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



FORM 10-Q



ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015o

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


COMMISSION FILE NUMBER: 814-00841



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



Delaware(State or other jurisdiction of
incorporation or organization)

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

19112(Zip Code)


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



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

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

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

Large accelerated filer o

Accelerated filer o

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

Smaller reporting company o


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

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

The
issuer had 344,156,361 common shares of beneficial interest outstanding as of July 28, 2015.





---





Table of Contents



TABLE OF CONTENTS



PagePART IFINANCIAL INFORMATIONITEM 1.

FINANCIAL STATEMENTS


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


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


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


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


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


5Notes to Unaudited Consolidated Financial Statements


17ITEM 2.

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


47ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


70ITEM 4.

CONTROLS AND PROCEDURES


71PART IIOTHER INFORMATIONITEM 1.

LEGAL PROCEEDINGS


72ITEM 1A.

RISK FACTORS


72ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


72ITEM 3.

DEFAULTS UPON SENIOR SECURITIES


72ITEM 4.

MINE SAFETY DISCLOSURES


72ITEM 5.

OTHER INFORMATION


72ITEM 6.

EXHIBITS


73SIGNATURES


78


---





Table of Contents

PART IFINANCIAL INFORMATION

Item 1.    Financial Statements.



FS Energy and Power Fund        Consolidated Balance Sheets  (in thousands, except share and per share amounts)

June 30, 2015
(Unaudited)

December 31,
2014AssetsInvestments, at fair valueunaffiliated (amortized cost$3,627,111 and $3,375,716, respectively)

$
3,401,254

$
3,089,068Investments, at fair valueaffiliated (amortized cost$300,194 and $287,334, respectively)


306,568


286,109Cash


210,139


225,130Foreign currency, at fair value (cost$2,474 and $0, respectively)


2,464


Receivable for investments sold and repaid


6,952


51,253Interest receivable


40,069


47,197Receivable for common shares purchased


50


9,989Deferred financing costs


5,537


5,575Prepaid expenses and other assets


190


30​
​
​
​
​
​
​
​Total assets

$
3,973,223

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

$
26,923

$
20,094Credit facilities payable


733,538


901,300Repurchase agreement payable(1)


259,425


189,113Shareholder distributions payable


22,822


50Management fees payable


19,392


17,912Subordinated income incentive fees payable(2)


6,478


12,142Administrative services expense payable


2,032


1,653Interest payable


1,951


2,888Trustees' fees payable


266


229Other accrued expenses and liabilities


3,857


3,249​
​
​
​
​
​
​
​Total liabilities


1,076,684


1,148,630​
​
​
​
​
​
​
​Commitments and contingencies(3)Shareholders' equityPreferred shares, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding





Common shares, $0.001 par value, 450,000,000 shares authorized, 337,274,812 and 299,394,371 shares issued and outstanding, respectively


337


299Capital in excess of par value


3,167,320


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


(64,751
)

7,497Accumulated undistributed net investment income(4)


13,246


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


(219,613
)

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


2,896,539


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

$
3,973,223

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

$
8.59

$
8.57


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




See notes to unaudited consolidated financial statements.

1

---





Table of Contents



FS Energy and Power Fund        Unaudited Consolidated Statements of Operations  (in thousands, except share and per share amounts)

Three Months Ended
June 30,

Six Months Ended
June 30,2015

2014

2015

2014Investment incomeInterest incomeunaffiliated

$
78,406

$
61,752

$
154,608

$
112,719Interest incomeaffiliated


4,877





9,744


Fee incomeunaffiliated


9,127


10,255


13,645


15,844​
​
​
​
​
​
​
​
​
​
​
​
​
​Total investment income


92,410


72,007


177,997


128,563​
​
​
​
​
​
​
​
​
​
​
​
​
​Operating expensesManagement fees


19,392


14,678


38,137


27,545Capital gains incentive fees(1)





3,015





8,580Subordinated income incentive fees(1)


6,478


10,013


9,357


14,623Administrative services expenses


761


1,008


2,261


1,943Share transfer agent fees


638


660


1,432


1,307Accounting and administrative fees


361


288


721


554Interest expense


7,408


4,096


14,724


8,433Trustees' fees


265


135


490


416Other general and administrative expenses


1,374


1,033


2,328


1,737​
​
​
​
​
​
​
​
​
​
​
​
​
​Total operating expenses


36,677


34,926


69,450


65,138Income taxes


69


51


158


107​
​
​
​
​
​
​
​
​
​
​
​
​
​Total expenses


36,746


34,977


69,608


65,245​
​
​
​
​
​
​
​
​
​
​
​
​
​Net investment income


55,664


37,030


108,389


63,318​
​
​
​
​
​
​
​
​
​
​
​
​
​Realized and unrealized gain/lossNet realized gain (loss) on investmentsunaffiliated


(40,553
)

2,411


(58,510
)

4,691Net realized gain (loss) on foreign currency


91


31


(147
)

(507
)Net change in unrealized appreciation (depreciation) on investmentsunaffiliated


44,673


12,697


60,791


38,718Net change in unrealized appreciation (depreciation) on investmentsaffiliated


5,131





7,599


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


(13
)

(50
)

(141
)

31​
​
​
​
​
​
​
​
​
​
​
​
​
​Total net realized and unrealized gain (loss) on investments


9,329


15,089


9,592


42,933​
​
​
​
​
​
​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations

$
64,993

$
52,119

$
117,981

$
106,251​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​Per share informationbasic and dilutedNet increase (decrease) in net assets resulting from operations (Earnings per Share)

$
0.20

$
0.24

$
0.37

$
0.52​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​Weighted average shares outstanding


329,285,131


219,030,100


319,815,870


203,738,493​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


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




See notes to unaudited consolidated financial statements.

2

---





Table of Contents



FS Energy and Power Fund        Unaudited Consolidated Statements of Changes in Net Assets  (in thousands)

Six Months Ended
June 30,2015

2014OperationsNet investment income

$
108,389

$
63,318Net realized gain (loss) on investments and foreign currency


(58,657
)

4,184Net change in unrealized appreciation (depreciation) on investments


68,390


38,718Net change in unrealized gain (loss) on foreign currency


(141
)

31​
​
​
​
​
​
​
​Net increase (decrease) in net assets resulting from operations


117,981


106,251​
​
​
​
​
​
​
​Shareholder distributions(1)Distributions from net investment income


(99,484
)

(64,746
)Distributions from net realized gain on investments


(13,591
)

​
​
​
​
​
​
​
​Net decrease in net assets resulting from shareholder distributions


(113,075
)

(64,746
)​
​
​
​
​
​
​
​Capital share transactionsIssuance of common shares(2)


283,757


544,468Reinvestment of shareholder distributions(2)


57,735


48,357Repurchases of common shares(2)


(10,230
)

(3,250
)Offering costs


(5,350
)

(3,131
)​
​
​
​
​
​
​
​Net increase in net assets resulting from capital share transactions


325,912


586,444​
​
​
​
​
​
​
​Total increase in net assets


330,818


627,949Net assets at beginning of period


2,565,721


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

$
2,896,539

$
2,304,186​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Accumulated undistributed (distributions in excess of) net investment income(1)

$
13,246

$
(9,374
)​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(1)See
Note 5 for a discussion of the sources of distributions paid by the Company.(2)See
Note 3 for a discussion of transactions with respect to the Company's common shares during the six months ended June 30, 2015 and 2014.




See notes to unaudited consolidated financial statements.

3

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Table of Contents



FS Energy and Power Fund        Unaudited Consolidated Statements of Cash Flows  (in thousands)

Six Months Ended
June 30,2015

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

$
117,981

$
106,251Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating
activities:Purchases of investments


(686,349
)

(1,059,647
)Paid-in-kind interest


(12,556
)

(6,206
)Proceeds from sales and repayments of investments


380,080


460,436Net realized (gain) loss on investments


58,510


(4,691
)Net change in unrealized (appreciation) depreciation on investments


(68,390
)

(38,718
)Accretion of discount


(3,940
)

(5,941
)Amortization of deferred financing costs


1,228


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


44,301


(14,374
)(Increase) decrease in interest receivable


7,128


(3,818
)(Increase) decrease in prepaid expenses and other assets


(160
)

(129
)Increase (decrease) in payable for investments purchased


6,829


6,310Increase (decrease) in management fees payable


1,480


3,927Increase (decrease) in accrued capital gains incentive fees





5,723Increase (decrease) in subordinated income incentive fees payable


(5,664
)

3,227Increase (decrease) in administrative services expense payable


379


1,043Increase (decrease) in interest payable


(937
)

58Increase (decrease) in trustees' fees payable


37


(24
)Increase (decrease) in other accrued expenses and liabilities


608


1,309​
​
​
​
​
​
​
​Net cash provided by (used in) operating activities


(159,435
)

(544,440
)​
​
​
​
​
​
​
​Cash flows from financing activitiesIssuance of common shares


293,696


544,421Reinvestment of shareholder distributions


57,735


48,357Repurchases of common shares


(10,230
)

(3,250
)Offering costs


(5,350
)

(3,131
)Shareholder distributions


(90,303
)

(75,446
)Borrowings under credit facilities(1)


5,000


85,826Borrowings under repurchase agreement(2)


70,312


Repayments under credit facilities


(172,762
)

(850
)Deferred financing costs paid


(1,190
)

​
​
​
​
​
​
​
​Net cash provided by financing activities


146,908


595,927​
​
​
​
​
​
​
​Total increase (decrease) in cash


(12,527
)

51,487Cash at beginning of period


225,130


91,084​
​
​
​
​
​
​
​Cash and foreign currency at end of period

$
212,603

$
142,571​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​Supplemental disclosureExcise and state taxes paid

$
310

$
225​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(1)See
Note 8 for a discussion of the Company's credit facilities. During the six months ended June 30, 2015 and 2014, the Company paid $10,072
and $7,551, respectively, in interest expense on the credit facilities.(2)See
Note 8 for a discussion of the Company's repurchase transaction. During the six months ended June 30, 2015, the Company paid $4,361 in
interest expense pursuant to the repurchase agreement.




See notes to unaudited consolidated financial statements.

4

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Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments
As of June 30, 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34.0%Abaco Energy Technologies LLC

(g)(i)(j)

Service & Equipment

L+700


1.0
%
11/20/20

$
61,719

$
58,356

$
46,906Allied Wireline Services, LLC

(g)(i)(j)

Service & Equipment

L+800


1.5
%
2/28/19


103,125


101,823


102,352Alon USA Partners, L.P.

(g)(i)(l)

Downstream

L+800


1.3
%
11/26/18


7,195


7,410


7,267Altus Power America, Inc.

(j)

Power

L+750


1.5
%
10/10/21


27,655


27,655


27,932Altus Power America, Inc.

(e)

Power

L+750


1.5
%
10/10/21


56,720


56,720


57,287AP Exhaust Acquisition, LLC

(g)

Service & Equipment

L+775


1.5
%
1/16/21


14,595


14,595


14,449BBH Operating LLC



Upstream

Prime+500 PIK (8.25% Max PIK)


3.3
%
8/26/15


22,607


22,607


21,081BBH Operating LLC

(e)

Upstream

Prime+500 PIK (8.25% Max PIK)


3.3
%
8/26/15


7,393


7,393


6,894BL Sand Hills Unit, L.P.



Upstream

Prime+650


3.5
%
12/17/17


29,154


25,319


28,498BL Sand Hills Unit, L.P.

(e)

Upstream

Prime+650


3.5
%
12/17/17


28,807


25,017


28,159Cactus Wellhead, LLC

(g)(i)(j)

Service & Equipment

L+600


1.0
%
7/31/20


52,106


51,195


44,551Cimarron Energy Inc.

(g)

Service & Equipment

L+775


1.0
%
12/15/19


25,000


25,000


24,750CITGO Holding, Inc.

(f)

Downstream

L+850


1.0
%
5/12/18


7,340


7,071


7,384Crestwood Holdings LLC

(g)(j)

Midstream

L+600


1.0
%
6/19/19


31,405


31,545


31,170EnergySolutions, LLC

(f)(i)

Service & Equipment

L+575


1.0
%
5/29/20


20,462


20,119


20,582EP Acquisition LLC



Upstream

Prime+500 PIK (8.25% Max PIK)


3.3
%
8/26/15


514


514


482FR Dixie Acquisition Corp.



Service & Equipment

L+475


1.0
%
12/18/20


10,122


10,133


8,806FR Utility Services LLC

(j)

Service & Equipment

L+575


1.0
%
10/18/19


7,471


7,445


7,505Industrial Group Intermediate Holdings, LLC

(i)

Service & Equipment

L+800


1.3
%
5/31/20


14,566


14,566


14,566MB Precision Holdings LLC

(g)

Service & Equipment

L+725


1.3
%
1/23/20


13,298


13,298


13,165Moxie Liberty LLC

(g)(j)

Power

L+650


1.0
%
8/21/20


32,432


32,549


32,513Murray Energy Corp.

(f)(j)

Upstream

L+650


1.0
%
4/16/20


17,241


16,740


16,024Panda Sherman Power, LLC

(g)(j)

Power

L+750


1.5
%
9/14/18


22,757


23,102


22,558Panda Temple Power, LLC

(j)

Power

L+625


1.0
%
3/6/22


9,975


9,782


9,626Panda Temple Power II, LLC

(g)(j)

Power

L+600


1.3
%
4/3/19


27,809


28,176


26,419PeroxyChem LLC

(g)(j)

Service & Equipment

L+650


1.0
%
2/28/20


6,045


6,019


6,068ProPetro Services, Inc.

(i)

Service & Equipment

L+625


1.0
%
9/30/19


11,939


11,923


10,746RGL Reservoir Operations Inc.

(l)

Service & Equipment

L+500


1.0
%
8/13/21


9,074


8,834


5,921Southcross Holdings Borrower LP

(i)(j)

Midstream

L+500


1.0
%
8/4/21


18,857


18,773


18,378Stallion Oilfield Holdings, Inc.

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

Service & Equipment

L+675


1.3
%
6/19/18


63,207


63,120


52,020Stonewall Gas Gathering LLC

(j)

Midstream

L+775


1.0
%
1/28/22


23,116


22,023


23,406Sunnova Asset Portfolio 5 Holdings, LLC

(j)

Power

12.0% PIK (12.0% Max PIK)




11/14/21


143,630


143,630


145,066Sunnova Asset Portfolio 5 Holdings, LLC

(e)

Power

12.0% PIK (12.0% Max PIK)




11/14/21


106,327


106,327


107,390


See notes to unaudited consolidated financial statements.

5

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Table of Contents

FS Energy and Power Fund

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

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

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

(g)(j)

Service & Equipment

L+800


1.3
%
4/30/19

$
59,359

$
59,359

$
58,468Total Safety U.S., Inc.



Service & Equipment

L+450


1.3
%
3/13/20


4,371


4,424


3,978United Components, Inc.

(g)

Service & Equipment

L+400


1.5
%
7/26/17


4,961


4,951


4,936Warren Resources, Inc.



Upstream

L+850


1.0
%
5/22/20


122,790


122,790


122,790Warren Resources, Inc.

(e)

Upstream

L+850


1.0
%
5/22/20


16,770


16,770


16,770​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansFirst Lien
















1,227,073


1,196,863Unfunded Loan Commitments
















(212,227
)

(212,227
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Senior Secured LoansFirst Lien
















1,014,846


984,636​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Senior Secured LoansSecond Lien38.8%Alison US LLC

(f)(j)(l)

Service & Equipment

L+850


1.0
%
8/29/22


22,222


21,417


17,778American EnergyMarcellus, LLC



Upstream

L+750


1.0
%
8/4/21


10,000


9,868


5,533Ameriforge Group Inc.

(f)(g)(j)

Service & Equipment

L+750


1.3
%
12/21/20


35,950


36,475


30,333Ascent ResourcesUtica, LLC

(g)(j)

Upstream

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


1.5
%
9/30/18


278,108


276,736


272,546Atlas Resource Partners, L.P.

(i)(l)

Upstream

L+900


1.0
%
2/23/20


100,000


97,203


101,709BlackBrush Oil & Gas, L.P.

(f)(i)

Upstream

L+650


1.0
%
7/30/21


37,519


35,623


34,846Brock Holdings III, Inc.

(f)(g)(j)

Service & Equipment

L+825


1.8
%
3/16/18


29,605


29,798


28,828Callon Petroleum Co.

(i)(l)

Upstream

L+750


1.0
%
10/8/21


10,000


9,816


9,966Chief Exploration & Development LLC

(i)(j)

Upstream

L+650


1.0
%
5/16/21


19,576


19,499


18,539Consolidated Precision Products Corp.

(g)(j)

Service & Equipment

L+775


1.0
%
4/30/21


11,574


11,526


11,632Drew Marine Group Inc.

(j)(l)

Service & Equipment

L+700


1.0
%
5/19/21


8,000


7,984


7,920Emerald Performance Materials, LLC

(j)

Downstream

L+675


1.0
%
8/1/22


5,319


5,295


5,304Extraction Oil & Gas Holdings, LLC

(i)(j)

Upstream

11.0%




5/29/19


74,186


74,186


75,670Extraction Oil & Gas Holdings, LLC

(i)(j)

Upstream

10.0%




5/29/19


32,462


32,462


32,868Fieldwood Energy LLC

(f)(i)(j)

Upstream

L+713


1.3
%
9/30/20


41,047


42,029


31,625Granite Intermediate Holdings, Inc.

(f)(j)

Power

L+725


1.0
%
10/15/22


10,150


10,055


10,387Horn Intermediate Holdings, Inc.

(g)

Service & Equipment

L+775


1.3
%
10/2/18


50,250


50,250


49,999Husky Injection Molding Systems Ltd.

(f)(l)

Service & Equipment

L+625


1.0
%
6/30/22


3,101


3,135


3,074Jonah Energy LLC

(i)(j)

Upstream

L+650


1.0
%
5/12/21


26,185


25,839


24,974Magnum Hunter Resources Corp.

(i)(l)

Upstream

L+750


1.0
%
10/17/19


6,948


6,765


6,956MD America Energy, LLC

(f)(g)(j)

Upstream

L+850


1.0
%
8/4/19


56,500


54,236


55,061Neff Rental LLC

(f)(j)

Service & Equipment

L+625


1.0
%
6/9/21


17,989


18,018


17,888Oxbow Carbon LLC

(g)

Midstream

L+700


1.0
%
1/19/20


15,000


14,892


14,213P2 Upstream Acquisition Co.

(f)(g)(j)

Service & Equipment

L+800


1.0
%
4/30/21


32,599


32,881


30,426Templar Energy LLC

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

Upstream

L+750


1.0
%
11/25/20


89,923


88,327


66,498Total Safety U.S., Inc.

(g)(j)

Service & Equipment

L+800


1.3
%
9/13/20


14,795


14,996


11,960UTEX Industries, Inc.

(j)

Service & Equipment

L+725


1.0
%
5/20/22


39,192


39,221


33,607Vantage Energy II, LLC

(i)(j)

Upstream

L+750


1.0
%
5/8/17


85,000


85,000


84,575Vantage Energy, LLC

(i)(j)

Upstream

L+750


1.0
%
12/20/18


30,232


30,061


28,116​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured LoansSecond Lien
















1,183,593


1,122,831​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to unaudited consolidated financial statements.

6

---



Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of June 30, 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11.5%American EnergyWoodford, LLC

(h)

Upstream

12.0% PIK (12.0% Max PIK)




12/30/20

$
7,350

$
5,223

$
5,219Comstock Resources, Inc.

(h)(n)

Upstream

10.0%




3/15/20


2,500


2,500


2,269FourPoint Energy, LLC

(i)(j)(o)

Upstream

8.0%




12/31/20


235,125


226,018


215,139FourPoint Energy, LLC

(e)(o)

Upstream

8.0%




12/31/20


74,250


73,879


67,939Gastar Exploration USA, Inc.

(f)(h)(n)

Upstream

8.6%




5/15/18


26,750


26,023


25,145Light Tower Rentals, Inc.

(i)

Service & Equipment

8.1%




8/1/19


17,500


17,292


13,825Mirant Mid-Atlantic Trust

(f)(h)

Power

10.1%




12/30/28


33,087


36,996


36,148SandRidge Energy, Inc.

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

Upstream

8.8%




6/1/20


46,700


46,589


41,826​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Senior Secured Bonds
















434,520


407,510Unfunded Bond Commitment
















(73,879
)

(73,879
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Senior Secured Bonds
















360,641


333,631​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Subordinated Debt32.9%Alta Mesa Holdings, LP

(h)(n)

Upstream

9.6%




10/15/18


27,451


27,396


21,549Atlas Energy Holdings Operating Co., LLC

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

Upstream

7.8%




1/15/21


28,285


25,704


21,072Atlas Energy Holdings Operating Co., LLC

(f)(h)(l)

Upstream

9.3%




8/15/21


24,460


23,531


18,559Bellatrix Exploration Ltd.

(f)(h)(l)

Upstream

8.5%




5/15/20


45,000


44,122


42,525Brand Energy & Infrastructure Services, Inc.

(f)

Service & Equipment

8.5%




12/1/21


25,000


25,000


23,313Calpine Corp.

(f)(l)

Power

5.8%




1/15/25


10,100


10,093


9,841Canbriam Energy Inc.

(f)(h)(j)(l)

Upstream

9.8%




11/15/19


115,200


111,196


118,656Chaparral Energy Inc.

(h)

Upstream

8.3%




9/1/21


2,000


2,050


1,525Chaparral Energy Inc.

(h)(n)

Upstream

7.6%




11/15/22


15,225


16,203


11,502Compressco Partners, LP

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

Service & Equipment

7.3%




8/15/22


20,000


19,839


19,238Comstock Resources, Inc.

(h)(n)

Upstream

9.5%




6/15/20


5,000


4,833


2,138Crestwood Midstream Partners L.P.

(f)(l)

Midstream

6.1%




3/1/22


5,500


5,500


5,665CrownRock, L.P.

(f)(h)(n)

Upstream

7.1%




4/15/21


37,500


37,500


39,141CrownRock, L.P.

(h)

Upstream

7.8%




2/15/23


2,800


2,760


2,989Dynegy Finance I/II Inc.

(f)(l)

Power

7.4%




11/1/22


1,950


1,950


2,044Dynegy Finance I/II Inc.

(f)(l)

Power

6.8%




11/1/19


950


950


989Dynegy Finance I/II Inc.

(f)(l)

Power

7.6%




11/1/24


8,680


8,709


9,168Eclipse Resources Corp.

(f)(h)(k)(l)

Upstream

8.9%




7/15/23


27,500


26,923


26,709Eco Services Operations LLC

(f)

Service & Equipment

8.5%




11/1/22


5,000


5,000


5,000EV Energy Partners, L.P.

(f)(h)(l)

Upstream

8.0%




4/15/19


7,500


7,030


6,994Everest Acquisition LLC

(f)

Upstream

9.4%




5/1/20


14,250


14,250


15,221


See notes to unaudited consolidated financial statements.

7

---



Table of Contents

FS Energy and Power Fund

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

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Gardner Denver, Inc.

(f)

Service & Equipment

6.9%




8/15/21

$
8,948

$
9,396

$
8,255GenOn Energy, Inc.

(f)(h)(n)

Power

9.9%




10/15/20


42,698


44,834


43,072Global Jet Capital Inc.



Service & Equipment

15.0%




1/30/25


620


620


620Global Jet Capital Inc.



Service & Equipment

15.0%




4/30/25


4,826


4,826


4,826Global Partners L.P.

(f)(h)(l)

Midstream

6.3%




7/15/22


68,350


68,350


66,556The Hillman Group, Inc.

(f)

Service & Equipment

6.4%




7/15/22


5,000


5,023


4,763Jones Energy, Inc.

(h)(n)

Upstream

6.8%




4/1/22


8,000


8,000


7,620Jupiter Resources Inc.

(f)(h)(l)

Upstream

8.5%




10/1/22


71,125


67,097


60,190The Kenan Advantage Group, Inc.

(f)

Service & Equipment

8.4%




12/15/18


18,000


18,398


18,788Legacy Reserves LP

(f)(l)

Upstream

8.0%




12/1/20


16,750


16,479


14,489Legacy Reserves LP

(f)(h)(l)

Upstream

6.6%




12/1/21


14,000


13,837


11,200Lightstream Resources Ltd.

(h)(l)

Upstream

8.6%




2/1/20


48,745


49,087


31,800Lonestar Resources America Inc.

(h)(n)

Upstream

8.8%




4/15/19


21,500


21,603


17,603Martin Midstream Partners L.P.

(f)(l)

Midstream

7.3%




2/15/21


18,607


19,133


18,514Memorial Production Partners L.P.

(h)(l)(n)

Upstream

7.6%




5/1/21


7,000


6,827


6,641Memorial Production Partners L.P.

(h)(l)

Upstream

6.9%




8/1/22


12,500


12,295


11,406Northern Oil and Gas, Inc.

(h)(l)

Upstream

8.0%




6/1/20


3,150


2,995


2,886RKI Exploration & Production, LLC

(f)(h)(n)

Upstream

8.5%




8/1/21


58,704


58,655


58,410Samson Investment Co.

(h)(n)(q)(x)

Upstream

9.8%




2/15/20


56,300


52,982


2,956SandRidge Energy, Inc.

(h)(l)(n)

Upstream

8.8%




1/15/20


20,395


18,828


11,166Swift Energy Co.

(h)(n)

Upstream

7.9%




3/1/22


20,000


20,043


8,003Talos Production LLC

(f)(h)(n)

Upstream

9.8%




2/15/18


43,250


43,263


38,168Teine Energy Ltd.

(h)(l)

Upstream

6.9%




9/30/22


12,900


12,807


12,561Tenrgys, LLC

(i)(j)

Upstream

L+900


2.5
%
12/23/18


75,000


75,000


74,625Zachry Holdings, Inc.

(f)

Service & Equipment

7.5%




2/1/20


14,300


14,384


14,300​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Subordinated Debt
















1,085,301


953,256​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to unaudited consolidated financial statements.

8

---



Table of Contents

FS Energy and Power Fund

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

Portfolio Company(a)

Footnotes

Industry







Number of
Shares

Amortized
Cost

Fair
Value(d)Equity/Other10.8%(m)Abaco Energy Technologies LLC, Common
Equity

(q)

Service & Equipment









6,944,444

$
6,944

$
3,819Allied Downhole Technologies, LLC, Common Equity

(p)(q)

Service & Equipment









6,600,000


6,600


8,250Allied Downhole Technologies, LLC, Warrants

(p)(q)

Service & Equipment









5,344,680


1,865


2,993Altus Power America Holdings, LLC, Preferred Equity

(q)

Power









9,218,478


9,218


16,132AP Exhaust Holdings, LLC, Common Equity

(p)(q)

Service & Equipment









811


811


709Ascent Resources Utica Holdings, LLC, Common Equity

(q)(r)

Upstream









15,657,194


14,900


12,526BBH Operating LLC, Common Equity

(q)(s)

Upstream









1,000


1,000


507BL Sand Hills Unit, L.P., Net Profits Interest

(q)(t)

Upstream









N/A


3,591


4,363BL Sand Hills Unit, L.P. Overriding Royalty Interest

(t)

Upstream









N/A


513


353Cimarron Energy Holdco Inc., Common Equity

(q)

Service & Equipment









2,500,000


2,500


2,000Extraction Oil & Gas Holdings, LLC, Common Equity

(p)(q)

Upstream









4,191,800


11,250


12,575Fortune Creek Co-Invest I L.P., LP Interest

(l)(u)

Midstream









N/A


16,703


14,206FourPoint Energy, LLC, Common Equity, Class C Units

(o)(p)(q)

Upstream









66,000


66,000


81,840FourPoint Energy, LLC, Common Equity, Class D Units

(o)(p)(q)

Upstream









12,374


8,176


15,529Global Jet Capital Holdings, LP, Preferred Equity

(q)

Service & Equipment









2,333,842


2,334


2,334Industrial Group Intermediate Holdings, LLC, Common Equity

(p)(q)

Service & Equipment









371,901


372


632MB Precision Investment Holdings LLC, Common Equity, Class A-2 Units

(q)

Service & Equipment









490,213


490


466Plains Offshore Operations Inc., Preferred Equity

(f)

Upstream









21,067


25,475


29,303Plains Offshore Operations Inc., Warrants

(f)(q)

Upstream









427,005


689


1,196Summit Midstream Partners, LLC, Preferred Equity



Midstream









39,163


39,163


38,967Swift Worldwide Resources Holdco Limited, Common Equity

(l)(q)(v)

Service & Equipment









3,750,000


6,029


4,718Synergy Offshore LLC, Preferred Equity

(w)

Upstream









50,000


58,301


60,050​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Equity/Other
















282,924


313,468​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​TOTAL INVESTMENTS128.0%















$
3,927,305


3,707,822​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​LIABILITIES IN EXCESS OF OTHER ASSETS(28.0%)



















(811,283
)​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​NET ASSETS100.0%


















$
2,896,539​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


See notes to unaudited consolidated financial statements.

9

---



Table of Contents

FS Energy and Power Fund

Unaudited Consolidated Schedule of Investments (Continued)
As of June 30, 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 June 30, 2015, the three-month London Interbank Offered Rate was 0.28% and the U.S. Prime Lending Rate was 3.25%.(c)Denominated
in U.S. dollars, unless otherwise noted.(d)Fair
value determined by the Company's board of trustees (see Note 7).(e)Security
is an unfunded commitment.(f)Security
or portion thereof held within FSEP Term Funding, LLC and is pledged as collateral supporting the amounts outstanding under the revolving
credit facility with Deutsche Bank AG, New York Branch (see Note 8).(g)Security
or portion thereof held within Energy Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit
facility with Natixis, New York Branch (see Note 8).(h)Security
or portion thereof held within Berwyn Funding LLC and is pledged as collateral supporting the amounts outstanding under the prime brokerage
facility with BNP Paribas Prime Brokerage, Inc., or BNP. Securities held within Berwyn Funding LLC may be rehypothecated from time to time as permitted under Rule 15c-1(a)(1) of
the Securities Exchange Act of 1934, as amended, or the Exchange Act, subject to the terms and conditions governing the prime brokerage facility with BNP (see Note 8).(i)Security
or portion thereof held within Wayne Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit
facility with Wells Fargo Securities, LLC (see Note 8).(j)Security
or portion thereof held within Gladwyne Funding LLC and is pledged as collateral supporting the obligations outstanding under the repurchase
transaction with Goldman Sachs Bank USA (see Note 8).(k)Position
or portion thereof unsettled as of June 30, 2015.(l)The
investment is not a qualifying asset under the Investment Company Act of 1940, as amended, or the 1940 Act. A business development company may not
acquire any asset other than a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company's total assets. As of
June 30, 2015, 81.1% of the Company's total assets represented qualifying assets.(m)Listed
investments may be treated as debt for 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 June 30, 2015, the fair value of securities rehypothecated by BNP was $111,412.(o)Under
the 1940 Act, the Company generally is deemed to be an "affiliated person" of a portfolio company if it owns 5% or more of the portfolio company's
voting securities and generally is deemed to "control" a portfolio company if it owns 25% or more of the portfolio company's voting securities or it has the power to exercise control over the
management or policies of a portfolio company. As of June 30, 2015, the Company held investments in a portfolio company of which it is deemed to be an "affiliated person" but is not deemed to
"control." The following table presents certain information with respect to such portfolio company for the six months ended June 30, 2015:


Portfolio Company

Purchases

Sales and
Repayments

Interest
Income

Fee
Income

Net
Realized
Gain (Loss)

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







$
9,744







$
10,281Equity/OtherFourPoint Energy, LLC, Common Equity, Class C Units
















$
(2,310
)FourPoint Energy, LLC, Common Equity, Class D Units
















$
(372
)


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


See notes to unaudited consolidated financial statements.

10

---



Table of Contents

FS Energy and Power Fund

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

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured LoansFirst Lien33.3%Abaco Energy Technologies LLC

(h)(j)(k)

Service & Equipment

L+700


1.0
%
11/20/20

$
62,500

$
58,795

$
59,063Allied Wireline Services, LLC

(h)(j)(k)

Service & Equipment

L+800


1.5
%
2/28/19


105,875


104,405


105,081Alon USA Partners, L.P.

(h)(j)(m)

Downstream

L+800


1.3
%
11/26/18


7,231


7,468


7,308Altus Power America, Inc.

(k)

Power

L+750


1.5
%
10/10/21


20,568


20,568


20,568Altus Power America, Inc.

(e)

Power

L+750


1.5
%
10/10/21


63,807


63,807


63,807AP Exhaust Acquisition, LLC

(h)

Service & Equipment

L+775


1.5
%
1/16/21


14,595


14,595


14,157Atlas Energy, L.P.

(g)(m)

Midstream

L+550


1.0
%
7/31/19


5,486


5,443


5,404Azure Midstream Energy LLC

(g)

Midstream

L+550


1.0
%
11/15/18


12,825


12,669


11,543BBH Operating LLC



Upstream

Prime+500


3.3
%
2/26/15


19,850


19,850


18,957BBH Operating LLC

(e)

Upstream

Prime+500


3.3
%
2/26/15


10,150


10,150


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



Upstream

Prime+650


3.5
%
12/17/17


20,206


17,548


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

(e)

Upstream

Prime+650


3.5
%
12/17/17


38,292


33,254


36,808Boomerang Tube, LLC

(f)(g)

Service & Equipment

L+950


1.5
%
10/11/17


18,584


18,441


16,122Cactus Wellhead, LLC

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

Service & Equipment

L+600


1.0
%
7/31/20


52,369


51,384


42,550Cimarron Energy Inc.

(h)

Service & Equipment

L+775


1.0
%
12/15/19


25,000


25,000


25,000Crestwood Holdings LLC

(g)(h)(k)

Midstream

L+600


1.0
%
6/19/19


32,255


32,406


30,622EnergySolutions, LLC

(f)(j)

Service & Equipment

L+575


1.0
%
5/29/20


21,709


21,314


21,702EP Acquisition LLC



Upstream

Prime+500


3.3
%
3/31/15


750


750


720FR Dixie Acquisition Corp.

(g)

Service & Equipment

L+475


1.0
%
12/18/20


10,173


10,184


8,443FR Utility Services LLC

(g)

Service & Equipment

L+575


1.0
%
10/18/19


15,009


14,919


14,952Harvey Gulf International Marine, LLC

(g)

Service & Equipment

L+450


1.0
%
6/18/20


1,910


1,893


1,551Hudson Products Holdings Inc.

(g)

Service & Equipment

L+400


1.0
%
3/15/19


1,773


1,769


1,720Industrial Group Intermediate Holdings, LLC

(j)

Service & Equipment

L+800


1.3
%
5/31/20


14,886


14,886


14,886Larchmont Resources, LLC

(g)(j)

Upstream

L+725


1.0
%
8/7/19


20,370


20,379


19,809MB Precision Holdings LLC

(h)

Service & Equipment

L+725


1.3
%
1/23/20


13,365


13,365


13,231Moxie Liberty LLC

(g)(h)(k)

Power

L+650


1.0
%
8/21/20


32,432


32,562


32,270Moxie Patriot LLC

(k)

Power

L+575


1.0
%
12/19/20


2,000


2,041


1,990Panda Sherman Power, LLC

(g)(h)

Power

L+750


1.5
%
9/14/18


19,872


20,258


19,773Panda Temple Power, LLC (TLA)

(k)

Power

L+700


1.5
%
7/17/18


13,949


13,799


14,141Panda Temple Power, LLC (TLB)

(g)(h)(k)

Power

L+1000


1.5
%
7/17/18


40,000


39,447


40,600Panda Temple Power II, LLC

(g)(h)

Power

L+600


1.3
%
4/3/19


23,809


24,274


23,452PeroxyChem LLC

(h)(k)

Service & Equipment

L+650


1.0
%
2/28/20


11,900


11,793


11,781ProPetro Services, Inc.

(j)(l)

Service & Equipment

L+625


1.0
%
9/30/19


12,267


12,246


11,899RGL Reservoir Operations Inc.

(g)(m)

Service & Equipment

L+500


1.0
%
8/13/21


9,120


8,859


7,357Southcross Holdings Borrower LP

(g)(j)

Midstream

L+500


1.0
%
8/4/21


18,952


18,862


16,962Sprint Industrial Holdings LLC

(h)

Service & Equipment

L+575


1.3
%
11/14/19


14,775


14,760


14,110Stallion Oilfield Holdings, Inc.

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

Service & Equipment

L+675


1.3
%
6/19/18


63,538


63,425


54,404Sunnova Asset Portfolio 5 Holdings, LLC

(k)

Power

12.0% PIK (12.0% Max PIK)




11/14/21


62,502


62,502


62,502Sunnova Asset Portfolio 5 Holdings, LLC

(e)

Power

12.0% PIK (12.0% Max PIK)




11/14/21


110,909


110,909


110,909


See notes to unaudited consolidated financial statements.

11

---



Table of Contents

FS Energy and Power Fund

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

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

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

(h)(k)

Service & Equipment

L+800


1.3
%
4/30/19

$
59,660

$
59,660

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

(g)

Service & Equipment

L+450


1.3
%
3/13/20


4,394


4,451


4,240United Components, Inc.

(h)(l)

Service & Equipment

L+400


1.5
%
7/26/17


4,987


4,975


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
















1,100,065


1,072,945Unfunded Loan Commitments
















(218,120
)

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
















881,945


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

(f)(m)

Service & Equipment

L+850


1.0
%
8/29/22


22,222


21,363


20,806American EnergyMarcellus, LLC

(g)

Upstream

L+750


1.0
%
8/4/21


10,000


9,858


9,200American EnergyUtica, LLC

(h)(k)

Upstream

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


1.5
%
9/30/18


122,646


122,646


120,194American EnergyUtica, LLC



Upstream

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


1.5
%
9/30/18


83,297


83,297


81,631Ameriforge Group Inc.

(f)(h)(k)

Service & Equipment

L+750


1.3
%
12/21/20


35,950


36,516


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

(f)(j)

Upstream

L+650


1.0
%
7/30/21


27,500


27,286


22,825Brock Holdings III, Inc.

(f)(h)(k)

Service & Equipment

L+825


1.8
%
3/16/18


29,605


29,829


23,832Callon Petroleum Co.

(j)(m)

Upstream

L+750


1.0
%
8/29/21


10,000


9,804


9,475Chief Exploration & Development LLC

(j)(k)

Upstream

L+650


1.0
%
5/16/21


19,576


19,494


17,717Consolidated Precision Products Corp.

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

Service & Equipment

L+775


1.0
%
4/30/21


28,500


28,375


27,218Drew Marine Group Inc.

(k)(m)

Service & Equipment

L+700


1.0
%
5/19/21


10,000


9,978


9,950Emerald Performance Materials, LLC

(k)

Downstream

L+675


1.0
%
8/1/22


5,319


5,294


5,186Extraction Oil & Gas Holdings, LLC

(j)(k)

Upstream

11.0%




5/29/19


74,186


74,186


74,928Extraction Oil & Gas Holdings, LLC

(j)(k)

Upstream

10.0%




5/29/19


32,462


32,462


32,137Fieldwood Energy LLC

(f)(j)(k)

Upstream

L+713


1.3
%
9/30/20


41,047


42,100


30,298Filtration Group Corp.

(g)

Service & Equipment

L+725


1.0
%
11/21/21


2,632


2,608


2,635Granite Intermediate Holdings, Inc.

(f)(k)(l)

Power

L+725


1.0
%
10/15/22


10,150


10,049


10,254Horn Intermediate Holdings, Inc.

(h)

Service & Equipment

L+775


1.3
%
10/2/18


57,750


57,750


56,306Husky Injection Molding Systems Ltd.

(f)(m)

Service & Equipment

L+625


1.0
%
6/30/22


4,000


4,048


3,850Jonah Energy LLC

(j)(k)

Upstream

L+650


1.0
%
5/8/21


26,185


25,808


22,650Magnum Hunter Resources Corp.

(j)(m)

Upstream

L+750


1.0
%
10/17/19


6,983


6,780


6,878MD America Energy, LLC

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

Upstream

L+850


1.0
%
8/4/19


78,000


74,506


74,879Neff Rental LLC

(f)(k)

Service & Equipment

L+625


1.0
%
6/9/21


17,989


18,019


18,068Oxbow Carbon LLC

(h)

Midstream

L+700


1.0
%
1/19/20


15,000


14,874


13,325P2 Upstream Acquisition Co.

(f)(h)(k)

Service & Equipment

L+800


1.0
%
4/30/21


32,599


32,901


31,377Power Buyer, LLC

(g)

Service & Equipment

L+725


1.0
%
11/6/20


2,500


2,520


2,422Templar Energy LLC

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

Upstream

L+750


1.0
%
11/25/20


89,923


88,196


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

(g)(h)

Service & Equipment

L+800


1.3
%
9/13/20


14,795


15,013


14,352UTEX Industries, Inc.

(g)(k)

Service & Equipment

L+725


1.0
%
5/20/22


39,192


39,224


35,469Vantage Energy II, LLC

(j)(k)

Upstream

L+750


1.0
%
5/8/17


85,000


85,000


84,575Vantage Energy, LLC

(j)(k)

Upstream

L+750


1.0
%
12/20/18


30,385


30,197


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
















1,059,981


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


See notes to unaudited consolidated financial statements.

12

---



Table of Contents

FS Energy and Power Fund

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

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Senior Secured Bonds11.1%FourPoint Energy, LLC

(j)(k)(p)

Upstream

8.0%




12/31/20

$
222,750

$
213,158

$
196,020FourPoint Energy, LLC

(e)(p)

Upstream

8.0%




12/31/20


86,625


86,192


76,230Gastar Exploration USA, Inc.

(i)

Upstream

8.6%




5/15/18


22,000


21,548


18,855Globe Luxembourg SCA

(f)(m)

Service & Equipment

9.6%




5/1/18


10,000


9,706


7,748Light Tower Rentals, Inc.

(j)

Service & Equipment

8.1%




8/1/19


17,500


17,273


14,000Mirant Mid-Atlantic Trust

(f)(i)

Power

10.1%




12/30/28


33,087


37,072


34,990Permian Tank & Manufacturing, Inc.

(g)

Service & Equipment

10.5%




1/15/18


3,499


3,562


2,712Prince Mineral Holding Corp.

(i)(o)

Service & Equipment

11.5%




12/15/19


15,345


16,748


15,671Ryerson Inc.

(f)(g)

Service & Equipment

9.0%




10/15/17


2,300


2,362


2,371Tervita Corp.

(i)(m)

Service & Equipment

8.0%




11/15/18


3,500


3,534


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
















411,155


371,677Unfunded Bond Commitments
















(86,192
)

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
















324,963


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

(f)(i)

Upstream

9.6%




10/15/18


34,951


34,870


29,637American EnergyWoodford, LLC

(i)

Upstream

9.0%




9/15/22


10,500


10,078


6,602Atlas Energy Holdings Operating Co., LLC

(f)(i)(m)

Upstream

7.8%




1/15/21


21,450


20,713


15,551Atlas Energy Holdings Operating Co., LLC

(f)(i)(m)

Upstream

9.3%




8/15/21


19,763


20,040


15,193Brand Energy & Infrastructure Services, Inc.

(f)(i)(o)

Service & Equipment

8.5%




12/1/21


25,000


25,000


22,625BWAY Holding Co.

(f)

Service & Equipment

9.1%




8/15/21


3,100


3,080


3,116Calpine Corp.

(f)(m)

Power

5.8%




1/15/25


7,100


7,100


7,224Canbriam Energy Inc.

(f)(i)(m)

Upstream

9.8%




11/15/19


88,200


82,990


83,349Chaparral Energy Inc.

(f)

Upstream

8.3%




9/1/21


2,000


2,053


1,319Chaparral Energy Inc.

(f)(g)

Upstream

7.6%




11/15/22


15,225


16,254


10,011CHC Helicopter S.A.

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

Service & Equipment

9.4%




6/1/21


8,125


8,276


7,698Clayton Williams Energy, Inc.

(i)(m)

Upstream

7.8%




4/1/19


9,300


9,288


7,797Compressco Partners, LP

(f)(i)(m)

Service & Equipment

7.3%




8/15/22


20,000


19,830


17,338Comstock Resources, Inc.

(f)(m)

Upstream

9.5%




6/15/20


5,000


4,821


3,375Crestwood Midstream Partners L.P.

(i)(m)

Midstream

6.1%




3/1/22


5,500


5,500


5,207Crew Energy Inc.

(i)(m)(v)

Upstream

8.4%




10/21/20

C$
10,343


11,502


10,085CrownRock, L.P.

(f)(i)

Upstream

7.1%




4/15/21

$
37,500


37,500


35,257Dynegy Finance I/II Inc.

(f)(m)

Power

7.4%




11/1/22


1,950


1,950


1,999Dynegy Finance I/II Inc.

(f)(m)

Power

6.8%




11/1/19


950


950


969Dynegy Finance I/II Inc.

(f)(m)

Power

7.6%




11/1/24


8,680


8,710


8,886Eco Services Operations LLC

(f)

Service & Equipment

8.5%




11/1/22


5,000


5,000


5,075Energy XXI Gulf Coast, Inc.

(i)(m)(o)

Upstream

7.5%




12/15/21


4,000


3,983


2,200Energy XXI Gulf Coast, Inc.

(i)(m)

Upstream

9.3%




12/5/17


5,000


5,145


3,325Era Group Inc.

(f)(m)

Service & Equipment

7.8%




12/15/22


7,750


7,638


8,060Everest Acquisition LLC

(f)

Upstream

9.4%




5/1/20


14,250


14,250


14,468


See notes to unaudited consolidated financial statements.

13

---



Table of Contents

FS Energy and Power Fund

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

Portfolio Company(a)

Footnotes

Industry

Rate(b)

Floor

Maturity

Principal
Amount(c)

Amortized
Cost

Fair
Value(d)Gardner Denver, Inc.

(f)

Service & Equipment

6.9%




8/15/21

$
8,948

$
9,426

$
8,501GenOn Energy, Inc.

(f)(i)(o)

Power

9.9%




10/15/20


40,698


42,923


40,299Global Jet Capital, Inc.



Service & Equipment

8.0% PIK (8.0% Max PIK)




1/30/15


313


313


313Global Partners L.P.

(f)(i)(m)

Midstream

6.3%




7/15/22


83,350


83,350


81,266The Hillman Group, Inc.

(f)

Service & Equipment

6.4%




7/15/22


5,000


5,024


4,825Ithaca Energy Inc.

(i)(m)

Upstream

8.1%




7/1/19


2,000


2,000


1,518Jones Energy, Inc.

(i)

Upstream

6.8%




4/1/22


8,000


8,000


6,120Jupiter Resources Inc.

(f)(i)(m)

Upstream

8.5%




10/1/22


67,125


63,660


50,344The Kenan Advantage Group, Inc.

(f)(i)

Service & Equipment

8.4%




12/15/18


18,000


18,447


18,585Legacy Reserves L.P.

(f)(m)

Upstream

8.0%




12/1/20


16,750


16,460


13,999Legacy Reserves L.P.

(f)(i)(m)

Upstream

6.6%




12/1/21


14,000


13,827


11,486Lightstream Resources Ltd.

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

Upstream

8.6%




2/1/20


48,745


49,119


34,358Lonestar Resources America Inc.

(i)

Upstream

8.8%




4/15/19


21,500


21,615


16,206Martin Midstream Partners L.P.

(f)(m)

Midstream

7.3%




2/15/21


18,607


19,172


17,486Memorial Production Partners L.P.

(i)(m)

Upstream

7.6%




5/1/21


7,000


6,815


5,653Memorial Production Partners L.P.

(i)(m)

Upstream

6.9%




8/1/22


12,500


12,284


9,469The Pantry Inc.

(f)(m)

Service & Equipment

8.4%




8/1/20


250


270


275Resolute Energy Corp.

(i)(o)

Upstream

8.5%




5/1/20


6,230


6,550


2,951RKI Exploration & Production, LLC

(f)(i)(o)

Upstream

8.5%




8/1/21


58,704


58,655


47,848Samson Investment Co.

(i)

Upstream

9.8%




2/15/20


56,300


52,952


23,646Sanchez Energy Corp.

(i)(m)

Upstream

7.8%




6/15/21


14,500


14,265


13,731SandRidge Energy, Inc.

(i)(m)

Upstream

8.8%




1/5/20


22,075


20,428


15,066SandRidge Energy, Inc.

(i)(m)

Upstream

8.1%




10/15/22


3,500


3,314


2,301SandRidge Energy, Inc.

(i)(m)

Upstream

7.5%




3/15/21


5,000


4,487


3,244SandRidge Energy, Inc.

(i)(m)

Upstream

7.5%




2/15/23


2,500


2,371


1,597Sidewinder Drilling Inc.

(i)

Service & Equipment

9.8%




11/15/19


18,700


18,783


10,940Silver II US Holdings, LLC

(f)

Service & Equipment

7.8%




12/15/20


1,835


1,968


1,743Swift Energy Co.

(f)(i)(o)

Upstream

7.9%




3/1/22


20,000


20,045


10,253Talos Production LLC

(f)(i)(o)

Upstream

9.8%




2/15/18


43,250


43,267


39,140Teine Energy Ltd.

(i)(m)

Upstream

6.9%




9/30/22


12,900


12,802


10,303Tenrgys, LLC

(j)(k)

Upstream

L+900


2.5
%
12/23/18


75,000


75,000


74,250Warren Resources, Inc.

(f)(i)

Upstream

9.0%




8/1/22


38,900


38,377


24,313Zachry Holdings, Inc.

(f)

Service & Equipment

7.5%




2/1/20


11,800


12,022


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
















1,124,512


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


See notes to unaudited consolidated financial statements.

14

---



Table of Contents

FS Energy and Power Fund

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

Portfolio Company(a)

Footnotes

Industry







Number of
Shares

Amortized
Cost

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

(r)

Service & Equipment









6,944,444

$
6,944

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

(q)(r)

Service & Equipment









6,600,000


6,600


10,890Allied Downhole Technologies, LLC, Warrants

(q)(r)

Service & Equipment









5,344,680


1,865


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

(r)

Power









6,855,978


6,856


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

(r)(s)

Upstream









15,657,194


14,900


15,657AP Exhaust Holdings, LLC, Common Equity

(q)(r)

Service & Equipment









811


811


580BBH Operating LLC, Common Equity

(r)(t)

Upstream









1,000


1,000


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

(r)(u)

Upstream









N/A


2,499


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

(u)

Upstream









N/A


357


322Cimarron Energy Inc., Common Equity

(r)

Service & Equipment









2,500,000


2,500


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

(q)(r)

Upstream









4,191,800


11,250


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

(m)(v)

Midstream









N/A


16,904


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

(p)(q)(r)

Upstream









66,000


66,000


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

(p)(q)(r)

Upstream









12,374


8,176


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

(q)(r)

Service & Equipment









371,901


372


521MB Precision Holdings LLC, Common Equity

(r)

Service & Equipment









490,213


490


490Plains Offshore Operations Inc., Preferred Equity

(f)

Upstream









21,067


24,689


26,712Plains Offshore Operations Inc., Warrants

(f)(r)

Upstream









427,005


689


811Summit Midstream Partners, LLC, Preferred Equity



Midstream









37,095


37,095


36,910Swift Worldwide Resources Holdco Limited, Common Equity

(m)(r)(w)

Service & Equipment









3,750,000


6,029


5,842Synergy Offshore LLC, Preferred Equity

(x)

Upstream









50,000


55,623


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
















271,649


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















$
3,663,050


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



















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


















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


See notes to unaudited consolidated financial statements.

15

---



Table of Contents

FS Energy and Power Fund

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




(a)Security
may be an obligation of one or more entities affiliated with the named company.(b)Certain
variable rate securities in the Company's portfolio bear interest at a rate determined by a publicly disclosed base rate plus a basis point spread.
As of December 31, 2014, the three-month London Interbank Offered Rate was 0.26% and the U.S. Prime Lending Rate was 3.25%.(c)Denominated
in U.S. dollars, unless otherwise noted.(d)Fair
value determined by the Company's board of trustees (see Note 7).(e)Security
is an unfunded commitment.(f)Security
or portion thereof held within FSEP Term Funding, LLC and is pledged as collateral supporting the amounts outstanding under the revolving
credit facility with Deutsche Bank AG, New York Branch (see Note 8).(g)Security
or portion thereof held within EP Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit
facility with Citibank, N.A. (see Note 8).(h)Security
or portion thereof held within Energy Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit
facility with Natixis, New York Branch (see Note 8).(i)Security
or portion thereof held within Berwyn Funding LLC and is pledged as collateral supporting the amounts outstanding under the prime brokerage
facility with BNP. Securities held within Berwyn Funding LLC may be rehypothecated from time to time as permitted under Rule 15c-1(a)(1) of the Securities Exchange Act of 1934, as
amended, subject to the terms and conditions governing the prime brokerage facility with BNP (see Note 8).(j)Security
or portion thereof held within Wayne Funding LLC and is pledged as collateral supporting the amounts outstanding under the revolving credit
facility with Wells Fargo Securities, LLC (see Note 8).(k)Security
or portion thereof held within Gladwyne Funding LLC and is pledged as collateral supporting the obligations outstanding under the repurchase
transaction with Goldman Sachs Bank USA (see Note 8).(l)Position
or portion thereof unsettled as of December 31, 2014.(m)The
investment is not a qualifying asset under the 1940 Act. A business development company may not acquire any asset other than a qualifying asset, unless,
at the time the acquisition is made, qualifying assets represent at least 70% of the business development company's total assets. As of December 31, 2014, 84.5% of the Company's total assets
represented
qualifying assets.(n)Listed
investments may be treated as debt for GAAP or tax purposes.(o)Security
or portion thereof held within Berwyn Funding LLC has been rehypothecated under Rule 15c-1(a)(1) of the Securities Exchange Act of
1934, as amended, subject to the terms and conditions governing the prime brokerage facility with BNP. (see Note 8). As of December 31, 2014, the fair value of securities rehypothecated
by BNP was $68,487.(p)Under
the 1940 Act, the Company generally is deemed to be an "affiliated person" of a portfolio company if it owns 5% or more of the portfolio company's
voting securities and generally is deemed to "control" a portfolio company if it owns 25% or more of the portfolio company's voting securities or it has the power to exercise control over the
management or policies of such portfolio company. During the year ended December 31, 2014, the Company made an investment in and, in connection with such investment is deemed to be an
"affiliated person" of (but would not be deemed to "control"), the following portfolio company:


Portfolio Company

Purchases

Sales and
Repayments

Interest
Income

Fee
Income

Net
Realized
Gain (Loss)

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

$
212,346




$
6,254

$
2,228




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

$
66,000













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

$
8,176













$
7,725


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


See notes to unaudited consolidated financial statements.

16

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Table of Contents

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

Note 1. Principal Business and Organization

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

The
Company has elected to be regulated as a business development company, or BDC, under the Investment Company Act of 1940, as amended, or the 1940 Act. The Company is an externally
managed, non-diversified, closed-end management investment company that has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a regulated investment
company, or RIC, as defined under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As of June 30, 2015, the Company had six wholly-owned financing subsidiaries
and six
wholly-owned subsidiaries through which it holds interests in certain non-controlled portfolio companies. The unaudited consolidated financial statements include both the Company's accounts and the
accounts of its wholly-owned subsidiaries as of June 30, 2015. All significant intercompany transactions have been eliminated in consolidation. Certain of the Company's consolidated
subsidiaries are subject to U.S. federal and state income taxes.

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

Note 2. Summary of Significant Accounting Policies

Basis of Presentation:The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance
with U.S.
generally accepted accounting principles, or GAAP, for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. For a more complete discussion of significant accounting policies and certain other information, the Company's interim unaudited consolidated
financial statements should be read in conjunction with its audited consolidated financial statements as of and for the year ended December 31, 2014 included in the Company's annual report on
Form 10-K. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31,
2015. The December 31, 2014 consolidated balance sheet and consolidated schedule of investments are derived from the Company's audited consolidated financial statements as of and for the year
ended December 31, 2014. The Company is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies. The Company has
evaluated the impact of subsequent events through the date the consolidated financial statements were issued and filed with the Securities and Exchange Commission, or the SEC.

17

---



Table of Contents

FS Energy and Power Fund

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



Note 2. Summary of Significant Accounting Policies (Continued)

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

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

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

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

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

18

---



Table of Contents

FS Energy and Power Fund

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



Note 2. Summary of Significant Accounting Policies (Continued)

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

Note 3. Share Transactions

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

Six Months Ended June 30,2015

2014Shares

Amount

Shares

AmountGross Proceeds from Offering


32,435,087

$
311,304


55,660,059

$
599,756Reinvestment of Distributions


6,612,504


57,735


4,940,721


48,357​
​
​
​
​
​
​
​
​
​
​
​
​
​Total Gross Proceeds


39,047,591


369,039


60,600,780


648,113Commissions and Dealer Manager Fees





(27,547
)




(55,288
)​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Proceeds to Company


39,047,591


341,492


60,600,780


592,825Share Repurchase Program


(1,167,150
)

(10,230
)

(332,904
)

(3,250
)​
​
​
​
​
​
​
​
​
​
​
​
​
​Net Proceeds from Share Transactions


37,880,441

$
331,262


60,267,876

$
589,575​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


Status of Continuous Public Offering

Since commencing its continuous public offering and through July 28, 2015, the Company has sold 345,437,469 common shares (as
adjusted for share distributions) for gross proceeds of $3,570,031, including common shares issued under its distribution reinvestment plan. As of July 28, 2015, the Company had raised total
gross proceeds of $3,590,235, including $200 of seed capital contributed by the principals of FS Advisor in December 2010 and $20,004 in proceeds raised from the principals of FS Advisor, other
individuals and entities affiliated with FS Advisor, certain members of the Company's board of trustees and certain individuals and entities affiliated with GSO Capital Partners LP, or GSO, the
Company's investment sub-adviser, in a private placement conducted in April 2011 (see Note 4).

During
the six months ended June 30, 2015 and 2014, the Company sold 39,047,591 and 60,600,780 common shares for gross proceeds of $369,039 and $648,113, respectively, at an
average price per share of $9.45 and $10.69, respectively. The gross proceeds received during the six months ended June 30, 2015 and 2014 include reinvested shareholder distributions of $57,735
and $48,357, respectively, for which the Company issued 6,612,504 and 4,940,721 common shares, respectively. During the period from July 1, 2015 to July 28, 2015, the Company sold
7,837,213 common shares for gross proceeds of $74,256 at an average price per share of $9.47.

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 $27,547 and $55,288 for the six months ended June 30, 2015 and 2014, respectively.

Share Repurchase Program

The Company intends to conduct quarterly tender offers pursuant to its share repurchase program. The Company's board of trustees will
consider the following factors, among others, in making its

19

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Table of Contents

FS Energy and Power Fund

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



Note 3. Share Transactions (Continued)

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



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

The
following table provides information concerning the Company's repurchases of common shares pursuant to its share repurchase program during the six months ended June 30, 2015
and 2014:

For the Three Months Ended

Repurchase Date

Shares
Repurchased

Percentage
of Shares
Tendered
That Were
Repurchased

Repurchase
Price
Per Share

Aggregate
Consideration
for Repurchased
SharesFiscal 2014December 31, 2013

January 2, 2014


174,181


100
%
$
9.72

$
1,693March 31, 2014

April 2, 2014


158,723


100
%
$
9.81

$
1,557Fiscal 2015December 31, 2014

January 7, 2015


450,293


100
%
$
8.82

$
3,972March 31, 2015

April 1, 2015


716,857


100
%
$
8.73

$
6,258


On
July 1, 2015, the Company repurchased 955,664 common shares (representing 100% of common shares tendered for repurchase) at $8.82 per share for aggregate consideration totaling
$8,429.

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 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 will not earn this incentive fee for any quarter until the Company's pre-incentive fee net
investment income for such quarter exceeds the
hurdle rate of 1.625%. For purposes of this fee, "adjusted capital" means cumulative gross proceeds generated from sales of the Company's common shares (including its distribution reinvestment plan)
reduced for distributions from non-liquidating dispositions of the Company's investments paid to shareholders and amounts paid for share repurchases pursuant to the Company's share repurchase program.
Once the Company's pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FS Advisor will be 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 will be entitled to receive 20.0% of pre-incentive fee net investment
income.

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

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

21

---



Table of Contents

FS Energy and Power Fund

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



Note 4. Related Party Transactions (Continued)

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, Franklin Square Holdings funded certain of the Company's organization and offering costs.
Following this period, the Company paid certain of its organization and offering costs directly and reimbursed FS Advisor for offering costs incurred by FS Advisor on the Company's behalf, including
marketing expenses, salaries and other direct expenses of FS Advisor's personnel and employees of its affiliates while engaged in registering and marketing the Company's common shares. Organization
and offering costs funded directly by Franklin Square Holdings were recorded by the Company as a contribution to capital. The offering costs were offset against capital in excess of par value on the
consolidated financial statements and the organization costs were charged to expense as incurred by the Company. All other offering costs, including costs incurred directly by the Company, amounts
reimbursed to FS Advisor for ongoing offering costs and any reimbursements paid to Franklin Square Holdings for organization and offering costs previously funded, are recorded as a reduction of
capital.

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

22

---



Table of Contents

FS Energy and Power Fund

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



Note 4. Related Party Transactions (Continued)

The
following table describes the fees and expenses accrued under the investment advisory and administrative services agreement and the dealer manager agreement during the three and six
months ended June 30, 2015 and 2014:

Three Months Ended
June 30,

Six Months Ended
June 30,Related Party

Source Agreement

Description

2015

2014

2015

2014FS Advisor

Investment Advisory and Administrative Services Agreement

Base Management Fee(1)

$
19,392

$
14,678

$
38,137

$
27,545FS Advisor

Investment Advisory and Administrative Services Agreement

Capital Gains Incentive Fee(2)




$
3,015




$
8,580FS Advisor

Investment Advisory and Administrative Services Agreement

Subordinated Incentive Fee on Income(3)

$
6,478

$
10,013

$
9,357

$
14,623FS Advisor

Investment Advisory and Administrative Services Agreement

Administrative Services Expenses(4)

$
761

$
1,008

$
2,261

$
1,943FS Advisor

Investment Advisory and Administrative Services Agreement

Offering Costs(5)

$
1,409

$
2,032

$
3,033

$
2,936FS2

Dealer Manager Agreement

Dealer Manager Fee(6)

$
2,129

$
5,608

$
5,346

$
10,646


(1)During
the six months ended June 30, 2015 and 2014, $36,657 and $23,618, respectively, in base management fees were paid to FS Advisor. As of
June 30, 2015, $19,392 in base management fees were payable to FS Advisor.(2)During
the six months ended June 30, 2015, the Company did not accrue any capital gains incentive fees. During the six months ended June 30,
2014, the Company accrued capital gains incentive fees of $8,580, of which $7,559 was based on unrealized gains and $1,021 was based on realized gains. No capital gains incentive fees are actually
payable by the Company with respect to unrealized gains unless and until those gains are actually realized. The Company did not pay any capital gains incentive fees to FS Advisor during the six months
ended June 30, 2015. The Company paid FS Advisor $2,857 in capital gains incentive fees during the six months ended June 30, 2014. As of June 30, 2015, the Company did not have
any accrued capital gains incentive fees.(3)During
the six months ended June 30, 2015 and 2014, $15,021 and $11,396, respectively, of subordinated incentive fees on income were paid to FS
Advisor. As of June 30, 2015, a subordinated incentive fee on income of $6,478 was payable to FS Advisor.(4)During
the six months ended June 30, 2015 and 2014, $2,124 and $1,794, 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 $1,882 and $900 in
administrative services expenses to FS Advisor during the six months ended June 30, 2015 and 2014, respectively.(5)During
the six months ended June 30, 2015 and 2014, the Company incurred offering costs of $5,350 and $3,131, respectively, of which $3,033 and
$2,936, respectively, related to reimbursements to FS Advisor for offering costs incurred on the Company's behalf, including marketing expenses, salaries and other direct expenses of FS Advisor's
personnel and employees of its affiliates while engaged in registering and marketing the Company's common shares.(6)Represents
aggregate dealer manager fees retained by FS2 and not re-allowed to selected broker-dealers.


Capital Contribution by FS Advisor and GSO

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

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

23

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Table of Contents

FS Energy and Power Fund

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



Note 4. Related Party Transactions (Continued)

for
share distributions) at $8.91 per share (as adjusted for share distributions). The principals have agreed not to tender these common shares for repurchase as long as FS Advisor remains the
Company's investment adviser. In connection with the same private placement, certain members of the Company's board of trustees and other individuals and entities affiliated with FS Advisor agreed to
purchase 1,459,320 common shares (as adjusted for share distributions), and certain individuals and entities affiliated with GSO agreed to purchase 561,111 common shares (as adjusted for share
distributions), in each case at a price of $8.91 per share (as adjusted for share distributions). In connection with the private placement, the Company issued an aggregate of 2,244,875 common shares
(as adjusted for share distributions) for aggregate proceeds of $20,004, upon satisfaction of the minimum offering requirement on July 18, 2011. As of July 28, 2015, the Company has
issued an aggregate of 4,275,560 common shares (as adjusted for share distributions) for aggregate gross proceeds of $38,534 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 and FS Global Advisor, LLC, the investment advisers to Franklin Square Holdings' other affiliated BDCs and
affiliated closed-end management investment company. As a result, such personnel provide investment advisory services to the Company and each of FS Investment Corporation, FS Investment Corporation
II, FS Investment Corporation III and FS Global Credit Opportunities Fund. While none of FS Advisor, FB Income Advisor, LLC, FSIC II Advisor, LLC, FSIC III 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 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 and/or FS Global Credit Opportunities Fund rather than to the Company.

Exemptive Relief

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

24

---



Table of Contents

FS Energy and Power Fund

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



Note 4. Related Party Transactions (Continued)

Expense Reimbursement

Pursuant to an expense support and conditional reimbursement agreement, dated as of February 14, 2012 and amended and restated
as of May 16, 2013, or, as amended and restated, the expense reimbursement agreement, Franklin Square Holdings has agreed to reimburse the Company for expenses in an amount that is sufficient
to ensure that no portion of the Company's distributions to shareholders will be paid from its offering proceeds or borrowings. However, because certain investments the Company may make, including
preferred and common equity investments, may generate dividends and other distributions to the Company that are treated for tax purposes as a return of capital, a portion of the Company's
distributions to shareholders may also be deemed to constitute a return of capital for tax purposes to the extent that the Company may use such dividends or other distribution proceeds to fund its
distributions to shareholders. Under those circumstances, Franklin Square Holdings will not reimburse the Company for the portion of such distributions to shareholders that represent a return of
capital for tax purposes, as the purpose of the expense reimbursement arrangement is not to prevent tax-advantaged distributions to shareholders.

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

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

25

---



Table of Contents

FS Energy and Power Fund

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



Note 4. Related Party Transactions (Continued)

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

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

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

As
of June 30, 2015, the Company had no reimbursements due from Franklin Square Holdings and no further amounts remained subject to repayment by the Company to Franklin Square
Holdings in the future.

FS Benefit Trust

On May 30, 2013, FS Benefit Trust was formed as a Delaware statutory trust for the purpose of awarding equity incentive
compensation to employees of Franklin Square Holdings and its affiliates. During the six months ended June 30, 2015 and 2014, FS Benefit Trust purchased $104 and $49, respectively, of the
Company's common shares at a purchase price equal to 90% of the public offering price in effect on the applicable purchase date.

Note 5. Distributions

The following table reflects the cash distributions per share that the Company declared and paid on its common shares during the six months ended June 30, 2015 and 2014:

DistributionFor the Three Months Ended

Per Share

AmountFiscal 2014March 31, 2014

$
0.1524

$
28,423June 30, 2014

$
0.1680

$
36,323Fiscal 2015March 31, 2015

$
0.1771

$
54,825June 30, 2015

$
0.1771

$
58,250


The
Company authorizes and declares ordinary cash distributions on a weekly basis and pays such distributions on a monthly basis. On May 13, 2015 and August 5, 2015, the
Company's board of trustees declared regular weekly cash distributions for July 2015 through September 2015 and October 2015 through December 2015, respectively. These distributions have been or will
be paid monthly to shareholders of record as of weekly record dates previously determined by the Company's board of trustees in the amount of $0.013625 per share. The timing and amount of any future
distributions to shareholders are subject to applicable legal restrictions and the sole discretion of the Company's board of trustees.

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 5. Distributions (Continued)

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

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

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

No
portion of the distributions paid during the six months ended June 30, 2015 or 2014 was funded through the reimbursement of operating expenses by Franklin Square Holdings.
During the six months ended June 30, 2015, the Company did not repay any amounts to Franklin Square Holdings for expenses previously reimbursed or waived. There can be no assurance that the
Company will continue to achieve the performance necessary to sustain its distributions or that the Company will be able to pay distributions at a specific rate or at all. Franklin Square Holdings and
its affiliates have no obligation to waive advisory fees or otherwise reimburse expenses in future periods.

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

Six Months Ended June 30,2015

2014Source of Distribution

Distribution
Amount

Percentage

Distribution
Amount

PercentageOffering proceeds

$





$



Borrowings











Net investment income(1)


99,484


88
%

64,746


100
%Short-term capital gains proceeds from the sale of assets











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


13,591


12
%




Non-capital gains proceeds from the sale of assets











Distributions on account of limited partnership interest











Expense reimbursement from sponsor











​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
113,075


100
%
$
64,746


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


(1)During
the six months ended June 30, 2015 and 2014, 91.2% and 90.6%, respectively, of the Company's gross investment income was attributable to cash
income earned, 1.7% and 4.6% respectively, was attributable to non-cash accretion of discount and 7.1% and 4.8%, respectively, was attributable to paid-in-kind, or PIK, interest.


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 5. Distributions (Continued)

The
Company's net investment income on a tax basis for the six months ended June 30, 2015 and 2014 was $110,999 and $66,634, respectively. As of June 30, 2015, the Company
had $11,515 of undistributed ordinary income and $63,417 of net realized losses on a tax basis. As of December 31, 2014, the Company had $13,591 of undistributed ordinary income and net
realized gains on a tax basis, all of which was distributed during the six months ended June 30, 2015.

The
difference between the Company's GAAP-basis net investment income and its tax-basis net investment income is primarily due to the amount by which tax-basis income on a limited
partnership interest differs from its GAAP-basis income, the reclassification of unamortized original issue discount and prepayment fees recognized upon prepayment of loans from income for GAAP
purposes to realized gains for tax purposes, the impact of revenue and expense items incurred at certain consolidated subsidiaries that are subject to U.S. federal and state income tax, and, with
respect to the six months ended June 30, 2014, the reversal of the required accrual for GAAP purposes of incentive fees on unrealized gains even though no such incentive fees on unrealized
gains were payable by the Company.

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

Six Months Ended
June 30,2015

2014GAAP-basis net investment income

$
108,389

$
63,318Income on limited partnership interest


(610
)

(938
)Reversal of incentive fee accrual on unrealized gains





7,559Reclassification of unamortized original issue discount and prepayment fees


(1,109
)

(3,733
)Other miscellaneous differences


4,329


428​
​
​
​
​
​
​
​Tax-basis net investment income

$
110,999

$
66,634​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


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.

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 5. Distributions (Continued)

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

June 30, 2015
(Unaudited)

December 31, 2014Distributable ordinary income

$
11,515

$
Distributable capital gains (accumulated capital losses)


(63,417
)

13,591Deferral of late year capital losses





(6,094
)Distribution receivable on limited partnership interest


673


57Unamortized organization costs


(256
)

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


(215,067
)

(283,310
)​
​
​
​
​
​
​
​Total

$
(266,552
)
$
(276,024
)​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


(1)As
of June 30, 2015 and December 31, 2014, the gross unrealized appreciation on the Company's investments and unrealized gain on foreign
currency was $78,290 and $50,887, respectively. As of June 30, 2015 and December 31, 2014, the gross unrealized depreciation on the Company's investments and unrealized loss on foreign
currency was $293,357 and $334,197, respectively.


The
aggregate cost of the Company's investments for U.S. federal income tax purposes totaled $3,922,759 and $3,658,498 as of June 30, 2015 and December 31, 2014,
respectively. The aggregate net unrealized appreciation (depreciation) on a tax basis was $(215,067) and $(283,310) as of June 30, 2015 and December 31, 2014, respectively.

Note 6. Investment Portfolio

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

June 30, 2015
(Unaudited)

December 31, 2014Amortized
Cost(1)

Fair Value

Percentage
of Portfolio

Amortized
Cost(1)

Fair Value

Percentage
of PortfolioSenior Secured LoansFirst Lien

$
1,014,846

$
984,636


27
%
$
881,945

$
854,825


25
%Senior Secured LoansSecond Lien


1,183,593


1,122,831


30
%

1,059,981


989,972


29
%Senior Secured Bonds


360,641


333,631


9
%

324,963


285,485


9
%Subordinated Debt


1,085,301


953,256


26
%

1,124,512


940,313


28
%Equity/Other


282,924


313,468


8
%

271,649


304,582


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

$
3,927,305

$
3,707,822


100
%
$
3,663,050

$
3,375,177


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


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


29

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Table of Contents

FS Energy and Power Fund

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



Note 6. Investment Portfolio (Continued)

As of June 30, 2015, except for FourPoint Energy, LLC, in which the Company held a senior secured bond and two equity/other investments, the Company was not an "affiliated
person" of any of its portfolio companies, as defined in the 1940 Act. As of June 30, 2015, the Company did not "control" any of its portfolio companies, as defined in the 1940 Act. In general,
under the 1940 Act, the Company would be presumed to "control" a portfolio company if it owned 25% or more of its voting securities or it had the power to exercise control over the management or
policies of a portfolio company, and would be an "affiliated person" of a portfolio company if it owned 5% or more of its voting securities.

The
Company's investment portfolio may contain loans or bonds that are in the form of lines of credit or revolving credit facilities, or other investments, pursuant to which the Company
may be required to provide funding when requested by portfolio companies in accordance with the terms of the underlying agreements. As of June 30, 2015, the Company had five senior secured loan
investments with aggregate unfunded commitments of $212,227, one senior secured bond investment with an unfunded commitment of $73,879 and three equity/other investments with aggregate unfunded
commitments of $22,428. As of June 30, 2015, these unfunded equity/other investments were Altus Power America Holdings, LLC, BL Sand Hills Unit, L.P., net profits interest and BL
Sand Hills Unit, L.P., overriding royalty interest. As of December 31, 2014, the Company had four senior secured loan investments with aggregate unfunded commitments of $218,120, one
senior secured bond investment with an unfunded commitment of $86,192 and three equity/other investments with aggregate unfunded commitments of $26,109. As of December 31, 2014, these unfunded
equity/other investments were Altus Power America Holdings, LLC, BL Sand Hills Unit, L.P., net profits interest and BL Sand Hills Unit, L.P., overriding royalty interest. The
Company maintains sufficient cash on hand and available borrowings to fund such unfunded commitments should the need arise.

The
table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of June 30, 2015
and December 31, 2014:

June 30, 2015
(Unaudited)

December 31, 2014Industry Classification

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of PortfolioUpstream

$
2,241,204


60
%
$
1,815,456


54
%Midstream


231,075


6
%

233,836


7
%Downstream


19,955


1
%

12,494


0
%Power


393,525


11
%

326,773


10
%Service & Equipment


822,063


22
%

986,618


29
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,707,822


100
%
$
3,375,177


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


Note 7. Fair Value of Financial Instruments

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

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 7. Fair Value of Financial Instruments (Continued)

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

Valuation Inputs

June 30, 2015
(Unaudited)

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

$


$
Level 2Significant other observable inputs





Level 3Significant unobservable inputs


3,707,822


3,375,177​
​
​
​
​
​
​
​Total

$
3,707,822

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


The
Company's investments as of June 30, 2015 consisted primarily of debt investments that were purchased on a private over-the-counter market for institutional investors or
acquired directly from the issuer. Eighteen senior secured loan investments, one senior secured bond investment and three subordinated debt investments were valued by independent valuation firms,
which determined the fair value of such investments by considering, among other factors, the borrower's ability to adequately service its debt, prevailing interest rates for like investments, call
features, anticipated prepayments and other relevant terms of the debt. All of the Company's equity/other investments were also valued by an independent valuation firm, which determined the fair value
of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of earnings before interest, taxes,
depreciation and amortization, or EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. Except as described above, the Company valued its other
investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by an independent third-party pricing service and
screened for validity by such service.

The
Company's investments as of December 31, 2014 consisted primarily of debt investments that were traded on a private over-the-counter market for institutional investors.
Seventeen senior secured loan investments, one senior secured bond investment and two subordinated debt investments were valued by an independent valuation firm, which determined the fair value of
such investments by considering, among other factors, the borrower's ability to adequately service its debt, prevailing interest rates for like investments, call features, anticipated prepayments and
other relevant terms of the debt. All of the Company's equity/other investments were valued by the same independent valuation firm, which determined the fair value of such investments by considering,
among other factors, contractual rights ascribed to such investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value
or liquidation value. Except as described above, the Company valued its other investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period
end, which were provided by an independent third-party pricing service and screened for validity by such service.

31

---



Table of Contents

FS Energy and Power Fund

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



Note 7. Fair Value of Financial Instruments (Continued)

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

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

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

Senior
Secured
Loans
Second Lien

Senior
Secured
Bonds

Subordinated
Debt

Equity/
Other

TotalFair value at beginning of period

$
854,825

$
989,972

$
285,485

$
940,313

$
304,582

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


1,454


820


512


569


585


3,940Net realized gain (loss)


(13,350
)

15


(5,157
)

(40,018
)




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


(3,090
)

9,247


12,468


52,154


(2,389
)

68,390Purchases


285,287


173,182


75,413


146,523


5,944


686,349Paid-in-kind interest


4,934


2,876








4,746


12,556Sales and redemptions


(145,424
)

(53,281
)

(35,090
)

(146,285
)




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

















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

$
984,636

$
1,122,831

$
333,631

$
953,256

$
313,468

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

$
(5,277
)
$
8,375

$
9,153

$
182

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


32

---



Table of Contents

FS Energy and Power Fund

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



Note 7. Fair Value of Financial Instruments (Continued)



For the Six Months Ended June 30, 2014Senior
Secured
Loans
First Lien

Senior
Secured
Loans
Second Lien

Senior
Secured
Bonds

Subordinated
Debt

Equity/
Other

TotalFair value at beginning of period

$
634,919

$
683,723

$
82,484

$
789,834

$
109,241

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


418


2,182


290


1,643


1,408


5,941Net realized gain (loss)


368


91


827


3,405





4,691Net change in unrealized appreciation (depreciation)


6,763


657


937


18,007


12,354


38,718Purchases


300,140


365,115


116,066


244,591


33,735


1,059,647Paid-in-kind interest





4,223








1,983


6,206Sales and redemptions


(87,943
)

(145,887
)

(29,047
)

(192,572
)

(4,987
)

(460,436
)Net transfers in or out of Level 3

















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

$
854,665

$
910,104

$
171,557

$
864,908

$
153,734

$
2,954,968​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​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

$
7,798

$
4,748

$
1,884

$
24,854

$
17,341

$
56,625​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​
​


The
valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements as of June 30, 2015 and December 31, 2014 were as
follows:

Type of Investment

Fair Value at
June 30, 2015
(Unaudited)

Valuation Technique(1)

Unobservable Input

Range

Weighted
AverageSenior Secured Loans
First Lien

$
577,872

Market Comparables

Market Yield (%)

8.5% - 13.5%

10.3
%406,764

Market Quotes

Indicative Dealer Quotes

62.1% - 101.8%

91.5
%Senior Secured Loans
Second Lien


617,367

Market Comparables

Market Yield (%)

8.5% - 14.0%

11.5
%505,464

Market Quotes

Indicative Dealer Quotes

53.7% - 102.8%

89.3
%Senior Secured Bonds


209,199

Market Comparables

Market Yield (%)

9.8% - 10.3%

10.0
%124,432

Market Quotes

Indicative Dealer Quotes

70.0% - 109.8%

94.2
%Subordinated Debt


74,625

Market Comparables

Market Yield (%)

11.5% - 12.0%

11.8
%873,185

Market Quotes

Indicative Dealer Quotes

4.3% - 107.0%

92.4
%5,446

Other(2)

Other(2)

N/A

N/AEquity/Other


311,134

Market Comparables

Market Yield (%)

11.0% - 15.8%

13.1
%EBITDA Multiples (x)

6.8x - 11.5x

9.8xProduction Multiples (Mmb/d)

$62,500.0 - $165,000.0

$66,016.8Proved Reserves Multiples (Mmboe)

$7.0 - $14.5

$9.3PV-10 Multiples (x)

0.4x - 2.1x

1.2xCapacity Multiple ($/kW)

$2,000.0 - $2,500.0

$2,250.0Discounted Cash Flow

Discount Rate (%)

11.0% - 29.0%

16.2
%Option Valuation Model

Volatility (%)

45.0% - 55.0%

54.3
%2,334

Other(2)

Other(2)

N/A

N/A​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,707,822​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​


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


33

---



Table of Contents

FS Energy and Power Fund

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



Note 7. Fair Value of Financial Instruments (Continued)

Type of Investment

Fair Value at
December 31, 2014

Valuation Technique(1)

Unobservable Input

Range

Weighted
AverageSenior Secured Loans
First Lien

$
356,089

Market Comparables

Market Yield (%)

8.5% - 12.3%

10.2
%498,736

Market Quotes

Indicative Dealer Quotes

78.8% - 102.3%

93.9
%Senior Secured Loans
Second Lien


449,771

Market Comparables

Market Yield (%)

8.5% - 12.0%

10.6
%540,201

Market Quotes

Indicative Dealer Quotes

71.6% - 101.6%

89.6
%Senior Secured Bonds


186,058

Market Comparables

Market Yield (%)

10.5% - 11.0%

10.8
%99,427

Market Quotes

Indicative Dealer Quotes

76.5% - 106.3%

94.2
%Subordinated Debt


74,250

Market Comparables

Market Yield (%)

11.5% - 12.0%

11.8
%865,750

Market Quotes

Indicative Dealer Quotes

41.5% - 110.5%

84.9
%313

Other

Other

N/A

N/AEquity/Other


304,582

Market Comparables

Market Yield (%)

11.0% - 15.8%

13.1
%EBITDA Multiples (x)

4.5x - 10.5x

8.9xProduction Multiples (Mmb/d)

$37,500.0 - $174,000.0

$47,173.9Proved Reserves Multiples (Mmboe)

$6.5 - $27.2

$7.2PV-10 Multiples (x)

0.3x - 1.8x

1.2xDiscounted Cash Flow

Discount Rate (%)

11.5% - 30.3%

16.0
%Option Valuation Model

Volatility (%)

45.0% - 52.5%

51.6
%​
​
​
​
​
​
​
​
​
​
​
​
​Total

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


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


Note 8. Financing Arrangements

The following table presents a summary of information with respect to the Company's outstanding
financing arrangements as of June 30, 2015. For additional information regarding these financing arrangements, please see the notes to the Company's audited consolidated financial statements
contained in its annual report on Form 10-K for the fiscal year ended December 31, 2014 and the additional disclosure set forth in this Note 8.

Arrangement

Type of
Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity DateBNP Facility

Prime Brokerage

L+1.10%

$
223,000

$
77,000

March 26, 2016(1)Deutsche Bank Credit Facility

Revolving

L+1.80%

$
280,000

$
60,000

June 11, 2016Goldman Facility

Repurchase

L+2.75%

$
259,425

$
65,575

September 15, 2017Natixis Credit Facility

Revolving

CP+2.25%

$
105,538




July 11, 2023Wells Fargo Credit Facility

Revolving

L+2.50% to 2.75%

$
125,000

$
75,000

September 9, 2019


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


The
Company's average borrowings and weighted average interest rate, including the effect of non-usage fees, for the six months ended June 30, 2015 were $992,335 and 2.72%,
respectively. As of June 30, 2015, the Company's weighted average effective interest rate on borrowings was 2.33%.

BNP Facility

On December 11, 2013, Berwyn Funding LLC, or Berwyn Funding, the Company's wholly-owned, special-purpose financing
subsidiary, entered into a committed facility arrangement, or the BNP facility, with BNP Paribas Prime Brokerage, Inc., or BNP, pursuant to which Berwyn Funding may borrow, from

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 8. Financing Arrangements (Continued)

time
to time, up to $200,000 from BNP. The BNP facility was effected through a committed facility agreement by and between Berwyn Funding and BNP, or the committed facility agreement, a U.S. PB
Agreement by and between Berwyn Funding and BNP and a special custody and pledge agreement by and among Berwyn Funding, BNP and State Street Bank and Trust Company, or State Street, as custodian, each
dated as of December 11, 2013, and which are collectively referred to herein as the BNP financing agreements.

On
August 18, 2014, the BNP facility was amended to increase the maximum commitment financing available to Berwyn Funding from $200,000 to $300,000 and add a 30-day cancellation
right for BNP if BNP's long-term credit rating declines three or more notches below its highest rating by any of Standard & Poor's Financial Services LLC, Moody's Investors
Service, Inc. or Fitch Ratings, Inc., during the term of the facility.

The
Company may contribute securities to Berwyn Funding from time to time, subject to certain restrictions set forth in the committed facility agreement, and will retain a residual
interest in any securities contributed through its ownership of Berwyn Funding or will receive fair market value for any securities sold to Berwyn Funding. Berwyn Funding may purchase additional
securities from various sources. Berwyn Funding has appointed the Company to manage its portfolio of securities pursuant to the terms of an investment management agreement. Berwyn Funding will pledge
certain of its securities as collateral to secure borrowings under the BNP facility. Such pledged securities will be held in a segregated custody account with State Street. The value of securities
required to be pledged by Berwyn Funding is determined in accordance with the margin requirements described in the BNP financing agreements. Berwyn Funding's obligations to BNP under the facility are
secured by a first priority security interest in substantially all of the assets of Berwyn Funding, including its portfolio of securities. The obligations of Berwyn Funding under the facility are
non-recourse to the Company and the Company's exposure under the facility is limited to the value of the Company's investment in Berwyn Funding.

Borrowings
under the BNP facility accrue interest at a rate equal to three-month London Interbank Offered Rate, or LIBOR, plus 1.10% per annum. Berwyn Funding is required to pay a
non-usage fee of 0.55% per annum to the extent the aggregate principal amount available under the facility is not borrowed. Berwyn Funding may terminate the committed facility agreement upon
270 days' notice. Subject to the right of cancellation described above, absent a default or facility termination event, BNP is required to provide Berwyn Funding with 270 days' notice
prior to terminating or amending the committed facility agreement.

As
of June 30, 2015 and December 31, 2014, $223,000 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 has recorded as deferred financing costs on its consolidated balance sheets and amortized
to interest expense over the 270 day period following the closing date of the BNP facility or the amendment thereto, as applicable. As of June 30, 2015, all of the deferred financing
costs had been amortized to interest expense.

35

---



Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

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

Three Months Ended
June 30,

Six Months Ended
June 30,2015

2014

2015

2014Direct interest expense

$
777

$
398

$
1,536

$
645Non-usage fees


107


115


213


287Amortization of deferred financing costs


26


99


76


199​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
910

$
612

$
1,825

$
1,131​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


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

Six Months Ended
June 30,2015

2014Cash paid for interest expense(1)

$
2,070

$
806Average borrowings under the facility

$
223,000

$
96,326Effective interest rate on borrowings


1.38
%

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


1.57
%

1.93
%


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


Under
the terms of the BNP financing agreements, BNP has the ability to borrow a portion of the pledged collateral, or, collectively, the rehypothecated securities, subject to certain
limits. Berwyn Funding may designate any security within the pledged collateral as ineligible to be a rehypothecated security, provided there are eligible securities within the segregated custody
account in an amount equal to the outstanding borrowings owed by Berwyn Funding to BNP. Berwyn Funding may recall any rehypothecated security at any time and BNP must return such security or an
equivalent security within a commercially reasonable period. In the event BNP does not return the security, Berwyn Funding will have the right to, among other things, apply and set off an amount equal
to 100% of the then-current fair market value of such rehypothecated securities against any outstanding borrowings owed to BNP under the facility. Rehypothecated securities are marked-to-market daily
and if the value of all rehypothecated securities exceeds 100% of the outstanding borrowings owed by Berwyn Funding under the facility, BNP may either reduce the amount of rehypothecated securities to
eliminate such excess or deposit into the segregated custody account an amount of cash equal to such excess. Berwyn Funding will continue to receive interest and the scheduled repayment of principal
balances on rehypothecated securities. For the six months ended June 30, 2015, Berwyn Funding received a fee of $1 from BNP for securities that had been rehypothecated pursuant to the BNP
financing agreements. As of June 30, 2015, the fair value of those securities rehypothecated by BNP was $111,412.

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

Citibank Credit Facility

On March 24, 2015, EP Funding LLC, or EP Funding, the Company's wholly-owned, special-purpose financing subsidiary,
repaid and terminated the revolving credit facility, or the Citibank credit facility, with Citibank, N.A., or Citibank, as administrative agent, and the financial institutions and

36

---



Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

other
lenders from time to time party thereto. The Citibank credit facility provided for borrowings in an aggregate principal amount up to $175,000 on a committed basis. Prior to the termination of
the Citibank credit facility, borrowings under the facility accrued interest at a rate equal to three-month LIBOR plus 2.75% per annum. Under the Citibank credit facility, EP Funding was subject to a
non-usage fee of 0.50% per annum to the extent that the aggregate principal amount available under the facility was not borrowed.

As
of June 30, 2015, no amounts remained outstanding under the Citibank credit facility. As of December 31, 2014, $128,300 was outstanding under the Citibank credit
facility. The carrying amount outstanding under the facility approximated its fair value. The Company incurred costs of $657 in connection with obtaining the facility, which the Company recorded as
deferred financing costs on its consolidated balance sheets and amortized to interest expense over the life of the facility. As of June 30, 2015, all of the deferred financing costs had been
amortized to interest expense.

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

Six Months Ended
June 30,Three Months Ended
June 30, 20142015

2014Direct interest expense

$
1,208

$
471

$
2,386Non-usage fees








1Amortization of deferred financing costs


82


130


163​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
1,290

$
601

$
2,550​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​


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

Six Months Ended
June 30,2015

2014Cash paid for interest expense(1)

$
1,011

$
2,401Average borrowings under the facility(2)

$
70,020

$
174,462Effective interest rate on borrowings





2.74
%Weighted average interest rate (including the effect of non-usage fees)


2.99
%

2.74
%


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


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

Deutsche Bank Credit Facility

On June 24, 2011, FSEP Term Funding, LLC, or FSEP Funding, the Company's wholly-owned, special-purpose financing
subsidiary, entered into a revolving credit facility, or the Deutsche Bank credit facility, with Deutsche Bank AG, New York Branch, or Deutsche Bank, as administrative agent and the lender party
thereto, which provided for borrowings in an aggregate amount of up to $50,000. On May 30, 2012, August 28, 2012 and October 18, 2012, FSEP Funding and Deutsche Bank entered

37

---



Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

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

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

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

As
of June 30, 2015 and December 31, 2014, $280,000 was outstanding under the Deutsche Bank credit facility. The carrying amount outstanding under the facility approximates
its fair value. The Company incurred costs of $3,340 in connection with obtaining and amending the facility, which the Company has recorded as deferred financing costs on its consolidated balance
sheets and amortizes to interest expense over the life of the facility. As of June 30, 2015, $1,125 of such deferred financing costs had yet to be amortized to interest expense.

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

Three Months Ended
June 30,

Six Months Ended
June 30,2015

2014

2015

2014Direct interest expense

$
1,477

$
1,225

$
2,888

$
2,444Non-usage fees


113


42


226


42Amortization of deferred financing costs


230


186


440


334​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
1,820

$
1,453

$
3,554

$
2,820​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


38

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Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

For
the six months ended June 30, 2015 and 2014, the cash paid for interest expense, average borrowings, effective interest rate and weighted average interest rate for the
Deutsche Bank credit facility were as follows:

Six Months Ended
June 30,2015

2014Cash paid for interest expense(1)

$
3,096

$
2,463Average borrowings under the facility

$
280,000

$
240,000Effective interest rate on borrowings


2.08
%

2.02
%Weighted average interest rate (including the effect of non-usage fees)


2.22
%

2.07
%


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


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

Goldman Financing

On September 11, 2014, through its two wholly-owned, special-purpose financing subsidiaries, Gladwyne Funding LLC, or
Gladwyne Funding, and Strafford Funding LLC, or Strafford Funding, the Company entered into a debt financing arrangement with Goldman Sachs Bank USA, or Goldman. Pursuant to this financing
arrangement, up to $225,000 was initially made available to the Company to fund investments in securities and for general corporate purposes. On December 15, 2014, the parties amended the
financing arrangement to increase the amount available thereunder to $325,000. The Company elected to structure the financing in the manner described more fully below in
order to, among other things, obtain such financing at a lower cost than would have been available through alternate arrangements.

Under
the financing arrangement, assets in the Company's portfolio may be sold and/or contributed by it from time to time to Gladwyne Funding, pursuant to an Amended and Restated Sale
and Contribution Agreement, dated as of September 11, 2014, between the Company and Gladwyne Funding, or the Sale and Contribution Agreement. As of June 30, 2015, the fair value of
assets held by Gladwyne Funding was $649,953, which includes an initial contribution by the Company of a portfolio of assets with an aggregate par value of $427,061. The assets held by Gladwyne
Funding secure the obligations of Gladwyne Funding under certain Floating Rate Notes, or the Notes, to be issued from time to time by Gladwyne Funding to Strafford Funding, pursuant to an indenture,
dated as of September 11, 2014, as supplemented by the First Supplemental Indenture dated as of December 15, 2014, or the Indenture, with Citibank, as trustee. Pursuant to the Indenture,
the aggregate principal amount of Notes that may be issued by Gladwyne Funding from time to time is $577,750. Interest on the Notes under the Indenture accrues at three-month LIBOR plus a spread of
4.00% per annum. Principal and any unpaid interest on the Notes will be due and payable on the stated maturity date of November 15, 2025. As of June 30, 2015, Strafford Funding had
purchased $461,200 of Notes and intends to purchase from time to time the remaining Notes, in each case, from Gladwyne Funding at a purchase price equal to their par value. Strafford Funding purchased
$125,000 of Notes during the six months ended June 30, 2015.

Strafford
Funding, in turn, has entered into a repurchase transaction with Goldman, pursuant to the terms of a master repurchase agreement and the related annex thereto, each dated as of
September 11, 2014, and an amended and restated master confirmation dated as of December 15, 2014, or collectively, the Goldman facility. Pursuant to the Goldman facility, on one or more
occasions

39

---



Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

beginning
December 15, 2014, Goldman began purchasing Notes held by Strafford Funding for an aggregate purchase price equal to approximately 56.25% of the principal amount of the Notes
purchased. As of June 30, 2015, Goldman had purchased Notes in the principal amount of $461,200 from Strafford Funding pursuant to the Goldman facility for $259,425. Subject to certain
conditions, the maximum principal amount of Notes that may be purchased under the Goldman facility is $577,750. Accordingly, the aggregate maximum amount payable to Strafford Funding under the Goldman
facility will not exceed $325,000. Strafford Funding intends to enter into additional repurchase transactions under the Goldman facility with respect to the entire $116,550 principal amount of Notes
not previously purchased by Strafford Funding and sold to Goldman.

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

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

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

As
of June 30, 2015, Notes in an aggregate principal amount of $461,200 had been purchased by Strafford Funding from Gladwyne Funding and subsequently sold to Goldman under the
Goldman facility for aggregate proceeds of $259,425. The carrying amount outstanding under the Goldman facility approximates its fair value. The Company funded each purchase of Notes by Strafford
Funding through a capital contribution to Strafford Funding. As of June 30, 2015, Strafford Funding's liability under the Goldman facility was $259,425, plus $439 of accrued interest expense.
The Notes issued by Gladwyne Funding and purchased by Strafford Funding eliminate in consolidation on the Company's financial statements. As of June 30, 2015, the fair value of assets held by
Gladwyne Funding was $649,953.

The
Company incurred costs of $380 in connection with obtaining and amending the Goldman facility, which the Company has recorded as deferred financing costs on its consolidated balance
sheets and amortizes to interest expense over the life of the facility. As of June 30, 2015, $284 of such deferred financing costs had yet to be amortized to interest expense.

40

---



Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

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

Three Months Ended
June 30, 2015

Six Months Ended
June 30, 2015Direct interest expense

$
2,488

$
4,355Amortization of deferred financing costs


32


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

$
2,520

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


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

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

$
4,361Average borrowings under the facility

$
197,659Effective interest rate on borrowings


3.04
%Weighted average interest rate


4.41
%


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


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

Natixis Credit Facility

On July 11, 2013, Energy Funding LLC, or Energy Funding, the Company's wholly-owned, special-purpose financing
subsidiary, entered into a revolving credit facility, or the Natixis credit facility, with Natixis, New York Branch, or Natixis, as administrative agent and lender, Wells Fargo Bank, National
Association, as collateral agent and custodian, and the other lenders from time to time party thereto. The Natixis credit facility provided for revolving borrowings through January 11, 2015 in
an aggregate principal amount up to $150,000 on a committed basis. After that date, the Company was no longer permitted to borrow under the facility and outstanding amounts began to
amortize. During the six months ended June 30, 2015, the Company repaid $44,462 of outstanding borrowings under the facility.

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

Prior
to March 2014, borrowings under the Natixis credit facility accrued interest at a rate equal to three-month LIBOR plus 2.40% per annum. In March 2014, borrowings under the Natixis
credit facility

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)

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

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

As
of June 30, 2015 and December 31, 2014, $105,538 and $150,000, respectively, was outstanding under the Natixis credit facility. The carrying amount outstanding under the
facility approximates its fair value. The Company incurred costs of $2,544 in connection with obtaining the facility, which the Company has recorded as deferred financing costs on its consolidated
balance sheets and amortizes to interest expense over the life of the facility. As of June 30, 2015, $1,911 of such deferred financing costs had yet to be amortized to interest expense.

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

Three Months Ended
June 30,

Six Months Ended
June 30,2015

2014

2015

2014Direct interest expense

$
815

$
676

$
1,761

$
1,804Amortization of deferred financing costs


195


65


257


128​
​
​
​
​
​
​
​
​
​
​
​
​
​Total interest expense

$
1,010

$
741

$
2,018

$
1,932​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​
​
​
​
​
​
​


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

Six Months Ended
June 30,2015

2014Cash paid for interest expense(1)

$
1,885

$
1,881Average borrowings under the facility

$
136,835

$
150,000Effective interest rate on borrowings


2.56
%

2.51
%Weighted average interest rate


2.57
%

2.57
%


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


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

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)

Wells Fargo Credit Facility

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

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

Borrowings
under the Wells Fargo credit facility accrue interest at a rate equal to three-month LIBOR plus a spread ranging between 2.50% and 2.75% per annum, depending on the
composition of the portfolio of assets for the relevant period. Beginning October 10, 2014, Wayne Funding became subject to a non-usage fee to the extent the aggregate principal amount
available under the Wells Fargo credit facility is not borrowed. Any amounts borrowed under the Wells Fargo credit facility will mature, and all accrued and unpaid interest thereunder will be due and
payable, on September 9, 2019. Borrowings under the Wells Fargo credit facility are subject to compliance with a borrowing base, pursuant to which the amount of funds advanced to Wayne Funding
varies depending upon the types of assets in Wayne Funding's portfolio.

As
of June 30, 2015 and December 31, 2014, $125,000 and $120,000, respectively, was outstanding under the Wells Fargo credit facility. The carrying amount outstanding under
the facility approximates its fair value. The Company incurred costs of $2,641 in connection with obtaining the facility, which the Company has recorded as deferred financing costs on its consolidated
balance sheets and amortizes to interest expense over the life of the facility. As of June 30, 2015, $2,217 of such deferred financing costs had yet to be amortized to interest expense.

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

Three Months Ended
June 30, 2015

Six Months Ended
June 30, 2015Direct interest expense

$
921

$
1,854Non-usage fees


95


192Amortization of deferred financing costs


132


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

$
1,148

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


43

---



Table of Contents

FS Energy and Power Fund

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



Note 8. Financing Arrangements (Continued)

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

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

$
2,010Average borrowings under the facility

$
123,536Effective interest rate on borrowings


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


3.31
%


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


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

Note 9. Commitments and Contingencies

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

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

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

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 10. Financial Highlights

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

Six Months Ended
June 30, 2015
(Unaudited)

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

$
8.57

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


0.34


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


0.03


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


0.37


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


(0.31
)

(0.62
)Distributions from net realized gain on investments


(0.04
)

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


(0.35
)

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


0.02


0.35Repurchases of common shares(5)





Offering costs(2)


(0.02
)

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


0.00


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

$
8.59

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


337,274,812


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


4.32
%

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

$
2,896,539

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


3.95
%

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


2.53
%

5.07
%Portfolio turnover(8)


10.90
%

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

$
992,963

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


3.92


3.35


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


45

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Table of Contents

FS Energy and Power Fund

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



Note 10. Financial Highlights (Continued)

(6)The
total return for each period presented was calculated by taking the net asset value per share as of the end of the applicable period, adding the cash
distributions per share which were declared during the applicable period and dividing the total by the net asset value per share at the beginning of the applicable period. The total return does not
consider the effect of the sales load from the sale of the Company's common shares. The total return includes the effect of the issuance of common shares at a net offering price that is greater than
net asset value per share, which causes an increase in net asset value per share. The historical calculation of total return in the table should not be considered a representation of the Company's
future total return, which may be greater or less than the returns shown in the table due to a number of factors, including the Company's ability or inability to make investments in companies that
meet its investment criteria, the interest rates payable on the debt securities the Company acquires, the level of the Company's expenses, variations in and the timing of the recognition of realized
and unrealized gains or losses, the degree to which the Company encounters competition in its markets and general economic conditions. As a result of these factors, results for any previous period
should not be relied upon as being indicative of performance in future periods. The total return calculations set forth above represent the total return on the Company's investment portfolio during
the applicable period and do not represent an actual return to shareholders.(7)Weighted
average net assets during the applicable period are used for this calculation. Ratios for the six months ended June 30, 2015 are not
annualized. The following is a schedule of supplemental ratios for the six months ended June 30, 2015 and the year ended December 31, 2014:


Six Months
Ended
June 30, 2015
(Unaudited)

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





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


0.34
%

1.41
%Ratio of interest expense to average net assets


0.54
%

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


0.01
%

0.04
%


(8)Portfolio
turnover for the six months ended June 30, 2015 is not annualized.(9)Asset
coverage per unit is the ratio of the carrying value of the Company's total consolidated assets, less liabilities and indebtedness not represented by
senior securities, to the aggregate amount of senior securities representing indebtedness.


Note 11. Recently Issued Accounting Standards

In April 2015, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update No. 2015-03,InterestImputation of
Interest,to simplify the presentation in the financial statements of debt issuance costs. Under existing guidance, debt issuance costs are recognized as a deferred charge and
presented as an asset on the balance sheet. The amendments to the guidance require that debt issuance costs related to a recognized liability for indebtedness be presented in the balance sheet as a
direct deduction from the carrying amount of that liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected by the amendments to the
guidance. The amendments to the FASB codification guidance are to be applied retrospectively with applicable disclosures for a change in accounting principle upon transition. For public entities, the
amendments are effective during interim and annual periods beginning after December 15, 2015. Early application by public entities is permitted. The Company is currently assessing the impact of
this guidance on its consolidated financial statements.

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Table of Contents

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

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

Forward-Looking Statements

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



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



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

Overview

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

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

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

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

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

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

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

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

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

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

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

Revenues

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

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

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Expenses

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

We
reimburse FS Advisor for expenses necessary to perform services related to our administration and operations, including FS Advisor's allocable portion of the
compensation and related expenses of certain personnel of Franklin Square Holdings providing administrative services to us on behalf of FS Advisor. Such services include the provision of
general ledger accounting, fund accounting, legal services, investor relations and other administrative services. FS Advisor also performs, or oversees the performance of, our corporate
operations and required administrative services, which includes being responsible for the financial records that we are required to maintain and preparing reports for our shareholders and reports
filed with the SEC. In addition, FS Advisor assists us in calculating our net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to
our shareholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others. See "Related Party
Transactions" for additional information regarding the reimbursements payable to FS Advisor for administrative services and the methodology for determining the amount of any such
reimbursements. We bear all other expenses of our operations and transactions. For additional information regarding these expenses, please see our annual report on Form 10-K for the year ended
December 31, 2014.

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

Expense Reimbursement

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

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

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

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

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

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

As
of June 30, 2015, we had no reimbursements due from Franklin Square Holdings and no further amounts remained subject to repayment by us to Franklin Square Holdings in the
future.

Portfolio Investment Activity for the Three and Six Months Ended June 30, 2015 and for
the Year Ended December 31, 2014

During the six months ended June 30, 2015, we made investments in portfolio companies totaling $686,349. During the same period,
we sold investments for proceeds of $286,998 and received principal repayments of $93,082. As of June 30, 2015, our investment portfolio, with a total fair value of $3,707,822 (27% in first
lien senior secured loans, 30% in second lien senior secured loans, 9% in senior secured bonds, 26% in subordinated debt and 8% in equity/other), consisted of interests in 105 portfolio
companies. The portfolio companies that comprised our portfolio as of such date had an average annual EBITDA of approximately $270.4 million. As of June 30, 2015, the investments in our
portfolio were purchased at a weighted average price of 98.7% of par or stated value, as applicable, and our estimated gross annual portfolio yield, prior to leverage (which represents the expected
annualized yield to be generated by us on our investment portfolio based on the composition of our portfolio as of such date), was 9.0% based upon the amortized cost of our investments.

Based
on our regular weekly cash distribution rate of $0.013625 per share as of June 30, 2015 and our public offering price of $9.80 per share as of such date, the annualized
distribution rate to shareholders as of June 30, 2015 was 7.23%. The distribution rate to shareholders may include income, realized capital gains and a return of investors' capital.

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

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in
senior secured bonds, 28% in subordinated debt and 9% in equity/other), consisted of interests in 125 portfolio companies. The portfolio companies that comprised our portfolio as of such date had
an average annual EBITDA of approximately $233.3 million. As of December 31, 2014, the investments in our portfolio were purchased at a weighted average price of 99.1% of par or stated
value, as applicable, and our estimated gross annual portfolio yield, prior to leverage, was 8.8% based upon the amortized cost of our investments.

Based
on our regular weekly cash distribution rate of $0.013625 per share as of December 31, 2014 and our public offering price of $9.80 per share as of such date, the annualized
distribution rate to shareholders as of December 31, 2014 was 7.23%. The distribution rate to shareholders may include income, realized capital gains and a return of investors' capital.

Our
estimated gross portfolio yield and annualized distribution rate to shareholders do not represent actual investment returns to shareholders. Our gross annual portfolio yield and
distribution rate to shareholders are subject to change and in the future may be greater or less than the rates set forth above. See the sections entitled "Item 1A. Risk Factors" in our annual report
on Form 10-K for the fiscal year ended December 31, 2014 and in our other periodic reports filed with the SEC for a discussion of the uncertainties, risks and assumptions associated with
these statements.

Total Portfolio Activity

The following tables present certain selected information regarding our portfolio investment activity for the three and six months
ended June 30, 2015:

Net Investment Activity

For the
Three Months Ended
June 30, 2015

For the
Six Months Ended
June 30, 2015Purchases

$
474,720

$
686,349Sales and Redemptions


(185,550
)

(380,080
)​
​
​
​
​
​
​
​Net Portfolio Activity

$
289,170

$
306,269​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​




For the
Three Months Ended
June 30, 2015

For the
Six Months Ended
June 30, 2015New Investment Activity by Asset Class

Purchases

Percentage

Purchases

PercentageSenior Secured LoansFirst Lien

$
202,029


43
%
$
285,287


42
%Senior Secured LoansSecond Lien


67,892


14
%

173,182


25
%Senior Secured Bonds


68,522


14
%

75,413


11
%Subordinated Debt


132,561


28
%

146,523


21
%Equity/Other


3,716


1
%

5,944


1
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
474,720


100
%
$
686,349


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


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Table of Contents

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

June 30, 2015
(Unaudited)

December 31, 2014Amortized
Cost(1)

Fair Value

Percentage
of Portfolio

Amortized
Cost(1)

Fair Value

Percentage
of PortfolioSenior Secured LoansFirst Lien

$
1,014,846

$
984,636


27
%
$
881,945

$
854,825


25
%Senior Secured LoansSecond Lien


1,183,593


1,122,831


30
%

1,059,981


989,972


29
%Senior Secured Bonds


360,641


333,631


9
%

324,963


285,485


9
%Subordinated Debt


1,085,301


953,256


26
%

1,124,512


940,313


28
%Equity/Other


282,924


313,468


8
%

271,649


304,582


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

$
3,927,305

$
3,707,822


100
%
$
3,663,050

$
3,375,177


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


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


The
following table presents certain selected information regarding the composition of our investment portfolio as of June 30, 2015 and December 31, 2014:

June 30, 2015

December 31, 2014Number of Portfolio Companies


105


125% Variable Rate (based on fair value)


52.0
%

51.8
%% Fixed Rate (based on fair value)


39.6
%

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


3.8
%

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


4.6
%

5.0
%Average Annual EBITDA of Portfolio Companies

$
270,386

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


98.7
%

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


0.1
%

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


9.0
%

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


9.4
%

9.1
%


Direct Originations

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

Net Direct Originations

For the
Three Months Ended
June 30, 2015

For the
Six Months Ended
June 30, 2015Total Commitments (including Unfunded Commitments)

$
261,359

$
361,609Exited Investments (including partial paydowns)


(9,898
)

(11,745
)​
​
​
​
​
​
​
​Net Direct Originations

$
251,461

$
349,864​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


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Table of Contents



For the
Three Months Ended
June 30, 2015

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

Commitment
Amount

Percentage

Commitment
Amount

PercentageSenior Secured LoansFirst Lien

$
184,863


71
%
$
184,863


51
%Senior Secured LoansSecond Lien


69,289


26
%

169,289


47
%Senior Secured Bonds











Subordinated Debt


5,045


2
%

5,123


1
%Equity/Other


2,162


1
%

2,334


1
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
261,359


100
%
$
361,609


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




For the
Three Months Ended
June 30, 2015

For the
Six Months Ended
June 30, 2015Average New Direct Origination Commitment Amount

$
52,272

$
51,658Weighted Average Maturity for New Direct Originations


6/12/20


5/12/20Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Funded during Period


11.2
%

11.2
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Funded during PeriodExcluding Non-Income Producing
Assets


11.4
%

11.3
%Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Direct Originations Exited during Period


9.5
%

9.5
%


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

Characteristics of All Direct Originations held in Portfolio

June 30, 2015

December 31, 2014Number of Portfolio Companies


24


22Average Annual EBITDA of Portfolio Companies

$
53,001

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


3.9x


4.0x% of Investments on Non-Accrual





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


9.8
%

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


10.7
%

10.1
%


Portfolio Composition by Strategy and Industry

The table below summarizes the composition of our investment portfolio by strategy and enumerates the percentage, by fair value, of the
total portfolio assets in such strategies as of June 30, 2015 and December 31, 2014:

June 30, 2015

December 31, 2014Portfolio Composition by Strategy

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of PortfolioDirect Originations

$
1,797,977


49
%
$
1,371,063


41
%Opportunistic


898,724


24
%

892,154


26
%Broadly Syndicated/Other


1,011,121


27
%

1,111,960


33
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,707,822


100
%
$
3,375,177


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


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The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as
of June 30, 2015 and December 31, 2014:

June 30, 2015
(Unaudited)

December 31, 2014Industry Classification

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of PortfolioUpstream

$
2,241,204


60
%
$
1,815,456


54
%Midstream


231,075


6
%

233,836


7
%Downstream


19,955


1
%

12,494


0
%Power


393,525


11
%

326,773


10
%Service & Equipment


822,063


22
%

986,618


29
%​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,707,822


100
%
$
3,375,177


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


As
of June 30, 2015, except for FourPoint Energy, LLC, in which we held a senior secured bond and two equity/other investments, we were not an "affiliated person" of any of
our portfolio companies, as defined in the 1940 Act. As of June 30, 2015, we did not "control" any of our portfolio companies, as defined in the 1940 Act. In general, under the 1940 Act, we
would be presumed to "control" a portfolio company if we owned 25% or more of its voting securities or we had the power to exercise control over the management or policies of a portfolio company, and
would be an "affiliated person" of a portfolio company if we owned 5% or more of its voting securities.

Our
investment portfolio may contain loans or bonds that are in the form of lines of credit or revolving credit facilities, or other investments, pursuant to which we may be required to
provide funding when requested by portfolio companies in accordance with the terms of the underlying agreements. As of June 30, 2015, we had five senior secured loan investments with aggregate
unfunded commitments of $212,227, one senior secured bond investment with an unfunded commitment of $73,879 and three equity/other investments with aggregate unfunded commitments of $22,428. As of
June 30, 2015, these unfunded equity/other investments were Altus Power America Holdings, LLC, BL Sand Hills Unit, L.P., net profits interest and BL Sand Hills
Unit, L.P., overriding royalty interest. As of December 31, 2014,
we had four senior secured loan investments with aggregate unfunded commitments of $218,120, one senior secured bond investment with an unfunded commitment of $86,192 and three equity/other
investments with aggregate unfunded commitments of $26,109. As of December 31, 2014, these unfunded equity/other investments were Altus Power America Holdings, LLC, BL Sand Hills
Unit, L.P., net profits interest and BL Sand Hills Unit, L.P., overriding royalty interest. We maintain sufficient cash on hand and available borrowings to fund such unfunded commitments
should the need arise.

Portfolio Asset Quality

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

Investment
Rating

Summary Description1

Investment exceeding expectations and/or capital gain expected.2

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

Performing investment requiring closer monitoring.4

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

Underperforming investment with expected loss of interest and some principal.


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

June 30, 2015

December 31, 2014Investment Rating

Fair Value

Percentage
of Portfolio

Fair Value

Percentage
of Portfolio1

$
178,868


5
%
$
119,174


4
%2


2,664,511


72
%

2,630,119


78
%3


793,910


21
%

586,116


17
%4


67,577


2
%

39,768


1
%5


2,956


0
%




​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
3,707.822


100
%
$
3,375,177


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


The
amount of the portfolio in each grading category may vary substantially from period to period resulting primarily from changes in the composition of the portfolio as a result of new
investment, repayment and exit activities. In addition, changes in the grade of investments may be made to reflect our expectation of performance and changes in investment values.

Results of Operations

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

Revenues

We generated investment income of $92,410 and $72,007 for the three months ended June 30, 2015 and 2014, respectively, in the
form of interest and fees earned on senior secured loans, senior secured bonds and subordinated debt investments in our portfolio and dividends and other distributions earned on equity/other
investments in our portfolio. Such revenues represent $86,585 and $64,206 of cash income earned as well as $5,825 and $7,801 in non-cash portions relating to accretion of discount, PIK interest and
accrual of limited partnership income for the three months ended June 30, 2015 and 2014, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting
periods or years after such revenues are recognized.

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

During
the three months ended June 30, 2015 and 2014, we generated $9,127 and $10,255 of fee income, which represented 9.9% and 14.2%, respectively, of total investment income.
Such fee income is transaction based, and typically consists of amendment and consent fees, prepayment fees, structuring fees, upfront fees and other non-recurring fees. As such, future fee income is
generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees.

Expenses

Our total expenses were $36,746 and $34,977 for the three months ended June 30, 2015 and 2014, respectively. Our expenses
include base management fees attributed to FS Advisor of $19,392 and $14,678 for the three months ended June 30, 2015 and 2014, respectively. Our expenses also include administrative services
expenses attributed to FS Advisor of $761 and $1,008 for the three months ended June 30, 2015 and 2014, respectively.

FS
Advisor is eligible to receive incentive fees based on our performance. During the three months ended June 30, 2015 and 2014, we accrued subordinated incentive fees on income
of $6,478 and $10,013, respectively, based on the performance of our portfolio. During the three months ended June 30, 2015, we did not accrue any capital gains incentive fees. During the three
months ended June 30, 2014, we accrued capital gains incentive fees of $3,015 based on the performance of our portfolio.

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We
recorded interest expense of $7,408 and $4,096 for the three months ended June 30, 2015 and 2014, respectively, in connection with our financing arrangements. For the three
months ended June 30, 2015 and 2014, fees and expenses incurred with our fund administrator, which provides various accounting and administrative services to us, totaled $361 and $288,
respectively, and fees and expenses incurred with our share transfer agent totaled $638 and $660, respectively. Fees for our board of trustees were $265 and $135 for the three months ended
June 30, 2015 and 2014, respectively.

Our
other general and administrative expenses totaled $1,374 and $1,033 for the three months ended June 30, 2015 and 2014, respectively, and consisted of the following:

Three Months Ended
June 30,2015

2014Expenses associated with our independent audit and related fees

$
236

$
111Compensation of our chief compliance officer(1)





40Legal fees


121


225Printing fees


520


52Insurance expense


78


57Other


419


548​
​
​
​
​
​
​
​Total

$
1,374

$
1,033​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


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


During
the three months ended June 30, 2015 and 2014, the ratio of our total expenses to our average net assets was 1.28% and 1.64%, respectively. During the three months ended
June 30, 2015 and 2014, our ratio of total expenses to average net assets included $7,408 and $4,096, respectively, related to interest expense, $6,478 and $13,028, respectively, related to
accruals for incentive fees and $69 and $51, respectively, related to accruals for income taxes. Without such expenses, our ratio of total expenses to average net assets would have been 0.80% and
0.83% for the three months ended June 30, 2015 and 2014, respectively. Incentive fees, interest expense and income taxes, among other things, may increase or decrease our expense ratios
relative to comparative periods depending on portfolio performance and changes in benchmark interest rates such as LIBOR, among other factors.

Net Investment Income

Our net investment income totaled $55,664 ($0.17 per share) and $37,030 ($0.17 per share) for the three months ended June 30,
2015 and 2014, respectively. The increase in net investment income for the three months ended June 30, 2015 can be attributed primarily to the growth of our portfolio and a reduction of
accruals for incentive fees. However, our net investment income on a per share basis remained unchanged due in part to the fact that decreases in our investment income on a per share basis were
largely offset by decreases in incentive fees on a per share basis.

Net Realized Gains or Losses

We sold investments and received principal repayments of $159,662 and $25,888, respectively, during the three months ended
June 30, 2015, from which we realized a net loss of $40,553. We realized a net gain of $91 from settlements on foreign currency during the three months ended June 30, 2015. We sold
investments and received principal repayments of $109,225 and $247,228,
respectively, during the three months ended June 30, 2014, from which we realized a net gain of $2,411. We realized a net gain of $31 from settlements on foreign currency during the three
months ended June 30, 2014.

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

For the three months ended June 30, 2015 and 2014, the net change in unrealized appreciation (depreciation) on investments
totaled $49,804 and $12,697, respectively, and the net change in unrealized gain (loss) on foreign currency was $(13) and $(50), respectively. The change in unrealized appreciation (depreciation) on
our investments during the three months ended June 30, 2015 was primarily driven by a general tightening of credit spreads in Energy markets. The change in unrealized appreciation
(depreciation) on our investments during the three months ended June 30, 2014 was primarily driven by the performance of our directly originated and opportunistic investments.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the three months ended June 30, 2015 and 2014, the net increase (decrease) in net assets resulting from operations was
$64,993 ($0.20 per share) and $52,119 ($0.24 per share), respectively.

Comparison of the Six Months Ended June 30, 2015 and 2014

Revenues

We generated investment income of $177,997 and $128,563 for the six months ended June 30, 2015 and 2014, respectively, in the
form of interest and fees earned on senior secured loans, senior secured bonds and subordinated debt investments in our portfolio and dividends and other distributions earned on equity/other
investments in our portfolio. Such revenues represent $162,436 and $116,416 of cash income earned as well as $15,561 and $12,147 in non-cash portions relating to accretion of discount, PIK interest
and accrual of limited partnership income for the six months ended June 30, 2015 and 2014, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting
periods or years after such revenues are recognized.

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

During
the six months ended June 30, 2015 and 2014, we generated $13,645 and $15,844 of fee income, which represented 7.7% and 12.3%, respectively, of total investment income.
Such fee income is transaction based, and typically consists of amendment and consent fees, prepayment fees, structuring fees, upfront fees and other non-recurring fees. As such, future fee income is
generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees.

Expenses

Our total expenses were $69,608 and $65,245 for the six months ended June 30, 2015 and 2014, respectively. Our expenses include
base management fees attributed to FS Advisor of $38,137 and $27,545 for the six months ended June 30, 2015 and 2014, respectively. Our expenses also include administrative services expenses
attributed to FS Advisor of $2,261 and $1,943 for the six months ended June 30, 2015 and 2014, respectively.

FS
Advisor is eligible to receive incentive fees based on our performance. During the six months ended June 30, 2015 and 2014, we accrued subordinated incentive fees on income of
$9,357 and $14,623, respectively, based on the performance of our portfolio. During the six months ended June 30, 2015, we did not accrue any capital gains incentive fees. During the six months
ended June 30, 2014, we accrued capital gains incentive fees of $8,580 based on the performance of our portfolio, of which $7,559 was based on unrealized gains and $1,021 was based on realized
gains. No capital gains incentive fees are actually payable by us with respect to unrealized gains unless and until those gains are actually realized. See "Critical Accounting
PoliciesCapital Gains Incentive Fee."

We
recorded interest expense of $14,724 and $8,433 for the six months ended June 30, 2015 and 2014, respectively, in connection with our financing arrangements. For the six months
ended June 30, 2015 and 2014, fees and expenses incurred with our fund administrator, which provides various

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accounting
and administrative services to us, totaled $721 and $554, respectively, and fees and expenses incurred with our share transfer agent totaled $1,432 and $1,307, respectively. Fees for our
board of trustees were $490 and $416 for the six months ended June 30, 2015 and 2014, respectively.

Our
other general and administrative expenses totaled $2,328 and $1,737 for the six months ended June 30, 2015 and 2014, respectively, and consisted of the following:

Six Months Ended
June 30,2015

2014Expenses associated with our independent audit and related fees

$
372

$
205Compensation of our chief compliance officer(1)


10


60Legal fees


344


468Printing fees


640


141Insurance expense


152


113Other


810


750​
​
​
​
​
​
​
​Total

$
2,328

$
1,737​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​​
​
​
​
​
​
​
​


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


During
the six months ended June 30, 2015 and 2014, the ratio of our total expenses to our average net assets was 2.53% and 3.29% respectively. During the six months ended
June 30, 2015 and 2014, our ratio of total expenses to average net assets included $14,724 and $8,433, respectively, related to interest expense, $9,357 and $23,203, respectively, related to
accruals for incentive fees and $158 and $107, respectively, related to accruals for income taxes. Without such expenses, our ratio of total expenses to average net assets would have been 1.65% and
1.69% for the six months ended June 30, 2015 and 2014, respectively. Incentive fees, interest expense and income taxes, among other things, may increase or decrease our expense ratios relative
to comparative periods depending on portfolio performance and changes in benchmark interest rates such as LIBOR, among other factors.

Net Investment Income

Our net investment income totaled $108,389 ($0.34 per share) and $63,318 ($0.31 per share) for the six months ended June 30,
2015 and 2014, respectively. The increase in net investment income on a per share basis for the six months ended June 30, 2015 was primarily driven by decreases in accruals for incentive fees
during the period.

Net Realized Gains or Losses

We sold investments and received principal repayments of $286,998 and $93,082, respectively, during the six months ended
June 30, 2015, from which we realized a net loss of $58,510. We realized a net loss of $147 from settlements on foreign currency during the six months ended June 30, 2015. We sold
investments and received principal repayments of $192,754 and $267,682, respectively, during the six months ended June 30, 2014, from which we realized a net gain of $4,691.
During the six months ended June 30, 2014, we realized a net loss of $507 from settlements on foreign currency.

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

For the six months ended June 30, 2015 and 2014, the net change in unrealized appreciation (depreciation) on investments totaled
$68,390 and $38,718, respectively, and the net change in unrealized gain (loss) on foreign currency was $(141) and $31, respectively. The change in unrealized appreciation (depreciation) on our
investments during the six months ended June 30, 2015 was primarily driven by a general tightening of credit spreads in Energy markets and by the performance of our directly originated and
opportunistic investments. The change in unrealized appreciation (depreciation) on our investments during the six months ended June 30, 2014 was primarily driven by a

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general
tightening of credit spreads and by the performance of our directly originated and opportunistic investments.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the six months ended June 30, 2015 and 2014, the net increase (decrease) in net assets resulting from operations was
$117,981($0.37 per share) and $106,251 ($0.52 per share), respectively.

Financial Condition, Liquidity and Capital Resources

Overview

As of June 30, 2015, we had $212,603 in cash and foreign currency, which is held in custodial accounts, and $277,575 in
borrowings available under our financing arrangements. To seek to enhance our returns, we employ leverage as market conditions permit and at the discretion of FS Advisor, but in no event may leverage
employed exceed 50% of the value of our assets, as required by the 1940 Act. See "Financing Arrangements."

During
the six months ended June 30, 2015, we sold 39,047,591 common shares for gross proceeds of $369,039 at an average price per share of $9.45. The gross proceeds received
during the six months ended June 30, 2015 include reinvested shareholder distributions of $57,735, for which we issued 6,612,504 common shares. During the six months ended June 30, 2015,
we also incurred offering costs of $5,350 in connection with the sale of our common shares, which consisted primarily of legal, accounting, printing and other expenses, including costs associated with
technology integration between our systems and those of our selected broker-dealers, marketing expenses and printing, legal and due diligence fees. The offering costs were offset against capital in
excess of par value on our consolidated financial statements. The sales commissions and dealer manager fees related to the sale of our common shares were $27,547 for the six months ended
June 30, 2015. These sales commissions and fees include $5,346 retained by the dealer manager, FS2, which is one of our affiliates. On December 23, 2014, the SEC declared
effective our registration statement that registered an additional 92,200,000 common shares in our continuous public offering.

Since
commencing our continuous public offering and through July 28, 2015, we have sold 345,437,469 common shares (as adjusted for share distributions) for gross proceeds of
$3,570,031, including common shares issued under our distribution reinvestment plan. As of July 28, 2015, we have raised total gross proceeds of $3,590,235, 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.

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The
following table provides information concerning our repurchases of common shares pursuant to our share repurchase program during the six months ended June 30, 2015 and 2014:

For the Three Months Ended

Repurchase Date

Shares
Repurchased

Percentage
of Shares
Tendered
That Were
Repurchased

Repurchase
Price
Per Share

Aggregate
Consideration
for Repurchased
SharesFiscal 2014December 31, 2013

January 2, 2014


174,181


100
%
$
9.72

$
1,693March 31, 2014

April 2, 2014


158,723


100
%
$
9.81

$
1,557Fiscal 2015December 31, 2014

January 7, 2015


450,293


100
%
$
8.82

$
3,972March 31, 2015

April 1, 2015


716,857


100
%
$
8.73

$
6,258


On
July 1, 2015, we repurchased 955,664 common shares (representing 100% of common shares tendered for repurchase) at $8.82 per share for aggregate consideration totaling $8,429.

Financing Arrangements

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

Arrangement

Type of
Arrangement

Rate

Amount
Outstanding

Amount
Available

Maturity DateBNP Facility

Prime Brokerage

L+1.10%

$
223,000

$
77,000

March 26, 2016(1)Deutsche Bank Credit Facility

Revolving

L+1.80%

$
280,000

$
60,000

June 11, 2016Goldman Facility

Repurchase

L+2.75%

$
259,425

$
65,575

September 15, 2017Natixis Credit Facility

Revolving

CP+2.25%

$
105,538




July 11, 2023Wells Fargo Credit Facility

Revolving

L+2.50% to 2.75%

$
125,000

$
75,000

September 9, 2019


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


Our
average borrowings and weighted average interest rate, including the effect of non-usage fees, for the six months ended June 30, 2015 were $992,335 and 2.72%, respectively. As
of June 30, 2015, our weighted average effective interest rate on borrowings was 2.33%.

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

RIC Status 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. In
order to maintain RIC tax treatment, we must, among other things, distribute to our shareholders each tax year dividends of an amount at least equal to 90% of our "investment company taxable income,"
determined without regard to any deduction for dividends paid. As long as the distributions are declared by the later of the fifteenth day of the ninth month following the close of the tax year or the
due date of the tax return, including extensions, distributions paid up to one year after the current tax year can be carried back to the prior tax year for determining the distributions paid in such
tax year. We intend to make sufficient distributions to our shareholders to maintain our RIC status each tax year. We are also generally subject to nondeductible U.S. federal excise taxes on certain
undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our net ordinary taxable income (taking into account certain deferrals and
elections) for the calendar year, (2) 98.2% of our capital gain net income, which is the excess of capital gains over capital losses, for the one-year period ending October 31 of that
calendar year (adjusted for certain ordinary losses) and (3) any net ordinary income and capital gain net income for the preceding years that were not distributed during such years and on which
we paid no U.S. federal income tax. Any distribution declared by us during October, November or December of any calendar year, payable to our shareholders of record on a specified date in such a month
and actually paid during January of the following calendar year, will be

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treated
as if it had been paid by us, as well as received by our U.S. shareholders, on December 31 of the calendar year in which the distribution was declared.

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

During
certain periods, our distributions may exceed our earnings, especially during the period before we have substantially invested the proceeds from our continuous public offering of
common shares. As a result, it is possible that a portion of the distributions we make will represent a return of capital. A return of capital generally is a return of an investor's investment rather
than a return of earnings or gains derived from our investment activities and will be made after deducting the fees and expenses payable in connection with our continuous public offering, including
any fees payable to FS Advisor. Each year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to our shareholders. No portion of the distributions paid
during the six months ended June 30, 2015 and 2014 represented a return of capital.

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

DistributionFor the Three Months Ended

Per Share

AmountFiscal 2014March 31, 2014

$
0.1524

$
28,423June 30, 2014

$
0.1680

$
36,323Fiscal 2015March 31, 2015

$
0.1771

$
54,825June 30, 2015

$
0.1771

$
58,250


On
May 13, 2015 and August 5, 2015, our board of trustees declared regular weekly cash distributions for July 2015 through September 2015 and October 2015 through December
2015, respectively. These distributions have been or will be paid monthly to shareholders of record as of weekly record dates previously determined by our board of trustees in the amount of $0.013625
per share. The timing and amount of any future distributions to shareholders are subject to applicable legal restrictions and the sole discretion of our board of trustees.

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

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

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

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No portion of the distributions paid during the six months ended June 30, 2015 or 2014 was funded through the reimbursement of operating expenses by
Franklin Square Holdings. During the six months ended June 30, 2015 and 2014, we did not repay any amounts to Franklin Square Holdings for expenses previously reimbursed or waived. There can be
no assurance that we will continue to achieve the performance necessary to sustain our distributions or that we will be able to pay distributions at a specific rate or at all. Franklin Square Holdings
and its affiliates have no obligation to waive advisory fees or otherwise reimburse expenses in future periods.

The
following table reflects the sources of the cash distributions on a tax basis that we paid on our common shares during the six months ended June 30, 2015 and 2014:

Six Months Ended June 30,2015

2014Source of Distribution

Distribution
Amount

Percentage

Distribution
Amount

PercentageOffering proceeds

$





$



Borrowings











Net investment income(1)


99,484


88
%

64,746


100
%Short-term capital gains proceeds from the sale of assets











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


13,591


12
%




Non-capital gains proceeds from the sale of assets











Distributions on account of limited partnership interest











Expense reimbursement from sponsor











​
​
​
​
​
​
​
​
​
​
​
​
​
​Total

$
113,075


100
%
$
64,746


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


(1)During
the six months ended June 30, 2015 and 2014, 91.2% and 90.6%, respectively, of our gross investment income was attributable to cash income
earned, 1.7% and 4.6%, respectively, was attributable to non-cash accretion of discount and 7.1% and 4.8%, respectively, was attributable to PIK interest.


Our
net investment income on a tax basis for the six months ended June 30, 2015 and 2014 was $110,999 and $66,634, respectively. As of June 30, 2015, we had $11,515 of
undistributed ordinary income and $63,417 of net realized losses on a tax basis. As of December 31, 2014, we had $13,591 of undistributed ordinary income and net realized gains on a tax basis,
all of which was distributed during the six months ended June 30, 2015.

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

Critical Accounting Policies

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

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describe
additional critical accounting policies in the notes to our future financial statements in addition to those discussed below.

Valuation of Portfolio Investments

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

Accounting
Standards Codification Topic 820,Fair Value Measurements and Disclosure, or ASC Topic 820, issued by the FASB clarifies
the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial
recognition. ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical
securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop
its own assumptions.

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



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.

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

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

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

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

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

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

Our
investments as of June 30, 2015 consisted primarily of debt investments that were purchased on a private over-the-counter market for institutional investors or acquired
directly from the issuer. Eighteen senior secured loan investments, one senior secured bond investment and three subordinated debt
investments were valued by independent valuation firms, which determined the fair value of such investments by considering, among other factors, the borrower's ability to adequately service its debt,
prevailing interest rates for like investments, call features, anticipated prepayments and other relevant terms of the debt. All of our equity/other investments were also valued by an independent
valuation firm, which determined the fair value of such investments by considering, among other factors, contractual rights ascribed to such investments, as well as various income scenarios and
multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value.

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Except
as described above, we valued our other investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by an
independent third-party pricing service and screened for validity by such service.

Our
investments as of December 31, 2014 consisted primarily of debt investments that were traded on a private over-the-counter market for institutional investors. Seventeen senior
secured loan investments, one senior secured bond investment and two subordinated debt investments were valued by an independent valuation firm, which determined the fair value of such investments by
considering, among other factors, the borrower's ability to adequately service its debt, prevailing interest rates for like investments, call features, anticipated prepayments and other relevant terms
of the debt. All of our equity/other investments were also valued by an independent valuation firm, which determined the fair value of such investments by considering, among other factors, contractual
rights ascribed to such investments, as well as various income scenarios and multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. Except as
described above, we valued our other investments by using the midpoint of the prevailing bid and ask prices from dealers on the date of the relevant period end, which were provided by an independent
third-party pricing service and screened for validity by such service.

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

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. 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.

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Capital Gains Incentive Fee

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

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

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 will not earn this incentive fee for any quarter until our pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.625%. For purposes of this fee, "adjusted
capital" means cumulative gross proceeds generated from sales of our common shares (including our distribution reinvestment plan) reduced for distributions from non-liquidating dispositions of our
investments paid to shareholders and amounts paid for share repurchases pursuant to our share repurchase program. Once our pre-incentive fee net investment income in any quarter exceeds the hurdle
rate, FS Advisor will be 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 will be entitled to receive 20.0% of pre-incentive fee net investment income.

Uncertainty in Income Taxes

We evaluate our tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with
accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax benefits or liabilities in our consolidated financial statements.
Recognition of a tax benefit or liability with respect to an uncertain tax position is required only when the position is "more likely than not" to be sustained assuming examination by taxing
authorities. We recognize interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in our consolidated statements of operations. During the six months ended
June 30, 2015 and 2014, we did not incur any interest or penalties.

Contractual Obligations

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

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these
agreements and for the amount of fees and expenses accrued under these agreements during the six months ended June 30, 2015 and 2014.

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

Payments Due By PeriodTotal

Less than
1 year

1-3 years

3-5 years

More than
5 yearsBNP Facility(1)

$
223,000

$
223,000








Deutsche Bank Credit Facility(2)

$
280,000

$
280,000








Goldman Facility(3)

$
259,425




$
259,425





Natixis Credit Facility(4)

$
105,538










$
105,538Wells Fargo Credit Facility(5)

$
125,000







$
125,000





(1)At
June 30, 2015, $77,000 remained unused under the BNP facility. The BNP facility generally is terminable upon 270 days' notice by either
party. As of June 30, 2015, neither Berwyn Funding nor BNP had provided notice of its intent to terminate the facility.(2)At
June 30, 2015, $60,000 remained unused under the Deutsche Bank credit facility. All amounts borrowed under the facility will mature, and all
accrued and unpaid interest thereunder will be due and payable, on June 11, 2016.(3)At
June 30, 2015, $65,575 remained unused under the Goldman facility. Strafford Funding will repurchase all Notes sold to Goldman under the Goldman
facility and will owe all accrued and unpaid interest thereunder, on September 15, 2017.(4)At
June 30, 2015, no amounts remained unused under the Natixis credit facility. All amounts borrowed under the facility will mature, and all accrued
and unpaid interest thereunder will be due and payable, on July 11, 2023. Amounts under the Natixis credit facility began to amortize after the first repayment thereunder and we cannot borrow
additional amounts under the facility thereafter.(5)At
June 30, 2015, $75,000 remained unused under the Wells Fargo credit facility. All amounts borrowed under the facility will mature, and all accrued
and unpaid interest thereunder will be due and payable, on September 9, 2019.


Off-Balance Sheet Arrangements

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

Recently Issued Accounting Standards

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

Related Party Transactions

Compensation of the Investment Adviser and Dealer Manager

Pursuant to the investment advisory and administrative services agreement, FS Advisor is entitled to an annual base management fee of
2.0% of the average value of our gross assets and an incentive fee based on our performance. We commenced accruing fees under the investment advisory and

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administrative
services agreement on July 18, 2011, upon commencement of our investment operations. Base management fees are paid on a quarterly basis in arrears.

The
incentive fee consists of two parts. The first part of the incentive fee, which is referred to as the subordinated incentive fee on income, is calculated and payable quarterly in
arrears, equals 20.0% of our "pre-incentive fee net investment income" for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on adjusted capital equal to
1.625% per quarter, or an annualized hurdle rate of 6.5%. For purposes of this fee, "adjusted capital" means cumulative gross proceeds generated from sales of our common shares (including our
distribution reinvestment plan) reduced for distributions from non-liquidating dispositions of our investments paid to shareholders and amounts paid for share repurchases pursuant to our share
repurchase program. The second part of the incentive fee, which is referred to as the incentive fee on capital gains, is accrued for on a quarterly basis and, if earned, is paid annually. We accrue
this incentive fee based on net realized and unrealized gains; however, under the terms of the investment advisory and administrative services agreement, the fee payable to FS Advisor is based on
realized gains and no such fee is payable with respect to unrealized gains unless and until such gains are actually realized.

We
reimburse FS Advisor for expenses necessary to perform services related to our administration and operations, including FS Advisor's allocable portion of the compensation and related
expenses of certain personnel of Franklin Square Holdings providing administrative services to us on behalf of FS Advisor. The amount of the reimbursement payable to FS Advisor is the lesser of
(1) FS Advisor's actual costs incurred in providing such services and (2) the amount that we estimate we would be required to pay alternative service providers for comparable services in
the same geographic location. FS Advisor is required to allocate the cost of such services to us based on factors such as assets, revenues, time allocations and/or other reasonable metrics. Our board
of trustees reviews the methodology employed in determining how the expenses are allocated to us and the proposed allocation of the administrative expenses among us and certain affiliates of FS
Advisor. Our board of trustees then assesses the reasonableness of such reimbursements for expenses allocated to us based on the breadth, depth and quality of such services as compared to the
estimated cost to us of obtaining similar services from third-party providers known to be available. In addition, our board of trustees considers whether any single third-party service provider would
be capable of providing all such services at comparable cost and quality. Finally, our board of trustees, among other things, compares the total amount paid to FS Advisor for such services as a
percentage of our net assets to the same ratio as reported by other comparable BDCs. We will not reimburse FS Advisor for any services for which it receives a separate fee, or for rent, depreciation,
utilities, capital equipment or other administrative items allocated to a controlling person of FS Advisor.

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

Prior
to satisfaction of the minimum offering requirement and for a period of time thereafter, Franklin Square Holdings funded certain of our organization and offering costs. Following
this period, we have paid certain of our organization and offering costs directly and reimbursed FS Advisor for offering costs incurred by FS Advisor on our behalf, including marketing expenses,
salaries and other direct expenses of FS Advisor's personnel and employees of its affiliates while engaged in registering and marketing our common shares. Organization and offering costs funded
directly by Franklin Square Holdings were recorded by us as a contribution to capital. The offering costs were offset against capital in excess of par value on our consolidated financial statements
and the organization costs were charged to expense as incurred by us. All other offering costs, including costs incurred directly by us, amounts reimbursed to FS Advisor for ongoing offering costs and
any reimbursements paid to Franklin Square Holdings for organization and offering costs previously funded, are recorded as a reduction of capital.

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

The
following table describes the fees and expenses accrued under the investment advisory and administrative services agreement and the dealer manager agreement during the three and six
months ended June 30, 2015 and 2014:

Three Months Ended
June 30,

Six Months Ended
June 30,Related Party

Source Agreement

Description

2015

2014

2015

2014FS Advisor

Investment Advisory and Administrative Services Agreement

Base Management Fee(1)

$
19,392

$
14,678

$
38,137

$
27,545FS Advisor

Investment Advisory and Administrative Services Agreement

Capital Gains Incentive Fee(2)




$
3,015




$
8,580FS Advisor

Investment Advisory and Administrative Services Agreement

Subordinated Incentive Fee on Income(3)

$
6,478

$
10,013

$
9,357

$
14,623FS Advisor

Investment Advisory and Administrative Services Agreement

Administrative Services Expenses(4)

$
761

$
1,008

$
2,261

$
1,943FS Advisor

Investment Advisory and Administrative Services Agreement

Offering Costs(5)

$
1,409

$
2,032

$
3,033

$
2,936FS2

Dealer Manager Agreement

Dealer Manager Fee(6)

$
2,129

$
5,608

$
5,346

$
10,646


(1)During
the six months ended June 30, 2015 and 2014, $36,657 and $23,618, respectively, in base management fees were paid to FS Advisor. As of
June 30, 2015, $19,392 in base management fees were payable to FS Advisor.(2)During
the six months ended June 30, 2015, we did not accrue any capital gains incentive fees. During the six months ended June 30, 2014, we
accrued capital gains incentive fees of $8,580, of which $7,559 was based on unrealized gains and $1,021 was based on realized gains. No capital gains incentive fees are actually payable by us with
respect to unrealized gains unless and until those gains are actually realized. We did not pay any capital gains incentive fees to FS Advisor during the six months ended June 30, 2015. We paid
FS Advisor $2,857 in capital gains incentive fees during the six months ended June 30, 2014. As of June 30, 2015, we did not have any accrued capital gains incentive fees.(3)During
the six months ended June 30, 2015 and 2014, $15,021 and $11,396, respectively, of subordinated incentive fees on income were paid to FS
Advisor. As of June 30, 2015, a subordinated incentive fee on income of $6,478 was payable to FS Advisor.(4)During
the six months ended June 30, 2015 and 2014, $2,124 and $1,794, 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 $1,882 and $900 in administrative services
expenses to FS Advisor during the six months ended June 30, 2015 and 2014, respectively.(5)During
the six months ended June 30, 2015 and 2014, we incurred offering costs of $5,350 and $3,131, respectively, of which $3,033 and $2,936,
respectively, related to reimbursements to FS Advisor for offering costs incurred on our behalf, including marketing expenses, salaries and other direct expenses of FS Advisor's personnel and
employees of its affiliates while engaged in registering and marketing our common shares.(6)Represents
aggregate dealer manager fees retained by FS2 and not re-allowed to selected broker-dealers.


See
Note 4 to our unaudited consolidated financial statements contained in this quarterly report on Form 10-Q for additional information regarding our related party
transactions and relationships, including capital contributions by FS Advisor and GSO, potential conflicts of interest, our exemptive relief order, our expense reimbursement arrangement with Franklin
Square Holdings, and FS Benefit Trust's purchases of our common shares.

Recent Developments

During the period from July 1, 2015 to July 28, 2015, we sold 7,837,213 common shares for gross proceeds of $74,256 at an
average price per share of $9.47.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

We are subject to financial market risks, including changes in interest rates. As of June 30, 2015, 52.0% of our portfolio
investments (based on fair value) paid variable interest rates, 39.6% paid fixed

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interest
rates, 3.8% were income producing equity or other investments and the remainder (4.6%) consisted of non-income producing equity or other investments. A rise in the general level of interest
rates can be expected to lead to higher interest rates applicable to the variable rate investments we hold and to declines in the value of any fixed rate investments we hold. However, many of our
variable rate investments provide for an interest rate floor, which may prevent our interest income from increasing until benchmark interest rates increase beyond a threshold amount. To the extent
that a substantial portion of our investments may be in variable rate investments, an increase in interest rates beyond this threshold would make it easier for us to meet or exceed the hurdle rate
applicable to the subordinated incentive fee on income and may result in a substantial increase in our net investment income and to the amount of incentive fees payable to FS Advisor with respect to
our increased pre-incentive fee net investment income.

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

The
following table shows the effect over a twelve-month period of changes in interest rates on our interest income, interest expense and net interest income, assuming no changes in the
composition of
our investment portfolio, including the accrual status of our investments, and our borrowing arrangements in effect as of June 30, 2015 (dollar amounts are presented in thousands):

Basis Point Change in Interest Rates

Increase
(Decrease)
in Interest
Income

Increase
(Decrease)
in Interest
Expense

Increase
(Decrease) in
Net Interest
Income

Percentage
Change in
Net Interest
IncomeDown 25 basis points

$


$
(2,495
)
$
2,495


0.8
%No change











Up 100 basis points


3,191


9,978


(6,787
)

(2.1
)%Up 300 basis points


40,980


29,935


11,045


3.4
%Up 500 basis points


80,815


49,891


30,924


9.5
%


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 six months ended June 30, 2015 and 2014, we did not
engage in interest rate hedging activities.

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

Item 4.    Controls and Procedures.

As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the
participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of
June 30, 2015. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable
assurance that we would meet our disclosure obligations.

There
was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) that occurred during the three month
period ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents

PART IIOTHER INFORMATION

Item 1.    Legal Proceedings.

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

Item 1A.    Risk Factors.

There have been no material changes from the risk factors set forth in our annual report on Form 10-K for the fiscal year ended
December 31, 2014.

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

The table below provides information concerning our repurchases of common shares during the three months ended June 30, 2015
pursuant to our share repurchase program.

Period

Total
Number of
Shares
Purchased

Average
Price Paid
per Share

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

Maximum Number of
Shares that May Yet
Be Purchased
Under the
Plans or ProgramsApril 1 to April 30, 2015


716,857

$
8.73


716,857


(1
)May 1 to May 31, 2015











June 1 to June 30, 2015











​
​
​
​
​
​
​
​
​
​
​
​
​
​Total


716,857

$
8.73


716,857


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


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


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

Item 3.    Defaults upon Senior Securities.

Not applicable.

Item 4.    Mine Safety Disclosures.

Not applicable.

Item 5.    Other Information.

Not applicable.

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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 prospectus supplement filed on May 13, 2015 with the Securities and Exchange Commission pursuant to
Rule 497 of the Securities Act of 1933, as amended.)4.2

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

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

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

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

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

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

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

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

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

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


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10.10

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

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

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

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

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

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

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

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

Asset Contribution Agreement, dated as of June 24, 2011, by and between FS Energy and Power Fund and FSEP Term Funding, LLC.(Incorporated by reference to Exhibit 10.8 to FS
Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.)10.19

Investment Management Agreement, dated as of June 24, 2011, by and between FS Energy and Power Fund and FSEP Term Funding, LLC.(Incorporated by reference to Exhibit 10.9 to FS
Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.)10.20

Security Agreement, dated as of June 24, 2011, by and between FSEP Term Funding, LLC and Deutsche Bank AG, New York Branch.(Incorporated by reference to Exhibit 10.10 to FS
Energy and Power Fund's Quarterly Report on Form 10-Q filed on June 27, 2011.)10.21

ISDA 2002 Master Agreement, together with the Schedule thereto and Credit Support Annex to such Schedule, each dated as of August 11, 2011, by and between EP Investments LLC and Citibank, N.A.(Incorporated by reference to Exhibit 10.11 to FS Energy and Power Fund's Quarterly Report on Form 10-Q filed on August 15, 2011.)10.22

Termination and Release Acknowledgment, dated as of May 11, 2012, by Citibank N.A. in favor of FS Energy and Power Fund.(Incorporated by reference to Exhibit 10.15 to FS Energy and
Power Fund's Quarterly Report on Form 10-Q filed on May 15, 2012.)10.23

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


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10.24

Amended and Restated Confirmation Letter Agreement, dated as of May 11, 2012, by and between EP Investments LLC and Citibank, N.A.(Incorporated by reference to Exhibit 10.17 to FS
Energy and Power Fund's Quarterly Report on Form 10-Q filed on May 15, 2012.)10.25

Amended and Restated Confirmation Letter Agreement, dated as of October 11, 2012, by and between EP Investments LLC and Citibank, N.A.(Incorporated by reference to Exhibit 10.1
to FS Energy and Power Fund's Current Report on Form 8-K filed on October 12, 2012.)10.26

Termination Acknowledgment (TRS), dated as of May 24, 2013, by and between EP Investments LLC and Citibank, N.A.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power
Fund's Current Report on Form 8-K filed on May 31, 2013.)10.27

Loan Agreement, dated as of May 24, 2013, by and among EP Funding LLC, the financial institutions and other lenders from time to time party thereto and Citibank, N.A., as administrative agent.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on May 29, 2013.)10.28

Account Control Agreement, dated as of May 24, 2013, by and among EP Funding LLC, Citibank, N.A. and Virtus Group, LP.(Incorporated by reference to Exhibit 10.2 to FS Energy
and Power Fund's Current Report on Form 8-K filed on May 29, 2013.)10.29

Security Agreement, dated as of May 24, 2013, by and between EP Funding LLC and Citibank, N.A.(Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund's Current
Report on Form 8-K filed on May 29, 2013.)10.30

Investment Management Agreement, dated as of May 24, 2013, by and between FS Energy and Power Fund and EP Funding LLC.(Incorporated by reference to Exhibit 10.4 to FS Energy and
Power Fund's Current Report on Form 8-K filed on May 29, 2013.)10.31

Credit Agreement, dated as of July 11, 2013, by and among Energy Funding LLC, Natixis, New York Branch, Wells Fargo Bank, National Association and the other lenders from time to time party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on July 16, 2013.)10.32

Securities Account Control Agreement, dated as of July 11, 2013, by and among Energy Funding LLC and Wells Fargo Bank, National Association.(Incorporated by reference to
Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on July 16, 2013.)10.33

Collateral Management Agreement, dated as of July 11, 2013, by and between FS Energy and Power Fund and Energy Funding LLC.(Incorporated by reference to Exhibit 10.3 to FS Energy
and Power Fund's Current Report on Form 8-K filed on July 16, 2013.)10.34

Amended and Restated Expense Support and Conditional Reimbursement Agreement, dated May 16, 2013, by and between FS Energy and Power Fund and Franklin Square Holdings, L.P.(Incorporated by reference to Exhibit 99.1 to FS Energy and Power Fund's Current report on Form 8-K filed on May 17, 2013.)10.35

Committed Facility Agreement, dated as of December 11, 2013, by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc.(Incorporated by reference to
Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.)10.36

First Amendment Agreement, dated as of August 18, 2014, between BNP Paribas Prime Brokerage, Inc., on behalf of itself and as agent for the BNPP Entities, and Berwyn Funding LLC.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on Form 8-K filed on August 21, 2014.)10.37

U.S. PB Agreement, dated as of December 11, 2013, by and between Berwyn Funding LLC and BNP Paribas Prime Brokerage, Inc.(Incorporated by reference to Exhibit 10.2 to FS
Energy and Power Fund's Current Report on Form 8-K filed on December 17, 2013.)10.38

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


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10.39

Investment Management Agreement, dated as of December 11, 2013, by and between FS Energy and Power Fund and Berwyn Funding LLC.(Incorporated by reference to Exhibit 10.4 to FS Energy
and Power Fund's Current Report on Form 8-K filed on December 17, 2013.)10.40

Loan and Servicing Agreement, dated as of September 9, 2014, among Wayne Funding LLC, as borrower, Wells Fargo Securities, LLC, as administrative agent, Wells Fargo Bank, National Association, as
collateral agent, account bank and collateral custodian, and the other lenders and lender agents from time to time party thereto.(Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund's Current Report on
Form 8-K filed on September 15, 2014.)10.41

Purchase and Sale Agreement, dated as of September 9, 2014, by and between Wayne Funding LLC, as purchaser, and FS Energy and Power Fund, as seller.(Incorporated by reference to
Exhibit 10.2 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.42

Collateral Management Agreement, dated as of September 9, 2014, by and between Wayne Funding LLC and FS Energy and Power Fund, as collateral manager.(Incorporated by reference to
Exhibit 10.3 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.43

Securities Account Control Agreement, dated as of September 9, 2014, by and among Wayne Funding LLC, as pledgor, Wells Fargo Bank, National Association, as collateral agent, and Wells Fargo Bank, National
Association, as securities intermediary.(Incorporated by reference to Exhibit 10.4 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.44

Amended and Restated Sale and Contribution Agreement, dated as of September 11, 2014, by and between FS Energy and Power Fund and Gladwyne Funding LLC.(Incorporated by reference to
Exhibit 10.5 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.45

Indenture, dated as of September 11, 2014, by and between Gladwyne Funding LLC and Citibank, N.A., as trustee.(Incorporated by reference to Exhibit 10.6 to FS Energy and Power
Fund's Current Report on Form 8-K filed on September 15, 2014.)10.46

First Supplemental Indenture, dated as of December 15, 2014, by and between Gladwyne Funding LLC and Citibank, N.A., as trustee.(Incorporated by reference to Exhibit 10.1 of FS
Energy and Power Fund's Current Report on Form 8-K filed on December 19, 2014.)10.47

Gladwyne Funding LLC Floating Rate Notes due 2024.(Incorporated by reference to Exhibit 10.7 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15,
2014.)10.48

September 1996 Version Master Repurchase Agreement between Goldman Sachs Bank USA and Strafford Funding LLC, together with the related Annex and Master Confirmation thereto, each dated as of September 11,
2014.(Incorporated by reference to Exhibit 10.8 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.49

Amended and Restated Master Confirmation, dated as of December 15, 2014, by and between Goldman Sachs Bank USA and Strafford Funding LLC.(Incorporated by reference to
Exhibit 10.2 of FS Energy and Power Fund's Current Report on Form 8-K filed on December 19, 2014.)10.50

Revolving Credit Agreement, dated as of September 11, 2014, by and between FS Energy and Power Fund and Strafford Funding LLC.(Incorporated by reference to Exhibit 10.9 to FS
Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.51

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


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10.52

Amended and Restated Investment Management Agreement, dated as of September 11, 2014, by and between Gladwyne Funding LLC and FS Energy and Power Fund.(Incorporated by reference to
Exhibit 10.10 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)10.53

Collateral Administration Agreement, dated as of September 11, 2014, by and among Gladwyne Funding LLC, FS Energy and Power Fund and Virtus Group, LP.(Incorporated by reference
to Exhibit 10.11 to FS Energy and Power Fund's Current Report on Form 8-K filed on September 15, 2014.)31.1*

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

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

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


*Filed
herewith.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized on August 14, 2015.

FS Energy and Power FundBy:

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

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


78

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