Non-capital gains proceeds from the sale of assets











Distributions on account of limited partnership interest


2,425


1
%




Expense reimbursement from sponsor











​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
211,989


100
%
$
174,741


100
%​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
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​
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(1)During
the nine months ended September 30, 2016 and 2015, 81.5% and 89.9%, respectively, of the Company's gross investment income on a tax basis was
attributable to cash income earned and 5.0% and 0.1%, respectively, was attributable to non-cash income earned. In addition, 10.6% and 8.2%, respectively, was attributed to paid-in-kind, or PIK,
interest and 2.9% and 1.8%, respectively, was attributed to accretion of discount during the nine months ended September 30, 2016 and 2015.


Our
net investment income on a tax basis for the nine months ended September 30, 2016 and 2015 was $198,465 and $164,105, respectively. As of September 30, 2016 and
December 31, 2015, we had $1,972 and $15,496, respectively, of undistributed ordinary income on a tax basis and distributable income received from a limited partnership interest. During the
last twelve months, our distributions exceeded tax-basis net investment income by $7,558. In addition, $15,728 of our tax-basis net investment income was generated by fee income, which is generally
non-recurring in nature and the full amount of which is recorded as revenue when earned. Excluding fee income from net investment income during the last twelve months, we would have had distributions
in excess of tax-basis net

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investment
income of $23,286. No portion of the distributions paid during the nine months ended September 30, 2016 or 2015 was funded from offering proceeds or borrowings.

During
the nine months ended September 30, 2016, we saw positive developments in our investment portfolio and a subsequent increase in our net asset value. However, certain
investments in the portfolio were restructured or experienced defaults due to the recently depressed prices of oil and natural gas, and we may experience additional restructurings or defaults in the
future. These restructurings and defaults may have an impact on the level of income received by us. As a result, we are evaluating the current distribution rate payable on our common shares and there
can be no assurance that we will be able to maintain a weekly cash distribution amount of $0.013625 per common share (or the quarterly equivalent thereto following the closing of our public offering).
FS Advisor will waive its incentive fees and may waive a portion of its management fee through the fourth quarter of 2016 to ensure that no portion of our distributions to shareholders is paid from
offering proceeds or borrowings.

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

Critical Accounting Policies

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

Valuation of Portfolio Investments

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

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

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where
there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own
assumptions.

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



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

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

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

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

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

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

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

Our
investments as of September 30, 2016 consisted primarily of debt investments that were acquired directly from the issuer. Seventeen senior secured loan investments, two senior
secured bond investments and six subordinated debt investments were valued by independent valuation firms, which determined the fair value of such investments by considering, among other factors, the
borrower's ability to adequately service its debt, prevailing interest rates for like investments, call features, anticipated prepayments and other relevant terms of the debt. Twenty-nine 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. One equity/other investment, which
was traded on an active public market, was valued at its closing price as of September 30, 2016. Except as described above, we valued our other investments, including two of our equity/other
investments, by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by an independent third-party pricing service and
screened for validity by such service.

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

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

Revenue Recognition

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

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

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

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

Capital Gains Incentive Fee

Pursuant to the terms of the investment advisory and administrative services agreement, the incentive fee on capital gains is determined and
payable in arrears as of the end of each calendar year (or upon termination of such agreement). Such fee equals 20.0% of our incentive fee capital gains (i.e., our realized capital gains on a
cumulative basis from inception, calculated as of the end of the

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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.

Subordinated Income Incentive Fee

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

Uncertainty in Income Taxes

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

Contractual Obligations

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

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

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



Payments Due By PeriodTotal

Less than
1 year

1-3 years

3-5 years

More than
5 yearsBNP Facility(1)

$
113,737

$
113,737








Deutsche Bank Credit Facility(2)

$
200,000

$
200,000








Fortress Facility(3)

$
89,600







$
89,600


Goldman Facility(4)

$
325,000




$
325,000





Natixis Credit Facility(5)

$
51,435










$
51,435Wells Fargo Credit Facility(6)

$
85,100




$
85,100








(1)At
September 30, 2016, $186,263 remained unused under the BNP facility. The BNP facility generally is terminable upon 270 days' notice by either party.
As of September 30, 2016, neither Berwyn Funding nor BNP had provided notice of its intent to terminate the facility.(2)At
September 30, 2016, $115,000 remained unused under the Deutsche Bank credit facility. All amounts borrowed under the facility will mature, and all accrued
and unpaid interest thereunder will be due and payable, on June 11, 2017.(3)At
September 30, 2016, $65,400 remained unused under the Fortress facility. All amounts borrowed under the facility will mature, and all accrued and unpaid
interest thereunder will be due and payable, on November 6, 2020.(4)At
September 30, 2016, no amounts 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, 2018.(5)At
September 30, 2016, no amounts remained unused under the Natixis credit facility. All amounts borrowed under the facility will mature, and all accrued and
unpaid interest thereunder will be due and payable, on July 11, 2023. Amounts under the Natixis credit facility began to amortize after the first repayment thereunder and we cannot borrow
additional amounts under the facility thereafter.(6)At
September 30, 2016, $39,900 remained unused under the Wells Fargo credit facility. All amounts borrowed under the facility will mature, and all accrued and
unpaid interest thereunder will be due and payable, on September 9, 2018, as amended.


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

Off-Balance Sheet Arrangements

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

Related Party Transactions

Compensation of the Investment Adviser and Dealer Manager

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

The
dealer manager for our continuous public offering is FS Investment Solutions, which is one of our affiliates. Under the dealer manager agreement among us, FS Advisor and FS
Investment Solutions, FS Investment Solutions is entitled to receive sales commissions and dealer manager fees in

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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 and financial representatives.

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



Three Months Ended
September 30,

Nine Months Ended
September 30,Related Party

Source Agreement

Description

2016

2015

2016

2015FS Advisor

Investment Advisory and Administrative Services Agreement

Base Management Fee(1)

$
20,086

$
19,522

$
55,725

$
57,659FS Advisor

Investment Advisory and Administrative Services Agreement

Subordinated Incentive Fee on Income(2)




$
9,611

$
5,774

$
18,968FS Advisor

Investment Advisory and Administrative Services Agreement

Administrative Services Expenses(3)

$
1,118

$
892

$
2,885

$
3,153FS Advisor

Investment Advisory and Administrative Services Agreement

Offering Costs(4)

$
950

$
840

$
3,320

$
3,873FS Investment Solutions

Dealer Manager Agreement

Dealer Manager Fee(5)

$
1,704

$
2,276

$
5,822

$
7,622


(1)During
the nine months ended September 30, 2016 and 2015, $53,977 and $56,049, respectively, in base management fees were paid to FS Advisor. As of
September 30, 2016, $20,086 in base management fees were payable to FS Advisor.(2)During
the nine months ended September 30, 2016 and 2015, $17,822 and $21,499, respectively, of subordinated incentive fees on income were paid to FS Advisor.
As of September 30, 2016, we did not have a subordinated incentive fee on income payable to FS Advisor.(3)During
the nine months ended September 30, 2016 and 2015, $2,784 and $2,940, 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 $3,201 and $2,979 in administrative services
expenses to FS Advisor during the nine months ended September 30, 2016 and 2015, respectively.(4)During
the nine months ended September 30, 2016 and 2015, we incurred offering costs of $3,600 and $7,150, respectively, of which $3,320 and $3,873,
respectively, related to reimbursements to FS Advisor for offering costs incurred on our behalf, including marketing expenses, salaries and other direct expenses of FS Advisor's personnel and
employees of its affiliates while engaged in registering and marketing our common shares. See Note 2 to our unaudited consolidated financial statements included herein for a discussion
regarding our change in accounting treatment of offering costs.(5)Represents
aggregate dealer manager fees retained by FS Investment Solutions and not re-allowed to selected broker-dealers or financial representatives.


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

Recent Developments

During the period from October 1, 2016 to October 25, 2016, we sold 1,968,410 common shares for gross proceeds of $16,037 at an
average price per share of $8.15.

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, 2016, 45.9% of our portfolio
investments (based on fair value) paid variable interest rates, 38.3% paid fixed interest rates, 4.9% were income producing equity or other investments and the remainder (10.9%) consisted of
non-income producing equity or other investments. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to the variable rate investments we hold and
to declines in the value of any fixed rate investments we hold. However, many of our variable rate investments provide for an interest rate floor, which may prevent our interest income from increasing
until benchmark interest rates increase beyond a threshold amount. To the extent that a

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

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



Basis Point Change in Interest Rates

Increase
(Decrease)
in Interest
Income

Increase
(Decrease)
in Interest
Expense

Increase
(Decrease) in
Net Interest
Income

Percentage
Change in
Net Interest
IncomeDown 85 basis points

$


$
(7,342
)
$
7,342


2.4
%No change











Up 100 basis points


11,087


8,638


2,449


0.8
%Up 300 basis points


46,015


25,913


20,102


6.6
%Up 500 basis points


81,431


43,189


38,242


12.5
%


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, 2016
and 2015, we did not engage in interest rate hedging activities.

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

Item 4.    Controls and Procedures.

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

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

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PART IIOTHER INFORMATION

Item 1.    Legal Proceedings.

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

Item 1A.    Risk Factors.

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

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

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



Period

Total
Number of
Shares
Purchased

Average
Price Paid
per Share

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

Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or
ProgramsJuly 1 to July 31, 2016


1,788,021

$
7.20


1,788,021


(1
)August 1 to August 31, 2016











September 1 to September 30, 2016











​
​
​
​
​
​
​
​
​
​
​
​
​
​Total


1,788,021

$
7.20


1,788,021


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


(1)The
maximum number of common shares available for repurchase on July 1, 2016 was 8,446,996. 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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Table of Contents

Item 6.    Exhibits.



3.1

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

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

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

Second 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 October 17, 2016.)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 FS Investment Solutions, LLC (formerly 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 FS Investment Solutions, LLC (formerly 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 FS Investment Solutions, LLC (formerly 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 2014 Follow-On Selected Dealer Agreement.(Included as Exhibit A to the Form of Follow-On Dealer Manager Agreement.) (Incorporated by reference to Exhibit (h)(5) filed with FS
Energy and Power Fund's registration statement on Form N-2 (File No. 333-199777) filed on October 31, 2014.)10.9

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


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10.10

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

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

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

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

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

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

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

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

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

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

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

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

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


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10.23

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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10.38

Fifth Amendment to the Committed Facility Agreement, dated as of May 4, 2016 by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc.(Incorporated by reference to
Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 10, 2016.)10.39

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

First Amendment to the U.S. PB Agreement, dated as of May 4, 2016, by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc.(Incorporated by reference to
Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 10, 2016.)10.41

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

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

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

First Amendment to the Loan and Servicing Agreement, dated as of October 13, 2016, among Wayne Funding LLC, as Borrower, Wells Fargo Securities, LLC, as Administrative Agent, Wells Fargo Bank, National
Association, as institutional lender, and Wells Fargo Bank, National Association, as collateral agent, account bank and collateral custodian.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current
Report on Form 8-K filed on October 14, 2016.)10.45

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.)10.46

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.)10.47

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.)10.48

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.)10.49

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.)10.50

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.)


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10.51

Second Supplemental Indenture, dated as of September 21, 2016, by and between Gladwyne Funding LLC and Citibank, N.A., as trustee.(Incorporated by reference to Exhibit 10.1 to FS
Energy and Power Fund's Current Report on Form 8-K filed on September 22, 2016.)10.52

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.)10.53

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.)10.54

Amended and Restated September 1996 Version Master Repurchase Agreement between Goldman Sachs Bank USA and Strafford Funding LLC, dated as of September 21, 2016.(Incorporated by
reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on September 22, 2016.)10.55

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.)10.56*

Second Amended and Restated Master Confirmation, dated as of September 21, 2016, by and between Goldman Sachs Bank USA and Strafford Funding LLC.10.57

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.)10.58

Amended and Restated Revolving Credit Agreement, dated as of December 15, 2014, by and between FS Energy and Power Fund and Strafford Funding LLC.(Incorporated by reference to
Exhibit 10.3 of FS Energy and Power Fund's Current Report on Form 8-K filed on December 19, 2014.)10.59

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.)10.60

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.)10.61

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.)10.62

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.)10.63

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.)10.64

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.)


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10.65

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.)10.66

Pledge Agreement, dated as of November 6, 2015, by and between FS Energy and Power Fund and Fortress Credit Co LLC.(Incorporated by reference to Exhibit 10.6 to FS Energy and
Power Fund's Current Report on Form 8-K filed on November 12, 2015.)10.67

First Amendment to Term Loan and Security Agreement, dated as of November 25, 2015, by and among Foxfields Funding LLC, Fortress Credit Co LLC, as administrative agent, the lenders signatory thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 1, 2015.)10.68

Senior Secured Revolving Credit Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, Barclays Bank PLC, as administrative agent, and the lenders from time to time party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)10.69

Contribution Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Bryn Mawr Funding LLC.(Incorporated by reference to Exhibit 10.2 to FS Energy and
Power Fund's Current Report on Form 8-K filed on May 24, 2016.)10.70

Investment Management Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Bryn Mawr Funding LLC.(Incorporated by reference to Exhibit 10.3 to FS
Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)10.71

Control Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, Barclays Bank PLC, as collateral agent, and State Street Bank and Trust Company, as custodian.(Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)10.72

Guaranty, dated as of May 18, 2016, by and between FS Energy and Power Fund and Barclays Bank PLC, as collateral agent.(Incorporated by reference to Exhibit 10.5 to FS Energy and
Power Fund's Current Report on Form 8-K filed on May 24, 2016.)10.73

Pledge Agreement, dated as of May 18, 2016, by and between FS Energy and Power Fund and Barclays Bank PLC, as collateral agent.(Incorporated by reference to Exhibit 10.6 to FS
Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)10.74

Guarantee, Pledge and Security Agreement, dated as of May 18, 2016, by and among Bryn Mawr Funding LLC, any subsidiary guarantors from time to time party thereto, Barclays Bank PLC, as revolving
administrative agent, and Barclays Bank PLC, as collateral agent.(Incorporated by reference to Exhibit 10.7 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 24, 2016.)31.1*

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

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

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


*Filed
herewith.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized on November 9, 2016.



FS Energy and Power FundBy:

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

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


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