FS Specialty Lending Fund 10K 2021 Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 814-00841

FS Energy and Power Fund

(Exact name of registrant as specified in its charter)


Delaware		27-6822130
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

201 Rouse Boulevard
Philadelphia, Pennsylvania		19112
(Address of principal executive offices)		(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Shares of Beneficial Interest, par value

$0.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒.

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 ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☐ No ☐.

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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐				Accelerated filer ☐

Non-accelerated filer ☒				Smaller reporting company ☐

				Emerging Growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected to not use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

There is no established market for the Registrant’s common shares of beneficial interest. The Registrant closed the public offering of its common shares in November 2016. Since the registrant closed its public offering, it has continued to issue shares pursuant to its distribution reinvestment plan. The most recent price at which the registrant has issued shares pursuant to the distribution reinvestment plan was $3.65 per share.

There were 447,523,931 shares of the Registrant’s common shares of beneficial interest outstanding as of March 11, 2022.

Documents Incorporated by Reference

The contents of the amendment to this Annual Report on Form 10-K, which will be filed with the U.S. Securities and Exchange Commission within 120 days following the end of the registrant’s fiscal year ended December 31, 2021, are incorporated by reference into Part III of this Annual Report on Form 10-K.

FS ENERGY AND POWER FUND

FORM 10-K FOR THE FISCAL YEAR

ENDED DECEMBER 31, 2021

TABLE OF CONTENTS


		Page
PART I
ITEM 1.	BUSINESS		1
ITEM 1A.	RISK FACTORS		17
ITEM 1B.	UNRESOLVED STAFF COMMENTS		47
ITEM 2.	PROPERTIES		47
ITEM 3.	LEGAL PROCEEDINGS		47
ITEM 4.	MINE SAFETY DISCLOSURES		47

PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		48
ITEM 6.	RESERVED		48
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		49
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		63
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		65
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		115
ITEM 9A.	CONTROLS AND PROCEDURES		115
ITEM 9B.	OTHER INFORMATION		115

PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		116
ITEM 11.	EXECUTIVE COMPENSATION		116
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		116
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		116
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		116

PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES		117
ITEM 16.	FORM 10-K SUMMARY		118
	SIGNATURES		119

PART I

Many of the amounts and percentages presented in Part I have been rounded for convenience of presentation and all dollar amounts, excluding per share amounts, are presented in thousands unless otherwise noted.

Item 1.

Business.

FS Energy and Power Fund, or the Company, which may also be referred to as “we,” “us” or “our,” was organized in September 2010 and commenced investment operations in July 2011. We are an externally managed, non-diversified, closed-end management investment company that 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. In addition, we have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As of December 31, 2021, we had total assets of approximately $2.5 billion.

We are managed by FS/EIG Advisor, LLC, or FS/EIG Advisor, a registered investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act, pursuant to an investment advisory and administrative services agreement dated as of April 9, 2018, as amended, or the FS/EIG investment advisory agreement. FS/EIG Advisor oversees the management of our operations and is responsible for making investment decisions with respect to our portfolio.

Our investment policy is to invest, under normal circumstances, at least 80% of our total assets in securities of energy and power, or 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. We consider 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. We seek to concentrate our investments on debt securities in Energy companies that we believe have, or are connected to, a strong infrastructure and/or underlying asset base so as to enhance collateral coverage and downside protection for our investments. We may also make select equity investments in certain Energy companies meeting our investment objectives of current income generation and long-term capital appreciation. Our primary areas of focus will be the upstream, midstream, power and service and equipment sub-sectors of the Energy industry; however, we broadly define our “Energy Investment Universe” as follows:

•

Upstream—businesses that find, develop and extract energy resources, including natural gas, crude oil and coal, from onshore and offshore reservoirs;

•

Midstream—businesses that gather, process, store and transmit energy resources and their by-products, including businesses that own pipelines, gathering systems, gas processing plants, liquefied natural gas facilities and other energy infrastructure;

•

Downstream—businesses that refine, market and distribute refined energy resources, such as customer-ready natural gas, propane and gasoline, to end-user customers;

•

Power—businesses engaged in the generation, transmission and distribution of power and electricity or in the production of alternative energy; and

•

Service and Equipment—businesses that provide services and/or equipment to aid in the exploration and production of oil and natural gas, including seismic, drilling, completion and production activities, as well as those companies that support the operations and development of power assets.

Our investment objectives are to generate current income and long-term capital appreciation. We seek to meet our investment objectives by:

•

utilizing the experience and expertise of FS/EIG Advisor in sourcing, evaluating and structuring transactions;

•

employing a conservative investment approach focused on current income and long-term investment performance;

•

focusing primarily on debt or debt-like investments, such as structured preferred equity investments, in a broad array of private Energy companies within the United States;

•

making select equity investments in certain Energy companies that have strong growth potential;

•

investing primarily in established, stable enterprises with positive cash flow and strong asset and collateral coverage so as to limit the risk of potential principal loss; and

•

maintaining rigorous portfolio monitoring in an attempt to anticipate and pre-empt negative events within our portfolio.

The majority of our portfolio is comprised of income-oriented securities, which principally refers to debt securities and income-oriented preferred and common equity interests, of privately-held Energy companies within the United States. Generally, we expect to invest primarily in directly originated investments and primary market transactions, 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. We intend to weight our portfolio towards senior secured debt and directly originated preferred equity investments, which we believe offer opportunities for superior risk-adjusted returns and income generation. Our debt investments may take the form of corporate or project loans or bonds, may be secured or unsecured and may, in some cases, be accompanied by yield enhancements. These yield enhancements are typically expected to include royalty interests in mineral, oil and gas properties, warrants, options, net profits interests, cash flow participations or other forms of equity participation that can provide additional consideration or “upside” in a transaction. Our preferred equity investments are mostly directly originated and may take the form of perpetual or redeemable securities, typically with a current income component and minimum base returns. In addition, certain income-oriented preferred or common equity interests may include interests in master limited partnerships, or MLPs. MLPs are entities that (i) are structured as limited partnerships or limited liability companies, (ii) are publicly traded, (iii) satisfy certain requirements to be treated as partnerships for U.S. federal income tax purposes and (iv) primarily own and operate midstream and upstream Energy companies. In connection with certain of our debt investments or any restructurings of these debt investments, we may on occasion receive equity interests, including warrants or options, as additional consideration or otherwise in connection with a restructuring. In addition, a portion of our portfolio may be comprised of derivatives, including total return swaps, credit default swaps and other commodity swap contracts. FS/EIG Advisor will seek to tailor our investment focus as market conditions evolve. Depending on market conditions, we may increase or decrease our exposure to less senior portions of the capital structure or other more opportunistic investments. We expect that the size of our individual investments will generally range between $10 million and $250 million each, although investments may vary proportionately as amounts available for investment change and the size of our capital base changes and will ultimately be at the discretion of FS/EIG Advisor, subject to oversight by our board of trustees.

To seek to enhance our returns, we intend to employ leverage as market conditions permit and at the discretion of FS/EIG Advisor, but in no event will leverage employed exceed the maximum amount permitted by the 1940 Act. With certain limited exceptions, we are only allowed to borrow amounts or issue debt securities if our asset coverage, as calculated pursuant to the 1940 Act, equals at least 200% immediately after such borrowing. The minimum asset coverage requirement applicable to BDCs under the 1940 Act, however, is currently 150% provided that certain disclosure and approval requirements are met.

As a BDC, we are subject to certain regulatory restrictions in making our investments. For example, BDCs generally are not permitted to co-invest with certain affiliated entities in transactions originated by the BDC or its affiliates in the absence of an exemptive order from the U.S. Securities and Exchange Commission, or SEC. However, BDCs are permitted to, and may, simultaneously co-invest in transactions where price is the only negotiated term. In an order dated June 4, 2013, or the Order, the SEC granted exemptive relief permitting us, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions with certain affiliates of its former investment adviser, including FS KKR Capital Corp., or collectively our co-investment affiliates. Effective April 9, 2018, or the JV Effective Date, and in connection with the transition of advisory services to a joint advisory relationship with EIG, our board of trustees authorized and directed that we (i) withdraw from the Order, except with respect to any transaction in which we participated in reliance on the Order prior to the JV Effective Date, and (ii) rely on an exemptive relief order dated April 10, 2018, granted to EIG and its affiliates which permits us to participate in co-investment transactions with certain other EIG advised funds, or the EIG Order.

While a BDC may list its shares for trading in the public markets, we have currently elected not to do so. Prior to any liquidity event, a non-traded structure allows us to operate with a long-term view, instead of managing to quarterly market expectations. We and FS/EIG Advisor will continue to evaluate the appropriate form and timing of any liquidity event, taking into account, among other things, the composition of our portfolio and market conditions.

For information regarding our share repurchase program, distributions and our distribution reinvestment plan, including certain related tax considerations, see “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Share Repurchase Program, De Minimis Account Liquidation and Distributions” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—RIC Status and Distributions.”

About FS/EIG Advisor

FS/EIG Advisor is a Delaware limited liability company, located at 201 Rouse Boulevard, Philadelphia, PA 19112, registered as an investment adviser with the SEC under the Advisers Act. FS/EIG Advisor is jointly operated by an affiliate of

Franklin Square Holdings, L.P. (which does business as FS Investments) and EIG Asset Management, LLC, or EIG. Our chairman and chief executive officer, Michael C. Forman, serves as FS/EIG Advisor’s chairman and chief executive officer, and Eric Long, our president, also serves as FS/EIG Advisor’s president.

FS/EIG Advisor’s management team has significant experience investing in the energy markets, including private lending and private equity investing, and has developed an expertise in using all levels of a firm’s capital structure to produce income-generating investments, while focusing on risk management. The team also has extensive knowledge of the managerial, operational and regulatory requirements of publicly registered alternative asset entities, such as BDCs. We believe that the active and ongoing participation by personnel of FS Investments, EIG and their respective affiliates in the credit markets, and the depth of experience and disciplined investment approach of FS/EIG Advisor’s management team, will allow FS/EIG Advisor to successfully execute our investment strategies.

Our board of trustees, including a majority of independent trustees, oversees and monitors our investment performance, and annually reviews the FS/EIG investment advisory agreement to determine, among other things, whether the fees payable under such agreement are reasonable in light of the services provided.

About FS Investments

FS Investments is a leading asset manager dedicated to helping individuals, financial professionals and institutions design better portfolios. The firm provides access to alternative sources of income and growth and focuses on setting the industry standards for investor protection, education and transparency.

FS Investments is headquartered in Philadelphia, PA with offices in New York, NY, Orlando, FL and Leawood, KS. The firm had approximately $32 billion in assets under management as of December 31, 2021.

About EIG

EIG is a leading institutional investor to the global energy sector with $22.9 billion under management as of December 31, 2021. EIG specializes in private investments in energy and energy-related infrastructure on a global basis. During its 40-year history, EIG has committed $39.7 billion to the energy sector through 379 projects or companies in 38 countries on six continents. EIG’s clients include many of the leading pension plans, insurance companies, endowments, foundations and sovereign wealth funds in the U.S., Asia and Europe. EIG is headquartered in Washington, D.C. with offices in Houston, London, Sydney, Rio de Janeiro, Hong Kong and Seoul. For additional information, please visit EIG’s website at www.eigpartners.com.

Potential Market Opportunity

FS/EIG Advisor believes that global energy and energy-related infrastructure markets are in a period of dynamic change and that fundamental shifts in global supply and demand have created, and will continue to create, investment opportunities across the entire Energy value chain.

Characteristics of and Risks Related to Investments in Private Companies

The majority of our portfolio is comprised of income-oriented securities of privately-held Energy companies within the United States. Investments in private companies pose significantly greater risks than investments in public companies. First, private companies have reduced access to the capital markets, resulting in diminished capital resources and ability to withstand financial distress. As a result, these companies, which may present greater credit risk than public companies, may be unable to meet the obligations under their debt and equity securities that we hold. Second, the investments themselves may often be illiquid. The securities of many of the companies in which we invest are not publicly traded or actively traded on the secondary market and are, instead, traded on a privately negotiated over-the-counter secondary market for institutional investors. In addition, our directly originated investments generally will not be traded on any secondary market, and a trading market for such investments may not develop. These securities may also be subject to legal and other restrictions on resale. As such, we may have difficulty exiting an investment promptly or at a desired price prior to maturity or outside of a normal amortization schedule. These investments may also be difficult to value because little public information generally exists about private companies, requiring an experienced due diligence team to analyze and value the potential portfolio company. Finally, these companies may not have third-party debt ratings or audited financial statements. We must therefore rely on the ability of FS/EIG Advisor or EIG to obtain adequate information through their due diligence efforts to evaluate the creditworthiness of, and risks involved in investing in, these companies, and to determine the optimal time to exit an investment. These companies and their financial information will also generally not be subject to the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and other rules and regulations that govern public companies that are designed to protect investors.

Investment Strategy

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. In accordance with the best interests of our shareholders, FS/EIG Advisor monitors our targeted investment mix as economic conditions evolve.

When identifying prospective portfolio companies, we focus primarily on the attributes set forth below, which we believe help us generate higher total returns with an acceptable level of risk. While these criteria provide general guidelines for our investment decisions, we caution investors that, if we believe the benefits of investing are sufficiently strong, not all of these criteria necessarily will be met by each prospective portfolio company in which we choose to invest. These attributes are:

•

Deeply-rooted asset value. We seek to invest in companies that have significant asset value rather than speculative investments that rely solely on rising energy commodity prices, exploratory drilling success or factors beyond the control of a portfolio company. We focus on companies that have strong potential for enhancing asset value through factors within their control, such as operating cost reductions and revenue increases driven by improved operations of previously under-performing or under-exploited assets. We expect such investments to have significant collateral coverage and downside protection irrespective of the broader economy.

•

Defensible market positions. We seek to invest in companies that have developed strong positions within their sector and exhibit the potential to maintain sufficient cash flows and profitability to service our investments in a range of economic environments. We seek companies that can protect their competitive advantages through scale, scope, customer loyalty, product pricing or product quality versus their competitors, thereby minimizing business risk and protecting profitability.

•

Proven management teams. We focus on companies that have experienced management teams with an established track record of success. We typically require our portfolio companies to have proper incentives in place, which may include non-cash and performance-based compensation, to align management’s goals with ours.

•

Commodity price management. We seek to invest in companies that appropriately manage their commodity price exposure through the use of hedging arrangements and other contracts and instruments that seek to minimize the company’s exposure to significant commodity price volatility.

•

Allocation among various issuers and sub-sectors. We seek to allocate our portfolio broadly among issuers and certain sectors within the Energy industry, thereby attempting to reduce the risk of a downturn in any one company or sector having a disproportionate adverse impact on the value of our portfolio.

In addition, since the JV Effective Date, the EIG Order has permitted us to participate in co-investment transactions with certain other EIG advised funds. We believe that the ability to participate in co-investment transactions with other funds managed by EIG permits us to participate in a broader range of, and allocate a higher percentage of our portfolio to, secured, directly negotiated investments that span the upstream, midstream, power/renewables, and infrastructure sectors.

Joint Venture

Since January 2020, we have also co-invested with Imperial Sustainable Infrastructure Investments, LLC, or Imperial, a subsidiary of Imperial Capital Asset Management, LLC, through Sustainable Infrastructure Investments, LLC, or SIIJV, a joint venture between us and Imperial. SIIJV invests its capital in senior secured loans (both first lien and second lien) to middle market companies, broadly syndicated loans and other midstream, renewables and power assets. We and Imperial each have 50% voting control of SIIJV and together are required to agree on all investment decisions as well as all other significant actions for SIIJV. As of December 31, 2021, SIIJV had total capital commitments of up to $67,629 in U.S. dollars and $5,430 in Canadian dollars pursuant to which we and Imperial have agreed to provide 87.5% and 12.5%, respectively, of the committed capital. As of December 31, 2021, we and Imperial funded approximately $62,300 to SIIJV, of which $54,514 was from us. As of December 31, 2021, our investment in SIIJV had a fair market value of approximately $50,770. We do not consolidate SIIJV in our consolidated financial statements.

Potential Competitive Strengths

We believe that we offer investors the following potential competitive strengths:

Global Platform with Seasoned Investment Professionals.

We believe that the breadth and depth of the experience of FS/EIG Advisor’s management team, which is dedicated to sourcing, structuring, executing, monitoring and harvesting a broad range of private investments, provides us with a significant competitive advantage in sourcing and analyzing what we believe to be attractive investment opportunities.

Long-term Investment Horizon.

Our long-term investment horizon gives us great flexibility for pursuing transactions, which we believe allows us to maximize returns on our investments. Unlike private equity and venture capital funds, we are not required to return capital to our shareholders once we exit a portfolio investment. Such funds typically can only be invested once and capital must be returned to investors after a specific time period. These provisions often force private equity and venture capital funds to seek liquidity events, including initial public offerings, mergers or recapitalizations, more quickly than they otherwise might, potentially resulting in a lower return to investors. We believe that freedom from such capital return requirements, which allows us to invest using a longer term focus, provides us with the opportunity to increase total returns on invested capital, compared to other private company investment vehicles.

Disciplined, Income-Oriented Investment Philosophy.

FS/EIG Advisor employs an investment approach focused on current income and long-term investment performance. This investment approach involves a multi-stage selection process for each investment opportunity, as well as ongoing monitoring of each investment made, with particular emphasis on early detection of deteriorating credit conditions at portfolio companies which would result in adverse portfolio developments. This strategy is designed to maximize current income and minimize the risk of capital loss while maintaining the potential for long-term capital appreciation.

Investment Expertise Across All Levels of the Corporate Capital Structure.

FS/EIG Advisor believes that its broad expertise and experience investing at all levels of a company’s capital structure enable us to manage risk while affording us the opportunity for positive returns on our investments. We attempt to capitalize on this expertise in an effort to produce and maintain an investment portfolio that will perform in a broad range of economic conditions. In addition, we seek to leverage this broad-ranging capability to enable us to provide Energy companies with financing that most closely aligns with their particular capital needs. We believe that such flexibility is valuable to Energy companies and provides us with an advantage over other capital providers that are more limited in the securities in which they invest.

Energy Specialists with In-House Technical Expertise.

The energy industry expertise and experience of the investment personnel of FS/EIG Advisor continue to represent a competitive advantage for us relative to other Energy company capital providers. We believe it is important to have experience investing throughout multiple business and commodity cycles and maintain extensive technical capabilities due to the complexities in the underlying businesses. Focusing on providing capital to Energy projects and companies since 1982, EIG has employed investment professionals and engineers with significant industry experience and maintains one of the longest continuous track records of any institutional investor in the industry. FS/EIG Advisor leverages this experience as it makes investment decisions. We further believe that we are a desirable partner for Energy companies because we have specialized knowledge of the economic, regulatory, and stakeholder considerations faced by them.

Investment Sourcing Capabilities.

We believe that the experience, technical expertise, depth and continuity of FS/EIG Advisor’s team are key differentiators for us relative to our competitors. We believe that FS/EIG Advisor’s substantial in-house technical expertise and recognized brand name in the Energy industry provide a competitive advantage in sourcing, analyzing and executing Energy, resource and related infrastructure projects, as FS/EIG Advisor is typically able to make independent evaluations of investment opportunities without significant reliance on third-party consultants.

Operating and Regulatory Structure

management fee based on the average weekly value of our gross assets during the most recently completed calendar quarter as well as an incentive fee based on our performance. See Notes 2 and 4 to our consolidated financial statements included in this annual report on Form 10-K for a description of the fees we pay to FS/EIG Advisor.

FS/EIG Advisor oversees our day-to-day operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations, certain government and regulatory affairs activities and other administrative services. FS/EIG 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/EIG 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.

Pursuant to the FS/EIG investment advisory agreement, we reimburse FS/EIG Advisor for expenses necessary to perform services related to our administration and operations, including FS/EIG Advisor’s allocable portion of the compensation and/or related expenses of certain personnel of FS Investments and EIG providing administrative services to us on behalf of FS/EIG Advisor, and for transactional expenses for prospective investments, such as fees and expenses associated with performing due diligence reviews of investments that do not close, often referred to as “broken deal” costs. We reimburse FS/EIG Advisor no less than quarterly for all costs and expenses incurred by FS/EIG Advisor in performing its obligations and providing personnel under the FS/EIG investment advisory agreement. The amount of this reimbursement is set at the lesser of (1) FS/EIG Advisor’s actual costs incurred in providing such services and (2) the amount that we estimate would be required to pay alternative service providers for comparable services in the same geographic location. FS/EIG Advisor allocates the cost of such services to us based on factors such as time allocations and other reasonable metrics. Our board of trustees reviews the methodology employed in determining how the expenses are allocated to us and 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 service 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 compares the total amount paid to FS/EIG Advisor for such services as a percentage of our net assets to the same ratio as reported by other comparable BDCs. We do not reimburse FS/EIG 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/EIG Advisor.

In addition, we have contracted with State Street Bank and Trust Company, or State Street, to provide various accounting and administrative services including, but not limited to, preparing preliminary financial information for review by FS/EIG 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.

As a BDC, we are required to comply with certain regulatory requirements. Also, while we are permitted to finance investments using debt, our ability to use debt will be limited in certain significant respects pursuant to the 1940 Act. Within the limits of existing regulation, we will adjust our use of debt, according to market conditions, to the level we believe will allow us to generate maximum risk-adjusted returns. See “—Regulation.” 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.

Investment Types

Historically, we have focused on the following investment categories: (i) direct originations and (ii) broadly syndicated investments. Going forward, FS/EIG Advisor intends to continue to rebalance our portfolio from syndicated investments into mostly directly originated investments.

Senior secured debt

Senior secured debt is situated at the top of the capital structure. Because this debt has priority in payment, it typically carries the lowest risk among all investments in a company. Generally, senior secured debt in which we invest is expected to have a maturity period of three to seven years, offer some form of amortization, and have first priority security interests in the assets of the borrower. Senior secured debt may also include second lien debt, which is granted a second priority security interest in the assets of the borrower, meaning that any realization of collateral will generally be applied to pay first lien debt in full before second lien debt positions are paid, and the value of the collateral may not be enough to repay in full both first lien secured debt and second lien secured debt. Generally, we expect that the variable interest rate on our first lien debt will typically range between 4.0% and 9.0% over a standard benchmark, such as the prime rate or the London Interbank Offered Rate, or LIBOR. We expect that the variable interest rate on second lien debt will range between 6.0% and 12.0% over a standard benchmark. In addition, we may receive additional returns from any yield enhancements we receive in connection with these investments.

Unsecured debt

In addition to senior secured debt, we may invest a portion of our assets in unsecured debt. Unsecured debt is effectively subordinated to first lien and second lien secured debt to the extent of the collateral securing such debt, but is senior to preferred equity and common equity in the capital structure. In return for its junior status compared to first lien and second lien secured debt, unsecured debt typically offers higher returns through both higher interest rates and possible equity ownership in the form of warrants or other yield enhancements, enabling the investor to participate in the capital appreciation of the borrower. Where warrants are received, they typically require only a nominal cost to exercise. We intend to generally target unsecured debt with interest-only payments throughout the life of the security, with the principal due at maturity. Typically, unsecured debt investments have maturities of five to ten years. In normalized markets, we expect these securities to carry a fixed rate or a floating current yield of 4.0% to 10.0% over a standard benchmark. In addition, we may receive additional returns from any warrants or other yield enhancements we receive in connection with these investments. In some cases, a portion of the total interest may accrue or be paid-in-kind, or PIK.

Preferred equity

Preferred equity typically includes a stated value or liquidation preference that is contractually senior to common equity, and may include a dividend or yield feature. Holders of preferred equity can be entitled to a wide range of voting and other rights, depending on the structure of each security. Preferred equity can also include a conversion feature whereby the securities convert into common stock based on established parameters according to set ratios. We seek to invest in primarily income-oriented equity securities of Energy companies in a manner consistent with our status as a BDC. Going forward, FS/EIG Advisor intends to focus on preferred equity securities that are directly originated.

Other equity securities

We may also invest in other equity securities which are typically subordinated to all other securities within the capital structure and do not have a stated maturity. As compared to more senior securities, equity interests have greater risk exposure, but also have the potential to provide a higher return.

Net profits interests, royalty interests, volumetric production payments, or VPPs

We may invest in energy-specific non-operating investments including net profits interests, royalty interests or VPPs. Such non-operating interests do not include the rights and obligations of operating a mineral property (costs of exploration, development and operation) and do not bear any part of the net losses. Net profits interests and royalty interests are contractual agreements whereby the holders of such interests are entitled to a portion of the mineral production or proceeds therefrom. A VPP is a type of structured investment whereby the owner sells a specific volume of production in a field or property to an investor and the investor receives a specific quota of production on a monthly basis in either raw output or proceeds therefrom. A VPP is typically set to expire after a certain length of time or after a specified aggregate total volume of the commodity has been delivered. If the producer cannot meet the supply quota for a given period, the supply obligation rolls forward to future cycles until the buyer is made financially whole.

Non-U.S. securities

We may invest in non-U.S. securities, including securities of companies in emerging markets, which may include securities denominated in U.S. dollars or in non-U.S. currencies, to the extent permitted by the 1940 Act. In addition, investing in securities of companies in emerging markets involves many risks, including potential inflationary economic environments, regulation by foreign governments, different accounting standards, political uncertainties and economic, social, political, financial, tax and security conditions in the applicable emerging market, any of which could negatively affect the value of companies in emerging markets or investments in their securities.

Investments with Third-Parties

We may co-invest with third parties through partnerships, joint ventures or other entities, thereby acquiring jointly-controlled or non-controlling interests in certain investments in conjunction with participation by one or more third parties in such investment.

Other securities

We may also invest from time to time in derivatives, such as total return swaps, credit default swaps and other commodity swap contracts. We anticipate that any use of derivatives would primarily be as a substitute for investing in conventional securities. Any use of derivatives may subject us to additional risks. See “Risk Factors—Risks Related to Our Investments—We may from time to time enter into total return swaps, credit default swaps or other derivative transactions which expose us to certain risks, including credit risk, market risk, liquidity risk and other risks similar to those associated with the use of leverage.”

Cash and cash equivalents

We may maintain a certain level of cash or cash equivalent instruments to make follow-on investments, if necessary, in existing portfolio companies or to take advantage of new opportunities.

Sources of Income

The primary means through which our shareholders may receive a return of value is through interest income, dividends and capital gains generated by our investments. In addition to these sources of income, we may receive fees paid by our portfolio companies, including one-time closing fees paid at the time each investment is made. FS/EIG Advisor has agreed to offset the amount of any structuring or other upfront fees received by FS/EIG Advisor against the management fees payable by us under the FS/EIG investment advisory agreement. Closing fees typically range from 1.0% to 3.0% of the purchase price of an investment. In addition, we may generate revenues in the form of non-recurring commitment, origination, structuring or diligence fees, fees for providing managerial assistance, consulting fees, prepayment fees and performance-based fees.

Risk Management

We seek to limit the downside potential of our investment portfolio by:

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applying our investment strategy guidelines for portfolio investments;

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requiring a total return on investments (including both interest and potential appreciation) that adequately compensates us for credit risk;

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allocating our portfolio among various issuers and sub-sectors, and size permitting, with an adequate number of companies, across different sub-sectors of the Energy industry, with different types of collateral; and

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negotiating or seeking debt and other securities with covenants or features that protect us while affording portfolio companies flexibility in managing their businesses consistent with preservation of capital.

Such restrictions may include affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights. We may also enter into interest rate hedging transactions. Such transactions will enable us to selectively modify interest rate exposure as market conditions dictate.

Affirmative Covenants

Affirmative covenants require borrowers to take actions that are meant to ensure the solvency of the company, facilitate the lender’s monitoring of the borrower and ensure payment of interest and loan principal due to lenders. Examples of affirmative covenants include covenants requiring the borrower to maintain adequate insurance, accounting and tax records, and to produce frequent financial reports for the benefit of the lender.

Negative Covenants

Negative covenants impose restrictions on the borrower and are meant to protect lenders from actions that the borrower may take that could harm the credit quality of the lender’s investments. Examples of negative covenants include restrictions on the payment of dividends and restrictions on the issuance of additional debt without the lender’s approval. In addition, certain covenants restrict a borrower’s activities by requiring it to meet certain earnings interest coverage ratio and leverage ratio requirements. These covenants are also referred to as financial or maintenance covenants.

Investment Process

The investment professionals supporting FS/EIG Advisor have spent their careers developing the experience necessary to invest in private companies. Our current transaction process is highlighted below.

Our Transaction Process

Screening

The relationships of FS/EIG Advisor and its affiliates provide us with access to a robust and established pipeline of investment opportunities from a variety of different investment channels, including private equity sponsors, non-sponsored corporates, financial advisors, banks, brokers and family offices. In addition, personnel of FS/EIG Advisor have long-standing personal contacts within the Energy industry who provide us with additional opportunities for directly originated investments. Similarly, substantial in-house technical expertise and recognized brand name in the Energy industry of FS/EIG Advisor and its affiliates provide a competitive advantage in sourcing, analyzing and executing energy, resource and related infrastructure projects, as FS/EIG Advisor is typically able to make independent evaluations of investment opportunities without significant reliance on third-party consultants. Once a potential investment has been identified, FS/EIG Advisor screens the opportunity and makes a preliminary determination concerning whether to proceed with a more comprehensive deal-level due diligence review.

Due diligence

Our due diligence process will typically involve: (i) evaluation of the proposed investment consistent with our investment criteria; (ii) meetings with project sponsors and management; (iii) a review of technical feasibility; (iv) a preliminary review of key project contracts; and (v) an analysis of fundamental project economics.

Structure iterations and feedback

If a potential investment passes the initial review process, the investment team then negotiates preliminary terms with the potential portfolio company. We seek to maintain flexibility in structuring the form of investments and utilize this flexibility to provide tailor-made financing solutions.

Recommendation and approval process

At an advanced stage of the due diligence process, the deal team will prepare a draft investment recommendation, which is circulated internally for peer review, a process that allows select investment professionals of FS/EIG Advisor and its affiliates who are not directly involved in the transaction to review independently the merits of the investment. A final investment recommendation is submitted to the FS/EIG Advisor investment committee for review and approval. Each investment must be approved by the FS/EIG Advisor investment committee.

Execution

Once the FS/EIG Advisor investment committee has determined that the portfolio company is suitable for investment, FS/EIG Advisor works with the management team of the prospective company to finalize the structure and terms of the investment. We believe that structuring transactions appropriately is a key factor to producing strong investment results. Accordingly, we will actively consider transaction structures and seek to process and negotiate terms that provide the best opportunities for superior risk-adjusted returns.

Post-investment monitoring

Portfolio monitoring. FS/EIG Advisor monitors our portfolio with a focus toward anticipating negative credit events. To maintain portfolio company performance and help to ensure a successful exit, FS/EIG Advisor works closely with the lead equity sponsor, loan syndicator, portfolio company management, consultants, advisers and other security holders to discuss financial

position, compliance with covenants, financial requirements and execution of the company’s business plan. In addition, depending on the size, nature and performance of the transaction, we may occupy a seat or serve as an observer on a portfolio company’s board of directors or similar governing body. We believe that close contact with management, efficient flow of information and ongoing analysis form the basis of the monitoring process.

Typically, FS/EIG Advisor receives financial reports that may detail information such as operating performance, sales volumes, margins, cash flows, financial position and other key operating metrics on a quarterly basis from our portfolio companies. FS/EIG Advisor uses this data, combined with due diligence gained through contact with the company’s customers, suppliers, competitors, market research and other methods, to conduct an ongoing, rigorous assessment of the company’s operating performance and prospects.

In addition to various risk management and monitoring tools, FS/EIG Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in our portfolio. FS/EIG Advisor uses an investment rating scale of 1 to 5. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Portfolio Asset Quality” for a description of the conditions associated with each investment rating.

Valuation Process. Each quarter, we value investments in our portfolio, and such values are disclosed each quarter in reports filed with the SEC. Investments for which market quotations are readily available are recorded at such market quotations. With respect to investments for which market quotations are not readily available, our board of trustees determines the fair value of such investments in good faith, utilizing the input of our valuation committee, FS/EIG Advisor and any other professionals or materials that our board of trustees deems relevant, including independent third-party pricing services and independent third-party valuation services, if applicable. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Valuation of Portfolio Investments.”

Managerial Assistance. As a BDC, we must offer, and provide upon request, managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. Depending on the nature of the assistance required, FS/EIG Advisor will provide such managerial assistance on our behalf to portfolio companies that request this assistance. To the extent fees are paid for these services, we, rather than FS/EIG Advisor, will retain any fees paid for such assistance.

Financing Arrangements

To seek to enhance our returns, we employ leverage as market conditions permit and at the discretion of FS/EIG Advisor, but in no event may leverage employed exceed the maximum amount permitted by the 1940 Act. See Note 9 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our financing arrangements.

Regulation

We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates, principal underwriters and affiliates of those affiliates or underwriters. The 1940 Act requires that a majority of our trustees be persons other than “interested persons,” as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by “a majority of our outstanding voting securities,” which the 1940 Act defines as the lesser of (i) 67% or more of the voting securities present at a meeting if the holders of more than 50% of our outstanding voting securities are present or represented by proxy or (ii) 50% of our voting securities.

We will generally not be able to issue and sell our common shares at a price per share, after deducting underwriting commissions and discounts, that is below our net asset value per share. See “Item 1A. Risk Factors—Risks Related to Business Development Companies—Regulations governing our operation as a BDC and a RIC will affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth.” We may seek the approval of our shareholders to issue shares of our common shares at a price below the then current net asset value per share for a twelve month period following shareholder approval. In addition, we may generally issue new shares of our common shares at a price below net asset value per share in rights offerings to existing shareholders, in payment of dividends and in certain other limited circumstances.

exemptive order from the SEC. However, BDCs are permitted to, and may, simultaneously co-invest in transactions where price is the only negotiated term. The EIG Order permits us to co-invest in privately negotiated investment transactions with private funds managed by EIG or its affiliates.

Qualifying Assets

Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our business are any of the following:

Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which:

is organized under the laws of, and has its principal place of business in, the United States;

is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act; and

satisfies any of the following:

does not have any class of securities that is traded on a national securities exchange;

ii.

has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million;

iii.

is controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a director of the eligible portfolio company; or

iv.

is a small and solvent company having total assets of not more than $4.0 million and capital and surplus of not less than $2.0 million.

Securities of any eligible portfolio company that we control.

Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities, was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.

Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.

Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities.

Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment.

In addition, a BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above.

Managerial Assistance to Portfolio Companies

In order to count portfolio securities as qualifying assets for the purpose of the 70% test, we must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where we purchase such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its trustees, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.

Temporary Investments

Pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, including money market funds, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price that is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the Diversification Tests (as defined below) in order to maintain our qualification as a RIC for U.S. federal income tax purposes as described below under “—Taxation as a RIC.” Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. FS/EIG Advisor will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.

Senior Securities

We are permitted, under specified conditions, to issue multiple classes of debt and one class of shares senior to our common shares if our asset coverage, as applicable to us under the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities remain outstanding, we must make provisions to prohibit any distribution to our shareholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see “Item 1A. Risk Factors—Risks Related to Debt Financing” and “Item 1A. Risk Factors—Risks Related to Business Development Companies.”

Code of Ethics

We and FS/EIG Advisor have each adopted a code of ethics pursuant to Rule 17j-1 promulgated under the 1940 Act and Rule 204A-1 of the Advisers Act, respectively, that, among other things, establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to the code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with each code’s pre-clearance and other requirements. Each code of ethics is available on our website at www.fsinvestments.com and on the EDGAR Database on the SEC’s Internet site at www.sec.gov. Shareholders may also obtain a copy of each code of ethics, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, at 100 F Street, N.E, Washington, D.C. 20549.

Compliance Policies and Procedures

We and FS/EIG Advisor have adopted and implemented written policies and procedures reasonably designed to prevent violation of the federal securities laws and are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation. Our chief compliance officer and the chief compliance officer of FS/EIG Advisor are responsible for administering these policies and procedures.

Proxy Voting Policies and Procedures

We have delegated our proxy voting responsibility to FS/EIG Advisor. The proxy voting policies and procedures of FS/EIG Advisor are set forth below. The guidelines are reviewed periodically by FS/EIG Advisor and our non-interested trustees, and, accordingly, are subject to change.

As an investment adviser registered under the Advisers Act, FS/EIG Advisor has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, it recognizes that it must vote client securities in a timely manner free of conflicts of interest and in the best interests of its clients.

These policies and procedures for voting proxies for the investment advisory clients of FS/EIG Advisor are intended to comply with Section 206 of, and Rule 206(4)-6 promulgated under, the Advisers Act.

Personnel of FS/EIG Advisor and its affiliates will vote proxies relating to our securities in the best interest of its clients. Such personnel will review on a case-by-case basis each proposal submitted for a shareholder vote to determine its impact on the portfolio securities held by its clients. Although FS/EIG Advisor will generally vote against proposals that may have a negative impact on its clients’ portfolio securities, it may vote for such a proposal if there exist compelling long-term reasons to do so.

The proxy voting decisions are made by the senior personnel of FS/EIG Advisor and its affiliates who are responsible for monitoring each of its clients’ investments. To ensure that its vote is not the product of a conflict of interest, it will require that: (a) anyone involved in the decision-making process disclose to its chief compliance officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (b) employees involved in the decision making process or vote administration are prohibited from revealing how FS/EIG Advisor intends to vote on a proposal in order to reduce any attempted influence from interested parties.

Shareholders may obtain information, without charge, regarding how FS/EIG Advisor voted proxies with respect to our portfolio securities by making a written request for proxy voting information to: Chief Compliance Officer, FS Energy and Power Fund, 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112 or by calling us collect at (215) 495-1150.

Other

We will be periodically examined by the SEC for compliance with the 1940 Act.

We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any trustee or officer against any liability to us or our shareholders arising from willful misconduct, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.

Exchange Act and Sarbanes-Oxley Act Compliance

We are subject to the reporting and disclosure requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including the filing of quarterly, annual and current reports, proxy statements and other required items. In addition, we are subject to the Sarbanes-Oxley Act, which imposes a wide variety of regulatory requirements on publicly held companies and their insiders. Many of these requirements affect us. For example:

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pursuant to Rule 13a-14 promulgated under the Exchange Act, our chief executive officer and chief financial officer are required to certify the accuracy of the financial statements contained in our periodic reports;

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pursuant to Item 307 of Regulation S-K, our periodic reports are required to disclose our conclusions about the effectiveness of our disclosure controls and procedures; and

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pursuant to Rule 13a-15 promulgated under the Exchange Act, our management will be required to prepare a report regarding its assessment of our internal control over financial reporting.

The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and take actions necessary to ensure that we are in compliance therewith.

Taxation as a RIC

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

If we:

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qualify as a RIC; and

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satisfy the Annual Distribution Requirement,

then we will not be subject to U.S. federal income tax on the portion of our income or capital gains we timely distribute (or are deemed to distribute) as dividends to our shareholders. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gains not distributed (or deemed distributed) as dividends to our shareholders.

As a RIC, we will be subject to a 4% nondeductible federal excise tax on certain undistributed income unless we distribute dividends in a timely manner to our shareholders generally of an amount at least equal to the sum of (1) 98% of our net ordinary 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 (as adjusted for certain ordinary losses) for the one-year period ending October 31 of that calendar year and (3) 100% of any net ordinary income and capital gain net income recognized for the preceding years that were not distributed during such years and on which we paid no U.S. federal income tax, or the Excise Tax Avoidance Requirement. Any distribution declared by us during October, November or December of any calendar year, payable to shareholders of record on a specified date in such a month and actually paid during January of the following calendar year, will be treated as if it had been paid by us, as well as received by our U.S. shareholders on December 31 of the calendar year in which the distribution was declared. We generally will endeavor in each tax year to avoid any material U.S. federal excise tax on our earnings.

We have previously incurred, and may incur in the future, such excise tax on a portion of our income and capital gains. While we intend to distribute income and capital gains to minimize exposure to the 4% excise tax, we may not be able to, or may choose not to, distribute amounts sufficient to avoid the imposition of the tax entirely. In that event, we generally will be liable for the excise tax only on the amount by which we do not meet the Excise Tax Avoidance Requirement.

In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things:

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continue to qualify as a BDC under the 1940 Act at all times during each tax year;

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derive in each tax year at least 90% of our gross income from dividends, interest, payments with respect to certain securities, loans, gains from the sale of stock or other securities or foreign currencies, net income from certain “qualified publicly traded partnerships (which generally are partnerships that are traded on an established securities market or readily tradable on a secondary market (or the substantial equivalent thereof), other than partnerships that derive 90% of their income from interest, dividends and other permitted RIC income),” or other income derived with respect to our business of investing in such stock or other securities, or the 90% Income Test; and

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diversify our holdings so that at the end of each quarter of the tax year:

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at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of such issuer; and

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no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships,” or the Diversification Tests.

A RIC is limited in its ability to deduct expenses in excess of its investment company taxable income. If our expenses in a given tax year exceed our investment company taxable income, we may experience a net operating loss for that tax year. However, a RIC is not permitted to carry forward net operating losses to subsequent tax years and such net operating losses do not pass through to its shareholders. In addition, deductible expenses can be used only to offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is, the excess of realized capital losses over realized capital gains) to offset its investment company taxable income, but may carry forward such net capital losses, and use them to offset future capital gains, indefinitely. Due to these limits on deductibility of expenses and net capital losses, we may for tax purposes have aggregate taxable income for several years that we are required to distribute and that is taxable to our shareholders even if such taxable income is greater than the net income we actually earn during those years.

For U.S. federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debt instruments that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), we must include in income each tax year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same tax year. We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to receipt of cash.

We invest a portion of our net assets in below investment grade instruments. Investments in these types of instruments may present special tax issues for us. U.S. federal income tax rules are not entirely clear about issues such as when we may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless instruments, how payments received on instruments in default should be allocated between principal and income and whether exchanges of debt obligations in a bankruptcy or workout context are taxable. We will address these and other issues to the extent necessary in order to seek to ensure that we distribute sufficient income to avoid any material U.S. federal income or excise tax.

Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of the accrual, we may be required to make a distribution to our shareholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the Annual Distribution Requirement necessary to maintain RIC tax treatment under Subchapter M of the Code. We may have to sell or otherwise dispose of some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S. federal income tax.

Although we do not presently expect to do so, we are authorized to borrow funds and to sell or otherwise dispose of assets in order to satisfy distribution requirements. However, under the 1940 Act, we are not permitted to make distributions to our shareholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See “—Regulation—Senior Securities.” Moreover, our ability to sell or otherwise dispose of assets to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we sell or otherwise dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.

To satisfy the Diversification Tests at the close of each quarter of our tax year, we will generally have invested no more than 25% of the value of our total assets in MLPs and certain other “qualified publicly traded partnerships”. As a limited partner in the MLPs in which we seek to invest, we will be deemed to have received our share of income, gains, losses, deductions, and credits from those MLPs. Historically, a significant portion of income from MLPs has been offset by tax deductions. As a result, this income has been significantly lower than cash distributions paid by MLPs. The percentage of an MLP’s income and gains which is offset by tax deductions, losses and credits will fluctuate over time for various reasons. A significant slowdown in acquisition activity or capital spending by MLPs held in our portfolio could result in a reduction of accelerated depreciation generated by new acquisitions, which may result in an increase in our investment company taxable income that we are required to distribute to shareholders to satisfy the Annual Distribution Requirement or the Excise Tax Avoidance Requirement or to eliminate our liability for U.S. federal income tax. If our income from our investments in MLPs exceeds the cash distributions received from such investments, we may need to obtain cash from other sources in order to satisfy the Annual Distribution Requirement. If we are unable to obtain cash from other sources, we may fail to qualify for RIC tax treatment and become subject to corporate-level U.S. federal income tax. We may also recognize for U.S. federal income tax purposes gain in excess of cash proceeds upon the sale of an interest in an MLP. Any such gain may need to be distributed (or deemed distributed) in order to avoid liability for corporate-level U.S. federal income taxes on such gain.

A portfolio company in which we invest may face financial difficulties that require us to work-out, modify or otherwise restructure our investment in the portfolio company. Any such transaction could, depending upon the specific terms of the transaction, result in unusable capital losses and future non-cash income. Any such transaction could also result in our receiving assets that give rise to non-qualifying income for purposes of the 90% Income Test or otherwise would not count toward satisfying the Diversification Tests.

Some of the income that we might otherwise earn, such as fees for providing managerial assistance, certain fees earned with respect to our investments, income recognized in a work-out or restructuring of a portfolio investment, or income recognized from an equity investment in an operating partnership, may not satisfy the 90% Income Test. To manage the risk that such income might disqualify us as a RIC for failure to satisfy the 90% Income Test, one or more subsidiary entities treated as U.S. corporations for entity-level tax purposes may be employed to earn such income and (if applicable) hold the related asset. Such subsidiary entities will be required to pay U.S. federal income tax on their earnings, which ultimately will reduce the yield to our shareholders on such fees and income.

Competition

Our primary competitors for investments include other BDCs and investment funds (including private equity funds, mezzanine funds and CLO funds). In addition, alternative investment vehicles, such as hedge funds, have begun to invest in areas in which they have not traditionally invested, including making investments in middle market private U.S. companies. We also

compete with traditional financial services companies such as commercial banks. We believe we will be able to compete with these entities for financing opportunities on the basis of, among other things, the experience of FS/EIG Advisor’s senior management team.

Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of capital and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than we have. These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than us. Furthermore, many of our competitors have greater experience operating under, or are not subject to, the regulatory restrictions that the 1940 Act imposes on us as a BDC. For additional information concerning the competitive risks we face, see “Item 1A. Risk Factors—Risks Related to Our Business and Structure—We may face increasing competition for investment opportunities, which could delay deployment of our capital, reduce returns and result in losses.”

Employees

We do not currently have any employees. Each of our executive officers is a principal, officer or employee of FS/EIG Advisor (or its affiliates), which manages and oversees our investment operations. In the future, FS/EIG Advisor may retain additional investment personnel based upon its needs.

Available Information

For so long as our bylaws require, we will distribute to all shareholders of record our quarterly report on Form 10-Q within 60 days after the end of each fiscal quarter and our annual report on Form 10-K within 120 days after the end of each fiscal year. We also file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. This information is available free of charge by calling us collect at (215) 495-1150 or on our website at www.fsinvestments.com. Information contained on our website is not incorporated into this annual report on Form 10-K and such information should not be considered to be part of this annual report on Form 10-K.

Shareholders also may inspect and copy these reports, proxy statements and other information, as well as this annual report on Form 10-K and related exhibits and schedules, from the EDGAR database on the SEC’s web site at www.sec.gov. Shareholders also can obtain copies of such information, after paying a duplicating fee, by sending a request by e-mail to publicinfo@sec.gov.

Item 1A.

Risk Factors.

Investing in our common shares involves a number of significant risks. In addition to the other information contained in this annual report on Form 10-K, investors should consider carefully the following information before making an investment in our common shares. If any of the following events occur, our business, financial condition and results of operations could be materially and adversely affected. In such case, the net asset value of our common shares could decline or the value of our debt or equity investments may decline, and investors may lose all or part of their investment.

Summary of Risk Factors

The following is a summary of the principal risk factors associated with an investment in us. Further details regarding each risk included in the below summary list can be found further below.

Risks Related to Our Business and Structure

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If our investment advisory agreement with our investment adviser, FS/EIG Advisor, were to be terminated, or if FS/EIG Advisor were to lose any members of its investment team, our ability to achieve our objectives could be significantly harmed.

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The inability of FS/EIG Advisor to generate investment opportunities through relationships with private equity sponsors, investment banks and commercial banks could adversely affect our business.

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Our financial condition and results of operations depend on our ability to manage future growth effectively.

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We operate in a highly competitive market for investment opportunities.

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There is uncertainty as to the value of our portfolio investments.

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Declines in market values or fair market values of our investments could reduce our net asset value.

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A significant portion of our investment portfolio does not have a readily available market price and is and will be recorded at fair value as determined in good faith by our board of trustees and, as a result, there is and will be uncertainty as to the value of our portfolio investments.

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Our board of trustees may change our investment policy or modify or waive our operating policies.

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Failure to maintain the security of our data could compromise our ability to conduct business.

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There is a risk that investors in our common shares may not receive distributions.

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Portions of the distributions that we have made represented, and may in make in the future may represent, a return of capital to shareholders.

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Changes in laws governing our operations may adversely affect our business.

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Compliance with regulations applicable to us as a public company will involve significant expenditures.

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We and FS/EIG Advisor could be the target of litigation.

Risks Related to FS/EIG Advisor and its Respective Affiliates

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FS/EIG Advisor and its affiliates face conflicts of interest as a result of arrangements between us and FS/EIG Advisor and related to obligations FS/EIG Advisor and its affiliates have to our affiliates and to other clients.

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We may be obligated to pay FS/EIG Advisor incentive compensation even if we incur a net loss.

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We may face additional competition because employees of FS/EIG Advisor are not prohibited from raising money for or managing another entity that makes the same types of investments that we target.

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Our incentive fee may induce FS/EIG Advisor to make, and EIG to recommend, speculative investments.

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FS/EIG Advisor’s liability to us is limited, and we are required to indemnify it against certain liabilities, which may lead it to act in a riskier manner on our behalf than it would when acting for its own account.

Risks Related to Business Development Companies and RICs

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The requirement that we invest a sufficient portion of our assets in qualifying assets could preclude us from investing in accordance with our current business strategy; conversely, the failure to invest a sufficient portion of our assets in qualifying assets could result in our failure to maintain our status as a BDC.

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Failure to maintain our status as a BDC would reduce our operating flexibility.

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We will be subject to corporate-level income tax if we are unable to qualify as a RIC or to satisfy the RIC annual distribution requirements, and our investments may be subject to corporate-level income tax.

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Our ability to acquire investments may be adversely affected if we cannot obtain debt or equity financing.

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Regulations governing our operation as a BDC and a RIC will affect our ability and means to raise additional capital or borrow for investment purposes, which may have a negative effect on our growth.

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Our ability to enter into transactions with our affiliates is restricted.

Risks Related to Our Investments

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Under normal circumstances, 80% of our total assets are required to be invested in securities of Energy companies, and therefore, we are subject to specific risks related to investments in the Energy sector.

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Our investments in prospective portfolio companies may be risky, and we could lose all of our investment.

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There may be circumstances where our debt investments could be subordinated to claims of other creditors.

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We generally will not control our portfolio companies.

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Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies.

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A covenant breach by our portfolio companies may harm our operating results.

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Our portfolio companies may be highly leveraged.

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Investing in middle-market companies involves a number of significant risks.

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We may not realize gains from our equity investments.

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There is limited information available about the private companies in which we invest.

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A lack of liquidity in certain of our investments may adversely affect our business.

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We may not have the funds or ability to make additional investments in our portfolio companies.

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Our investments may include original issue discount and PIK instruments.

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We may, from time to time, enter into derivative transactions which expose us to certain risks.

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Prepayments of our debt investments by our portfolio companies could adversely impact our results.

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We may invest through special purpose vehicles, which may entail greater risks.

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An MLP’s cash flow and distributions are subject to operational and general energy industry risks.

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Investments in MLPs may have limited liquidity and are susceptible to interest rate and tax risks.

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Our investments in MLPs may be subject to additional fees and expenses.

Risks Related to Debt Financing

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We currently incur indebtedness to make investments, which magnifies the potential for gain or loss on amounts invested in our common shares and may increase the risk of investing in our common shares.

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The agreements governing our debt financing arrangements contain various covenants which, if not complied with, could have a material adverse effect on our ability to meet our investment obligations.

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We are exposed to risks associated with interest rates, including with respect to the phase out of LIBOR.

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The SBCA Act allows us to incur additional leverage.

Risks Related to an Investment in Our Common Shares

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Our common shares are not listed on an exchange or quoted through a quotation system, and may never be.

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We are not obligated to complete a liquidity event by a specified date.

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Only a limited number of common shares may be repurchased pursuant to our share repurchase program, if any.

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We may pay distributions from borrowings or the sale of assets.

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The timing of our repurchase offers, if any, may be at a time that is disadvantageous to our shareholders.

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A shareholder’s interest in us will be diluted if we issue additional common shares.

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Certain provisions of our declaration of trust and bylaws could deter takeover attempts.

General Risk Factors

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Events outside of our control, including public health crises, could negatively affect our operations.

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If the current period of capital market disruption and instability continues, investors in our equity securities may not receive distributions consistent with historical levels or at all, and the valuation of our investments and our ability to raise capital could be negatively impacted.

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Global economic, political and market conditions may adversely affect our business and financial condition.

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Changes to U.S. tariff and import/export regulations may have a negative effect on our portfolio companies.

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Economic sanction laws in the U.S. and other jurisdictions may prohibit us and our affiliates from transacting with certain countries, individuals and companies.

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Future economic downturns could impair our portfolio companies and harm our operating results.

Risks Related to Our Business and Structure

Our ability to achieve our investment objectives depends on FS/EIG Advisor’s ability to manage and support our investment process. If our agreement with FS/EIG Advisor were to be terminated, or if FS/EIG Advisor were to lose any members of its investment team, our ability to achieve our investment objectives could be significantly harmed.

Because we have no employees, we depend on the investment expertise, skill and network of business contacts of FS/EIG Advisor. FS/EIG Advisor evaluates, negotiates, structures, executes, monitors and services our investments. Our future success depends to a significant extent on the continued service of FS/EIG Advisor, as well as its investment team. The departure of any members of FS/EIG Advisor’s investment team could have a material adverse effect on our ability to achieve our investment objectives.

Our ability to achieve our investment objectives depends on FS/EIG Advisor’s ability to identify, analyze, invest in, finance and monitor companies that meet our investment criteria. FS/EIG Advisor’s capabilities in structuring the investment process, providing competent, attentive and efficient services to us, and facilitating access to financing on acceptable terms depend on the employment of investment professionals in an adequate number and of adequate sophistication to match the corresponding flow of transactions. To achieve our investment objectives, FS/EIG Advisor may need to hire, train, supervise and manage new investment professionals to participate in our investment selection and monitoring process. FS/EIG Advisor may not be able to find investment professionals in a timely manner or at all. Failure to support our investment process could have a material adverse effect on our business, financial condition and results of operations.

In addition, the FS/EIG investment advisory agreement has termination provisions that allow the parties to terminate the agreement without penalty. The FS/EIG investment advisory agreement may be terminated at any time, without penalty, by FS/

EIG Advisor, upon 60 days’ written notice to us. If the FS/EIG investment advisory agreement is terminated, it may adversely affect the quality of our investment opportunities. In addition, in the event such agreement is terminated, it may be difficult for us to replace FS/EIG Advisor. Furthermore, the termination of the FS/EIG investment advisory agreement may adversely impact the terms of any existing or future financing arrangement, which could have a material adverse effect on our business, financial condition and results of operations.

FS/EIG Advisor is a recently-formed investment adviser with a limited track record of acting as an investment adviser to a BDC, and any failure by FS/EIG Advisor to manage and support our investment process may hinder the achievement of our investment objectives.

FS/EIG Advisor is a recently-formed investment adviser jointly operated by an affiliate of FS and EIG and has limited prior experience acting as an investment adviser to a BDC. The 1940 Act and the Code impose numerous constraints on the operations of BDCs that do not apply to other investment vehicles. FS/EIG Advisor’s limited experience in managing a portfolio of assets under the constraints of the 1940 Act and the Code may hinder FS/EIG Advisor’s ability to take advantage of attractive investment opportunities and, as a result, may adversely affect our ability to achieve our investment objectives. The track records and achievements of affiliates of, and funds advised or managed by, FS or EIG are not necessarily indicative of the future results FS/EIG Advisor will achieve as a joint investment adviser. Accordingly, we can offer no assurance that we will replicate the historical performance of other investment companies with which FS and EIG have been affiliated, and we caution that our investment returns could be lower than the returns achieved by such other companies.

Because our business model depends to a significant extent upon relationships with issuers, private equity sponsors, investment banks and commercial banks, the inability of FS/EIG Advisor to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.

If FS/EIG Advisor fails to maintain its existing relationships with issuers, private equity sponsors, investment banks and commercial banks on which it relies to provide us with potential investment opportunities or develop new relationships with other issuers, sponsors or sources of investment opportunities, we may not be able to grow our investment portfolio. In addition, individuals with whom FS/EIG Advisor has relationships generally are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities for us.

Our financial condition and results of operations depend on our ability to manage future growth effectively.

Our ability to achieve our investment objectives depends on our ability to acquire suitable investments and monitor and administer those investments, which depends, in turn, on our investment adviser’s ability to identify, invest in and monitor companies that meet our investment criteria.

Accomplishing this result on a cost-effective basis is largely a function of the structuring of our investment process and the ability of FS/EIG Advisor to provide competent, attentive and efficient services to us. Our executive officers and the members of FS/EIG Advisor’s investment committee have substantial responsibilities in connection with their roles at FS, EIG and the other entities affiliated with FS and EIG, as well as responsibilities under the FS/EIG investment advisory agreement. They may also be called upon to provide significant managerial assistance to certain of our portfolio companies. These demands on their time, which will increase as the number of investments grows, may distract them or slow the rate of investment. In order to grow, FS/EIG Advisor will need to hire, train, supervise, manage and retain new personnel. However, we cannot assure you that FS/EIG Advisor will be able to do so effectively. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations.

We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses.

A number of entities compete with us to make the types of investments that we plan to make and we believe that recent market trends, including sustained periods of low interest rates, have increased the number of competitors seeking to invest in loans to private, middle market companies in the United States. We compete with public and private funds, commercial and investment banks, commercial financing companies and, to the extent they provide an alternative form of financing, private equity and hedge funds. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, we believe some of our competitors have access to funding sources that are not available to us. In addition, some of our competitors could have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or the source of income, asset diversification and distribution requirements we must satisfy to maintain our qualification as a RIC. The competitive pressures we face could have a material adverse effect on our business, financial condition, results of operations and cash flows. As a result of

this competition, we can provide no assurance that we will be able to take advantage of attractive investment opportunities that arise from time to time, and we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objective. The amount of capital in the private debt markets and overall competition for loans could result in short-term returns for us that are lower than our long-term targets. In the event these conditions continue for an extended amount of time, they could have a material adverse effect on our business, financial condition and results of operations.

Identifying, structuring and consummating investments involves competition among capital providers and market and transaction uncertainty. FS/EIG Advisor can provide no assurance that it will be able to identify a sufficient number of suitable investment opportunities or to avoid prepayment of existing investments to satisfy our investment objectives, including as necessary to effectively structure credit facilities or other forms of leverage. The loan origination market is very competitive, which can result in loan terms that are more favorable to borrowers, and conversely less favorable to lenders, such as lower interest rates and fees, weaker borrower financial and other covenants, borrower rights to cure defaults, and other terms more favorable to borrowers than current or historical norms. Increased competition could cause us to make more loans that are “cov-lite” in nature and, in a distressed scenario, there can be no assurance that these loans will retain the same value as loans with a full package of covenants. As a result of these conditions, the market for leveraged loans could become less advantageous than expected for us, and this could increase default rates, decrease recovery rates or otherwise harm our returns. The risk of prepayment is also higher in the current competitive environment if borrowers are offered more favorable terms by other lenders. The financial markets have experienced substantial fluctuations in prices and liquidity for leveraged loans. Any further disruption in the credit and other financial markets could have substantial negative effects on general economic conditions, the availability of required capital for companies and the operating performance of such companies. These conditions also could result in increased default rates and credit downgrades, and affect the liquidity and pricing of the investments made by us. Conversely, periods of economic stability and increased competition among capital providers could increase the difficulty of locating investments that are desirable for us.

With respect to the investments we make, we do not seek to compete based primarily on the interest rates we offer, and we believe that some of our competitors could make loans with interest rates that will be lower than the rates we offer. In the secondary market for acquiring existing loans, we compete generally on the basis of pricing terms. With respect to all investments, we could lose some investment opportunities if we do not match our competitors’ pricing, terms and structure. However, if we match our competitors’ pricing, terms and structure, we could experience decreased net interest income, lower yields and increased risk of credit loss. We could also compete for investment opportunities with accounts managed or sponsored by FS/EIG Advisor or its affiliates. Although FS/EIG Advisor allocates opportunities in accordance with its allocation policy, allocations to such other accounts will reduce the amount and frequency of opportunities available to us and thus not necessarily be in the best interests of us and our security holders. Moreover, the performance of investments will not be known at the time of allocation.

Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value as determined in good faith by or under the direction of our board of trustees. There is not a public market for the securities of certain of the companies in which we invest. Many of our investments are not publicly-traded or actively-traded on a secondary market but are, instead, traded on a privately negotiated over-the-counter secondary market for institutional investors or are not traded at all. As a result, we value these securities quarterly at fair value as determined in good faith by our board of trustees. Our board of trustees has delegated day-to-day responsibility for implementing our valuation policy to FS/EIG Advisor’s management team, and has authorized FS/EIG Advisor’s management team to utilize independent third-party valuation and pricing services that have been approved by our board of trustees.

Certain factors that may be considered in determining the fair value of our investments include dealer quotes for securities traded on the secondary market for institutional investors, the nature and realizable value of any collateral, the portfolio company’s earnings and its ability to make payments on its indebtedness, the markets in which the portfolio company does business, comparison to comparable companies, discounted cash flows and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Due to this uncertainty, our fair value determinations may cause our net asset value on a given date to materially understate or overstate the value that we may ultimately realize upon the sale of one or more of our investments.

Declines in market values or fair market values of our investments could result in significant net unrealized depreciation of our portfolio, which, in turn, would reduce our net asset value.

Under the 1940 Act, we are required to carry our investments at market value or, if there is no readily available market value, at fair value as determined in good faith by our board of trustees. While most of our investments will not be publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity) and impairments of the market values or fair market values of our investments, even if unrealized, must be reflected in our financial statements for the applicable period as unrealized depreciation, which could result in significant reductions to our net asset value for a given period.

Our board of trustees may change our investment policy by providing our shareholders with 60 days’ prior notice, or may modify or waive our current operating policies and strategy without prior notice or shareholder approval, the effects of which may be adverse.

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 be changed by our board of trustees if we provide our shareholders with at least 60 days’ prior notice. In addition, our board of trustees has the authority to modify or waive our current operating policies, investment criteria and strategy without prior notice and without shareholder approval. We cannot predict the effect any changes to our investment policy, current operating policies, investment criteria and strategy would have on our business, net asset value, operating results and the value of our common shares. However, the effects might be adverse, which could negatively impact our ability to pay distributions to shareholders and cause shareholders to lose all or part of their investment. Finally, because our common shares are not expected to be listed on a national securities exchange for the foreseeable future, shareholders will be limited in their ability to sell their common shares in response to any changes in our investment policy, operating policies, investment criteria or strategy.

If we, our affiliates and our and their respective third-party service providers are unable to maintain the availability of electronic data systems and safeguard the security of data, our ability to conduct business may be compromised, which could impair our liquidity, disrupt our business, damage our reputation or otherwise affect our business.

Cybersecurity refers to the combination of technologies, processes, and procedures established to protect information technology systems and data from unauthorized access, attack, or damage. We, our affiliates and our and their respective third-party service providers are subject to cybersecurity risks. Cybersecurity risks have significantly increased in recent years and, while we have not experienced any material losses relating to cyber attacks or other information security breaches, we could suffer such losses in the future. Our, our affiliates and our and their respective third-party service providers’ computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code and other events that could have a security impact. If one or more of such events occur, this could jeopardize confidential and other information, including nonpublic personal information and sensitive business data, processed and stored in, and transmitted through, computer systems and networks, or otherwise cause interruptions or malfunctions in our operations or the operations of our affiliates and our and their respective third-party service providers. This could result in significant losses, reputational damage, litigation, regulatory fines or penalties, or otherwise adversely affect our business, financial condition or results of operations. Privacy and information security laws and regulation changes, and compliance with those changes, may result in cost increases due to system changes and the development of new administrative processes. In addition, we may be required to expend significant additional resources to modify our protective measures and to investigate and remediate vulnerabilities or other exposures arising from operational and security risks.

There is a risk that investors in our common shares may not receive distributions or that our distributions may not grow over time.

We cannot assure shareholders that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. All distributions will be paid at the discretion of our board of trustees and will depend on our earnings, our net investment income, our financial condition, maintenance of our RIC status, compliance with applicable BDC regulations and such other factors as our board of trustees may deem relevant from time to time. In addition, due to the asset coverage test applicable to us as a BDC, we may be limited in our ability to make distributions. See “Item 1. Business—Regulation—Senior Securities.”

We may pay all or a substantial portion of our distributions from the proceeds of our continuous public offering or from borrowings in anticipation of future cash flow, which may constitute a return of shareholders’ capital and will lower such shareholders’ tax basis in their common shares. A return of capital generally is a return of a shareholder’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 the offering, including any fees payable to FS/EIG Advisor. Moreover, a return of capital will generally not be taxable, but will reduce each shareholder’s cost basis in our common shares, and will result in a higher reported capital gain or lower reported capital loss when the common shares on which such return of capital was received are sold.

Changes in laws or regulations governing our operations or the operations of our business partners may adversely affect our business or cause us to alter our business strategy.

We, our portfolio companies and our business partners are subject to regulation at the local, state and federal level. New legislation may be enacted, amended or repealed or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are permitted to make and the deductibility of interest expense by our portfolio companies, potentially with retroactive effect. For example, certain provisions of the Dodd-Frank Act, which influences many aspects of the financial services industry, have been amended or repealed and the Code has been substantially amended and reformed. Changes in laws or regulations governing the operations of those with whom we do business, including selected broker-dealers and other financial representatives selling our common shares, could also have a material adverse effect on our business, financial condition and results of operations. New or repealed legislation, interpretations, rulings or regulations could require changes to certain business practices of us or our portfolio companies, negatively impact the operations, cash flows or financial condition of us or our portfolio companies, impose additional costs on us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies.

In addition, any changes to the laws and regulations governing our operations, including with respect to permitted investments, may cause us to alter our investment strategy to avail ourselves of new or different opportunities or make other changes to our business. Such changes could result in material differences to our strategies and plans as set forth in this annual report on Form 10-K and may result in our investment focus shifting from the areas of expertise of FS/EIG Advisor to other types of investments in which FS/EIG Advisor may have less expertise or little or no experience. Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of a shareholder’s investment.

As a public company, we are subject to regulations not applicable to private companies, such as provisions of the Sarbanes-Oxley Act. Efforts to comply with such regulations will involve significant expenditures, and non-compliance with such regulations may adversely affect us.

As a public company, we are subject to regulations not applicable to private companies, including provisions of the Sarbanes-Oxley Act and the related rules and regulations promulgated by the SEC. Our management is required to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act and rules and regulations of the SEC thereunder. We are required to review on an annual basis our internal control over financial reporting, and on a quarterly and annual basis, to evaluate and disclose changes in our internal control over financial reporting.

We incur significant expenses in connection with our compliance with the Sarbanes-Oxley Act and other regulations applicable to public companies, which may negatively impact our financial performance and our ability to make distributions. Compliance with such regulations also requires a significant amount of our management’s time and attention. For example, we cannot be certain as to the timing of the completion of our Sarbanes-Oxley mandated evaluations, testings and remediation actions, if any, or the impact of the same on our operations, and we may not be able to ensure that the process is effective or that our internal control over financial reporting are or will be deemed effective in the future. In the event that we are unable to maintain an effective system of internal control and maintain compliance with the Sarbanes-Oxley Act and related rules, we may be adversely affected.

Future legislation or rules could modify how we treat derivatives and other financial arrangements, or place conditions on our use of derivatives and other financial arrangements.

Future legislation or rules may modify how we treat derivatives and other financial arrangements, or place conditions on our use of derivatives and other financial arrangements. For example, the SEC in October 2020 adopted Rule 18f-4, which is designed to modernize the regulation of the use of derivatives by registered investment companies and BDCs. Among other

things, Rule 18f-4 limits a fund’s derivatives exposure through a value-at-risk test and requires the adoption and implementation of a derivatives risk management program for certain derivatives users. Additionally, subject to certain conditions, funds that do not invest heavily in derivatives may be deemed limited derivatives users and would not be subject to the full requirements of Rule 18f-4. In connection with the adoption of Rule 18f-4, the SEC also eliminated the asset segregation and cover framework arising from prior SEC guidance for covering derivatives and certain financial instruments. Compliance with Rule 18f-4 will be required in August 2022. Rule 18f-4 could limit our ability to engage in certain derivatives and other transactions and/or increase the costs of such transactions, which could adversely affect our value or performance.

We may experience fluctuations in our quarterly results.

We could experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rate payable on the debt securities we acquire, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our 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.

We and FS/EIG Advisor could be the target of litigation.

We and FS/EIG Advisor could become the target of securities class action litigation or other similar claims if our common share price fluctuates significantly or for other reasons. The proceedings could continue without resolution for long periods of time and the outcome of any such proceedings could materially adversely affect our business, financial condition, and/or operating results. Any litigation or other similar claims could consume substantial amounts of our management’s time and attention, and that time and attention and the devotion of associated resources could, at times, be disproportionate to the amounts at stake. Litigation and other claims are subject to inherent uncertainties, and a material adverse impact on our financial statements could occur for the period in which the effect of an unfavorable final outcome in litigation or other similar claims becomes probable and reasonably estimable. In addition, we could incur expenses associated with defending ourselves against litigation and other similar claims, and these expenses could be material to our earnings in future periods.

Risks Related to FS/EIG Advisor and its Respective Affiliates

There may be conflicts of interest related to obligations FS/EIG Advisor’s senior management and investment teams have to our affiliates and to other clients.

The members of the senior management and investment teams of FS/EIG Advisor serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do, or of investment vehicles managed by the same personnel. For example, the officers, managers and other personnel of FS/EIG Advisor serve and may serve in the future in similar capacities for the investment advisers to the other funds managed or advised by FS, and may serve in similar or other capacities for the investment advisers to future investment vehicles affiliated with FS Investments. In serving in these multiple and other capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in our best interests or in the best interest of our shareholders. Our investment objectives may overlap with the investment objectives of such investment funds, accounts or other investment vehicles. For example, we rely on FS/EIG Advisor to manage our day-to-day activities and to implement our investment strategy. FS/EIG Advisor and certain of its affiliates are presently, and plan in the future to continue to be, involved with activities which are unrelated to us. As a result of these activities, FS/EIG Advisor, its employees and certain of its affiliates will have conflicts of interest in allocating their time between us and other activities in which they are or may become involved, including the management of other entities affiliated with FS Investments. FS/EIG Advisor and its employees will devote only as much of its or their time to our business as FS/EIG Advisor and its employees, in their judgment, determine is reasonably required, which may be substantially less than their full time.

FS/EIG Advisor and its affiliates, including our officers and some of our trustees, face conflicts of interest caused by compensation arrangements with us and our affiliates, which could result in actions that are not in the best interests of our shareholders.

FS/EIG Advisor and its affiliates receive substantial fees from us in return for their services, and these fees could influence the advice provided to us. Among other matters, the compensation arrangements could affect their judgment. In addition, the decision to utilize leverage has increased our assets and, as a result, has increased the amount of base management fees payable to FS/EIG Advisor.

We may be obligated to pay FS/EIG Advisor incentive compensation even if we incur a net loss due to a decline in the value of our portfolio.

The FS/EIG investment advisory agreement entitles FS/EIG Advisor to receive incentive compensation on income regardless of any capital losses. In such case, we may be required to pay FS/EIG Advisor incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or if we incur a net loss for that quarter.

Any incentive fee payable by us that relates to our net investment income may be computed and paid on income that may include interest that has been accrued but not yet received. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously included in the calculation of the incentive fee will become uncollectible. FS/EIG Advisor is not under any obligation to reimburse us for any part of the incentive fee it received that was based on accrued income that we never received as a result of a default by an entity on the obligation that resulted in the accrual of such income, and such circumstances would result in our paying an incentive fee on income we never received.

For U.S. federal income tax purposes, we are required to recognize taxable income (such as deferred interest that is accrued as original issue discount) in some circumstances in which we do not receive a corresponding payment in cash and to make distributions with respect to such income to maintain our status as a RIC. Under such circumstances, we may have difficulty meeting the Annual Distribution Requirement necessary to maintain RIC tax treatment under the Code. This difficulty in making the required distribution may be amplified to the extent that we are required to pay an incentive fee with respect to such accrued income. As a result, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital, or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

The time and resources that individuals employed by FS/EIG Advisor devote to us may be diverted, and we may face additional competition due to the fact that individuals employed by FS/EIG Advisor are not prohibited from raising money for or managing another entity that makes the same types of investments that we target.

Neither FS/EIG Advisor nor persons providing services to us on behalf of FS/EIG Advisor are prohibited from raising money for and managing another investment entity that makes the same types of investments as those we target. As a result, the time and resources that these individuals may devote to us may be diverted. In addition, we may compete with any such investment entity for the same investors and investment opportunities.

Our incentive fee may induce FS/EIG Advisor to make, and EIG to recommend, speculative investments.

The incentive fee payable by us to FS/EIG Advisor may create an incentive for it to enter into investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement. The way in which the incentive fee payable to FS/EIG Advisor is determined may encourage it to use leverage to increase the return on our investments. In addition, the fact that our base management fee is payable based upon our gross assets, which would include any borrowings for investment purposes, may encourage FS/EIG Advisor to use leverage to make additional investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would disfavor holders of our common shares. Such a practice could result in our investing in more speculative securities than would otherwise be in our best interests, which could result in higher investment losses, particularly during cyclical economic downturns. In addition, since EIG will receive a portion of the advisory fees paid to FS/EIG Advisor, EIG may have an incentive to recommend investments that are riskier or more speculative.

FS/EIG Advisor’s liability is limited under the FS/EIG investment advisory agreement, and we are required to indemnify FS/EIG Advisor against certain liabilities, which may lead it to act in a riskier manner on our behalf than it would when acting for its own account.

Pursuant to the FS/EIG investment advisory agreement, FS/EIG Advisor and its officers, managers, partners, members (and their members, including the owners of their members), agents, employees, controlling persons and any other person or entity affiliated with FS/EIG Advisor will not be liable to us for their acts under the FS/EIG investment advisory agreement, absent willful misfeasance, bad faith or gross negligence in the performance of their duties. We have agreed to indemnify, defend and protect FS/EIG Advisor and its officers, managers, partners, members (and their members, including the owners of their members), agents, employees, controlling persons and any other person or entity affiliated with FS/EIG Advisor with respect to all damages, liabilities, costs and expenses resulting from acts of FS/EIG Advisor not arising out of willful misfeasance, bad faith or gross negligence in the performance of their duties under the FS/EIG investment advisory agreement. These protections may lead FS/EIG Advisor to act in a riskier manner when acting on our behalf than it would when acting for its own account.

Risks Related to Business Development Companies

As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of such acquisition, at least 70% of our total assets are qualifying assets. Therefore, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets. Similarly, these rules could prevent us from making additional investments in existing portfolio companies, which could result in the dilution of our position, or could require us to dispose of investments at an inopportune time to comply with the 1940 Act. If we were forced to sell non-qualifying investments in the portfolio for compliance purposes, the proceeds from such sale could be significantly less than the current value of such investments. Conversely, if we fail to invest a sufficient portion of our assets in qualifying assets, we could lose our status as a BDC, which would have a material adverse effect on our business, financial condition and results of operations.

Failure to maintain our status as a BDC would reduce our operating flexibility.

If we do not remain a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility.

Regulations governing our operation as a BDC and a RIC will affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth.

As a result of our need to satisfy the Annual Distribution Requirement in order to maintain RIC tax treatment under Subchapter M of the Code, we may need to periodically access the capital markets to raise cash to fund new investments. We may issue “senior securities,” as defined in the 1940 Act, including issuing preferred shares, borrowing money from banks or other financial institutions or issuing debt securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such incurrence or issuance. Our ability to issue certain other types of securities is also limited. Under the 1940 Act, we are also generally prohibited from issuing or selling our shares at a price per share, after deducting underwriting commissions, that is below our net asset value per share, without first obtaining approval for such issuance from our shareholders and our independent trustees. Compliance with these limitations on our ability to raise capital may unfavorably limit our investment opportunities and may reduce our ability in comparison to other companies to profit from favorable spreads between the rates at which we can borrow and the rates at which we can lend.

We expect to continue to borrow for investment purposes. If the value of our assets declines, we may be unable to satisfy the asset coverage test, which would prohibit us from paying distributions and as a result could cause us to be subject to corporate-level tax on our income and capital gains, regardless of the amount of distributions paid. If we cannot satisfy the asset coverage test, we may be required to sell a portion of our investments and, depending on the nature of our debt financing, repay a portion of our indebtedness at a time when such sales may be disadvantageous.

Our ability to enter into transactions with our affiliates is restricted.

We are prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the prior approval of a majority of the independent members of our board of trustees and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act and we will generally be prohibited from buying or selling any securities from or to such affiliate, absent the prior approval of our board of trustees. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our board of trustees and, in some cases, the SEC. In an order dated June 4, 2013, the SEC granted exemptive relief permitting us, subject to the satisfaction of certain conditions, to co-invest in certain privately negotiated investment transactions with our co-investment affiliates. Similarly, pursuant to the EIG Order we are permitted to participate in co-investment transactions with certain other EIG advised funds. If a person acquires more than 25% of our voting securities, we will be prohibited from buying or selling any security from or to such person or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons to the extent not covered by our exemptive relief, absent the prior approval of the SEC. Similar restrictions limit our ability to transact business with our officers or trustees or their affiliates. As a result of these restrictions, we may be prohibited from buying or selling any security from or to any portfolio company of a fund managed by FS/EIG Advisor without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us.

We are uncertain of our sources for funding our future capital needs; if we cannot obtain debt or equity financing on acceptable terms, our ability to acquire investments and to expand our operations will be adversely affected.

Any working capital reserves we maintain may not be sufficient for investment purposes, and we may require debt or equity financing to operate. We may also need to access the capital markets to refinance existing debt obligations to the extent maturing obligations are not repaid with cash flows from operations. In order to maintain RIC tax treatment, we must make distributions to our shareholders each tax year on a timely basis generally of an amount at least equal to 90% of our investment company taxable income, determined without regard to any deduction for distributions paid, and the amounts of such distributions will therefore not be available to fund investment originations or to repay maturing debt. In addition, with certain limited exceptions, we are only allowed to borrow amounts or issue debt securities or preferred shares, which we refer to collectively as “senior securities,” such that our asset coverage, as calculated pursuant to the 1940 Act, equals at least 200% immediately after such borrowing, which, in certain circumstances, may restrict our ability to borrow or issue debt securities or preferred shares. In the event that we develop a need for additional capital in the future for investments or for any other reason, and we cannot obtain debt or equity financing on acceptable terms, or at all, our ability to acquire investments and to expand our operations will be adversely affected. As a result, we would be less able to allocate our portfolio among various issuers and sub-sectors and achieve our investment objectives, which may negatively impact our results of operations and reduce our ability to make distributions to our shareholders.

Risks Related to Our Investments

Our investments in prospective portfolio companies may be risky, and we could lose all or part of our investment.

Our investments in senior secured and unsecured debt, select equity investments and other investments issued by private Energy companies may be risky.

Senior Debt. There is a risk that any collateral pledged by portfolio companies in which we have taken a security interest may decrease in value over time or lose its entire value, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital. To the extent our debt investment is collateralized by the securities of a portfolio company’s subsidiaries, such securities may lose some or all of their value in the event of the bankruptcy or insolvency of the portfolio company. Also, in some circumstances, our security interest may be contractually or structurally subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Loans that are under-collateralized involve a greater risk of loss. In addition, second lien secured loans are granted a second priority security interest in collateral, which means that any realization of collateral will generally be applied to pay first lien secured loans in full before second lien secured loans are paid. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the senior debt’s terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies.

Unsecured Debt. Our unsecured debt investments will generally rank junior in priority of payment to senior debt and will generally be unsecured. This may result in a heightened level of risk and volatility or a loss of principal, which could lead to the loss of the entire investment. These investments may involve additional risks that could adversely affect our investment returns. To the extent interest payments associated with such debt are deferred, such debt may be subject to greater fluctuations in valuations, and such debt could subject us and our shareholders to non-cash income. Because we will not receive any principal repayments prior to the maturity of some of our unsecured debt investments, such investments will be of greater risk than amortizing loans.

Equity and Equity-Related Investments. We expect to make select equity investments in income-oriented preferred or common equity interests, which may include interests in MLPs. In addition, when we invest in senior secured loans and notes or unsecured debt, we may acquire warrants to purchase equity securities. In connection with certain of our debt investments or any restructurings of these debt investments, we may on occasion receive equity interests, including warrants or options, as additional consideration or otherwise in connection with a restructuring. The equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.

Net Profits Interests, Royalty Interests or VPPs. We may invest in energy-specific non-operating investments including net profits interests, royalty interests or VPPs. Net profits interests and royalty interests are contractual agreements whereby the holders of such interests are entitled to a portion of the mineral production, or proceeds therefrom. A VPP is a type of structured

investment whereby the owner sells a specific volume of production in a field or property to an investor and the investor receives a specific quota of production on a monthly basis in either raw output or proceeds therefrom. We will not have any operational control over these investments and our receipt of payments is contingent on the producer’s ability to meet its supply obligations, which can make these types of investments highly speculative.

Non-U.S. Securities. We may invest in non-U.S. securities, which may include securities denominated in U.S. dollars or in non-U.S. currencies and securities of companies in emerging markets, to the extent permitted by the 1940 Act. Because evidences of ownership of such securities usually are held outside the United States, we would be subject to additional risks if we invested in non-U.S. securities, which include possible adverse political and economic developments, seizure or nationalization of foreign deposits and adoption of governmental restrictions which might adversely affect or restrict the payment of principal and interest on the non-U.S. securities to investors located outside the country of the issuer, whether from currency blockage or otherwise. Because non-U.S. securities may be purchased with and payable in foreign currencies, the value of these assets as measured in U.S. dollars may be affected unfavorably by changes in currency rates and exchange control regulations.

Investments in Asset-Based Opportunities. We may invest in asset-based opportunities through joint ventures, investment platforms, private investment funds or other business entities that provide one or more of the following services: origination or sourcing of potential investment opportunities, due diligence and negotiation of potential investment opportunities and/or servicing, development and management (including turnaround) and disposition of investments. Such investments may be in or alongside existing or newly formed operators, consultants and/or managers that pursue such opportunities and may or may not include capital and/or assets contributed by third party investors. Such investments may include opportunities to direct-finance physical assets, such as airplanes and ships, and/or operating assets, such as financial service entities, as opposed to investment securities, or to invest in origination and/or servicing platforms directly. In valuing our investments, we rely primarily on information provided by operators, consultants and/or managers. Valuations of illiquid securities involve various judgments and consideration of factors that may be subjective. There is a risk that inaccurate valuations could adversely affect the value of our common shares. We may not be able to promptly withdraw our investment in these asset-based opportunities, which may result in a loss to us and adversely affect our investment returns.

In addition, we invest in securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated. Below investment grade securities, which are often referred to as “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be difficult to value and illiquid.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any proceeds. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.

If one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors. In situations where a bankruptcy carries a high degree of political significance, our legal rights may be subordinated to other creditors. We may also be subject to lender liability claims for actions taken by us with respect to a borrower’s business or in instances where we exercise control over the borrower or render significant managerial assistance.

We generally will not control our portfolio companies.

We do not expect to control most of our portfolio companies, even though we may have board representation or board observation rights, and our debt agreements with such portfolio companies may contain certain restrictive covenants. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and

the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors. Due to the lack of liquidity for our investments in non-traded companies, we may not be able to dispose of our interests in our portfolio companies as readily as we would like or at an appropriate valuation. As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings.

Second priority liens on collateral securing debt investments that we make to our portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.

Certain debt investments that we make in portfolio companies may be secured on a second priority basis by the same collateral securing first priority debt of such companies. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by such company under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the debt obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds are not sufficient to repay amounts outstanding under the debt obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against such company’s remaining assets, if any.

We may also make unsecured debt investments in portfolio companies, meaning that such investments will not benefit from any interest in collateral of such companies. Liens on any such portfolio company’s collateral, if any, will secure the portfolio company’s obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the portfolio company under its secured debt agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations in full before us. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy our unsecured debt obligations after payment in full of all secured debt obligations. If such proceeds were not sufficient to repay the outstanding secured debt obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s remaining assets, if any.

The rights we may have with respect to the collateral securing the debt investments we make in our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: the ability to cause the commencement of enforcement proceedings against the collateral; the ability to control the conduct of such proceedings; the approval of amendments to collateral documents; releases of liens on the collateral; and waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected.

Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies.

Certain of our portfolio companies are in industries that may be impacted by inflation. If such portfolio companies are unable to pass any increases in their costs of operations along to their customers, it could adversely affect their operating results and impact their ability to pay interest and principal on our loans, particularly if interest rates rise in response to inflation. In addition, any projected future decreases in our portfolio companies’ operating results due to inflation could adversely impact the fair value of those investments. Any decreases in the fair value of our investments could result in future realized or unrealized losses and therefore reduce our net assets resulting from operations.

A covenant breach by our portfolio companies may harm our operating results.

A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt or equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company.

Our portfolio companies may be highly leveraged.

Some of our portfolio companies may be highly leveraged, which may have adverse consequences to these companies and to us as an investor. These companies may be subject to restrictive financial and operating covenants and the leverage may impair these companies’ ability to finance their future operations and capital needs. As a result, these companies’ flexibility to respond to changing business and economic conditions and to take advantage of business opportunities may be limited. Further, a leveraged company’s income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used.

Investing in middle-market companies involves a number of significant risks, any one of which could have a material adverse effect on our operating results.

Investments in middle-market companies involve some of the same risks that apply generally to investments in larger, more established companies. However, such investments have more pronounced risks in that they:

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may have limited financial resources and may be unable to meet the obligations under their debt and equity securities that we hold, which may be accompanied by a deterioration in the value of any collateral pledged under such securities and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment;

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have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tends to render them more vulnerable to competitors’ actions and changing market conditions, as well as general economic downturns;

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are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us;

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generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers, trustees and members of FS/EIG Advisor may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies; and

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may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity.

We may not realize gains from our equity investments.

Certain investments that we may make may include equity related securities, such as rights and warrants that may be converted into or exchanged for shares or the cash value of the shares. In addition, we may make direct equity investments in portfolio companies. The equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We may also be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We may be unable to exercise any put rights we acquire which grant us the right to sell our equity securities back to the portfolio company for the consideration provided in our investment documents if the issuer is in financial distress.

An investment strategy focused primarily on privately-held companies presents certain challenges, including the lack of available information about these companies.

Our investments are primarily in privately-held companies. Investments in private companies pose significantly greater risks than investments in public companies. First, private companies have reduced access to the capital markets, resulting in diminished capital resources and the ability to withstand financial distress. As a result, these companies, which may present greater credit risk than public companies, may be unable to meet the obligations under their debt and equity securities that we hold. Second, the investments themselves often may be illiquid. The securities of many of the companies in which we invest are not publicly-traded or actively-traded on the secondary market and are, instead, traded on a privately negotiated over-the-counter secondary market for institutional investors. In addition, such securities may be subject to legal and other restrictions on resale. As such, we may have difficulty exiting an investment promptly or at a desired price prior to maturity or outside of a normal

amortization schedule. In addition, in a restructuring, we may receive substantially different securities than our original investment in a portfolio company, including securities in a different part of the capital structure. These investments may also be difficult to value because little public information generally exists about private companies, requiring an experienced due diligence team to analyze and value the potential portfolio company. Finally, these companies often may not have third-party debt ratings or audited financial statements. We must therefore rely on the ability of FS/EIG Advisor to obtain adequate information through due diligence to evaluate the creditworthiness and potential returns from investing in these companies. These companies and their financial information will generally not be subject to the Sarbanes-Oxley Act and other rules and regulations that govern public companies. If we are unable to uncover all material information about these companies, or receive timely information, we may not make a fully informed investment decision, and we may lose money on our investments.

A lack of liquidity in certain of our investments may adversely affect our business.

We invest in certain companies whose securities are not publicly-traded or actively-traded on the secondary market and are, instead, traded on a privately-negotiated over-the-counter secondary market for institutional investors, and whose securities are subject to legal and other restrictions on resale or are otherwise less liquid than publicly-traded securities. The illiquidity of certain of our investments may make it difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. The reduced liquidity of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.

We may not have the funds or ability to make additional investments in our portfolio companies.

We may not have the funds or ability to make additional investments in our portfolio companies. After our initial investment in a portfolio company, we may be called upon from time to time to provide additional funds to such company or have the opportunity to increase our investment through the exercise of a warrant to purchase common stock. There is no assurance that we will make, or will have sufficient funds to make, follow-on investments. Any decisions not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on a portfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful operation or may reduce the expected return on the investment.

Our investments may include original issue discount and PIK instruments.

To the extent that we invest in original issue discount or PIK instruments and the accretion of original issue discount or PIK interest income constitutes a portion of our income, we will be exposed to risks associated with the requirement to include such non-cash income in taxable and accounting income prior to receipt of cash, including the following:

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The higher interest rates on PIK instruments reflect the payment deferral and increased credit risk associated with these instruments, and PIK instruments generally represent a significantly higher credit risk than coupon loans;

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Original issue discount and PIK instruments may have unreliable valuations because the accruals require judgments about collectability of the deferred payments and the value of any associated collateral;

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An election to defer PIK interest payments by adding them to the principal on such instruments increases our future investment income which increases our gross assets and, as such, increases FS/EIG Advisor’s future base management fees which, thus, increases FS/EIG Advisor’s future income incentive fees at a compounding rate;

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Market prices of PIK instruments and other zero coupon instruments are affected to a greater extent by interest rate changes, and may be more volatile than instruments that pay interest periodically in cash. While PIK instruments are usually less volatile than zero coupon debt instruments, PIK instruments are generally more volatile than cash pay securities;

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The deferral of PIK interest on an instrument increases the loan-to-value ratio, which is a measure of the riskiness of a loan, with respect to such instrument;

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Even if the conditions for income accrual under GAAP are satisfied, a borrower could still default when actual payment is due upon the maturity of such loan;

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For accounting purposes, cash distributions to investors representing original issue discount income do not come from paid-in capital, although they may be paid from the offering proceeds. Thus, although a distribution of original issue discount income may come from the cash invested by investors, the 1940 Act does not require that investors be given notice of this fact;

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Tax legislation requires that income be recognized for tax purposes no later than when recognized for financial reporting purposes;

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The required recognition of PIK interest for U.S federal income tax purposes may have a negative impact on liquidity, as it represents a non-cash component of our investment company taxable income, income that may require cash distributions to shareholders in order to maintain our ability to be subject to tax as a RIC; and

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Original issue discount may create a risk of non-refundable cash payments to FS/EIG Advisor based on non-cash accruals that may never be realized.

We may from time to time enter into total return swaps, credit default swaps, fixed priced swaps or other derivative transactions which expose us to certain risks, including credit risk, market risk, commodity risk, liquidity risk and other risks similar to those associated with the use of leverage.

We may from time to time enter into total return swaps, credit default swaps or other derivative transactions that seek to modify or replace the investment performance of a particular reference security or other asset. These transactions are typically individually negotiated, non-standardized agreements between two parties to exchange payments, with payments generally calculated by reference to a notional amount or quantity. Swap contracts and similar derivative contracts are not traded on exchanges; rather, banks and dealers act as principals in these markets. These investments may present risks in excess of those resulting from the referenced security or other asset. Because these transactions are not an acquisition of the referenced security or other asset itself, the investor has no right directly to enforce compliance with the terms of the referenced security or other asset and has no voting or other consensual rights of ownership with respect to the referenced security or other asset. In the event of insolvency of a counterparty, we will be treated as a general creditor of the counterparty and will have no claim of title with respect to the referenced security or other asset.

A total return swap is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the referenced security or other assets underlying the total return swap during a specified period, in return for periodic payments based on a fixed or variable interest rate.

A total return swap is subject to market risk, liquidity risk and risk of imperfect correlation between the value of the total return swap and the debt obligations underlying the total return swap. In addition, we may incur certain costs in connection with a total return swap that could in the aggregate be significant.

A credit default swap is a contract in which one party buys or sells protection against a credit event with respect to an issuer, such as an issuer’s failure to make timely payments of interest or principal on its debt obligations, bankruptcy or restructuring during a specified period. Generally, if we sell credit protection using a credit default swap, we will receive fixed payments from the swap counterparty and if a credit event occurs with respect to the applicable issuer, we will pay the swap counterparty par for the issuer’s defaulted debt securities and the swap counterparty will deliver the defaulted debt securities to us. Generally, if we buy credit protection using a credit default swap, we will make fixed payments to the counterparty and if a credit event occurs with respect to the applicable issuer, we will deliver the issuer’s defaulted securities underlying the swap to the swap counterparty and the counterparty will pay us par for the defaulted securities. Alternatively, a credit default swap may be cash settled and the buyer of protection would receive the difference between the par value and the market value of the issuer’s defaulted debt securities from the seller of protection.

Credit default swaps are subject to the credit risk of the underlying issuer. If we are selling credit protection, there is a risk that we will not properly assess the risk of the underlying issuer, a credit event will occur and we will have to pay the counterparty. If we are buying credit protection, there is a risk that we will not properly assess the risk of the underlying issuer, no credit event will occur and we will receive no benefit for the premium paid.

A fixed price swap is a contract between two parties in which settlements are made at a specified time based on the difference between the fixed priced specified in the contract and the referenced settlement price. When the referenced settlement price is less than the price specified in the contract, one party receives an amount from the second party based on the price difference multiplied by the volume. Similarly, when the referenced settlement price exceeds the price specified in the contract, one party pays the second party an amount based on the price difference multiplied by the volume.

A fixed price swap is subject to commodity risk of the underlying commodity. If we are purchasing fixed price swaps for oil, there is a risk the fixed price we paid to enter the contract for oil will be more than the price of oil at the specified settlement date, and we will owe the counterparty the difference in price multiplied by the volume of the contracted volume.

A derivative transaction is also subject to the risk that a counterparty will default on its payment obligations thereunder or that we will not be able to meet our obligations to the counterparty. In some cases, we may post collateral to secure our obligations to the counterparty, and we may be required to post additional collateral upon the occurrence of certain events such as a decrease in the value of the reference security or other asset. In some cases, the counterparty may not collateralize any of its obligations to us.

Derivative investments effectively add leverage to a portfolio by providing investment exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. In addition to the risks described above, such arrangements are subject to risks similar to those associated with the use of leverage. See “—Risks Related to Debt Financing.”

Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.

We are subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid and we could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments, net of prepayment fees, could negatively impact our return on equity.

We may invest through joint ventures, partnerships or other special purpose vehicles and our investments through these vehicles may entail greater risks, and investments in which we have a non-controlling interest may involve risks specific to third-party management of those investments.

We may co-invest with third parties through partnerships, joint ventures or other entities, such as SIIJV, thereby acquiring jointly-controlled or non-controlling interests in certain investments in conjunction with participation by one or more third parties in such investment. We may have interests or objectives that are inconsistent with those of the third-party partners or co-venturers. Although we may not have full control over these investments, and therefore may have a limited ability to protect our position therein, we expect that we will negotiate appropriate rights to protect our interests. Nevertheless, such investments may involve risks not present in investments where a third party is not involved, including the possibility that a third-party partner or co-venturer may have financial difficulties, resulting in a negative impact on such investment, may have economic or business interests or goals which are inconsistent with ours, or may be in a position to take (or block) action in a manner contrary to our investment objectives or the increased possibility of default by, diminished liquidity or insolvency of, the third party, due to a sustained or general economic downturn. Third-party partners or co-venturers may opt to liquidate an investment at a time during which such liquidation is not optimal for us. In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers. In those circumstances where such third parties involve a management group, such third parties may receive compensation arrangements relating to such investments, including incentive compensation arrangements.

Energy Company Risks

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. The revenues, income (or losses) and valuations of Energy companies can fluctuate suddenly and dramatically due to a number of factors.

Because our investment policy is to invest, under normal circumstances, at least 80% of our total assets in securities of Energy companies, our portfolio will not be well allocated among various industries.

As there can be a correlation in the valuation of the securities in our portfolio, a decline in value of the securities of one company may be accompanied by a decline in the valuations of the securities of other companies within the Energy industry that we may hold in our portfolio. A decline in value of the securities of such issuers or a downturn in the Energy sector might have a more severe impact on us than on an entity that is more broadly allocated among various industries.

An increase or decrease in commodity supply or demand may adversely affect our business.

A decrease in the production of natural gas, natural gas liquids, crude oil, coal or other energy commodities, a decrease in the volume of such commodities available for transportation, mining, processing, storage or distribution, or a sustained decline in

demand for such commodities may adversely impact the financial performance or prospects of Energy companies in which we may invest. Energy companies are subject to supply and demand fluctuations in the markets they serve which will be impacted by a wide range of factors, including fluctuating commodity prices, weather, increased conservation or use of alternative fuel sources, increased governmental or environmental regulation, depletion of natural gas, natural gas liquids, crude oil or coal production, rising interest rates, declines in domestic or foreign production of natural gas, natural gas liquids and crude oil, accidents or catastrophic events, economic conditions and economic sanctions, among others.

An increase or decrease in commodity pricing may adversely affect our business.

The return on our prospective investments in Energy companies will be dependent on the margins received by those companies for the exploration, development, production, gathering, transportation, processing, storing, refining, distribution, mining, generation or marketing of natural gas, natural gas liquids, crude oil, refined products, coal or power. These margins may fluctuate widely in response to a variety of factors including global and domestic economic conditions, weather conditions, natural disasters, the supply and price of imported energy commodities, the production and storage levels of energy commodities in certain regions or in the world, political instability, terrorist activities, transportation facilities, energy conservation, domestic and foreign governmental regulation and taxation, the availability of local, intrastate and interstate transportation systems and economic sanctions. Volatility of commodity prices may also make it more difficult for Energy companies in which we may invest to raise capital to the extent the market perceives that their performance may be directly or indirectly tied to commodity prices.

Cyclicality within the Energy sector may adversely affect our business.

Industries within the Energy sector are cyclical with fluctuations in commodity prices and demand for commodities driven by a variety of factors. The highly cyclical nature of the industries within the Energy sector may lead to volatile changes in commodity prices, which may adversely affect the earnings of Energy companies in which we may invest.

A prolonged continuation of depressed oil and natural gas prices could have a material adverse effect on us.

Prices for oil and natural gas, which historically have been volatile and may continue to be volatile, may be subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas. A prolonged continuation of depressed oil and natural gas prices would adversely affect the credit quality and performance of certain of our debt and equity investments in Energy companies. A decrease in credit quality and performance would, in turn, negatively affect the fair value of these investments, which would consequently negatively affect our net asset value. Should a prolonged period of depressed oil and natural gas prices occur, it is likely that our portfolio companies’ abilities to satisfy financial or operating covenants imposed by us or other lenders will be adversely affected, thereby negatively impacting their financial condition and their ability to satisfy their debt service and other obligations to us. Likewise, should a prolonged period of depressed oil and natural gas prices occur, it is likely that our portfolio companies’ cash flow and profit generating capacities would also be adversely affected thereby negatively impacting their ability to pay us dividends or distributions on certain of our investments.

Changes in international, foreign, federal, state or local government regulation may adversely affect our business.

Energy companies are subject to significant international, foreign, federal, state and local government regulation, including how facilities are constructed, maintained and operated, environmental and safety controls, and the prices they may charge for the products and services they provide. Various governmental authorities have the power to enforce compliance with these regulations and the permits issued under them, and violators are subject to administrative, civil and criminal penalties, including civil fines, injunctions or both. For example, many state and federal environmental laws provide for civil penalties as well as regulatory remediation, thus adding to the potential liability an Energy company may face. More extensive laws, regulations or enforcement policies could be enacted in the future which would likely increase compliance costs and may adversely affect the financial performance of Energy companies in which we may invest.

In particular, changes to laws and increased regulations or enforcement policies as a result of oil spills may adversely affect the financial performance of Energy companies. Additionally, changes to laws and increased regulation or restrictions on the use of hydraulic fracturing may adversely impact the ability of Energy companies to economically develop oil and natural gas resources and, in turn, reduce production for such commodities. Any such changes or increased regulations or policies may adversely affect the performance of Energy companies in which we may invest.

Energy companies are subject to various operational risks.

Energy companies are subject to various operational risks, such as failed drilling or well development, unscheduled outages, disruption of operations, mining, drilling or installation accidents, inability to timely and effectively integrate newly

acquired assets, unanticipated operation and maintenance expenses, lack of proper asset integrity, underestimated cost projections, inability to renew or increased costs of rights of way, failure to obtain the necessary permits to operate and failure of third-party contractors to perform their contractual obligations. Thus, some Energy companies may be subject to construction risk, acquisition risk or other risks arising from their specific business strategies.

Energy companies that focus on exploration and production are subject to numerous reserve and production related risks.

Exploration and production businesses are subject to overstatement of the quantities of their reserves based upon any reserve estimates that prove to be inaccurate, the possibility that no commercially productive oil, natural gas or other energy reservoirs will be discovered as a result of drilling or other exploration activities, the curtailment, delay or cancellation of exploration activities as a result of unexpected conditions or miscalculations, title problems, pressure or irregularities in formations, equipment failures or accidents, adverse weather conditions, compliance with environmental and other governmental requirements and cost of, or shortages or delays in the availability of, drilling rigs and other exploration equipment, and operational risks and hazards associated with the development of the underlying properties, including natural disasters, blowouts, explosions, fires, leakage of crude oil, natural gas or other resources, mechanical failures, cratering and pollution.

Competition between Energy companies may adversely affect our business.

The Energy companies in which we may invest face substantial competition in acquiring assets, expanding or constructing assets and facilities, obtaining and retaining customers and contracts, securing trained personnel and operating their assets. Many of their competitors may have superior financial and other resources.

Inability by companies in which we may invest to make accretive acquisitions may adversely affect our business.

The ability of Energy companies in which we may invest to grow and, where applicable, to increase dividends or distributions to their equity holders can be highly dependent on their ability to make acquisitions of infrastructure assets that result in an increase in free cash flow. In the event that such companies are unable to make such accretive acquisitions because they are unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts, because they are unable to raise financing for such acquisitions on economically acceptable terms, or because they are outbid by competitors, their future growth and ability to make or raise dividends or distributions will be limited and their ability to repay their debt and make payments to preferred equity holders may be weakened. Furthermore, even if these companies do consummate acquisitions that they believe will be accretive, the acquisitions may instead result in a decrease in free cash flow.

A significant accident or event that is not fully insured could adversely affect the operations and financial condition of Energy companies in which we may invest.

The operations of Energy companies in which we may invest are subject to many hazards inherent in the transporting, processing, storing, distributing, mining, generating or marketing of natural gas, natural gas liquids, crude oil, coal, refined products, power or other commodities, or in the exploring, managing or producing of such commodities, including: damage to pipelines, storage tanks, vessels or related equipment and surrounding properties caused by hurricanes, tornadoes, floods, fires and other natural disasters or by acts of terrorism; inadvertent damage from construction or other equipment; leaks of natural gas, natural gas liquids, crude oil, refined products or other commodities; cyber attacks; and fires and explosions. Further, since the September 11th terrorist attacks, the U.S. government has issued warnings that energy assets and facilities, specifically U.S. pipeline infrastructure, may be targeted in future terrorist attacks. These risks could result in substantial losses due to personal injury or loss of life, severe damage to and destruction of property and equipment and pollution or other environmental damage and may result in the curtailment or suspension of their related operations. Not all Energy companies are fully insured against all risks inherent to their businesses. If a significant accident or event occurs that is not fully insured, it could adversely affect the Energy company’s operations and financial condition. In addition, any increased governmental regulation to mitigate such risks (including regulations related to recent oil spills or hydraulic fracturing), could increase insurance premiums and other operating costs for Energy companies in which we may invest.

Energy reserves naturally deplete as they are produced over time and this may adversely affect our business.

Energy reserves naturally deplete as they are produced over time. Many Energy companies are either engaged in the production of natural gas, natural gas liquids, crude oil or coal, or are engaged in transporting, storing, distributing and processing these items or their derivatives on behalf of shippers. To maintain or grow their revenues, these companies or their customers need to maintain or expand their reserves through exploration of new sources of supply, through the development of existing sources or through acquisitions. The financial performance of Energy companies in which we may invest may be adversely affected if they, or the companies to whom they provide services, are unable to cost-effectively acquire additional reserves

sufficient to replace the depleted reserves. If an Energy company fails to add reserves by acquiring or developing them, its reserves and production will decline over time as the reserves are produced. If an Energy company is not able to raise capital on favorable terms, it may not be able to add to or maintain its reserves.

Certain Energy companies are dependent on their parents or sponsors for a majority of their revenues and may be subject to affiliate party risk.

Certain Energy companies in which we may invest are dependent on their parents or sponsors for a majority of their revenues. Any failure by an Energy company’s parent or sponsor to satisfy its payments or obligations would impact the Energy company’s revenues and cash flows and ability to make debt service payments and/or distributions.

Changing economic, regulatory and political conditions in some countries, including political and military conflicts, may adversely affect the businesses in which we invest.

Changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes, boycotts and government inspections or requisitioning of vessels. These types of events could impact the delivery of commodities or impact pricing of commodities.

Risks Related to Our Investments in MLPs

An investment in MLP units involves certain risks which differ from an investment in the common stock of a corporation. Holders of MLP units have limited control and voting rights on matters affecting the partnership. In addition, there are certain tax risks associated with an investment in MLP units. See “—Risks Related to U.S. Federal Income Tax.”

An MLP’s cash flow, and consequently its distributions, are subject to operational and general energy industry risks, which may result in disparate quarterly distributions.

A portion of the cash flow received by us may be derived from investments in the equity securities of MLPs. The amount of cash that an MLP has available for distributions and the tax character of such distributions depend upon the amount of cash generated by the MLP’s operations. Cash available for distribution will vary from quarter to quarter and is largely dependent on factors affecting the MLP’s operations and factors affecting the Energy industry in general. In addition to the risk factors described above, other factors which may reduce the amount of cash an MLP has available for distribution in a given quarter include increased operating costs, maintenance capital expenditures, acquisition costs, expansion, construction or exploration costs and borrowing costs.

Investments in MLPs may have limited liquidity.

Although common units of some MLPs may trade on public exchanges, certain of these securities may trade less frequently, particularly those with smaller capitalizations. Securities with limited trading volumes may display volatile or erratic price movements. As a result, these securities may be difficult to dispose of at a fair price at the times when we believe it is desirable to do so. These securities are also more difficult to value, and our judgment as to value will often be given greater weight than market quotations, if any exist. Investment of our capital in securities that are less actively-traded, or over time experience decreased trading volume, may restrict our ability to take advantage of other market opportunities. In addition, many MLP units are privately held.

Investments in MLPs are susceptible to interest rate fluctuation risks.

Interest rate risk is the risk that securities will decline in value because of changes in market interest rates. The yields of equity and debt securities of MLPs are susceptible in the short-term to fluctuations in interest rates and, like treasury bonds, the prices of these securities typically decline when interest rates rise. Accordingly, our net asset value may be impacted by an increase in interest rates. Further, rising interest rates could adversely impact the financial performance of MLPs in which we invest by increasing their costs of capital. This may reduce their ability to execute acquisitions or expansion projects in a cost-effective manner.

Investments in MLPs are subject to certain tax risks.

MLPs are not subject to tax at the partnership level. Rather, each partner is allocated a share of the MLP’s income, gains, losses, deductions, and expenses. A change in current tax law, or a change in the underlying business of a given MLP could result in the MLP being treated as a corporation for U.S. federal tax purposes, which would result in such MLP being required to pay U.S. federal income tax on its taxable income. Such treatment also would have the effect of reducing the amount of cash available for distribution by the affected MLP.

Our investments in MLPs may be subject to additional fees and expenses, including management and incentive fees, and, as a result, our investments in MLPs may achieve a lower rate of return than our other investments.

MLPs are subject to additional fees, some of which are paid regardless of the performance of its assets. We will pay certain management fees to the adviser entity of any MLP in which we invest. FS/EIG Advisor will also earn its base management fee from us based on our gross assets, including our investment in any such MLP; therefore, we will be paying both FS/EIG Advisor’s base management fee and any management fees charged by an MLP. As a result, our investment returns attributable to MLPs in which we invest may be lower than other investments we select. In addition, because the fees received by an MLP adviser are typically based on the managed assets of the MLP, including the proceeds of any leverage it may incur, the MLP adviser has a financial incentive to utilize leverage, which may create a conflict of interest between the MLP adviser and us as a shareholder in the MLP.

Risks Related to Debt Financing

We currently use borrowed funds to make investments and are exposed to the typical risks associated with leverage.

Borrowings and other types of financing, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increases the risks associated with investing in our securities. Our and our special-purpose financing subsidiaries’ lenders and debt holders have fixed dollar claims on our and their assets that are superior to the claims of our shareholders. If the value of our assets increases, then leverage would cause the net asset value to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leverage would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of consolidated interest payable on the borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause net investment income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make distributions to shareholders. Leverage is generally considered a speculative investment technique.

The agreements governing our financing arrangements contain various covenants which, if not complied with, could accelerate repayment under the applicable arrangement, thereby materially and adversely affecting our liquidity, financial condition, results of operations and our ability to pay distributions to our shareholders.

The agreements governing these financing arrangements contain various default provisions and operational covenants which, if triggered, could result in the termination of the respective financing arrangements and the acceleration of any amounts outstanding thereunder, which could require us or our subsidiaries to liquidate positions at a time and/or at a price which is disadvantageous to us. This could result in losses and impact our ability to meet our investment objectives and pay distributions to shareholders. There can be no assurance that we or our subsidiaries will comply with the covenants in our debt arrangements in the future. The failure to negotiate a waiver or amendment with the applicable lenders, pay off in full the applicable facility or otherwise come into compliance with those or other covenants could, subject to applicable notice, grace and cure periods, result in an event of default allowing for the acceleration of the repayment of obligations due under the financing arrangements. We may be unable to satisfy our obligations upon an event of default and we may not be able to refinance our borrowings under the financing arrangements on commercially reasonable terms or at all. Our or our subsidiaries’ failure to comply with the covenants set forth in the financing arrangements could materially and adversely affect our liquidity, financial condition and results of operations.

Our and our subsidiaries’ failure to comply with the covenants set forth in the financing arrangements could also materially and adversely affect our ability to pay distributions to our shareholders. We cannot assure shareholders that we or our subsidiaries will be able to borrow funds under any such financing arrangements at any particular time or at all. See Note 9 to our consolidated financial statements contained in this annual report on Form 10-K for a more detailed discussion of the terms of our financing arrangements.

If we borrow money, the potential for gain or loss on amounts invested in us will be magnified and may increase the risk of investing in us.

The use of borrowings, also known as leverage, increases the volatility of investments by magnifying the potential for gain or loss on invested equity capital. If we use leverage to partially finance our investments, through borrowing from banks and other lenders, shareholders will experience increased risks of investing in our common shares. If the value of our assets increases, leverage would cause the net asset value attributable to our common shares to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leverage would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of interest payable on the

borrowed funds would cause our net income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make common share distribution payments. Leverage is generally considered a speculative investment technique. In addition, the decision to utilize leverage will increase our assets and, as a result, will increase the amount of base management fees payable to FS/EIG Advisor.

Illustration. The following table illustrates the effect of leverage on returns from an investment in our common shares assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below. The calculation assumes (i) $2,473,460 in total average assets, (ii) a weighted average cost of funds of 6.10%, (iii) $860,667 in borrowings outstanding, and (iv) $1,612,793 in average shareholders’ equity. In order to compute the “Corresponding return to shareholders,” the “Assumed Return on Our Portfolio (net of expenses)” is multiplied by the assumed total average assets to obtain an assumed return to us. From this amount, the interest expense is calculated by multiplying the assumed weighted average cost of funds times the assumed borrowings outstanding, and the product is subtracted from the assumed return to us in order to determine the return available to shareholders. The return available to shareholders is then divided by our shareholders’ equity to determine the “Corresponding return to shareholders.” Actual interest payments may be different.


Assumed Return on Our Portfolio (net of expenses)	(10)%			(5)%			0%			5%			10%
Corresponding return to shareholders		(18.59	)%		(10.92	)%		(3.25	)%		4.41	%		12.08	%

Similarly, assuming (i) approximately $2,473,460 in total average assets, (ii) a weighted average cost of funds of approximately 6.10% and (iii) $860,667 in borrowings outstanding, our assets would need to yield an annual return (net of expenses) of approximately 2.12% in order to cover the annual interest payments on our outstanding borrowings.

We are exposed to risks associated with changes in interest rates, including with respect to the phase out of LIBOR.

Because we intend to use debt to finance investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates when we have debt outstanding, our cost of funds will increase, which could reduce our net investment income. We expect that our long-term fixed-rate investments will be financed primarily with equity and long-term debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. 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. Also, we have limited experience in entering into hedging transactions, and we will initially have to develop such expertise or arrange for such expertise to be provided.

We have and may continue to structure the majority of our debt investments with floating interest rates to position our portfolio for rate increases. However, there can be no assurance that this will successfully mitigate our exposure to interest rate risk. For example, in the event of a rising interest rate environment, payments under floating rate debt instruments generally would rise and there may be a significant number of issuers of such floating rate debt instruments that would be unable or unwilling to pay such increased interest costs and may otherwise be unable to repay their loans. Rising interest rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults. Investments in floating rate debt instruments may also decline in value in response to rising interest rates if the interest rates of such investments do not rise as much, or as quickly, as market interest rates in general. Similarly, during periods of rising interest rates, our fixed rate investments may decline in value because the fixed rate of interest paid thereunder may be below market interest rates.

On March 5, 2021, the U.K.’s Financial Conduct Authority publicly announced that all U.S. Dollar LIBOR settings will either cease to be provided by any administrator or no longer be representative (i) immediately after December 31, 2021 for one-week and two-month U.S. Dollar LIBOR settings and (ii) immediately after June 30, 2023 for the remaining U.S. Dollar LIBOR settings. In addition, as a result of supervisory guidance from U.S. regulators, some U.S. regulated entities will cease to enter into new LIBOR contracts after January 1, 2022. At this time, no consensus exists as to what rate or rates will become accepted alternatives to LIBOR, although the Alternative Reference Rates Committee, a steering committee convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York and comprised of large U.S. financial institutions, has recommended the use of the Secured Overnight Financing Rate, SOFR. There are many uncertainties regarding a transition from LIBOR to SOFR or any other alternative benchmark rate that may be established, including, but not

limited to, the timing of any such transition, the need to amend all contracts with LIBOR as the referenced rate and, given the inherent differences between LIBOR and SOFR or any other alternative benchmark rate, how any transition may impact the cost and performance of impacted securities, variable rate debt and derivative financial instruments. In addition, SOFR or another alternative benchmark rate may fail to gain market acceptance, which could adversely affect the return on, value of and market for securities, variable rate debt and derivative financial instruments linked to such rates. In addition, SOFR or other replacement rates may fail to gain market acceptance. Any failure of SOFR or alternative reference rates to gain market acceptance could adversely affect the return on, value of and market for securities linked to such rates.

The effect of the establishment of alternative reference rates or any other reforms to LIBOR or other reference rates (including whether LIBOR will continue to be an acceptable market benchmark) cannot be predicted at this time, and the transition away from LIBOR and other current reference rates to alternative reference rates is complex and could have a material adverse effect on our business, financial condition and results of operations. Factors such as the pace of the transition to replacement or reformed rates, the specific terms and parameters for and market acceptance of any alternative reference rate, prices of and the liquidity of trading markets for products based on alternative reference rates, and our ability to transition and develop appropriate systems and analytics for one or more alternative reference rates could also have a material adverse effect on our business, financial condition and results of operations. We may also need to renegotiate any credit or similar agreements extending beyond 2021 with our portfolio companies that utilize LIBOR as a factor in determining the interest rate and certain of our existing credit facilities to replace LIBOR with the new standard that is established. If the agreements with our portfolio companies are unable to be renegotiated, our investments may bear interest at a lower rate, which would decrease investment income and potentially the value of such investments. These events may also increase the difficulty of borrowing or refinancing and may diminish the effectiveness of hedging strategies.

Alteration of the terms of a debt instrument or a modification of the terms of other types of contracts to replace an interbank offered rate with a new reference rate could result in a taxable exchange and the realization of income and gain/loss for U.S. federal income tax purposes. The Internal Revenue Service, or IRS, has issued final regulations regarding the tax consequences of the transition from interbank offered rates to new reference rates in debt instruments and non-debt contracts. Under the final regulations, alteration or modification of the terms of a debt instrument to replace an operative rate that uses a discontinued interbank offered rate with a qualified rate (as defined in the final regulations), add a qualified rate as a fallback rate to a contract whose operative rate uses a discontinued interbank offered rate or replace a fallback rate that uses a discontinued interbank offered rate with a qualified rate would not be taxable. The IRS may provide additional guidance, with potential retroactive effect.

Furthermore, a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee hurdle rate and may result in a substantial increase of the amount of incentive fees payable to FS/EIG Advisor with respect to pre-incentive fee net investment income.

The Small Business Credit Availability Act, or the SBCA Act, allows us to incur additional leverage.

On March 23, 2018, the SBCA Act became law. The SBCA Act, among other things, amends Section 61(a) of the 1940 Act to add a new Section 61(a)(2) which reduces the asset coverage requirements for senior securities applicable to BDCs from 200% to 150% provided that certain disclosure and approval requirements are met. Before the reduced asset coverage requirements under Section 61(a)(2) are effective with respect to us, the application of that section of the 1940 Act must be approved by either (1) a “required majority,” as defined in Section 57(o) of the 1940 Act, of our board of trustees or (2) a majority of votes cast at a special or annual meeting of our shareholders. If we choose to seek such approval, we may be able to incur substantial additional indebtedness, and, therefore the risk of an investment in us may increase. See “Risks Related to Debt Financing—We currently use borrowed funds to make investments and are exposed to the typical risks associated with leverage.”

Risks Related to U.S. Federal Income Tax

We will be subject to corporate-level income tax if we are unable to qualify as a RIC under Subchapter M of the Code or to satisfy RIC distribution requirements.

To qualify for and maintain RIC tax treatment under Subchapter M of the Code, we must meet the following annual distribution, income source and asset diversification requirements. See “Item 1. Business—Taxation as a RIC.”

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The Annual Distribution Requirement for RIC tax treatment will be satisfied if we distribute to our shareholders each tax year, dividends of an amount at least equal to the sum of 90% of our “investment company taxable income,” which is generally the sum of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, determined without regard to any deduction for dividends paid. Because we may use debt financing,

we are subject to an asset coverage ratio requirement under the 1940 Act and may in the future become subject to certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the Annual Distribution Requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

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The income source requirement will be satisfied if we obtain at least 90% of our gross income for each tax year from dividends, interest, gains from the sale of securities or similar sources.

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The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our tax year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash equivalents, U.S. government securities, securities of other RICs and other securities if such securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of such issuer; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

We must satisfy these tests on an ongoing basis in order to maintain RIC tax treatment, and may be required to make distributions to shareholders at times when it would be more advantageous to invest cash in our existing or other investments, or when we do not have funds readily available for distribution. Compliance with the RIC tax requirements may hinder our ability to operate solely on the basis of maximizing profits and the value of our shareholders’ investments. If we fail to qualify for or maintain RIC tax treatment for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions.

Some of our investments may be subject to corporate-level income tax.

We may invest in certain debt and equity investments through taxable subsidiaries and the taxable income of these taxable subsidiaries will be subject to federal and state corporate income taxes. We may invest in certain foreign debt and equity investments which could be subject to foreign taxes (such as income tax, withholding and value added taxes).

We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

For U.S. federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, our investments may include debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or debt obligations that were issued with warrants). To the extent original issue discount or PIK interest constitutes a portion of our income, we must include in taxable income each tax year a portion of the original issue discount or PIK interest that accrues over the life of the instrument, regardless of whether cash representing such income is received by us in the same tax year. We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. We anticipate that a portion of our income may constitute original issue discounts or other income required to be included in taxable income prior to receipt of cash. Further, we may elect to amortize market discounts and include such amounts in our taxable income in the current tax year, instead of upon disposition, as not making the election would limit our ability to deduct interest expenses for tax purposes.

Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the tax year of the accrual, we may be required to make a distribution to our shareholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the Annual Distribution Requirement necessary to maintain RIC tax treatment under Subchapter M of the Code. We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for or maintain RIC tax treatment and thus become subject to corporate-level income tax.

Furthermore, we may invest in the equity securities of non-U.S. corporations (or other non-U.S. entities classified as corporations for U.S. federal income tax purposes) that could be treated under the Code and U.S. Treasury regulations as “passive

foreign investment companies” and/or “controlled foreign corporations.” The rules relating to investment in these types of non-U.S. entities are designed to ensure that U.S. taxpayers are either, in effect, taxed currently (or on an accelerated basis with respect to corporate level events) or taxed at increased tax rates at distribution or disposition. In certain circumstances, these rules also could require us to recognize taxable income or gains where we do not receive a corresponding payment in cash and, unless the income and gains are related to our business of investing in stocks and securities, all or a portion of such taxable income and gains may not be considered qualifying income for purposes of the 90% Income Test.

We may be adversely affected if an MLP or other non-corporate business structure in which we invest is treated as a corporation, rather than a partnership, for U.S. federal income tax purposes.

Our ability to meet our investment objectives will depend on the level of taxable income and distributions and dividends we receive from the MLPs and other Energy company securities in which we may invest, a factor over which we have no control. The benefit we derive from an investment in MLPs is largely dependent on the MLPs being treated as partnerships for U.S. federal income tax purposes. As a partnership, an MLP has no tax liability at the entity level. If, as a result of a change in current law or a change in an MLP’s business, an MLP is treated as a corporation for U.S. federal income tax purposes, such MLP would be obligated to pay U.S. federal income tax on its income at the corporate tax rate. If an MLP were classified as a corporation for U.S. federal income tax purposes, the amount of cash available for distribution would be reduced and distributions received by us would be taxed under U.S. federal income tax laws applicable to corporate distributions (as dividend income, return of capital or capital gain). Therefore, treatment of an MLP as a corporation for U.S. federal income tax purposes would result in a reduction in the after-tax return to us, likely causing a reduction in the value of our common shares. In addition, if we receive a Schedule K-1 from an MLP after having mailed a Form 1099-DIV to our shareholders, and our estimates with respect to the applicable MLP are determined to have been materially incorrect, we may be required to mail an amended Form 1099-DIV to our shareholders.

We may be adversely affected if an MLP or other non-corporate business structure in which we invest is unable to take advantage of certain tax deductions for U.S. federal income tax purposes and our income from investments in MLPs may exceed the cash received from such investments.

As a limited partner in the MLPs in which we seek to invest, we will receive our share of income, gains, losses, deductions and credits from those MLPs. Historically, a significant portion of income from MLPs has been offset by tax deductions. As a result, this income has been significantly lower than cash distributions paid by MLPs. We will incur a current tax liability on our share of an MLP’s income and gains that is not offset by tax deductions, losses, and credits, or our net operating loss carryforwards, if any. The percentage of an MLP’s income and gains which is offset by tax deductions, losses, and credits will fluctuate over time for various reasons. A significant slowdown in acquisition activity or capital spending by MLPs held in our portfolio could result in a reduction of accelerated depreciation generated by new acquisitions, which may result in an increase in our net ordinary income that we are required to distribute to shareholders to maintain our status as a RIC and to eliminate our liability for U.S. federal income tax. If our income from our investments in MLPs exceeds the cash distributions received from such investments, we may need to obtain cash from other sources in order to satisfy the Annual Distribution Requirement. If we are unable to obtain cash from other sources, we may fail to qualify for or maintain RIC tax treatment and become subject to corporate-level federal income tax. We may also recognize gain in excess of cash proceeds upon the sale of an interest in an MLP. Any such gain may need to be distributed or deemed distributed in order to avoid liability for corporate-level federal income taxes on such gain.

Our portfolio investments may present special tax issues.

Investments in below-investment grade debt instruments and certain equity securities may present special tax issues for us. U.S. federal income tax rules are not entirely clear about issues such as when we may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless debt in equity securities, how payments received on obligations in default should be allocated between principal and interest income, as well as whether exchanges of debt instruments in a bankruptcy or workout context are taxable. Such matters could cause us to recognize taxable income for U.S. federal income tax purposes, even in the absence of cash or economic gain, and require us to make taxable distributions to our shareholders to maintain our RIC status or preclude the imposition of either U.S. federal corporate income or excise taxation. Additionally, because such taxable income may not be matched by corresponding cash received by us, we may be required to borrow money or dispose of other investments to be able to make distributions to our shareholders. These and other issues will be considered by us, to the extent determined necessary, in order that we minimize the level of any U.S. federal income or excise tax that we would otherwise incur. See “Item 1. Business—Taxation as a RIC.”

Legislative or regulatory tax changes could adversely affect investors.

At any time, the federal income tax laws governing RICs or the administrative interpretations of those laws or regulations may be amended. Any of those new laws, regulations or interpretations may take effect retroactively and could adversely affect

the taxation of us or our shareholders. Therefore, changes in tax laws, regulations or administrative interpretations or any amendments thereto could diminish the value of an investment in our shares or the value or the resale potential of our investments.

Risks Related to an Investment in Our Common Shares

Our common shares are not listed on an exchange or quoted through a quotation system, and will not be for the foreseeable future, if ever. Therefore, shareholders will have limited liquidity and may not receive a full return of invested capital upon selling common shares.

Our common shares are illiquid assets for which there is not a secondary market and it is not expected that any will develop in the foreseeable future. There can be no assurance that we will complete a liquidity event. A liquidity event could include (1) a listing of our common shares on a national securities exchange, (2) the sale of all or substantially all of our assets either on a complete portfolio basis or individually followed by a liquidation or (3) a merger or another transaction approved by our board of trustees in which our shareholders likely will receive cash or shares of a publicly-traded company, including potentially a company that is an affiliate of us.

In addition, any shares repurchased pursuant to our share repurchase program may be purchased at a price which may reflect a discount from the purchase price a shareholder paid for the common shares being repurchased. If our common shares are listed, we cannot assure shareholders that a public trading market will develop. In addition, a liquidity event involving a listing of our common shares on a national securities exchange may include certain restrictions on the ability of shareholders to sell their common shares. Further, even if we do complete a liquidity event, shareholders may not receive a return of all of their invested capital.

See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Share Repurchase Program, De Minimis Account Liquidation and Distributions” for a detailed description of our share repurchase program.

We are not obligated to complete a liquidity event by a specified date; therefore, it will be difficult for an investor to sell his or her common shares.

A liquidity event could include (1) a listing of our common shares on a national securities exchange, (2) the sale of all or substantially all of our assets either on a complete portfolio basis or individually followed by a liquidation, or (3) a merger or another transaction approved by our board of trustees in which our shareholders likely will receive cash or shares of a publicly-traded company, including potentially a company that is an affiliate of us. However, there can be no assurance that we will complete a liquidity event by a specified date or at all. If we do not successfully complete a liquidity event, liquidity for an investor’s common shares will be limited to our share repurchase program, which we have no obligation to maintain.

Only a limited number of common shares may be repurchased pursuant to our share repurchase program, if any, and, to the extent shareholders are able to sell their common shares under our share repurchase program, shareholders may not be able to recover the amount of their investment in those shares.

Our share repurchase program includes numerous restrictions that limit shareholders’ ability to sell their common shares. We intend to limit the number of common shares repurchased pursuant to our share repurchase program as follows: (1) we intend to limit the number of common shares to be repurchased during any calendar year to the number of common shares we can repurchase with the proceeds we receive from the issuance of our common shares under our distribution reinvestment plan, although at the discretion of our board of trustees, we 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; (2) we intend to 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 calendar quarter (though the actual number of common shares that we offer to repurchase may be less in light of the limitations noted above); (3) unless shareholders tender all of their common shares, shareholders must tender at least 25% of the number of common shares they have purchased and generally must maintain a minimum balance of $5,000 subsequent to submitting a portion of their common shares for repurchase by us; and (4) to the extent that the number of common shares tendered for repurchase exceeds the number of common shares that we are able to repurchase, we will repurchase common shares on a pro rata basis, not on a first-come, first-served basis. Furthermore, the maximum number of common shares to be repurchased for any repurchase offer may further be limited by the terms of our financing arrangements, including the JPMorgan Facility. See Note 9 to our consolidated financial statements contained in this annual report on Form 10-K for a discussion of the terms of our financing arrangements. In addition, we will have no obligation

to repurchase common shares if the repurchase would violate the restrictions on distributions under federal law or Delaware law, which prohibits distributions that would cause a trust to fail to meet statutory tests of solvency. Any of the foregoing limitations may prevent us from accommodating all repurchase requests made in any year.

Our share repurchase program is currently suspended. In addition, in the future, our board of trustees may amend, suspend or terminate the share repurchase program upon 30 days’ notice. In March 2020, our board of trustees determined to suspend for an indefinite period of time our share repurchase program and will reassess our ability to recommence such program in future periods. We will notify shareholders of such developments (1) in our quarterly reports or (2) by means of a separate mailing to shareholders, accompanied by disclosure in a current or periodic report under the Exchange Act. In addition, although we have adopted a share repurchase program generally, we have discretion to not repurchase common shares, to suspend the share repurchase program and to cease repurchases. Further, the share repurchase program has many limitations and should not be relied upon as a method to sell common shares promptly or at a desired price.

We may pay distributions from borrowings or the sale of assets to the extent our cash flows from operations, net investment income or earnings are not sufficient to fund declared distributions.

We may fund distributions from the uninvested proceeds of our continuous public offering and borrowings, and we have not established limits on the amount of funds we may use from such sources to make any such distributions. We have paid and may continue to pay distributions from the sale of assets to the extent distributions exceed our earnings or cash flows from operations.

The timing of our repurchase offers pursuant to our share repurchase program, if any, may be at a time that is disadvantageous to our shareholders.

If and when we make quarterly repurchase offers pursuant to our share repurchase program, we may offer to repurchase common shares at a price that is lower than the price that investors paid for common shares in our offering. As a result, to the extent investors have the ability to sell their common shares to us as part of our share repurchase program, the price at which an investor may sell common shares may be lower than what an investor paid in connection with the purchase of common shares in our offering.

In addition, in the event an investor chooses to participate in our share repurchase program, the investor will be required to provide us with notice of intent to participate prior to knowing what the repurchase price will be on the repurchase date. Although an investor will have the ability to withdraw a repurchase request prior to the expiration date of such tender offer, to the extent an investor seeks to sell common shares to us as part of our share repurchase program, the investor will be required to do so without knowledge of what the repurchase price of our common shares will be on the repurchase date.

A shareholder’s interest in us will be diluted if we issue additional common shares, which could reduce the overall value of an investment in us.

Our investors do not have preemptive rights to any common shares we issue in the future. Our declaration of trust authorizes us to issue 700,000,000 common shares. Pursuant to our declaration of trust, a majority of our entire board of trustees may amend our declaration of trust to increase the number of authorized common shares without shareholder approval. After an investor purchases common shares, our board of trustees may elect to sell additional common shares in the future, issue equity interests in private offerings or issue share-based awards to our independent trustees or employees of FS/EIG Advisor. To the extent we issue additional equity interests after an investor purchases our common shares, an investor’s percentage ownership interest in us will be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our investments, an investor may also experience dilution in the book value and fair value of their common shares.

Certain provisions of our declaration of trust and bylaws could deter takeover attempts and have an adverse impact on the value of our common shares.

Our declaration of trust and bylaws, as well as certain statutory and regulatory requirements, contain certain provisions that may have the effect of discouraging a third party from attempting to acquire us. Our board of trustees may, without shareholder action, authorize the issuance of shares in one or more classes or series, including preferred shares; and our board of trustees may, without shareholder action, amend our declaration of trust to increase the number of our common shares, of any class or series, that we have authority to issue. In addition, a trustee may be removed only by vote of at least two-thirds of the votes entitled to be cast. These anti-takeover provisions may inhibit a change of control in circumstances that could give the holders of our common shares the opportunity to realize a premium over the value of our common shares.

General Risk Factors

Future disruptions or instability in capital markets could negatively impact the valuation of our investments and our ability to raise capital.

From time to time, the global capital markets may experience periods of disruption and instability, which could be prolonged and which could materially and adversely impact the broader financial and credit markets, have a negative impact on the valuations of our investments and reduce the availability to us of debt and equity capital. For example, between 2008 and 2009, instability in the global capital markets resulted in disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major domestic and international financial institutions. In particular, the financial services sector was negatively impacted by significant write-offs as the value of the assets held by financial firms declined, impairing their capital positions and abilities to lend and invest. While market conditions have recovered from the events of 2008 and 2009, there have been continuing periods of volatility (e.g., the ongoing COVID-pandemic). For example, continued uncertainty surrounding the negotiation of trade deals between Britain and the European Union following the United Kingdom’s exit from the European Union and uncertainty between the United States and other countries with respect to trade policies, treaties, and tariffs, among other factors, have caused disruption in the global markets. There can be no assurance that market conditions will not worsen in the future.

While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity) and impairments of the market values or fair market values of our investments, even if unrealized, must be reflected in our financial statements for the applicable period, which could result in significant reductions to our net asset value for the period. With certain limited exceptions, we are only allowed to borrow amounts or issue debt securities if our asset coverage, as calculated pursuant to the 1940 Act, equals at least 200% immediately after such borrowing. Equity capital may also be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common shares at a price less than net asset value without first obtaining approval for such issuance from our shareholders and our independent trustees. If we are unable to raise capital or refinance existing debt on acceptable terms, then we may be limited in our ability to make new commitments or to fund existing commitments to our portfolio companies. Significant changes in the capital markets may also affect the pace of our investment activity and the potential for liquidity events involving our investments. Thus, the illiquidity of our investments may make it difficult for us to sell such investments to access capital if required, and as a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them for liquidity purposes.

Events outside of our control, including public health crises, could negatively affect our portfolio companies and our results of operations.

Periods of market volatility have occurred and could continue to occur in response to pandemics or other events outside of our control. These types of events have adversely affected, and could continue to adversely affect, operating results for us and for our portfolio companies. For example, the COVID-19 pandemic has resulted in the following in many affected jurisdictions, including the United States: (i) restrictions on travel and the temporary closure of many corporate offices, retail stores, and manufacturing facilities and factories, resulting in significant disruption to the business of many companies, (ii) increased defaults by borrowers, (iii) volatility in credit markets and (iv) rapidly evolving action by government officials to address the economic and market problems. In addition to these developments having adverse consequences for us and our portfolio companies, the operations of FS/EIG Advisor have been, and could continue to be, adversely impacted, including through quarantine measures and travel restrictions imposed on its personnel or service providers based or temporarily located in affected countries, or any related health issues of such personnel or service providers.

As the potential impact of COVID-19 is difficult to predict, the extent to which COVID-19 could negatively affect our and our portfolio companies’ operating results or the duration of any potential business or supply-chain disruption is uncertain. Any potential impact to our results of operations will depend to a large extent on future developments and new information that could emerge regarding the duration and severity of the COVID-19 pandemic and the actions taken by authorities and other entities to contain the spread of COVID-19 or treat its impact, all of which are beyond our control. These potential impacts, while uncertain, could adversely affect our and our portfolio companies’ operating results.

We are currently operating in a period of capital markets disruption and economic uncertainty.

The U.S. capital markets have experienced extreme volatility and disruption following the global outbreak of COVID-19 that began in December 2019. Disruptions in the capital markets have increased the spread between the yields realized on risk-

free and higher risk securities, resulting in illiquidity in parts of the capital markets. These and future market disruptions and/or illiquidity would be expected to have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions also would be expected to increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events have limited and could continue to limit our investment originations, limit our ability to grow and have a material negative impact on our operating results and the fair values of our debt and equity investments. In addition, while recent government stimulus measures worldwide have reduced volatility in the financial markets, volatility may return as such measures are phased out, and the long-term impacts of such stimulus on fiscal policy and inflation remain unknown.

If the current period of capital market disruption and instability continues for an extended period of time, there is a risk that investors in our equity securities may not receive distributions consistent with historical levels or at all or that our distributions may not grow over time and a portion of our distributions may be a return of capital.

In the past, our board of trustees has suspended declaring regular cash distributions to shareholders until such time that our board of trustees and FS/EIG Advisor believe that market conditions and our financial condition support the resumption of such distributions. Our future ability to pay regular distributions consistent with our historical range or to pay distributions fully in cash rather than in common shares might be adversely affected by the impact of one or more of the risk factors described in this annual report on Form 10-K, including the COVID-19 pandemic. If we are unable to satisfy the asset coverage test applicable to us under the 1940 Act as a business development company or if we violate certain covenants under our existing or future credit facilities or other leverage, we may also be limited in our ability to make distributions. If we declare a distribution and if more shareholders opt to receive cash distributions rather than participate in our dividend reinvestment plan, we may be forced to sell some of our investments in order to make cash distribution payments. To the extent we make distributions to shareholders that include a return of capital, such portion of the distribution essentially constitutes a return of the shareholder’s investment. Although such return of capital may not be taxable, such distributions would generally decrease a shareholder’s basis in our common shares and may therefore increase such shareholder’s tax liability for capital gains upon the future sale of such stock. A return of capital distribution may cause a shareholder to recognize a capital gain from the sale of our common shares even if the shareholder sells its shares for less than the original purchase price.

Our business, results of operations and financial condition have been adversely affected by the recent disruption in the global oil and energy markets and resulting substantial price decline of oil, and the ultimate effect of these events on our business will depend on future developments, which are highly uncertain and cannot be predicted.

As a result of both the significant decrease in demand caused by the COVID-19 pandemic and political tensions between several large oil producing countries in 2020, there was a substantial and unprecedented decline in oil and natural gas prices. A prolonged continuation of depressed oil and natural gas prices would adversely affect the credit quality and performance of certain of our investments in Energy companies. A decrease in credit quality and performance would, in turn, negatively affect the fair value of these investments, which would consequently negatively affect our net asset value. Should a prolonged period of depressed oil and natural gas prices or other disruptions in the energy markets occur, it is likely that the ability of our portfolio companies to satisfy financial or operating covenants imposed by us or other lenders will be adversely affected, thereby negatively impacting their financial condition and their ability to satisfy their debt service and other obligations to us. Likewise, should a prolonged period of depressed oil and natural gas prices or other disruptions in the energy markets occur, it is likely that our portfolio companies’ cash flow and profit generating capacities would also be adversely affected thereby negatively impacting their ability to pay us amounts owed or dividends or distributions, as applicable. The full extent to which a decline in oil and natural gas prices and other disruptions in the energy markets will impact our business and that of our portfolio companies remains uncertain; however, there could be a material adverse impact on our or their business, results of operations or financial condition.

Global economic, political and market conditions, including downgrades of the U.S. credit rating, may adversely affect our business, results of operations and financial condition.

The current global financial market situation, as well as various social and political tensions in the United States and around the world (including the current conflict in Ukraine), may contribute to increased market volatility, may have long-term effects on the United States and worldwide financial markets and may cause economic uncertainties or deterioration in the U.S. and worldwide. The impact of downgrades by rating agencies to the U.S. government’s sovereign credit rating or its perceived creditworthiness as well as potential government shutdowns and uncertainty surrounding transfers of power could adversely affect the U.S. and global financial markets and economic conditions. Since 2010, several European Union countries have faced budget issues, some of which may have negative long-term effects for the economies of those countries and other European Union countries. There is concern about national-level support for the Euro and the accompanying coordination of fiscal and

wage policy among European Economic and Monetary Union member countries. In addition, the fiscal policy of foreign nations, such as Russia and China, may have a severe impact on the worldwide and U.S. financial markets. The United Kingdom’s decision to leave the EU (the so-called “Brexit”) led to volatility in global financial markets. On December 24, 2020, a trade agreement was concluded between the EU and the United Kingdom (the “TCA”), which applied provisionally after the end of the transition period ending on December 31, 2020 and which formally took effect on May 1, 2021 and now governs the relationship between the United Kingdom and the EU. There remains uncertainty as to the scope, nature and terms of the relationship between the United Kingdom and the EU and the effect and implications of the TCA, and the actual and potential consequences of Brexit. Additionally, trade wars and volatility in the U.S. repo market, the U.S. high yield bond markets, the Chinese stock markets and global markets for commodities may affect other financial markets worldwide. In addition, while recent government stimulus measures worldwide have reduced volatility in the financial markets, volatility may return as such measures are phased out, and the long-term impacts of such stimulus on fiscal policy and inflation remain unknown. In addition, the current conflict between Russia and Ukraine, and resulting market volatility, could adversely affect our business, financial condition or results of operations. In response to the conflict between Russia and Ukraine, the U.S. and other countries have imposed sanctions or other restrictive actions against Russia. Any of the above factors, including sanctions, export controls, tariffs, trade wars and other governmental actions, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the value of our common shares and/or debt securities to decline. We cannot predict the effects of these or similar events in the future on the U.S. and global economies and securities markets or on our investments. We monitor developments in economic, political and market conditions and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so.

Changes to United States tariff and import/export regulations may have a negative effect on our portfolio companies.

There have been significant changes to United States trade policies, treaties and tariffs, and in the future there may be additional significant changes. These and any future developments, and continued uncertainty surrounding trade policies, treaties and tariffs, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States. Any of these factors could depress economic activity and restrict our portfolio companies’ access to suppliers or customers and could have material adverse effects on our business, financial condition and results of operations.

Economic sanction laws in the United States and other jurisdictions may prohibit us and our affiliates from transacting with certain countries, individuals and companies.

Economic sanction laws in the United States and other jurisdictions may prohibit us or our affiliates from transacting with certain countries, individuals and companies. In the United States, the U.S. Department of the Treasury’s Office of Foreign Assets Control administers and enforces laws, executive orders and regulations establishing U.S. economic and trade sanctions, which prohibit, among other things, transactions with, and the provision of services to, certain non-U.S. countries, territories, entities and individuals. These types of sanctions may significantly restrict or completely prohibit investment activities in certain jurisdictions, and if we, our portfolio companies or other issuers in which we invest were to violate any such laws or regulations, we may face significant legal and monetary penalties.

The Foreign Corrupt Practices Act, or FCPA, and other anti-corruption laws and regulations, as well as anti-boycott regulations, may also apply to and restrict our activities, our portfolio companies and other issuers of our investments. If an issuer or we were to violate any such laws or regulations, such issuer or we may face significant legal and monetary penalties. The U.S. government has indicated that it is particularly focused on FCPA enforcement, which may increase the risk that an issuer or us becomes the subject of such actual or threatened enforcement. In addition, certain commentators have suggested that private investment firms and the funds that they manage may face increased scrutiny and/or liability with respect to the activities of their underlying portfolio companies. As such, a violation of the FCPA or other applicable regulations by us or an issuer of our portfolio investments could have a material adverse effect on us. We are committed to complying with the FCPA and other anti-corruption laws and regulations, as well as anti-boycott regulations, to which it is subject. As a result, we may be adversely affected because of its unwillingness to enter into transactions that violate any such laws or regulations.

Future economic recessions or downturns could impair our portfolio companies and harm our operating results.

Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our debt investments during these periods. Therefore, our non-performing assets are likely to increase, and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions may also decrease the value of any collateral securing our debt investments. A prolonged recession may further decrease the value of such collateral and result in losses of value in our portfolio and a decrease in our revenues, net income and net asset value. Unfavorable economic conditions also could increase

our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us on terms we deem acceptable. These events could prevent us from increasing investments and harm our operating results. Economic downturns or recessions may also result in a portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders, which could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on its assets representing collateral for its obligations, which could trigger cross defaults under other agreements and jeopardize our portfolio company’s ability to meet its obligations under the debt that we hold and the value of any equity securities we own. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company.

Item 1B.

Unresolved Staff Comments.

Not applicable.

Item 2.

Properties.

We do not own any real estate or other physical properties materially important to our operation. Our headquarters are located at 201 Rouse Boulevard, Philadelphia, Pennsylvania, 19112. We believe that our office facilities are suitable and adequate for our business as it is presently conducted.

Item 3.

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 4.

Mine Safety Disclosures.

Not applicable.

PART II

Many of the amounts and percentages presented in Part II have been rounded for convenience of presentation and all dollar amounts, excluding per share amounts, are presented in thousands unless otherwise noted.

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

There is currently no market for our common shares, and we do not expect that a market for our common shares will develop in the foreseeable future. In November 2016, we closed our continuous public offering of common shares to new investors. Following the closing of our continuous public offering, we have continued to issue shares pursuant to our distribution reinvestment plan.

Set forth below is a chart describing the classes of our securities outstanding as of March 11, 2022:

(1)

(2)

(3)

(4)

Title of Class

Amount
Authorized

Amount Held
by Us or for
Our Account

Amount Outstanding
Exclusive of Amount
Under Column⁽³⁾

Common Shares

700,000,000

—

447,523,931

As of March 11, 2022, we had 86,022 record holders of our common shares.

Share Repurchase Program, De Minimis Account Liquidation and Distributions

In March 2020, in light of difficult market conditions and in an effort to preserve our liquidity, our board of trustees determined to suspend for an indefinite period of time our share repurchase program and will reassess our ability to recommence such program in future periods. As a result, no common shares were purchased pursuant to our share repurchase program and there were no de minimis account liquidations during the year ended December 31, 2021.

Although our board of trustees has not declared or resumed regular cash distributions to shareholders for any period after March 31, 2020, our board of trustees has since declared three cash distributions in 2020 and four cash distributions in 2021, each in the amount of $0.03 per share. FS/EIG Advisor and our board of trustees expect that future regular cash distributions to shareholders will remain suspended until such time that our board of trustees and FS/EIG Advisor believe that market conditions and our financial condition support the resumption of such distributions. Our board of trustees has and will continue to evaluate our ability to pay any distributions in the future. There can be no assurance that we will be able to pay distributions in the future. 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. In addition, the JPMorgan Facility restricts our ability to make certain discretionary cash dividends and distributions and other restricted payments. See Note 9 to our consolidated financial statements contained in this annual report on Form 10-K for a discussion of the terms of the JPMorgan Facility.

The following table reflects the cash distributions per share that we have declared on our common shares during the years ended December 31, 2021, 2020 and 2019:


	Distribution
For the Year Ended December 31,	Per Share		Amount
2019	$	0.5000	$	218,187
2020	$	0.1733	$	75,656
2021	$	0.1200	$	53,264

See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—RIC Tax Treatment and Distributions” and Note 5 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our distributions and our distribution reinvestment plan, including certain related tax considerations.

Item 6.

Reserved

Omitted pursuant to SEC Final Rule Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, with respect to Item 301, which went effective February 10, 2021.

Item 7.

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 consolidated financial statements and the related notes thereto included elsewhere in this annual report on Form 10-K.

Forward-Looking Statements

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

•

our future operating results;

•

our business prospects and the prospects of the companies in which we may invest, including our and their ability to achieve our respective objectives as a result of the current COVID-19 pandemic;

•

the impact of the investments that we expect to make;

•

the ability of our portfolio companies to achieve their objectives;

•

our current and expected financing arrangements and investments;

•

changes in the general interest rate environment;

•

the adequacy of our cash resources, financing sources and working capital;

•

the timing and amount of cash flows, distributions and dividends, if any, from our portfolio companies;

•

our contractual arrangements and relationships with third parties;

•

actual and potential conflicts of interest with FS/EIG Advisor, FS Investments, EIG, or any of their respective affiliates;

•

the dependence of our future success on the general economy and its effect on the industries in which we may invest;

•

general economic and political trends and other external factors, including the current COVID-19 pandemic and related disruptions caused thereby;

•

our use of financial leverage;

•

the ability of FS/EIG Advisor to locate suitable investments for us and to monitor and administer our investments;

•

the ability of FS/EIG Advisor or its affiliates to attract and retain highly talented professionals;

•

our ability to maintain our qualification as a RIC and as a BDC;

•

the impact on our business of the Dodd-Frank Act, as amended, and the rules and regulations issued thereunder;

•

the effect of changes to tax legislation and our tax position; and

•

the tax status of the enterprises in which we may invest.

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 annual report on Form 10-K involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in ‘‘Item 1A. Risk Factors.’’ Other factors that could cause actual results to differ materially include:

changes in the economy;

ii.

geo-political risks;

iii.

risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters or pandemics; and

iv.

future changes in laws or regulations and conditions in our operating areas.

We have based the forward-looking statements included in this annual report on Form 10-K on information available to us on the date of this annual report on Form 10-K. 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 annual report on Form 10-K are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of 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. 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. In November 2016, we closed our continuous public offering of common shares to new investors.

Our investment activities are managed by FS/EIG Advisor and supervised by our board of trustees, a majority of whom are independent. Under the FS/EIG investment advisory agreement, we have agreed to pay FS/EIG Advisor an annual base management fee based on the average weekly value of our gross assets and an incentive fee based on our performance.

Our investment objective is to generate current income and long-term capital appreciation. We pursue our investment objective by focusing on the following seven investment themes: (i) basin-on-basin competition in U.S. shale, (ii) globalization of natural gas, (iii) coal retirements and the evolving energy generation mix, (iv) renewables focused on power grid parity, (v) export infrastructure for emerging U.S. producers, (vi) market liberalization opening new markets and (vii) midstream infrastructure connecting new supplies. However, we may pursue other investment opportunities if we believe it is in our best interests and consistent with our investment objectives.

Within the above investment themes, we intend to focus on the following investment categories in an effort to generate returns for our investors with an acceptable level of risk.

Direct Originations: Through FS/EIG Advisor, we intend to directly source investment opportunities across the Energy industry. Such investments are typically originated and structured through a negotiated process in which we directly participate and are not generally available to the broader market. These investments may include both debt and equity components. We believe directly originated investments may offer higher returns and more favorable protections than broadly syndicated transactions.

Broadly Syndicated Loan and Bond Transactions: Although our primary focus is to invest in directly originated transactions, in certain circumstances we will also invest in the broadly syndicated loan and high yield bond 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 the case of broadly syndicated investments, we generally intend to capitalize on market inefficiencies by investing in loans, bonds, and other asset classes where the market price of such investment reflects a lower value than we believe is warranted based on our fundamental analysis, providing us with an opportunity to earn an attractive return on our investment.

for superior risk-adjusted returns and income generation. Our debt investments may take the form of corporate or project loans or bonds, may be secured or unsecured and may, in some cases, be accompanied by yield enhancements. These yield enhancements are typically expected to include royalty interests in mineral, oil and gas properties, warrants, options, net profits interests, cash flow participations or other forms of equity participation that can provide additional consideration or “upside” in a transaction. Our preferred equity investments are mostly directly originated and may take the form of perpetual or redeemable securities, typically with a current income component and minimum base returns. In addition, certain income-oriented preferred or common equity interests may include interests in master limited partnerships and a portion of our portfolio may be comprised of derivatives, including the use of total return swaps, credit default swaps and other commodity swap contracts. In connection with certain of our debt investments or any restructuring of these debt investments, we may on occasion receive equity interests, including warrants or options, as additional consideration or otherwise in connection with a restructuring. FS/EIG Advisor will seek to tailor our investment focus as market conditions evolve.

Revenues

The principal measure of our financial performance is net increase or decrease in net assets resulting from operations, which includes net investment income, net realized gain or loss on investments, foreign currency, swap contracts and debt extinguishment, net change in unrealized appreciation or depreciation on investments, net change in unrealized gain or loss on foreign currency and net change in unrealized appreciation or depreciation on swap contracts. 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 realized gain or loss on swap contracts is the portion of realized gain or loss attributable to the difference between the fixed price specified in the contract and the referenced settlement price. 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. Net change in unrealized appreciation or depreciation on swap contracts is the net change in the value of receivables or accruals due to the impact of the difference between the fixed price specified in the contract and the referenced settlement price.

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.

Expenses

Our primary operating expenses include the payment of management and incentive fees and other expenses under the FS/EIG investment advisory agreement, interest expense from financing arrangements and other indebtedness, and other expenses necessary for our operations. The management and incentive fees compensate FS/EIG Advisor for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments.

FS/EIG Advisor oversees our day-to-day operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations, certain government and regulatory affairs activities, and other administrative services. FS/EIG 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/EIG 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.

We reimburse FS/EIG Advisor for expenses necessary to perform services related to our administration and operations, including FS/EIG Advisor’s allocable portion of the compensation and related expenses of certain personnel of FS Investments and EIG providing administrative services to us on behalf of FS/EIG Advisor, and for transactional expenses for prospective investments, such as fees and expenses associated with performing due diligence reviews of investments that do not close, often referred to as “broken deal” costs. We reimburse FS/EIG Advisor no less than quarterly for all costs and expenses incurred by FS/EIG Advisor in performing its obligations and providing personnel under the FS/EIG investment advisory agreement. The amount of this reimbursement is set at the lesser of (1) FS/EIG Advisor’s actual costs incurred in providing such services and

(2) the amount that we estimate would be required to pay alternative service providers for comparable services in the same geographic location. FS/EIG Advisor allocates the cost of such services to us based on factors such as time allocations and other reasonable metrics. Our board of trustees reviews the methodology employed in determining how the expenses are allocated to us and 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 service 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 compares the total amount paid to FS/EIG Advisor for such services as a percentage of our net assets to the same ratio as reported by other comparable BDCs. We do not reimburse FS/EIG 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/EIG Advisor.

We bear all other expenses of our operations and transactions, including (without limitation) fees and expenses relating to:

•

corporate and organization expenses related to offerings of our common shares, subject to limitations included in the FS/EIG investment advisory agreement;

•

the cost of calculating our net asset value, including the cost of any third-party pricing or valuation services;

•

the cost of effecting sales and repurchases of our common shares and other securities;

•

investment advisory fees;

•

fees payable to third parties relating to, or associated with, making investments and valuing investments, including fees and expenses associated with performing due diligence reviews of prospective investments;

•

interest payments on our debt or related obligations;

•

transfer agent and custodial fees;

•

research and market data (including news and quotation equipment and services, and any computer hardware and connectivity hardware (e.g. telephone and fiber optic lines) incorporated into the cost of obtaining such research and market data);

•

fees and expenses associated with marketing efforts;

•

federal and state registration fees;

•

federal, state and local taxes;

•

annual fees of the Delaware trustee;

•

fees and expenses of our trustees not also serving in an executive officer capacity for us or FS/EIG Advisor;

•

costs of proxy statements, shareholders’ reports and notices and other filings;

•

our fidelity bond, trustees and officers/errors and omissions liability insurance and other insurance premiums;

•

direct costs such as printing, mailing, long distance telephone and staff;

•

fees and expenses associated with accounting, corporate governance, government and regulatory affairs activities, independent audits and outside legal costs;

•

costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws, including compliance with the Sarbanes-Oxley Act;

•

brokerage commissions for our investments;

•

costs associated with our chief compliance officer; and

•

all other expenses incurred by FS/EIG Advisor in connection with administering our business, including expenses incurred by FS/EIG Advisor in performing administrative services for us and administrative personnel paid by FS/EIG Advisor, to the extent they are not controlling persons of FS/EIG Advisor or any of its affiliates, subject to the limitations included in the FS/EIG investment advisory agreement.

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/EIG 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.

For information regarding our fee offset with FS/EIG Advisor, see Note 4 to our consolidated financial statements contained in this annual report on Form 10-K.

COVID-19 and Energy Market Developments

Recent events such as the rapid spread of the COVID-19 pandemic, global lockdowns and ongoing negotiations regarding production levels between oil producing countries, have, at times, resulted in lower demand for crude oil and, as a result, lower commodity prices. Although the energy markets have had a notable recovery in the year ended December 31, 2021, volatility in the energy markets may persist, recur or worsen, including as a result of other macroeconomic events, including the current conflict in Ukraine and sanctions imposed on Russia in response thereto. The impact of these events on the U.S. and global economies (including energy markets), has negatively impacted, and could continue to negatively impact, the business operations of some of our portfolio companies. We cannot at this time fully predict the continued impact of the above events on our business or the business of our portfolio companies, their duration or magnitude or the extent to which they will negatively impact our portfolio companies’ operating results or our own results of operations or financial condition. We expect that certain of our portfolio companies may continue to experience economic distress for the foreseeable future and may become insolvent or otherwise significantly limit business operations if subjected to prolonged economic distress, including as a result of depressed commodity prices or other declines in the energy markets. These developments could result in a further decrease in the value of our investments.

These events have already had adverse effects on our investment income and we expect that such adverse effects may continue for some time. These adverse effects have required and may again require us to restructure certain of our investments, which could result in further reductions to our investment income or in impairments on our investments. In addition, disruptions in the capital markets have resulted in illiquidity in certain market areas at times. These market disruptions and illiquidity have had and are likely to have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions caused by these events can also be expected to increase our funding costs and limit our access to the capital markets. These events have limited our investment originations, which is likely to continue for the immediate future, and have also had a material negative impact on our operating results. In addition, depressed mark-to-market valuations of many of our portfolio companies have materially reduced the value of collateral available to secure our financing arrangements. Consequently, this has adversely impacted our liquidity, may cause us to fall out of compliance with certain portfolio requirements under the 1940 Act that are tied to the value of our investments and, in each case, may continue to do so in the future.

In particular, as a result of these events during 2020 and the early part of 2021, we needed to sell certain investments to satisfy certain margin obligations, and if such market conditions recur or worsen, we may need to sell additional investments at similarly or even more disadvantageous prices, or enter into other transactions on terms that are disadvantageous to us, to satisfy obligations under our financing arrangements.

In light of such difficult market conditions and in an effort to preserve our liquidity, our board of trustees determined to suspend for an indefinite period of time our share repurchase program and will reassess our ability to recommence such program in future periods. Although our board of trustees has not declared or resumed regular cash distributions to shareholders for any period after March 31, 2020, our board of trustees has since declared three cash distributions in 2020 and four cash distributions in 2021, each in the amount of $0.03 per share. FS/EIG Advisor and our board of trustees expect that future regular cash distributions to shareholders will remain suspended until such time that our board of trustees and FS/EIG Advisor believe that market conditions and our financial condition support the resumption of such distributions. Our board of trustees has and will continue to evaluate our ability to pay any distributions in the future. There can be no assurance that we will be able to pay distributions in the future. For information regarding our distributions, see “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Share Repurchase Program, De Minimis Account Liquidation and Distributions.”

We will continue to carefully monitor the impact of the COVID-19 pandemic; the current conflict in Ukraine and government responses thereto and other disruptions in the energy markets on our business and the business of our portfolio companies. Because the full effects of these events are not capable of being known at this time, we cannot estimate the impacts on our future financial condition, results of operations or cash flows. We do, however, expect that these events may continue to have a negative impact on our business and the financial condition of certain of our portfolio companies.

Portfolio Investment Activity for the Years Ended December 31, 2021 and 2020

Total Portfolio Activity

The following tables present certain selected information regarding our portfolio investment activity for the years ended December 31, 2021 and 2020:


	For the Year Ended December 31,
Net Investment Activity	2021			2020
Purchases	$	1,010,496		$	687,208
Sales and Repayments		(998,391	)		(1,075,528	)

Net Portfolio Activity	$	12,105		$	(388,320	)


	For the Year Ended December 31,
	2021					2020
New Investment Activity by Asset Class	Purchases		Percentage			Purchases		Percentage
Senior Secured Loans—First Lien	$	423,495		42	%	$	221,371		33	%
Senior Secured Loans—Second Lien		18,750		2	%		19,111		3	%
Senior Secured Bonds		169,298		17	%		71,267		10	%
Unsecured Debt		334,396		33	%		113,193		16	%
Preferred Equity		11,942		1	%		22,716		3	%
Sustainable Infrastructure Investments, LLC		—		—			60,603		9	%
Equity/Other		52,615		5	%		178,947		26	%

Total	$	1,010,496		100	%	$	687,208		100	%

The following table summarizes the composition of our investment portfolio at cost and fair value as of December 31, 2021 and 2020:


	December 31, 2021							December 31, 2020
	Amortized Cost⁽¹⁾		Fair Value		Percentage of Portfolio			Amortized Cost⁽¹⁾		Fair Value		Percentage of Portfolio
Senior Secured Loans—First Lien	$	832,257	$	812,335		34	%	$	649,708	$	607,338		28	%
Senior Secured Loans—Second Lien		83,322		84,083		3	%		277,018		276,312		13	%
Senior Secured Bonds		77,266		81,646		3	%		286,082		340,042		16	%
Unsecured Debt		425,715		397,068		17	%		245,180		134,560		6	%
Preferred Equity		515,711		497,288		21	%		689,253		471,077		22	%
Sustainable Infrastructure Investments, LLC		54,514		50,770		2	%		60,603		61,816		3	%
Equity/Other		364,272		472,033		20	%		367,561		290,331		12	%

Total	$	2,353,057	$	2,395,223		100	%	$	2,575,405	$	2,181,476		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 December 31, 2021 and 2020:


	December 31, 2021			December 31, 2020
Number of Portfolio Companies		71			54
% Variable Rate (based on fair value)		35.1	%		37.7	%
% Fixed Rate (based on fair value)		22.3	%		24.6	%
% Income Producing Preferred Equity and Equity/Other Investments (based on fair value)		14.1	%		24.2	%
% Non-Income Producing Preferred Equity and Equity/Other Investments (based on fair value)		28.5	%		13.5	%
Weighted Average Purchase Price of Debt Investments (as a % of par value)		98.5	%		93.6	%
% of Investments on Non-Accrual (based on fair value)		10.4	%		8.2	%
Gross Portfolio Yield Prior to Leverage (based on amortized cost)		5.5	%		7.0	%
Gross Portfolio Yield Prior to Leverage (based on amortized cost)—Excluding Non-Income Producing Assets		7.8	%		9.7	%

in the amount of $0.03 per share. FS/EIG Advisor and our board of trustees expect that future regular cash distributions to shareholders will remain suspended until such time that our board of trustees and FS/EIG Advisor believe that market conditions and our financial condition support the resumption of such distributions. Our board of trustees has and will continue to evaluate our ability to pay any distributions in the future. There can be no assurance that we will be able to pay distributions in the future and any annualized distribution rate provided in this report may not be representative of the actual distribution rate for any period. Based on the distributions declared during 2021 of $0.12 per share, and the price at which we issued shares pursuant to our distribution reinvestment plan of $3.65 per share as of December 31, 2021, the annualized distribution rate to shareholders as of December 31, 2021 was 3.29%. Based on the distributions declared in 2020 of $0.1733 per share and the price at which we issued shares pursuant to our distribution reinvestment plan of $3.30 per share as of December 31, 2020, the annualized distribution rate to shareholders as of December 31, 2020 was 5.25%. For the years ended December 31, 2021 and 2020, our total return was 14.22% and (37.68)%, respectively, and our total return without assuming reinvestment of distributions was 14.15% and (37.02)%, respectively.

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 “Item 1A. Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these statements.

Direct Originations

We define Direct Originations as any investment where FS/EIG Advisor or its affiliates negotiate the terms of the transaction beyond just the price, which, for example, may include negotiating financial covenants, maturity dates or interest rate terms. These Direct Originations include participation in other originated transactions where there may be third parties involved, or a bank acting as an intermediary, for a closely held club, or similar transactions. The following table presents certain selected information regarding our Direct Originations as of December 31, 2021 and 2020:


Characteristics of All Direct Originations held in Portfolio	December 31, 2021	December 31, 2020
Number of Portfolio Companies	43	46
% of Investments on Non-Accrual (based on fair value)	15.4%	9.1%
Total Cost of Direct Originations	$1,586,099	$2,317,824
Total Fair Value of Direct Originations	$1,621,482	$1,953,804
% of Total Investments, at Fair Value	67.7%	89.6%
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct Originations	5.1%	7.1%
Gross Portfolio Yield Prior to Leverage (based on amortized cost) of Funded Direct Originations—Excluding Non-Income Producing Assets	8.4%	10.0%

Portfolio Composition by Strategy

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 December 31, 2021 and 2020:


	December 31, 2021					December 31, 2020
Portfolio Composition by Strategy	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio
Direct Originations	$	1,621,482		68	%	$	1,953,804		90	%
Broadly Syndicated/Other		773,741		32	%		227,672		10	%

Total	$	2,395,223		100	%	$	2,181,476		100	%

See Note 7 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our investment portfolio.

Portfolio Asset Quality

In addition to various risk management and monitoring tools, FS/EIG Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in our portfolio. FS/EIG 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 Description
1		Investment exceeding expectations and/or capital gain expected.
2		Performing investment generally executing in accordance with the portfolio company’s business plan—full return of principal and interest expected.
3		Performing investment requiring closer monitoring.
4		Underperforming investment—some loss of interest or dividend possible, but still expecting a positive return on investment.
5		Underperforming investment with expected loss of interest and some principal.

The following table shows the distribution of our investments on the 1 to 5 investment rating scale at fair value as of December 31, 2021 and 2020:


	December 31, 2021					December 31, 2020
Investment Rating	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio
1	$	—		—		$	—		—
2		1,771,346		74	%		966,968		44	%
3		232,319		10	%		888,656		41	%
4		284,055		12	%		162,251		7	%
5		107,503		4	%		163,601		8	%

	$	2,395,223		100	%	$	2,181,476		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 Years Ended December 31, 2021, 2020 and 2019

Revenues

Our investment income for the years ended December 31, 2021, 2020 and 2019 was as follows:


	Year Ended December 31,
	2021					2020					2019
	Amount		Percentage of Total Income			Amount		Percentage of Total Income			Amount		Percentage of Total Income
Interest income	$	112,201		74	%	$	190,177		85	%	$	322,641		88	%
Paid-in-kind interest income		27,816		19	%		30,396		14	%		35,302		10	%
Fee income		2,517		2	%		1,287		1	%		7,688		2	%
Dividend income		8,173		5	%		66		0	%		279		0	%

Total investment income⁽¹⁾	$	150,707		100	%	$	221,926		100	%	$	365,910		100	%

(1)

Such revenues represent $111,722, $161,239 and $301,214 of cash income earned as well as $38,985, $60,687 and $64,696 in non-cash portions relating to accretion of discount and PIK interest for the years ended December 31, 2021, 2020 and 2019, 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 interest income we receive is generally related to the balance of income-producing investments multiplied by the weighted average yield of our investments. We may experience volatility in the amount of interest income that we earn as the accrual status of existing portfolio investments may fluctuate due to ongoing restructuring activity in the portfolio.

The decrease in the amount of interest income and PIK income for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily due to a combination of factors including certain investments being placed on non-accrual, an increase in the portfolio’s allocation to non-income producing assets as a result of restructurings and an increase in repayments on higher-yielding debt which was reinvested into assets with lower yields.

The decrease in the amount of interest income and PIK income for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to a combination of factors including an overall decrease in the size of the investment portfolio, certain investments being placed on non-accrual and an increase in the portfolio’s allocation to non-income producing assets as a result of restructurings.

Fee income is transaction based, and typically consists of prepayment fees and structuring fees. As such, future fee income is generally dependent on new direct origination investments and the occurrence of events at existing portfolio companies resulting in such fees.

The increase in the amount of fee income for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily due to an increase in prepayment and amendment fees. The decrease in the amount of fee income for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to the decrease of origination and prepayment activity during the period.

The increase in the amount of dividend income for the year ended December 31, 2021 compared to the years ended December 31, 2020 and 2019 was primarily due to the increase in dividends paid in respect to our investment in Sustainable Infrastructure Investments, LLC.

Expenses

Our operating expenses for the years ended December 31, 2021, 2020 and 2019 were as follows:


	Year Ended December 31,
	2021			2020			2019
Management fees	$	41,561		$	49,029		$	68,526
Administrative services expenses		5,713			6,579			4,760
Share transfer agent fees		2,918			2,728			2,748
Accounting and administrative fees		692			787			1,106
Interest expense		54,122			75,101			88,364
Trustees’ fees		787			789			762
Expenses associated with our independent audit and related fees		450			451			444
Legal fees		18			1,581			438
Printing fees		488			736			1,018
Insurance expense		180			143			99
Other		1,958			2,261			1,853

Total operating expenses		108,887			140,185			170,118
Less: Management fee offset		(1,439	)		(706	)		(5,992	)

Net operating expenses	$	107,448		$	139,479		$	164,126

The following table reflects selected expense ratios as a percent of average net assets for the years ended December 31, 2021, 2020 and 2019:


	Year Ended December 31,
	2021			2020			2019
Ratio of operating expenses to average net assets		6.96	%		8.20	%		6.54	%
Ratio of management fee offset to average net assets		(0.09	)%		(0.04	)%		(0.23	)%

Ratio of net operating expenses to average net assets		6.87	%		8.16	%		6.31	%
Ratio of interest expense to average net assets		(3.46	)%		(4.40	)%		(3.40	)%

Ratio of net operating expenses, excluding interest expense, to average net assets		3.41	%		3.76	%		2.91	%

Interest expense may increase or decrease our expense ratios relative to comparative periods depending on changes in benchmark interest rates such as LIBOR, utilization rates and the terms of our financing arrangements, among other factors.

Management Fee Offset

Structuring or other upfront fees received by FS/EIG Advisor which were offset against management fees due to FS/EIG Advisor from us were $1,439, $706 and $5,992 for the years ended December 31, 2021, 2020 and 2019. See Note 4 to our consolidated financial statements contained in this annual report on Form 10-K for a discussion of the management fee offset for the years ended December 31, 2021, 2020 and 2019.

Net Investment Income

Our net investment income totaled $43,259 ($0.09 per share), $82,447 ($0.19 per share) and $201,784 ($0.46 per share) for the years ended December 31, 2021, 2020 and 2019, respectively.

Net Realized Gains or Losses

Our net realized gains (losses) on investments, foreign currency, swap contracts and debt extinguishment for the years ended December 31, 2021, 2020 and 2019 were as follows:


	Year Ended December 31,
	2021			2020			2019
Net realized gain (loss) on investments⁽¹⁾	$	(273,439	)	$	(1,222,667	)	$	(114,746	)
Net realized gain (loss) on foreign currency		(28	)		—			—
Net realized gain (loss) on swap contracts		—			20,250			5,453
Net realized gain (loss) on debt extinguishment		—			2,591			—

Total net realized gain (loss)	$	(273,467	)	$	(1,199,826	)	$	(109,293	)

(1)	We sold investments and received principal repayments of $482,932 and $515,459, respectively, during the year ended December 31, 2021, $992,178 and $83,350, respectively, during the year ended December 31, 2020 and $882,557 and $430,515, respectively, during the year ended December 31, 2019.

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

Our net change in unrealized appreciation (depreciation) on investments, swap contracts and foreign currency for the years ended December 31, 2021, 2020 and 2019 were as follows:


	Year Ended December 31,
	2021			2020			2019
Net change in unrealized appreciation (depreciation) on investments	$	436,095		$	249,140		$	(116,518	)
Net change in unrealized appreciation (depreciation) on swap contracts		—			(6,551	)		(13,103	)
Net change in unrealized appreciation (depreciation) on foreign currency		(12	)		5			7

Total net change in unrealized appreciation (depreciation)	$	436,083		$	242,594		$	(129,614	)

During the year ended December 31, 2021, the net change in unrealized appreciation (depreciation) on our investments was primarily driven by the performance of our directly originated assets and certain of our upstream equity/other investments and the conversion of unrealized depreciation to realized losses. During the year ended December 31, 2020, the net change in unrealized appreciation (depreciation) on our investments was primarily driven by the conversion of unrealized depreciation to realized losses and the performance of certain upstream equity/other investments. During the year ended December 31, 2019, the net change in unrealized appreciation (depreciation) on our investments was primarily driven by the decline in Energy markets and performance of certain upstream equity/other investments.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the years ended December 31, 2021, 2020 and 2019, the net increase (decrease) in net assets resulting from operations was $205,875 ($0.46 per share), $(874,785) ($(2.00) per share) and $(37,123) ($(0.08) per share), respectively. During the year ended December 31, 2021, the net increase (decrease) in net assets resulting from operations was primarily the result of unrealized appreciation on numerous investments which was partially offset by a restructuring and subsequent write-down of the fair value of our debt and equity investments in Limetree Bay Ventures, LLC and Limetree Energy, LLC, or collectively, Limetree, of approximately $193,136. The write-down arose from the shut-down of Limetree’s refinery operations as a result of regulatory, operational and financial challenges. In July 2021, Limetree filed for bankruptcy. There is a substantial risk that no new cash flows will accrue to our investments in Limetree.

This “Results of Operations” section should be read in conjunction with “COVID-19 and Energy Market Developments” above.

Financial Condition, Liquidity and Capital Resources

Overview

As of December 31, 2021, we had $33,879 in cash, which we held in custodial accounts and $85,000 in borrowings available under the JPMorgan Facility. As of December 31, 2021, we also had broadly syndicated investments that could be sold to create additional liquidity. As of December 31, 2021, we had eight senior secured loan investments with aggregate unfunded commitments of $72,514 and unfunded commitments of $7,625 in U.S. dollars and $858 in Canadian dollars to contribute capital to Sustainable Infrastructure Investments, LLC. We maintain sufficient cash on hand, available borrowings and/or liquid securities to fund such unfunded commitments should the need arise.

We generate cash primarily from the issuance of shares under our distribution reinvestment plan 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. To seek to enhance our returns, we also employ leverage as market conditions permit and at the discretion of FS/EIG Advisor, but unless and until we elect otherwise, as permitted by the 1940 Act, in no event will leverage employed exceed 50% of the value of our assets, as required by the 1940 Act. See “—Financing Arrangements.”

Prior to investing in securities of portfolio companies, we invest the net proceeds from the issuance of shares under our distribution reinvestment plan as well as from sales and paydowns of existing investments primarily in cash, cash equivalents, including money market funds, 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.

In light of difficult market conditions, we took several steps in 2020 to seek to enhance our liquidity by, among other things, suspending our share repurchase program, suspending regular cash distributions and reducing leverage by paying down borrowings. The share repurchase program and regular cash distributions remained suspended in 2021. We believe the net result of such measures resulted in an improved liquidity position for us.

This “Financial Condition, Liquidity and Capital Resources” section should be read in conjunction with “COVID-19 and Energy Market Developments” above and “—Financing Arrangements” below.

Financing Arrangements

The following table presents a summary of information with respect to our outstanding financing arrangements as of December 31, 2021:


Arrangement⁽¹⁾	Type of Arrangement		Rate⁽²⁾		Amount Outstanding		Amount Available		Maturity Date
JPMorgan Facility		Revolving/Term		L+3.00%	$	286,667	$	85,000		February 16, 2023
Senior Secured Notes⁽³⁾		Bond		7.50%		489,000		—		August 15, 2023

Total					$	775,667	$	85,000

(1)	The carrying amount outstanding under the facility approximates its fair value, unless otherwise noted.

(2)	LIBOR is subject to a 0.00% floor.

(3)	As of December 31, 2021, the fair value of the Senior Secured Notes was approximately $510,511.

For additional information regarding our financing arrangements, see Note 9 to our consolidated financial statements contained in this annual report on Form 10-K.

RIC Tax Treatment and Distributions

We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a RIC under Subchapter M of the Code. As a RIC, we generally do not have to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that we distribute as dividends to our shareholders. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, in order to maintain RIC tax treatment, we must distribute to our shareholders, for each tax year, dividends generally of an amount at least equal to 90% of our “investment company taxable income,” which is generally the sum of our net ordinary income plus the excess, if any, of

realized net short-term capital gains over realized net long-term capital losses, determined without regard to any deduction for dividends paid. In addition, we may, in certain cases, satisfy the Annual Distribution Requirement by distributing dividends relating to a tax year after the close of such tax year under the “spillover dividend” provisions of Subchapter M of the Code. If we distribute a spillover dividend, such dividend will be included in a shareholder’s gross income for the tax year in which the spillover distribution is paid. We intend to make sufficient distributions to our shareholders to maintain our RIC tax treatment each tax year. We will also be subject to nondeductible U.S. federal excise taxes on certain undistributed income unless we distribute in a timely manner to our shareholders an amount at least equal to the sum of (1) 98% of our net ordinary taxable income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gain net income, which is the excess of capital gains over capital losses (adjusted for certain ordinary losses), for the one-year period ending October 31 of that calendar year and (3) 100% of any ordinary income and capital gain net income recognized for the preceding years that were not distributed during such years and on which we paid no U.S. federal income tax. Any distribution declared by us during October, November or December of any calendar year, payable to our shareholders of record on a specified date in such a month and actually paid during January of the following calendar year, will be treated as if it had been paid by us, as well as received by our U.S. shareholders, on December 31 of the calendar year in which the distribution was declared.

In general, when we pay regular cash distributions, we intend to declare them on a quarterly or monthly basis and pay them on a monthly basis. 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 that common shares are issued to such shareholder. 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. 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.

Our distribution proceeds have exceeded and in the future may exceed our earnings. Therefore, portions of the distributions that we have made represented, and may make in the future may represent, a return of capital to shareholders, which lowers their tax basis in their common shares. 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/EIG Advisor. Moreover, a return of capital will generally not be taxable, but will reduce each shareholder’s cost basis in our common shares, and will result in a higher reported capital gain or lower reported capital loss when the common shares on which such return of capital was received are sold. Each year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to our shareholders.

We intend to make any regular distributions in the form of cash, out of assets legally available for distribution, unless shareholders elect to receive their cash distributions in additional common shares under our distribution reinvestment plan. Any distributions reinvested under the plan will nevertheless remain taxable to a U.S. shareholder.

The following table reflects the cash distributions per share that we have declared on our common shares during the years ended December 31, 2021, 2020 and 2019:


	Distribution
For the Year Ended December 31,	Per Share		Amount
2019	$	0.5000	$	218,187
2020	$	0.1733	$	75,656
2021	$	0.1200	$	53,264

See Note 5 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our distributions, including a reconciliation of our GAAP-basis net investment income to our tax-basis net investment income, the components of accumulated earnings on a tax basis and deferred taxes.

Critical Accounting Policies and Estimates

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. Management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming the 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. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We describe our most significant accounting policies in Note 2 to our consolidated financial statements contained in this annual report on Form 10-K. 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. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions. We have identified one of our accounting policies, valuation of portfolio investments, as critical because it involves significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition. As we execute our operating plans, we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below.

Valuation of Portfolio Investments

We determine the fair value of our investment portfolio each quarter. Securities are valued at fair value as determined in good faith by our board of trustees. In connection with that determination, FS/EIG 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 Financial Accounting Standards Board, or 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:

•

our quarterly fair valuation process begins with FS/EIG Advisor reviewing and documenting preliminary valuations of each portfolio company or investment;

•

such preliminary valuations for each portfolio company or investment are compared to a valuation range that is obtained from an independent third-party valuation service;

•

FS/EIG Advisor then provides the valuation committee of our board of trustees, or the valuation committee, its valuation recommendation for each portfolio company or investment, along with supporting materials;

•

preliminary valuations are then discussed with the valuation committee;

•

the valuation committee reviews the preliminary valuations and FS/EIG Advisor, together with our independent third-party valuation services, if applicable, supplements the preliminary valuations to reflect any comments provided by the valuation committee;

•

following its review, the valuation committee will recommend that our board of trustees approve our fair valuations; and

•

our board of trustees discusses the valuations and determines the fair value of each such investment in our portfolio in good faith based on various statistical and other factors, including the input and recommendation of FS/EIG Advisor, the valuation committee and any independent third-party valuation services, if applicable.

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/EIG 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/EIG Advisor, any approved independent third-party valuation services and our board of trustees may consider when determining the fair value of our investments.

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

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

Our equity interests in portfolio companies for which there is no liquid public market are valued at fair value. Our board of trustees, in its determination of fair value, may consider various factors, such as multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value, PV-10 multiples 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/EIG Advisor, 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/EIG Advisor, 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/EIG Advisor 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.

Swap contracts typically will be valued at their daily prices obtained from an independent third party. The aggregate settlement values and notional amounts of the swap contracts will not be recorded in the statements of assets and liabilities. Fluctuations in the value of the swap contracts will be recorded in the statements of assets and liabilities as gross assets and gross liabilities and in the statements of operations as unrealized appreciation (depreciation) until closed, when they will be recorded as net realized gain (loss).

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/EIG Advisor, and has authorized FS/EIG Advisor 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/EIG Advisor’s implementation of the valuation process.

See Note 8 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding the fair value of our financial instruments.

Contractual Obligations

We have entered into an agreement with FS/EIG Advisor to provide us with investment advisory and administrative services. Payments for investment advisory services under the FS/EIG investment advisory agreement are equal to 1.75% of the average weekly value of our gross assets and an incentive fee based on our performance. Base management fees are generally paid on a quarterly basis in arrears. See Note 4 to our consolidated financial statements contained in this annual report on Form 10-K for a discussion of this agreement and for the amount of fees and expenses accrued under these agreements during the years ended December 31, 2021, 2020 and 2019.

Recently Issued Accounting Standards

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848),” which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which expanded the scope of Topic 848 to include derivative instruments impacted by discounting transition. ASU 2020-04 and ASU 2021-01 are effective for all entities through December 31, 2022. The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging relationships entered into or evaluated after December 31, 2022, except for hedging transactions as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. We are currently evaluating the impact of the adoption of ASU 2020-04 and 2021-01 on our consolidated financial statements.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

We are subject to financial market risks, including changes in interest rates. As of December 31, 2021, 35.1% of our portfolio investments (based on fair value) paid variable interest rates, 22.3% paid fixed interest rates, 14.1% were income producing preferred equity and equity/other investments and the remaining 28.5% consisted of non-income producing preferred equity and equity/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 the amount of incentive fees payable to FS/EIG Advisor with respect to our increased pre-incentive fee net investment income. Previously, the U.S. Federal Reserve and other central banks have reduced certain interest rates in response to the COVID-19 pandemic and market conditions. A prolonged reduction in interest rates may reduce our net investment income.

Pursuant to the terms of the JPMorgan Facility, we borrow at a floating rate based on a benchmark interest rate. Under the indenture governing the Senior Secured Notes, we pay interest to the holders of such notes at a fixed 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 December 31, 2021 (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 Income
Down 21 basis points	$	(495	)	$	(595	)	$	100		0.1	%
No Change		—			—			—		—
Up 100 basis points	$	4,088		$	2,973		$	1,115		1.4	%
Up 300 basis points	$	19,131		$	8,918		$	10,213		13.0	%
Up 500 basis points	$	34,601		$	14,864		$	19,737		25.2	%

We expect that our long-term investments will be financed primarily with equity and debt. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. During the years ended December 31, 2021, 2020 and 2019, we did not engage in interest rate hedging activities.

In addition, we may have risks regarding portfolio valuation and the potential inability of counterparties to meet the terms of their contracts. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Valuation of Portfolio Investments.”

Item 8. Financial Statements and Supplementary Data.

Index to Financial Statements


	Page
Management’s Report on Internal Control over Financial Reporting		66
Report of Independent Registered Public Accounting Firm		67
Consolidated Balance Sheets as of December 31, 2021 and 2020		69
Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019		70
Consolidated Statements of Changes in Net Assets for the years ended December 31, 2021, 2020 and 2019		71
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019		72
Consolidated Schedules of Investments as of December 31, 2021 and 2020		73
Notes to Consolidated Financial Statements		87

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. In connection with the preparation of our annual financial statements, management has conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls. Based on this evaluation, we have concluded that, as of December 31, 2021, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance accounting principles generally accepted in the United States of America.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Shareholders of

FS Energy and Power Fund

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of FS Energy and Power Fund (the Company), including the consolidated schedules of investments, as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended December 31, 2021, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations, changes in net assets and cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2021 and 2020 by correspondence with the custodians, brokers and/or the underlying investees, or by other appropriate auditing procedures where replies from the custodians, brokers and/or the underlying investees were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Level 3 Fair Value Measurements

The fair value of the Company’s investments using Level 3 fair value measurements was approximately $1.62 billion as of December 31, 2021. As discussed in Notes 2 and 8 to the consolidated financial statements, the Company’s investments consist primarily of illiquid corporate debt and equity investments that were acquired directly from the issuer. Such investments include secured loans and bonds, unsecured debt, and unlisted preferred and common equity securities. The valuation techniques used in estimating the fair value of these investments may vary based on the specific characteristics of the investments and require the use of certain significant unobservable inputs.

We identified Level 3 fair value measurements as a critical audit matter due to the subjective nature of the judgments necessary for management to select valuation techniques and the use of significant unobservable inputs to estimate the fair value. Auditing the reasonableness of management’s selection of valuation techniques and the related unobservable inputs required a high degree of auditor judgment and increased audit effort, including the use of a valuation specialist.

The primary procedures we performed to address this critical audit matter included the following, among others:

We obtained an understanding of the relevant controls related to management’s valuation of Level 3 fair value measurements, including those related to valuation techniques and significant unobservable inputs and tested such controls for design and operating effectiveness.

With the assistance of our valuation specialists, we evaluated the appropriateness of the selected valuation techniques, and any changes to selected valuation techniques from prior periods, used for Level 3 fair value measurements. We also tested the related significant unobservable inputs by comparing these inputs to external sources.

We evaluated management’s historical ability to estimate fair value through comparison of previous estimates to the transaction price of available transactions occurring subsequent to the previous valuation date.

/s/ RSM US LLP

We have served as the auditor of one or more FS Investments investment companies since 2007.

Blue Bell, Pennsylvania

March 11, 2022

FS Energy and Power Fund

Consolidated Balance Sheets

(in thousands, except share and per share amounts)


	December 31,
	2021			2020
Assets
Investments, at fair value
Non-controlled/unaffiliated investments (amortized cost—$1,961,617 and $2,053,838, respectively)	$	2,037,956		$	1,825,470
Non-controlled/affiliated investments (amortized cost—$200,189 and $406,430, respectively)		175,908			239,279
Controlled/affiliated investments (amortized cost—$191,251 and $115,137, respectively)		181,359			116,727

Total investments, at fair value (amortized cost—$2,353,057 and $2,575,405, respectively)		2,395,223			2,181,476
Cash		33,879			142,536
Receivable for investments sold and repaid		4,975			7,691
Interest receivable		26,242			26,705
Prepaid expenses and other assets		156			234

Total assets	$	2,460,475		$	2,358,642

Liabilities
Payable for investments purchased	$	49,500		$	—
Credit facilities payable (net of deferred financing costs of $2,036 and $5,816, respectively)⁽¹⁾		284,631			410,851
Secured note payable (net of deferred financing costs of $3,350 and $5,284, respectively)⁽¹⁾		482,437			478,521
Shareholder distributions payable		13,388			13,188
Management fees payable		10,466			10,156
Administrative services expenses payable		1,324			949
Interest payable		14,170			14,236
Trustees’ fees payable		200			192
Other accrued expenses and liabilities		2,036			1,972

Total liabilities		858,152			930,065

Commitments and contingencies⁽²⁾
Shareholders’ equity
Preferred shares, $0.001 par value, 50,000,000 shares authorized, none issued and outstanding		—			—
Common shares, $0.001 par value, 700,000,000 shares authorized, 446,089,499 and 440,020,123 shares issued and outstanding, respectively		446			440
Capital in excess of par value		3,129,252			3,152,485
Accumulated earnings (deficit)		(1,527,375	)		(1,724,348	)

Total shareholders’ equity		1,602,323			1,428,577

Total liabilities and shareholders’ equity	$	2,460,475		$	2,358,642

Net asset value per common share at year end	$	3.59		$	3.25

(1)	See Note 9 for a discussion of the Company’s financing arrangements.

(2)	See Note 10 for a discussion of the Company’s commitments and contingencies.

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Statements of Operations

(in thousands, except share and per share amounts)


	Year Ended December 31,
	2021			2020			2019
Investment income
From non-controlled/unaffiliated investments:
Interest income	$	102,342		$	177,147		$	292,728
Paid-in-kind interest income		20,827			18,397			34,228
Fee income		2,508			1,287			3,031
Dividend income		870			66			279
From non-controlled/affiliated investments:
Interest income		6,889			10,144			29,913
Paid-in-kind interest income		215			11,999			1,074
Fee income		—			—			4,657
Dividend income		1,574			—			—
From controlled/affiliated investments:
Interest income		2,970			2,886			—
Paid-in-kind interest income		6,774			—			—
Fee income		9			—			—
Dividend income		5,729			—			—

Total investment income		150,707			221,926			365,910
Operating expenses
Management fees		41,561			49,029			68,526
Administrative services expenses		5,713			6,579			4,760
Share transfer agent fees		2,918			2,728			2,748
Accounting and administrative fees		692			787			1,106
Interest expense⁽¹⁾		54,122			75,101			88,364
Trustees’ fees		787			789			762
Other general and administrative expenses		3,094			5,172			3,852

Total operating expenses		108,887			140,185			170,118
Less: Management fee offset⁽²⁾		(1,439	)		(706	)		(5,992	)

Net expenses		107,448			139,479			164,126

Net investment income		43,259			82,447			201,784

Realized and unrealized gain/loss
Net realized gain (loss) on investments:
Non-controlled/unaffiliated		9,454			(766,774	)		(121,361	)
Non-controlled/affiliated		(282,893	)		(428,429	)		6,615
Controlled/affiliated		—			(27,464	)		—
Net realized gain (loss) on foreign currency		(28	)		—			—
Net realized gain (loss) on swap contracts		—			20,250			5,453
Net realized gain (loss) on debt extinguishment		—			2,591			—
Net change in unrealized appreciation (depreciation) on investments:
Non-controlled/unaffiliated		304,707			63,204			(51,511	)
Non-controlled/affiliated		142,870			156,882			(65,007	)
Controlled/affiliated		(11,482	)		29,054			—
Net change in unrealized appreciation (depreciation) on swap contracts		—			(6,551	)		(13,103	)
Net change in unrealized gain (loss) on foreign currency		(12	)		5			7

Total net realized and unrealized gain (loss)		162,616			(957,232	)		(238,907	)

Net increase (decrease) in net assets resulting from operations	$	205,875		$	(874,785	)	$	(37,123	)

Per share information—basic and diluted
Net increase (decrease) in net assets resulting from operations (Earnings per Share)	$	0.46		$	(2.00	)	$	(0.08	)

Weighted average shares outstanding		443,768,738			437,620,915			437,167,745

(1)	See Note 9 for a discussion of the Company’s financing arrangements.

(2)	See Note 4 for a discussion of the offset by FS/EIG Advisor, LLC, the Company’s investment adviser, of certain management fees to which it was otherwise entitled during the applicable period.

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Statements of Changes in Net Assets

(in thousands)


	Year Ended December 31,
	2021			2020			2019
Operations
Net investment income	$	43,259		$	82,447		$	201,784
Net realized gain (loss) on investments, swap contracts and debt extinguishment		(273,467	)		(1,199,826	)		(109,293	)
Net change in unrealized appreciation (depreciation) on investments		436,095			249,140			(116,518	)
Net change in unrealized appreciation (depreciation) on swap contracts		—			(6,551	)		(13,103	)
Net change in unrealized gain (loss) on foreign currency		(12	)		5			7

Net increase (decrease) in net assets resulting from operations		205,875			(874,785	)		(37,123	)

Shareholder distributions⁽¹⁾
Distributions to shareholders		(53,264	)		(63,272	)		(218,187	)
Distributions representing return of capital		—			(12,384	)		—

Net decrease in net assets resulting from shareholder distributions		(53,264	)		(75,656	)		(218,187	)

Capital share transactions⁽²⁾
Reinvestment of shareholder distributions		21,135			26,236			101,727
Repurchases of common shares		—			(26,823	)		(114,998	)

Net increase (decrease) in net assets resulting from capital share transactions		21,135			(587	)		(13,271	)

Total increase (decrease) in net assets		173,746			(951,028	)		(268,581	)
Net assets at beginning of year		1,428,577			2,379,605			2,648,186

Net assets at end of year	$	1,602,323		$	1,428,577		$	2,379,605

(1)	See Note 5 for a discussion of the sources of distributions paid by the Company.

(2)	See Note 3 for a discussion of the Company’s capital share transactions.

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Statements of Cash Flows

(in thousands)


	Year Ended December 31,
	2021			2020			2019
Cash flows from operating activities
Net increase (decrease) in net assets resulting from operations	$	205,875		$	(874,785	)	$	(37,123	)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Purchases of investments		(883,097	)		(375,782	)		(1,111,384	)
Paid-in-kind interest		(27,816	)		(30,396	)		(35,302	)
Proceeds from sales and repayments of investments		870,992			764,102			1,184,131
Net realized (gain) loss on investments		273,439			1,222,667			114,746
Net change in unrealized (appreciation) depreciation on investments		(436,095	)		(249,140	)		116,518
Net change in unrealized (appreciation) depreciation on swap contracts		—			6,551			13,103
Accretion of discount		(11,170	)		(30,290	)		(29,394	)
Amortization of deferred financing costs and discount		7,824			7,523			6,123
(Increase) decrease in receivable for investments sold and repaid		2,716			(6,962	)		15,245
(Increase) decrease in interest receivable		463			6,802			(168	)
(Increase) decrease in swap income receivable		—			395			459
(Increase) decrease in prepaid expenses and other assets		78			32			2,104
Increase (decrease) in payable for investments purchased		49,500			(28,518	)		(63,376	)
Increase (decrease) in management fees payable		310			(5,426	)		(824	)
Increase (decrease) in administrative services expense payable		375			442			9
Increase (decrease) in swap income payable		—			—			(225	)
Increase (decrease) in interest payable⁽¹⁾		(66	)		(2,331	)		339
Increase (decrease) in trustees’ fees payable		8			—			9
Increase (decrease) in other accrued expenses and liabilities		64			(5,711	)		4,377

Net cash provided by (used in) operating activities		53,400			399,173			179,367

Cash flows from financing activities
Repurchases of common shares		—			(26,823	)		(114,998	)
Shareholder distributions paid		(31,929	)		(46,472	)		(115,256	)
Borrowings under credit facilities⁽¹⁾		95,000			160,000			580,000
Repayments of credit facilities⁽¹⁾		(225,000	)		(480,000	)		(475,000	)
Repayments under senior secured notes⁽¹⁾		—			(11,000	)		—
Deferred financing costs paid		(128	)		(2,761	)		(2,200	)

Net cash provided by financing activities		(162,057	)		(407,056	)		(127,454	)

Total increase (decrease) in cash		(108,657	)		(7,883	)		51,913
Cash and restricted cash at beginning of year⁽²⁾		142,536			150,419			98,506

Cash and restricted cash at end of year⁽²⁾	$	33,879		$	142,536		$	150,419

Supplemental disclosure
Reinvestment of shareholder distributions	$	21,135		$	26,236		$	101,727

Non-cash purchases of investments	$	(127,399	)	$	(311,426	)	$	(128,941	)

Non-cash sales of investments	$	127,399		$	311,426		$	128,941

(1)	See Note 9 for a discussion of the Company’s financing arrangements. During the years ended December 31, 2021, 2020 and 2019, the Company paid $46,364, $69,909 and $81,902, respectively, in interest expense on the financing arrangements and Senior Secured Notes.

(2)	Balance includes cash of $33,879 at December 31, 2021, cash of $142,536 at December 31, 2020 and cash of $149,752 and restricted cash of $667 at December 31, 2019. Restricted cash was the cash collateral required to be posted pursuant to the Company’s swap contracts.

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Schedule of Investments

As of December 31, 2021

(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 Liens—50.7%
AIRRO (Mauritius) Holdings II		(k)(p)(s)	Power		L+350, 3.5% PIK (3.5% Max PIK)		1.5%		7/24/25	$	22,067	$	19,415	$	19,229
AIRRO (Mauritius) Holdings II		(e)(k)(p)(s)	Power		L+350, 3.5% PIK (3.5% Max PIK)		1.5%		7/24/25		14,602		14,602		12,724
Allied Downhole Technologies, LLC		(f)(s)(x)	Service & Equipment		8.0% PIK (8.0% Max PIK)				9/30/22		7,782		7,782		7,782
Allied Downhole Technologies, LLC		(e)(s)(x)	Service & Equipment		8.0% PIK (8.0% Max PIK)				9/30/22		2,500		2,500		2,500
Allied Wireline Services, LLC		(f)(s)(x)	Service & Equipment		10.0% PIK (10.0% Max PIK)				6/15/25		58,080		58,080		46,339
ARB Midstream Operating Company, LLC		(s)	Midstream		L+825		1.0%		5/6/22		625		624		625
Bioenergy Infrastructure Holdings Limited		(k)(s)	Power		L+725		1.0%		12/22/22		413		413		403
Birch Permian LLC		(s)	Upstream		L+800		1.5%		4/12/23		42,781		42,642		43,209
Brazos Delaware II LLC			Midstream		L+400				5/21/25		39,685		38,112		38,738
Cimarron Energy Inc.		(f)(m)(o)(s)	Service & Equipment		L+900		1.0%		12/31/24		7,500		7,311		3,600
Cox Oil Offshore, LLC, Volumetric Production Payments		(i)(o)(s)(v)	Upstream		0.0%				12/31/23		100,000		23,342		28,987
CPV Maryland, LLC			Power		L+400		1.0%		5/11/28		15,353		15,182		15,276
CPV Shore Holdings LLC			Power		L+375				12/29/25		23,601		22,525		22,682
EIF Van Hook Holdings, LLC			Midstream		L+525				9/5/24		30,332		29,889		29,081
FR BR Holdings LLC		(f)(s)	Midstream		L+650				12/14/23		82,610		80,293		83,436
FR XIII PAA Holdings HoldCo, LLC		(s)	Midstream		L+725		0.5%		10/15/26		29,141		28,650		30,307
GasLog Ltd.		(e)(k)(o)(s)	Midstream		L+775				3/21/29		15,113		15,113		15,000
Generation Bridge LLC			Power		L+500		0.8%		12/1/28		7,837		7,681		7,876
Generation Bridge LLC			Power		L+500		0.8%		12/1/28		163		160		164
GIP II Blue Holding LP			Midstream		L+450		1.0%		9/29/28		7,481		7,372		7,477
Limetree Bay Energy, LLC		(f)(o)(s)(w)	Midstream		0.0%				10/31/21		26,444		14,343		3,166
Lucid Energy Group II Borrower LLC			Midstream		L+425		0.8%		11/22/28		25,000		24,752		24,737
MECO IV Holdco, LLC		(s)(x)	Upstream		8.0%				9/14/25		22,745		22,745		22,745
Medallion Midland Acquisition LP			Midstream		L+375		0.8%		10/18/28		7,980		7,941		7,954
MRP CalPeak Holdings, LLC		(s)	Power		L+500		1.5%		1/27/25		12,842		12,842		12,842
MRP West Power Holdings II, LLC		(s)	Power		L+500		1.5%		1/27/25		13,887		13,887		13,887
Navitas Midstream Midland Basin LLC		(f)	Midstream		L+400		1.0%		12/13/24		68,341		66,690		68,359
NNE Holding LLC		(s)	Upstream		L+475, 4.5% PIK (4.5% Max PIK)				12/31/23		42,333		42,302		41,696
OE2 North, LLC		(s)	Midstream		L+525		1.0%		5/21/26		11,627		11,527		11,688
OE2 North, LLC		(e)(s)	Midstream		L+525		1.0%		5/21/26		18,373		18,373		18,468
Oryx Midstream Services Permian Basin LLC		(f)	Midstream		L+325		0.5%		10/5/28		36,000		35,825		35,817
Parkway Generation LLC		(h)	Power		L+475		0.8%		2/18/29		6,140		6,079		6,117
Parkway Generation LLC		(h)	Power		L+475		0.8%		2/18/29		43,860		43,421		43,654
Permian Production Holdings, LLC		(f)(s)(w)	Upstream		7.0%, 2.0% PIK (2.0% Max PIK)				11/23/25		7,889		6,692		7,889
Pinnacle Midland Gas Holdco LLC		(s)	Midstream		L+675		1.0%		12/2/26		5,385		5,306		5,305
Pinnacle Midland Gas Holdco LLC		(e)(s)	Midstream		L+675		1.0%		12/2/26		6,462		6,462		6,365

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Schedule of Investments (continued)

As of December 31, 2021

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes		Industry	Rate^(b)		Floor		Maturity		Principal Amount^(c)		Amortized Cost			Fair Value^(d)
Plainfield Renewable Energy Holdings LLC		(f)(s)	Power		6.7%, 8.8% PIK (9.5% Max PIK)				8/22/25	$	11,804	$	11,804		$	11,954
Plainfield Renewable Energy Holdings LLC		(f)(s)	Power		10.0% PIK (10.0% Max PIK)				8/22/25		3,304		3,304			—
Plainfield Renewable Energy Holdings LLC, Letter of Credit		(e)(o)(s)	Power		10.0%				8/22/25		2,709		2,709			—
Potomac Energy Center, LLC			Power		L+600		0.5%		11/10/26		59,000		57,848			58,705
Traverse Midstream Partners LLC			Midstream		SF+425		1.0%		9/27/24		31,702		31,788			31,623
Warren Resources, Inc.		(s)(x)	Upstream		L+900, 1.0% PIK (1.0% Max PIK)		1.0%		5/22/24		23,688		23,688			23,688

Total Senior Secured Loans—First Lien													892,016			872,094
Unfunded Loan Commitments													(59,759	)		(59,759	)

Net Senior Secured Loans—First Lien													832,257			812,335

Senior Secured Loans—Second Lien—5.2%
Aethon III BR LLC		(f)(s)	Upstream		L+750		1.5%		1/10/25		20,000		19,792			20,200
Chisholm Energy Holdings, LLC		(f)(s)	Upstream		L+625		1.5%		5/15/26		17,143		17,091			17,314
Olympus Energy, LLC		(f)(s)	Upstream		L+750		1.0%		7/23/26		18,750		18,750			18,750
Olympus Energy, LLC		(e)(s)	Upstream		L+750		1.0%		7/23/26		11,250		11,250			11,250
Peak Exploration & Production, LLC		(f)(s)	Upstream		L+675		1.5%		11/16/23		13,545		13,512			13,438
Peak Exploration & Production, LLC		(e)(s)	Upstream		L+675		1.5%		11/16/23		1,505		1,505			1,493
SilverBow Resources, Inc.		(f)(k)(s)	Upstream		L+750		1.0%		12/15/26		14,250		14,177			14,393

Total Senior Secured Loans—Second Lien													96,077			96,838
Unfunded Loan Commitments													(12,755	)		(12,755	)

Net Senior Secured Loans—Second Lien													83,322			84,083

Senior Secured Bonds—5.1%
Great Western Petroleum, LLC		(f)(w)	Upstream		12.0%				9/1/25		55,096		53,913			58,055
SM Energy Co.		(k)	Upstream		10.0%				1/15/25		12,000		13,337			13,220
ST EIP Holdings Inc.		(s)	Midstream		6.1%				1/10/30		10,526		10,016			10,371

Total Senior Secured Bonds													77,266			81,646

Unsecured Debt—24.8%
Aethon United BR LP		(f)	Upstream		8.3%				2/15/26		40,500		40,500			43,552
Archrock Partners, L.P.		(f)(k)	Midstream		6.3%				4/1/28		22,239		23,141			23,221
Cheniere Energy Partners LP Holdings, LLC		(f)(k)	Midstream		4.5%				10/1/29		13,500		14,531			14,333
Colgate Energy Partners III LLC		(f)	Upstream		5.9%				7/1/29		8,000		8,110			8,251
Colgate Energy Partners III LLC			Upstream		7.8%				2/15/26		23,365		24,737			25,312
Endeavor Energy Resources, L.P.			Upstream		5.8%				1/30/28		31,299		33,030			33,412
EnLink Midstream, LLC		(k)	Midstream		5.4%				6/1/29		6,000		6,271			6,145
EnLink Midstream, LLC		(f)(k)	Midstream		5.6%				1/15/28		5,881		6,334			6,125

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Schedule of Investments (continued)

As of December 31, 2021

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes		Industry	Rate^(b)		Floor		Maturity		Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Hammerhead Resources Inc.		(f)(k)(s)	Upstream		12.0% PIK (12.0% Max PIK)				7/15/24	$	64,046	$	63,569	$	64,046
Moss Creek Resources, LLC		(f)	Upstream		7.5%				1/15/26		11,693		10,027		10,945
NRG Energy, Inc.		(k)	Power		3.9%				2/15/32		11,625		11,619		11,411
Ranger Oil Corp.		(k)	Upstream		9.3%				8/15/26		29,772		29,603		30,926
Range Resources Corp.		(k)	Upstream		8.3%				1/15/29		5,000		5,643		5,584
Range Resources Corp.		(k)	Upstream		9.3%				2/1/26		3,000		3,256		3,237
SM Energy Co.		(k)	Upstream		5.6%				6/1/25		8,000		8,041		8,079
Southwestern Energy Co.			Upstream		5.4%				2/1/29		18,928		19,731		20,043
Suburban Propane Partners LP		(f)(k)	Midstream		5.0%				6/1/31		17,690		18,359		17,919
Tallgrass Energy Partners, LP		(f)	Midstream		7.5%				10/1/25		13,424		14,499		14,545
Tallgrass Energy Partners, LP		(f)	Midstream		6.0%				3/1/27		9,000		9,414		9,369
Tenrgys, LLC		(f)(m)(n)(o)(s)	Upstream		L+900		2.5%		12/23/18		75,000		75,300		40,613

Total Unsecured Debt													425,715		397,068


										Number of Shares		Amortized Cost		Fair Value^(d)
Preferred Equity—31.0%^(l)
Abaco Energy Technologies LLC, Preferred Equity		(f)(o)(s)	Service & Equipment								28,942,003	$	1,447	$	3,965
Altus Midstream LP, Series A Preferred Units		(j)(s)	Midstream		11.0%				6/28/26		52,856		58,725		61,379
Global Jet Capital Holdings, LP, Preferred Equity		(f)(s)	Industrials		9.0% PIK (9.0% Max PIK)				10/1/28		167,176		12,305		12,204
Global Jet Capital Holdings, LP, Preferred Equity		(f)(o)(s)	Industrials								27,856		2,786		—
NGL Energy Partners, LP, Preferred Equity		(f)(k)(m)(o)(s)	Midstream		14.2%				7/2/27		156,250		157,633		125,000
NuStar, Preferred Equity		(f)(k)(s)	Midstream		12.8%				6/29/28		3,910,165		105,291		124,050
Segreto Power Holdings, LLC, Preferred Equity		(f)(g)(m)(o)(s)	Power		13.1%				6/30/25		70,297		99,761		80,772
USA Compression Partners, LP, Preferred Equity		(k)(s)	Midstream		9.8%				4/3/28		79,336		77,763		89,918

Total Preferred Equity													515,711		497,288

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Schedule of Investments (continued)

As of December 31, 2021

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes		Industry	Rate^(b)	Floor	Maturity	Principal Amount^(c)		Cost		Fair Value^(d)
Sustainable Infrastructure Investments, LLC—3.2%
Sustainable Infrastructure Investments, LLC		(k)(s)(x)	Power				$	60,603	$	54,514	$	50,770

Total Sustainable Infrastructure Investments, LLC										54,514		50,770


							Number of Shares		Amortized Cost		Fair Value^(d)
Equity/Other—29.5%^(l)
Abaco Energy Technologies LLC, Common Equity		(f)(o)(s)	Service & Equipment					6,944,444	$	6,944	$	642
AIRRO (Mauritius) Holdings II, Warrants		(f)(k)(o)(p)(s)	Power					35		2,652		2,125
Allied Wireline Services, LLC, Common Equity		(f)(n)(o)(s)(x)	Service & Equipment					48,400		1,527		—
Allied Wireline Services, LLC, Warrants		(f)(n)(o)(s)(x)	Service & Equipment					22,000		—		—
Arena Energy, LP, Contingent Value Rights		(f)(o)(s)	Upstream					126,632,117		351		1,070
Ascent Resources Utica Holdings, LLC, Common Equity		(f)(o)(q)(s)	Upstream					148,692,909		44,700		34,051
Cimarron Energy Holdco Inc., Common Equity		(f)(o)(s)	Service & Equipment					4,302,293		3,950		—
Cimarron Energy Holdco Inc., Participation Option		(f)(o)(s)	Service & Equipment					25,000,000		1,289		—
Great Western Petroleum, LLC, Common Equity		(f)(o)(r)(s)(w)	Upstream					105,785		30,790		40,731
Harvest Oil & Gas Corp., Common Equity		(f)(o)(w)	Upstream					135,062		15,802		2,836
Limetree Bay Energy, LLC, Class A Units		(f)(o)(s)(w)	Midstream					50,494,585		19,663		6,046
Maverick Natural Resources, LLC, Common Equity		(f)(g)(n)(o)(s)	Upstream					503,176		138,208		278,760
MB Precision Investment Holdings LLC, Class A-2 Units		(f)(n)(o)(s)	Industrials					1,426,110		490		—
MECO IV Holdco, LLC, Class A-1 Units		(f)(n)(o)(s)(x)	Upstream					1,225,000		2,161		4,181
NGL Energy Partners, LP, Warrants (Par)		(f)(k)(o)(s)	Midstream					2,187,500		3,083		265
NGL Energy Partners, LP, Warrants (Premium)		(f)(k)(o)(s)	Midstream					3,125,000		2,623		280
NGL Energy Partners, LP, Warrants (Premium)		(f)(k)(o)(s)	Midstream					781,250		576		69
NGL Energy Partners, LP, Warrants (Par)		(f)(k)(o)(s)	Midstream					546,880		630		63
Permian Production Holdings, LLC, Common Equity		(f)(n)(o)(s)(w)	Upstream					1,961,896		1		8,829
Ranger Oil Corp., Common Equity		(f)(o)	Upstream					332,863		1,795		8,961
Ridgeback Resources Inc., Common Equity		(f)(k)(o)(s)(t)(w)	Upstream					9,599,928		58,985		48,356
Swift Worldwide Resources Holdco Limited, Common Equity		(f)(k)(o)(s)(u)	Service & Equipment					3,750,000		6,029		3,206
USA Compression Partners, LP, Warrants (Market)		(f)(k)(o)(s)	Midstream					793,359		555		2,209
USA Compression Partners, LP, Warrants (Premium)		(f)(k)(o)(s)	Midstream					1,586,719		714		3,499
Warren Resources, Inc., Common Equity		(f)(o)(s)(x)	Upstream					4,415,749		20,754		25,854

Total Equity/Other										364,272		472,033

TOTAL INVESTMENTS—149.5%									$	2,353,057		2,395,223

LIABILITIES IN EXCESS OF OTHER ASSETS—(49.5%)												(792,900	)

NET ASSETS—100.0%											$	1,602,323

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Schedule of Investments (continued)

As of December 31, 2021

(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, 2021, the three-month London Interbank Offered Rate, or LIBOR, or L, was 0.21% and the Secured Overnight Financing Rate, or SOFR, or SF, was 0.05%. PIK means paid-in-kind. PIK income accruals may be adjusted based on the fair value of the underlying investment.

(c)	Denominated in U.S. dollars, unless otherwise noted.

(d)	Fair value determined by the Company’s board of trustees (see Note 8).

(e)	Security is an unfunded commitment. The stated rate reflects the spread disclosed at the time of commitment and may not indicate the actual rate received upon funding.

(f)	Security or portion thereof is pledged as collateral supporting the amounts outstanding under the Senior Secured Notes with JPMorgan Chase Bank, N.A. (see Note 9).

(g)	Security held within FS Energy Investments, LLC, a wholly-owned subsidiary of the Company.

(h)	Position or portion thereof unsettled as of December 31, 2021.

(i)	Security held within EP Northern Investments, LLC, a wholly-owned subsidiary of the Company.

(j)	Security held within FS Power Investments, LLC, a wholly-owned subsidiary of the Company.

(k)

The investment is not a qualifying asset under the Investment Company Act of 1940, as amended, or the 1940 Act. A business development company may not acquire any asset other than a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company’s total assets. As of December 31, 2021, 72.1% of the Company’s total assets represented qualifying assets.

(l)	Listed investments may be treated as debt for U.S. generally accepted accounting principles, or GAAP, or tax purposes.

(m)	Security was on non-accrual status as of December 31, 2021.

(n)	Security held within FSEP Investments, Inc., a wholly-owned subsidiary of the Company.

(o)	Security is non-income producing.

(p)	Security or portion thereof held within FS Power Investments II, LLC, a wholly-owned subsidiary of the Company.

(q)	Security held within EP American Energy Investments, Inc., a wholly-owned subsidiary of the Company.

(r)	Security held within EP Synergy Investments, Inc., a wholly-owned subsidiary of the Company.

(s)	Security is classified as Level 3 in the Company’s fair value hierarchy (See Note 8).

(t)	Investment denominated in Canadian dollars. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2021.

(u)	Investment denominated in British pounds. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2021.

(v)	Investment is a real property interest and is included with Senior Secured Loans—First Lien to facilitate comparison with other investments.

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Schedule of Investments (continued)

As of December 31, 2021

(in thousands, except share amounts)

(w)

Under the 1940 Act, the Company generally is deemed to be an “affiliated person” of a portfolio company if it owns 5% or more of the portfolio company’s voting securities and generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of December 31, 2021, the Company held investments in portfolio companies of which it is deemed to be an “affiliated person” but is not deemed to “control”. The following table presents certain information with respect to investments in portfolio companies of which the Company was deemed to be an affiliated person as of December 31, 2021:


Portfolio Company	Fair Value at December 31, 2020		Gross Additions⁽¹⁾		Gross Reductions⁽²⁾			Net Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)			Fair Value at December 31, 2021		Interest Income⁽³⁾		PIK Income⁽³⁾		Dividend Income⁽³⁾
Senior Secured Loans—First Lien
Limetree Bay Energy, LLC	$	—	$	14,343	$	—		$	—		$	(11,177	)	$	3,166	$	—	$	—	$	—
Permian Production Holdings, LLC		11,446		489		(6,401	)		1,106			1,249			7,889		1,009		215		—
Warren Resources, Inc.⁽⁴⁾		27,788		69		(27,857	)		—			—			—		—		—		—
Senior Secured Bonds
Great Western Petroleum, LLC		—		53,913		—			—			4,142			58,055		5,861		—
Limetree Bay Ventures, LLC		25,538		—		(3,810	)		(21,752	)		24			—		—		—		—
Limetree Bay Ventures, LLC		36,308		19		(5,137	)		(29,021	)		(2,169	)		—		19		—		—
Limetree Bay Ventures, LLC		89,968		43,291		(9,889	)		(49,783	)		(73,587	)		—		—		—		—
Unsecured Debt
Limetree Bay Ventures, LLC		—		—		(6,298	)		(31,516	)		37,814			—		—		—		—
Limetree Bay Ventures, LLC		—		—		(1,648	)		(8,244	)		9,892			—		—		—		—
Preferred Equity
Limetree Bay Ventures, LLC, Preferred Equity		—		—		—			(53,548	)		53,548			—		—		—		—
Limetree Bay Ventures, LLC, Preferred Equity		—		—		—			(86,729	)		86,729			—		—		—		—
Equity/Other
Great Western Petroleum, LLC, Common Equity		—		30,790		—			—			9,941			40,731		—		—		—
Harvest Oil & Gas Corp., Common Equity		2,794		—		(1,756	)		—			1,798			2,836		—		—		—
Limetree Bay Energy, LLC, Class A Units		—		19,663		—			—			(13,617	)		6,046		—		—		—
Limetree Bay Ventures, LLC, Common Equity		—		—		—			(3,406	)		3,406			—		—		—		—
Lonestar Resources US Inc., Common Equity		2,592		—		(2,376	)		—			(216	)		—		—		—		—
Permian Production Holdings, LLC, Common Equity		—		1		—			—			8,828			8,829		—		—		1,574
Ridgeback Resources Inc., Common Equity		38,385		—		—			—			9,971			48,356		—		—		—
Warren Resources, Inc., Common Equity⁽⁴⁾		4,460		—		(20,754	)		—			16,294			—		—		—		—

	$	239,279	$	162,578	$	(85,926	)	$	(282,893	)	$	142,870		$	175,908	$	6,889	$	215	$	1,574

(1)

Gross additions may include increases in the cost basis of investments resulting from new portfolio investments, PIK interest, the amortization of unearned income, the exchange of one or more existing securities for one or more new securities and/or the movement of an existing portfolio company into this category from a different category.

(2)

Gross reductions may include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the exchange of one or more existing securities for one or more new securities and/or the movement of an existing portfolio company out of this category into a different category.

(3)

Interest, PIK and dividend income presented for the year ended December 31, 2021.

(4)

The Company held this investment as of December 31, 2021 but it was deemed to “control” the portfolio company as of December 31, 2021. Transfers in or out have been presented at amortized cost.

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Schedule of Investments (continued)

As of December 31, 2021

(in thousands, except share amounts)

(x)

Under the 1940 Act, the Company generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of December 31, 2021, the Company held investments in portfolio companies of which it is deemed to be an “affiliated person” of and deemed to “control.” The following table presents certain information with respect to investments in portfolio companies of which the Company was deemed to be an affiliated person and deemed to control as of December 31, 2021:


Portfolio Company	Fair Value at December 31, 2020		Gross Additions⁽¹⁾		Gross Reductions⁽²⁾			Net Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)			Fair Value at December 31, 2021		Interest Income⁽³⁾		PIK Income⁽³⁾		Fee Income⁽³⁾		Dividend Income⁽³⁾
Senior Secured Loans—First Lien
Allied Downhole Technologies, LLC	$	—	$	10,282	$	(2,500	)	$	—	$	—		$	7,782	$	2	$	282	$	—	$	—
Allied Wireline Services, LLC		53,007		5,280		(207	)		—		(11,741	)		46,339		276		5,280		—		—
MECO IV Holdco, LLC		—		22,745		—			—		—			22,745		91		951		9		—
Warren Resources, Inc.⁽⁴⁾		—		27,134		(3,446	)		—		—			23,688		2,601		261		—		—
Sustainable Infrastructure Investments, LLC
Sustainable Infrastructure Investments, LLC		61,816		—		(6,089	)		—		(4,957	)		50,770		—		—		—		5,729
Equity/Other
Allied Wireline Services, LLC, Common Equity		1,904		—		—			—		(1,904	)		—		—		—		—		—
Allied Wireline Services, LLC, Warrants		—		—		—			—		—			—		—		—		—		—
MECO IV Holdco, LLC, Class A-1 Units		—		2,161		—			—		2,020			4,181		—		—		—		—
Warren Resources, Inc., Common Equity⁽⁴⁾		—		20,754		—			—		5,100			25,854		—		—		—		—

	$	116,727	$	88,356	$	(12,242	)	$	—	$	(11,482	)	$	181,359	$	2,970	$	6,774	$	9	$	5,729

(1)

(2)

(3)

Interest, PIK, fee and dividend income presented for the year ended December 31, 2021.

(4)

The Company held this investment as of December 31, 2020 but it was deemed to be an “affiliated person” of the portfolio company as of December 31, 2020. Transfers in or out have been presented at amortized cost.

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Schedule of Investments

As of December 31, 2020

(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—42.5%
AIRRO (Mauritius) Holdings II		(k)(p)(s)	Power	L+350, 3.5% PIK, (3.5% Max PIK)		1.5%		7/24/25	$	20,734	$	18,082		$	15,992
AIRRO (Mauritius) Holdings II		(e)(k)(p)(s)	Power	L+350, 3.5% PIK, (3.5% Max PIK)		1.5%		7/24/25		15,189		15,189			11,715
Allied Wireline Services, LLC		(f)(n)(o)(s)(x)	Service & Equipment	10.0% PIK (10.0% Max PIK)				6/15/25		53,007		53,007			53,007
ARB Midstream Operating Company, LLC		(s)	Midstream	L+825		1.0%		11/6/21		1,807		1,804			1,698
Bioenergy Infrastructure Holdings Limited		(k)(s)	Power	L+725		1.0%		12/22/22		429		429			395
Birch Permian LLC		(s)	Upstream	L+800		1.5%		4/12/23		49,865		49,598			49,372
Brazos Delaware II LLC			Midstream	L+400				5/21/25		40,111		38,155			35,140
Cimarron Energy Inc.		(s)	Service & Equipment	L+900		1.0%		6/30/21		7,500		7,500			6,797
Cox Oil Offshore, LLC, Volumetric Production Payments		(i)(o)(s)(v)	Upstream	0.0%				12/31/23		100,000		37,527			31,670
EIF Van Hook Holdings, LLC		(h)	Midstream	L+525				9/5/24		33,392		32,769			21,601
FR BR Holdings LLC		(f)(h)(s)	Midstream	L+650				12/14/23		85,700		82,258			82,966
FR XIII PAA Holdings HoldCo, LLC		(s)	Midstream	L+725		0.5%		10/15/26		29,925		29,343			29,955
Luxe Drillship Operating, LLC		(s)	Upstream	8.0%				10/30/24		16,976		16,088			15,779
MECO IV LLC		(s)	Upstream	L+925		1.5%		9/14/21		33,250		32,951			23,275
MRP CalPeak Holdings, LLC		(h)(s)	Power	L+525		1.5%		1/27/25		14,328		14,328			14,122
MRP West Power Holdings II, LLC		(h)(s)	Power	L+525		1.5%		1/27/25		14,586		14,586			14,378
Navitas Midstream Midland Basin LLC		(h)	Midstream	L+450		1.0%		12/13/24		29,650		28,861			29,298
Navitas Midstream Midland Basin LLC (Mirror Tranche)			Midstream	L+450		1.0%		12/13/24		39,400		38,041			38,931
NNE Holding LLC		(h)(s)	Upstream	L+475, 4.5% PIK (4.5% Max PIK)				3/2/22		40,455		40,419			38,432
Permian Production Holdings, LLC		(f)(s)(w)	Upstream	7.0%, 2.0% PIK (2.0% Max PIK)				11/23/25		14,075		11,498			11,446
Plainfield Renewable Energy Holdings LLC		(o)(s)	Power	10.0% (10.0% Max PIK)				8/22/25		2,998		2,998			—
Plainfield Renewable Energy Holdings LLC, Letter of Credit		(e)(s)	Power	10.0%				8/22/23		2,709		2,709			—
Plainfield Renewable Energy Holdings LLC		(s)	Power	15.5% (9.5% Max PIK)				8/22/25		10,801		10,801			10,602
Swift Worldwide Resources US Holdings Corp.		(h)(s)	Service & Equipment	L+1000, 1.0% PIK (1.0% Max PIK)		1.0%		7/20/21		60,877		60,877			60,877
Warren Resources, Inc.		(s)(w)	Upstream	L+900, 1.0% PIK (1.0% Max PIK)		1.0%		5/21/21		27,788		27,788			27,788

Total Senior Secured Loans—First Lien												667,606			625,236
Unfunded Loan Commitments												(17,898	)		(17,898	)

Net Senior Secured Loans—First Lien												649,708			607,338

Senior Secured Loans—Second Lien—19.3%
Aethon III BR LLC		(s)	Upstream	L+750		1.5%		1/10/25		20,000		19,740			20,000
Aethon United BR LP		(f)(h)(s)	Upstream	L+675		1.0%		9/8/23		148,150		146,950			147,365
Chisholm Energy Holdings, LLC		(f)(s)	Upstream	L+625		1.5%		5/15/26		21,429		21,353			20,792
Encino Acquisition Partners Holdings LLC		(f)	Upstream	L+675		1.0%		10/29/25		41,828		36,014			38,561
Peak Exploration & Production, LLC		(f)(s)	Upstream	L+675		1.5%		11/16/23		13,545		13,497			13,334

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Schedule of Investments (continued)

As of December 31, 2020

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes		Industry	Rate^(b)	Floor		Maturity		Principal Amount^(c)		Amortized Cost			Fair Value^(d)
Peak Exploration & Production, LLC		(e)(s)	Upstream	L+675		1.5%		11/16/23	$	1,505	$	1,505		$	1,482
Penn Virginia Holdings Corp.		(f)(h)(k)(s)	Upstream	L+700		1.0%		9/29/22		20,950		20,587			19,563
SilverBow Resources, Inc.		(f)(h)(k)(s)	Upstream	L+750		1.0%		12/15/24		19,000		18,877			16,720

Total Senior Secured Loans—Second Lien												278,523			277,817
Unfunded Loan Commitments												(1,505	)		(1,505	)

Net Senior Secured Loans—Second Lien												277,018			276,312

Senior Secured Bonds—23.8%
Black Swan Energy Ltd.		(k)(s)	Upstream	9.0%				1/20/24		90,000		90,000			89,100
Limetree Bay Ventures, LLC		(f)(m)(o)(s)(w)	Midstream	20.0% PIK (20.0% Max PIK)				1/4/21		25,538		25,562			25,538
Limetree Bay Ventures, LLC		(f)(m)(o)(s)(w)	Midstream	20.0% PIK (20.0% Max PIK)				1/4/21		36,308		34,139			36,308
Limetree Bay Ventures, LLC		(f)(m)(o)(s)(w)	Midstream	20.0% PIK (20.0% Max PIK)				1/4/21		89,968		16,381			89,968
Velvet Energy Ltd.		(f)(k)(s)	Upstream	9.0%				10/5/23		120,000		120,000			99,128

Total Senior Secured Bonds												286,082			340,042

Unsecured Debt—9.5%
Global Jet Capital Holdings, LP		(f)(o)(s)	Industrials	15.0% PIK (15.0% Max PIK)				1/30/25		1,330		1,178			1,172
Global Jet Capital Holdings, LP		(f)(o)(s)	Industrials	15.0% PIK (15.0% Max PIK)				4/30/25		8,450		7,484			7,447
Global Jet Capital Holdings, LP		(f)(o)(s)	Industrials	15.0% PIK (15.0% Max PIK)				9/3/25		1,746		1,547			1,539
Global Jet Capital Holdings, LP		(f)(o)(s)	Industrials	15.0% PIK (15.0% Max PIK)				9/29/25		1,644		1,456			1,449
Global Jet Capital Holdings, LP		(f)(o)(s)	Industrials	15.0% PIK (15.0% Max PIK)				12/2/26		1,446		1,280			1,274
Great Western Petroleum, LLC		(f)(s)	Upstream	8.5%				4/15/25		13,636		13,183			12,954
Great Western Petroleum, LLC		(f)	Upstream	9.0%				9/30/21		35,830		35,827			21,140
Hammerhead Resources Inc.		(f)(k)(o)(s)	Upstream	12.0% PIK (12.0% Max PIK)				7/15/24		55,607		55,144			55,607
Limetree Bay Ventures, LLC		(f)(m)(o)(s)(w)	Midstream	15.0% PIK (15.0% Max PIK)				3/3/21		37,778		37,814			—
Limetree Bay Ventures, LLC		(f)(m)(o)(s)(w)	Midstream	20.0% PIK (20.0% Max PIK)				2/1/21		9,882		9,892			—
Moss Creek Resources, LLC		(f)	Upstream	7.5%				1/15/26		6,693		5,075			5,103
Tenrgys, LLC		(f)(m)(n)(o)(s)	Upstream	L+900		2.5%		12/23/18		75,000		75,300			26,875

Total Unsecured Debt												245,180			134,560

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Schedule of Investments (continued)

As of December 31, 2020

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes		Industry	Rate^(b)	Floor	Maturity		Number of Shares		Amortized Cost		Fair Value^(d)
Preferred Equity—33.0%^(l)
Abaco Energy Technologies LLC, Preferred Equity		(o)(s)	Service & Equipment						28,942,003	$	1,447	$	5,354
Altus Midstream LP, Series A Preferred Units		(j)(s)	Midstream	11.0%			6/28/26		52,856		56,228		54,177
Global Jet Capital Holdings, LP, Preferred Equity		(f)(o)(s)	Industrials						27,856		2,786		—
Great Western Petroleum, LLC, Preferred Equity		(f)(h)(r)(s)	Upstream	15.5%			12/31/27		36,364		47,372		18,182
Limetree Bay Ventures, LLC, Preferred Equity		(f)(m)(o)(s)(w)	Midstream	13.5%			11/30/24		95,821,000		86,729		—
Limetree Bay Ventures, LLC, Preferred Equity		(f)(m)(o)(s)(w)	Midstream	13.5%			11/27/23		59,819,000		53,548		—
NGL Energy Partners, LP, Preferred Equity		(k)(s)	Midstream	14.2%			7/2/27		156,250		168,049		109,375
NuStar, Preferred Equity		(f)(h)(k)(s)	Midstream	12.8%			6/29/28		3,910,165		102,744		118,048
Segreto Power Holdings, LLC, Preferred Equity		(f)(g)(s)	Power	13.1%			6/30/25		70,297		92,750		79,546
USA Compression Partners, LP, Preferred Equity		(h)(k)(s)	Midstream	9.8%			4/3/28		79,336		77,600		86,395

Total Preferred Equity											689,253		471,077


								Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Sustainable Infrastructure Investments, LLC—4.3%
Sustainable Infrastructure Investments, LLC		(k)(s)(x)	Power					$	60,603	$	60,603	$	61,816

Total Sustainable Infrastructure Investments, LLC											60,603		61,816


								Number of Shares		Amortized Cost		Fair Value^(d)
Equity/Other—20.3%^(l)
Abaco Energy Technologies LLC, Common Equity		(f)(o)(s)	Service & Equipment						6,944,444	$	6,944	$	896
AIRRO (Mauritius) Holdings II, Warrants		(f)(k)(o)(p)(s)	Power						35		2,652		2,504
Allied Wireline Services, LLC, Common Equity		(f)(n)(o)(s)(x)	Service & Equipment						48,400		1,527		1,904
Allied Wireline Services, LLC, Warrants		(f)(n)(o)(s)(x)	Service & Equipment						22,000		—		—
Arena Energy, LP, Contingent Value Rights		(f)(o)(s)	Upstream						126,632,117		351		418
Ascent Resources Utica Holdings, LLC, Common Equity		(f)(o)(q)(s)	Upstream						148,692,908		44,700		33,084
Chisholm Oil and Gas, LLC, Series A Units		(g)(o)(s)	Upstream						14,700,000		14,700		—
Cimarron Energy Holdco Inc., Common Equity		(f)(o)(s)	Service & Equipment						4,302,293		3,950		30
Cimarron Energy Holdco Inc., Participation Option		(f)(o)(s)	Service & Equipment						25,000,000		1,289		175
Denbury Inc., Common Equity		(f)(k)(o)	Upstream						1,265,510		22,906		32,511
Harvest Oil & Gas Corp., Common Equity		(f)(o)(w)	Upstream						135,062		17,558		2,794
Limetree Bay Ventures, LLC, Common Equity		(f)(o)(s)(w)	Midstream						128,645		3,406		—

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Schedule of Investments (continued)

As of December 31, 2020

(in thousands, except share amounts)


Portfolio Company^(a)	Footnotes		Industry	Rate ^(b)	Floor	Maturity	Number of Shares		Amortized Cost		Fair Value^(d)
Lonestar Resources US Inc., Common Equity		(f)(o)(w)	Upstream					864,000	$	2,376	$	2,592
Luxe Drillship Operating, LLC, Overriding Royalty Interest		(f)(o)(s)	Upstream					N/A		1,354		773
Maverick Natural Resources, LLC, Common Equity		(f)(g)(n)(o)(s)	Upstream					503,176		138,208		152,860
MB Precision Investment Holdings LLC, Class A-2 Units		(f)(n)(o)(s)	Industrials					1,426,110		490		—
NGL Energy Partners, LP, Warrants (Par)		(f)(k)(o)(s)	Midstream					2,187,500		3,083		88
NGL Energy Partners, LP, Warrants (Premium)		(f)(k)(o)(s)	Midstream					3,125,000		2,623		81
NGL Energy Partners, LP, Warrants (Premium)		(f)(k)(o)(s)	Midstream					781,250		576		21
NGL Energy Partners, LP, Warrants (Par)		(f)(k)(o)(s)	Midstream					546,880		630		22
Permian Production Holdings, LLC, Common Equity		(f)(n)(o)(s)(w)	Upstream					1,951,667		—		—
Ridgeback Resources Inc., Common Equity		(f)(k)(o)(s)(t)(w)	Upstream					9,599,928		58,985		38,385
Rosehill Operating Company, LLC, Common Equity		(f)(n)(o)(s)	Upstream					13,973		2,182		2,377
Swift Worldwide Resources Holdco Limited, Common Equity		(f)(k)(o)(s)(u)	Service & Equipment					3,750,000		6,029		2,531
UP Energy, LLC, Common Equity		(f)(o)(s)	Upstream					367,237		9,019		8,160
USA Compression Partners, LP, Warrants (Market)		(f)(h)(k)(o)(s)	Midstream					793,359		555		1,412
USA Compression Partners, LP, Warrants (Premium)		(f)(h)(k)(o)(s)	Midstream					1,586,719		714		2,253
Warren Resources, Inc., Common Equity		(f)(o)(s)(w)	Upstream					4,415,749		20,754		4,460

Total Equity/Other										367,561		290,331

TOTAL INVESTMENTS—152.7%									$	2,575,405		2,181,476

LIABILITIES IN EXCESS OF OTHER ASSETS—(52.7%)												(752,899	)

NET ASSETS—100.0%											$	1,428,577

(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, 2020, the three-month London Interbank Offered Rate, or LIBOR, was 0.24% and the U.S. Prime Lending Rate, or Prime, was 3.25%. PIK means paid-in-kind. PIK income accruals may be adjusted based on the fair value of the underlying investment.

(c)	Denominated in U.S. dollars, unless otherwise noted.

(d)	Fair value determined by the Company’s board of trustees (see Note 8).

(e)	Security is an unfunded commitment. The stated rate reflects the spread disclosed at the time of commitment and may not indicate the actual rate received upon funding.

(f)	Security or portion thereof is pledged as collateral supporting the amounts outstanding under the Senior Secured Notes with JPMorgan Chase Bank, N.A. (see Note 9).

(g)	Security held within FS Energy Investments, LLC, a wholly-owned subsidiary of the Company.

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Schedule of Investments (continued)

As of December 31, 2020

(in thousands, except share amounts)

(h)	Security or portion thereof held within Gladwyne Funding LLC, a wholly-owned subsidiary of the Company.

(i)	Security held within EP Northern Investments, LLC, a wholly-owned subsidiary of the Company.

(j)	Security held within FS Power Investments, LLC, a wholly-owned subsidiary of the Company.

(k)

The investment is not a qualifying asset under the Investment Company Act of 1940, as amended, or the 1940 Act. A business development company may not acquire any asset other than a qualifying asset, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the business development company’s total assets. As of December 31, 2020, 67.6% of the Company’s total assets represented qualifying assets. Therefore, the Company may not make investments other than in qualifying assets until qualifying assets represent at least 70% of the Company’s total assets.

(l)	Listed investments may be treated as debt for U.S. generally accepted accounting principles, or GAAP, or tax purposes.

(m)	Security was on non-accrual status as of December 31, 2020.

(n)	Security held within FSEP Investments, Inc., a wholly-owned subsidiary of the Company.

(o)	Security is non-income producing.

(p)	Security or portion thereof held within FS Power Investments II, LLC, a wholly-owned subsidiary of the Company.

(q)	Security held within EP American Energy Investments, Inc., a wholly-owned subsidiary of the Company.

(r)	Security held within EP Synergy Investments, Inc., a wholly-owned subsidiary of Gladwyne Funding LLC.

(s)	Security is classified as Level 3 in the Company’s fair value hierarchy (See Note 8).

(t)	Investment denominated in Canadian dollars. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2020.

(u)	Investment denominated in British pounds. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2020.

(v)	Investment is a real property interest and is included with Senior Secured Loans—First Lien to facilitate comparison with other investments.

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Schedule of Investments (continued)

As of December 31, 2020

(in thousands, except share amounts)

(w)

Under the 1940 Act, the Company generally is deemed to be an “affiliated person” of a portfolio company if it owns 5% or more of the portfolio company’s voting securities and generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of December 31, 2020, the Company held investments in portfolio companies of which it is deemed to be an “affiliated person” but is not deemed to “control”. The following table presents certain information with respect to such portfolio companies for the year ended December 31, 2020:


Portfolio Company	Fair Value at December 31, 2019		Purchases, Paid-in-Kind Interest and Transfers In		Sales, Repayments and Transfers Out			Accretion of Discount		Net Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)			Fair Value at December 31, 2020		Interest Income⁽¹⁾		PIK Income⁽¹⁾
Senior Secured Loans—First Lien
BL Sand Hills Unit, L.P.	$	288	$	—	$	(223)			$—	$	(16,451	)	$	16,386		$	—	$	—	$	—
MB Precision Holdings LLC		4,585		157		(3,949)			48		(748	)		(93	)		—		305		157
Permian Production Holdings, LLC		—		11,450		—			48		—			(52	)		11,446		262		23
Warren Resources, Inc.		27,507		281		—			—		—			—			27,788		2,915		280
Senior Secured Loans—Second Lien
Titan Energy Operating, LLC		—		—		(600)			—		(100,302	)		100,902			—		—		—
Senior Secured Bonds
FourPoint Energy, LLC		223,369		—		(135,635)			636		(96,598	)		8,228			—		5,647		—
Limetree Bay Ventures, LLC		—		25,562		—			—		—			(24	)		25,538		—		2,700
Limetree Bay Ventures, LLC		—		33,813		—			326		—			2,169			36,308		326		1,790
Limetree Bay Ventures, LLC		—		16,381		—			—		—			73,587			89,968		—		—
Unsecured Debt
Limetree Bay Ventures, LLC		—		37,814		—			—		—			(37,814	)		—		—		3,068
Limetree Bay Ventures, LLC		—		9,892		—			—		—			(9,892	)		—		—		1,045
Preferred Equity
Limetree Bay Ventures, LLC, Preferred Equity		—		86,105		—			624		—			(86,729	)		—		689		1,950
Limetree Bay Ventures, LLC, Preferred Equity		—		53,548		—			—		—			(53,548	)		—		—		986
MB Precision Investment Holdings LLC, Class A Preferred Units		1,205		—		—			—		(1,880	)		675			—		—		—
Equity/Other
BL Sand Hills Unit, L.P., Net Profits Interest		—		—		(60)			—		(5,120	)		5,180			—		—		—
BL Sand Hills Unit, L.P., Overriding Royalty Interest		—		—		(8)			—		(732	)		740			—		—		—
BL Sand Hills Unit, L.P., Series A Units		—		—		—			—		(24,019	)		24,019			—		—		—
FourPoint Energy, LLC, Common Equity, Class C-II-A Units		6,906		—		(376)			—		(65,624	)		59,094			—		—		—
FourPoint Energy, LLC, Common Equity, Class D Units		1,307		—		(70)			—		(8,106	)		6,869			—		—		—
FourPoint Energy, LLC, Common Equity, Class E-II Units		15,793		—		(859)			—		(36,875	)		21,941			—		—		—
FourPoint Energy, LLC, Common Equity, Class E-III Units		23,306		—		(1,268)			—		(54,420	)		32,382			—		—		—
Harvest Oil & Gas Corp., Common Equity		8,644		—		(2,701)			—		—			(3,149	)		2,794		—		—
Limetree Bay Ventures, LLC, Common Equity		—		3,406		—			—		—			(3,406	)		—		—		—
Lonestar Resources US Inc., Common Equity		—		2,376		—			—		—			216			2,592		—		—
MB Precision Investment Holdings LLC, Class A-2 Units		—		—		(490)			—		—			490			—		—		—
Permian Production Holdings, LLC, Common Equity		—		—		—			—		—			—			—		—		—
Ridgeback Resources Inc., Common Equity		50,721		—		—			—		—			(12,336	)		38,385		—		—
Titan Energy, LLC, Common Equity		16		—		—			—		(17,554	)		17,538			—		—		—
Warren Resources, Inc., Common Equity		10,951		—		—			—		—			(6,491	)		4,460		—		—

	$	374,598	$	280,785	$	(146,239	)	$	1,682	$	(428,429	)	$	156,882		$	239,279	$	10,144	$	11,999

(1)

Interest and PIK income presented for the year ended December 31, 2020.

See notes to consolidated financial statements.

FS Energy and Power Fund

Consolidated Schedule of Investments (continued)

As of December 31, 2020

(in thousands, except share amounts)

(x)

Under the 1940 Act, the Company generally is deemed to “control” a portfolio company if it owns more than 25% of the portfolio company’s voting securities or it has the power to exercise control over the management or policies of such portfolio company. As of December 31, 2020, the Company held investments in portfolio companies of which it is deemed to be an “affiliated person” of and deemed to “control.” The following table presents certain information with respect to such portfolio companies for the year ended December 31, 2020:


Portfolio Company	Fair Value at December 31, 2019		Purchases, Paid-in-Kind Interest and Transfers In		Sales, Repayments and Transfers Out		Accretion of Discount		Net Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)		Fair Value at December 31, 2020		Interest Income⁽¹⁾
Senior Secured Loans—First Lien
Allied Wireline Services, LLC	$	—	$	53,007	$	—	$	—	$	—		$	—	$	53,007	$	2,886
Lusk Operating LLC		—		—		—		—		(27,464	)		27,464		—		—
Sustainable Infrastructure Investments, LLC
Sustainable Infrastructure Investments, LLC		—		60,603		—		—		—			1,213		61,816		—
Equity/Other
Allied Wireline Services, LLC, Common Equity		—		1,527		—		—		—			377		1,904		—
Allied Wireline Services, LLC, Warrants		—		—		—		—		—			—		—		—
Lusk Operating LLC, Common Equity		—		—		—		—		—			—		—		—

	$	—	$	115,137	$	—	$	—	$	(27,464	)	$	29,054	$	116,727	$	2,886

(1)

Interest income presented for the year ended December 31, 2020.

See notes to consolidated financial statements.

FS Energy and Power Fund

Notes to 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. The Company is an externally managed, non-diversified, closed-end management investment company that 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. In addition, the Company 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 December 31, 2021, the Company had various wholly-owned financing subsidiaries, including special-purpose financing subsidiaries and subsidiaries through which it holds or expects to hold interests in certain portfolio companies. The audited consolidated financial statements include both the Company’s accounts and the accounts of its wholly-owned subsidiaries as of December 31, 2021. 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.

The Company is managed by FS/EIG Advisor, LLC, or FS/EIG Advisor, pursuant to an investment advisory and administrative services agreement, dated as of April 9, 2018, or the FS/EIG investment advisory agreement. FS/EIG Advisor oversees the management of the Company’s operations and is responsible for making investment decisions with respect to the Company’s portfolio. FS/EIG Advisor is jointly operated by an affiliate of Franklin Square Holdings, L.P. (which does business as FS Investments) and EIG Asset Management, LLC, or EIG.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation: The accompanying audited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The Company is considered an investment company under GAAP and follows the accounting and reporting guidance applicable to investment companies under Accounting Standards Codification Topic 946, Financial Services—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.

Use of Estimates: The preparation of the audited 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.

Cash and Cash Equivalents: The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s cash and cash equivalents are maintained with high credit quality financial institutions, which are members of the Federal Deposit Insurance Corporation.

Valuation of Portfolio Investments: The Company determines the fair value of its investment portfolio each quarter. Securities are valued at fair value as determined in good faith by the Company’s board of trustees. In connection with that determination, FS/EIG Advisor provides the Company’s 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.

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 2. Summary of Significant Accounting Policies (continued)

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, the Company undertakes a multi-step valuation process each quarter, as described below:

•

the Company’s quarterly fair valuation process begins with FS/EIG Advisor reviewing and documenting preliminary valuations of each portfolio company or investment;

•

such preliminary valuations for each portfolio company or investment are compared to a valuation range that is obtained from an independent third-party valuation service;

•

FS/EIG Advisor then provides the valuation committee of the Company’s board of trustees, or the valuation committee, its valuation recommendation for each portfolio company or investment, along with supporting materials;

•

preliminary valuations are then discussed with the valuation committee;

•

the valuation committee reviews the preliminary valuations and FS/EIG Advisor, together with the Company’s independent third-party valuation services, if applicable, supplements the preliminary valuations to reflect any comments provided by the valuation committee;

•

following its review, the valuation committee will recommend that the Company’s board of trustees approve its fair valuations; and

•

the Company’s board of trustees discusses the valuations and determines the fair value of each such investment in the Company’s portfolio in good faith based on various statistical and other factors, including the input and recommendation of FS/EIG Advisor, the valuation committee and any independent third-party valuation services, if applicable.

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to the Company’s consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations and any change in such valuations on the Company’s consolidated financial statements. In making its determination of fair value, the Company’s board of trustees may use any approved independent third-party pricing or valuation services. However, the Company’s 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/EIG Advisor or any approved independent third-party valuation or pricing service that the Company’s board of trustees deems to be reliable in determining fair value under the circumstances. Below is a description of factors that FS/EIG Advisor, any approved independent third-party valuation services and the Company’s board of trustees may consider when determining the fair value of the Company’s investments.

Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, the Company 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 the Company’s debt investments.

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 2. Summary of Significant Accounting Policies (continued)

The Company’s equity interests in portfolio companies for which there is no liquid public market are valued at fair value. The Company’s 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, PV-10 multiples or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or the Company’s 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/EIG Advisor, any approved independent third-party valuation services and the Company’s 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/EIG Advisor, any approved independent third-party valuation services and the Company’s 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 the Company’s board of trustees, in consultation with FS/EIG Advisor and any approved independent third-party valuation services, if applicable, may consider relevant in assessing fair value. Generally, the value of the Company’s 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 the Company receives 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. The Company’s board of trustees subsequently values these warrants or other equity securities received at their fair value.

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

Revenue Recognition: Security transactions are accounted for on the trade date. The Company records interest income on an accrual basis to the extent that it expects to collect such amounts. The Company records dividend income on the ex-dividend date. Distributions received from limited liability company, or LLC, and limited partnership, or LP, investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. The Company does not accrue as a receivable interest or dividends on loans and securities if it has reason to doubt its ability to collect such income. The Company’s policy is to place investments on non-accrual status when there is reasonable doubt that interest income will be collected. The Company considers many factors relevant to an investment when placing it on or removing it from non-accrual status including, but not limited to, the delinquency status of the investment, economic and business conditions, the overall financial condition of the underlying investment, the value of the underlying collateral, bankruptcy status, if any, and any other facts or circumstances

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 2. Summary of Significant Accounting Policies (continued)

relevant to the investment. If there is reasonable doubt that the Company will receive any previously accrued interest, then the accrued interest will be written-off. Payments received on non-accrual investments may be recognized as income or applied to principal depending upon the collectability of the remaining principal and interest. Non-accrual investments may be restored to accrual status when principal and interest become current and are likely to remain current based on the Company’s judgment.

Loan origination fees, original issue discount and market discount are capitalized and the Company amortizes 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. The Company records prepayment premiums on loans and securities as fee income when it earns such amounts.

For the years ended December 31, 2021, 2020 and 2019 the Company recognized $0, $83 and $139, respectively, in structuring or other upfront fee revenue.

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. The Company measures 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 it may hold. Net change in unrealized gains or losses on foreign currency reflects the change in the value of foreign currency held, receivables or accruals during the reporting period due to the impact of foreign currency fluctuations.

Capital Gains Incentive Fee: Pursuant to the terms of the FS/EIG investment advisory 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,” which are 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 incentive fees on capital gains. The Company will accrue for the incentive fee on capital gains, which, if earned, will be paid annually. The Company will accrue the incentive fee on capital gains based on net realized and unrealized gains; however, the fee payable to FS/EIG Advisor will be based on realized gains and no such fee will be payable with respect to unrealized gains unless and until such gains are actually realized.

Subordinated Income Incentive Fee: Pursuant to the terms of the FS/EIG investment advisory agreement, FS/EIG Advisor may also be entitled to receive a subordinated incentive fee on income. The subordinated incentive fee on income under the FS/EIG investment advisory agreement is calculated and payable quarterly in arrears and equals 20.0% of the Company’s “pre-incentive fee net investment income” for the immediately preceding quarter 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/EIG 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 proceeds from its distribution reinvestment plan) reduced for distributions from non-liquidating dispositions of the Company’s investments paid to shareholders and amounts paid for share repurchases pursuant to the Company’s share repurchase program. Once the Company’s pre-incentive fee net investment income in any quarter exceeds the hurdle rate, FS/EIG Advisor will be entitled to a “catch-up” fee equal to the amount of the Company’s 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 will allow FS/EIG Advisor to recoup the fees foregone as a result of the existence of the hurdle rate. Thereafter, FS/EIG Advisor will be entitled to receive 20.0% of the Company’s pre-incentive fee net investment income.

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 2. Summary of Significant Accounting Policies (continued)

Swap Contracts: The Company may enter into swap contracts to economically hedge against the variability in cash flows associated with the sale of future crude oil and natural gas production. While the use of these derivative instruments limits the downside risk of adverse price movements, their use also limits future revenues from upward price movements. The Company’s previously held fixed price swaps were settled monthly based on differences between the fixed price specified in the contract and the referenced settlement price. When the referenced settlement price was less than the price specified in the contract, the Company received an amount from the counterparty based on the price difference multiplied by the volume. Similarly, when the referenced settlement price exceeded the price specified in the contract, the Company paid the counterparty an amount based on the price difference multiplied by the volume.

Income Taxes: The Company 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. To maintain qualification as a RIC and maintain RIC tax treatment, the Company must, among other things, meet certain source-of-income and asset diversification requirements, as well as distribute to its shareholders, in respect of each tax year, dividends of an amount generally at least equal to 90% of its “investment company taxable income,” which is generally the Company’s net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses, determined without regarding to any deduction for dividends paid. As a RIC, the Company will not have to pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes as dividends to its shareholders. The Company intends to make distributions in an amount sufficient to qualify for and maintain its RIC tax treatment each tax year and to not pay any U.S. federal income taxes on income so distributed. The Company will also be subject to nondeductible U.S. federal excise taxes if it does not timely distribute dividends each calendar year of an amount at least equal to the sum of 98% of ordinary income (taking into account certain deferrals and elections) for the calendar year, 98.2% of any capital gain net income (adjusted for certain ordinary losses) for the one-year period ending on October 31 of such calendar year, and any recognized and undistributed ordinary income from prior years for which it paid no income taxes. Certain of the Company’s consolidated subsidiaries are subject to U.S. federal and state income taxes.

Uncertainty in Income Taxes: The Company evaluates its 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 the 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. The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in the consolidated statements of operations. During the years ended December 31, 2021, 2020 and 2019, the Company did not incur any interest or penalties.

The Company has analyzed the tax positions taken on federal and state income tax returns for all open tax years, and has concluded that no provision for income tax is required in the Company’s financial statements. The Company’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

Distributions: Distributions to the Company’s shareholders are recorded as of the record date. Subject to the discretion of the Company’s board of trustees and applicable legal restrictions, the Company intends to declare regular cash distributions on a quarterly basis and pay such distributions on a monthly basis. Net realized capital gains, if any, are distributed or deemed distributed at least annually.

Reclassifications: Certain amounts in the consolidated financial statements for the years ended December 31, 2020 and 2019 have been reclassified to conform to the classifications used to prepare the consolidated financial statements for the year ended December 31, 2021. These reclassifications had no material impact on the Company’s consolidated financial position, results of operations or cash flows as previously reported.

Recent Accounting Pronouncements: In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848),” which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 2. Summary of Significant Accounting Policies (continued)

reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which expanded the scope of Topic 848 to include derivative instruments impacted by discounting transition. ASU 2020-04 and ASU 2021-01 are effective for all entities through December 31, 2022. The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging relationships entered into or evaluated after December 31, 2022, except for hedging transactions as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company is currently evaluating the impact of the adoption of ASU 2020-04 and 2021-01 on its consolidated financial statements.

Note 3. Share Transactions

Below is a summary of transactions with respect to the Company’s common shares during the years ended December 31, 2021, 2020 and 2019:


	Year Ended December 31,
	2021				2020						2019
	Shares		Amount		Shares			Amount			Shares			Amount
Reinvestment of Distributions		6,069,376	$	21,135		6,420,185		$	26,236			16,921,366		$	101,727
Share Repurchase Program		—		—		(4,877,069	)		(26,823	)		(18,895,526	)		(114,998	)

Net Proceeds from Share Transactions		6,069,376	$	21,135		1,543,116		$	(587	)		(1,974,160	)	$	(13,271	)

During the period from January 1, 2022 to March 11, 2022, the Company issued 1,434,432 common shares pursuant to its distribution reinvestment plan for gross proceeds of $5,235 at an average price per share of $3.65.

On February 25, 2020, the Company received exemptive relief from the SEC permitting it to offer multiple classes of common shares. While the Company has no present intention to recommence a public offering of its common shares, the Company could do so in the future.

Share Repurchase Program

In March 2020, in light of difficult market conditions and in an effort to preserve liquidity in the Company, the Company’s board of trustees determined to suspend for an indefinite period of time the Company’s share repurchase program and will reassess the Company’s ability to recommence such program in future periods.

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

•

the effect of such repurchases on the Company’s qualification as a RIC (including the consequences of any necessary asset sales);

•

the liquidity of the Company’s assets (including fees and costs associated with disposing of assets);

•

the Company’s investment plans and working capital requirements;

•

the relative economies of scale with respect to the Company’s size;

•

the Company’s history in repurchasing common shares or portions thereof; and

•

the condition of the securities markets.

Historically, the Company limited the number of common shares to be repurchased during any calendar year to the lesser of (i) the number of common shares the Company can repurchase with the proceeds it receives from the issuance of common shares under the Company’s distribution reinvestment plan and (ii) 10% of the weighted average number of common shares outstanding in the prior calendar year, or 2.5% in each calendar quarter. On May 5, 2017, the board of trustees of the Company further

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 3. Share Transactions (continued)

amended the share repurchase program. As amended, the Company will limit the maximum number of common shares to be repurchased for any repurchase offer to the greater of (A) the number of common shares that the Company can repurchase with the proceeds it has received from the sale of common shares under its distribution reinvestment plan during the twelve-month period ending on the date the applicable repurchase offer expires (less the amount of proceeds used to repurchase common shares on each previous repurchase date for repurchase offers conducted during such twelve-month period) (this limitation is referred to as the twelve-month repurchase limitation) and (B) the number of common shares that the Company can repurchase with the proceeds the Company receives from the sale of common shares under its distribution reinvestment plan during the three-month period ending on the date the applicable repurchase offer expires (this limitation is referred to as the three-month repurchase limitation). In addition to this limitation, the maximum number of common shares to be repurchased for any repurchase offer will also be limited to 10% of the weighted average number of common shares outstanding in the prior calendar year, or 2.5% in each calendar quarter. As a result, the maximum number of common shares to be repurchased for any repurchase offer will not exceed the lesser of (i) 10% of the weighted average number of common shares outstanding in the prior calendar year, or 2.5% in each calendar quarter, and (ii) whichever is greater of the twelve-month repurchase limitation described in clause (A) above and the three-month repurchase limitation described in clause (B) above. Furthermore, the maximum number of common shares to be repurchased for any repurchase offer may further be limited by that certain Senior Secured Credit Agreement, dated August 16, 2018, by and among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., or JPMorgan, as administrative agent and collateral agent, and the other parties signatory thereto, as amended, or the JPMorgan Facility. See Note 9 for a discussion of the JPMorgan Facility.

If the Company recommences its share repurchase program, the Company intends to offer to repurchase common shares at a price equal to the price at which common shares are issued pursuant to the Company’s distribution reinvestment plan on the distribution date coinciding with the applicable share repurchase date. The price at which common shares are issued under the Company’s distribution reinvestment plan is determined by the Company’s board of trustees or a committee thereof, in its sole discretion, and will be (i) not less than the net asset value per common share as determined in good faith by the Company’s board of trustees or a committee thereof, in its sole discretion, immediately prior to the payment date of the distribution and (ii) not more than 2.5% greater than the net asset value per common share as of such date. The Company’s board of trustees may amend, suspend or terminate the share repurchase program at any time, upon 30 days’ notice.

The Company did not repurchase any shares pursuant to its share repurchase program during the year ended December 31, 2021. The following table provides information concerning the Company’s repurchases of common shares pursuant to its share repurchase program during the years ended December 31, 2020 and 2019:


For the Three Months Ended	Repurchase Date		Shares Repurchased		Percentage of Shares Tendered That Were Repurchased			Percentage of Outstanding Shares Repurchased as of the Repurchase Date			Repurchase Price Per Share		Aggregate Consideration for Repurchased Shares
Fiscal 2019
December 31, 2018		January 2, 2019		4,568,195		16	%		1.04	%	$	6.10	$	27,866
March 31, 2019		April 1, 2019		4,365,903		13	%		0.99	%	$	6.20		27,069
June 30, 2019		July 23, 2019		4,193,499		10	%		0.95	%	$	6.20		26,000
September 30, 2019		October 2, 2019		4,243,599		9	%		0.97	%	$	5.85		24,825

Total				17,371,196									$	105,760

Fiscal 2020
December 31, 2019		January 8, 2020		4,354,073		9	%		0.99	%	$	5.50	$	23,947

Total				4,354,073									$	23,947

In order to minimize the expense of supporting small accounts and provide additional liquidity to shareholders of the Company holding small accounts after completion of a regular quarterly share repurchase offer, the Company reserves the right to repurchase the shares of and liquidate any investor’s account if the balance of such account is less than the Company’s $5

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 3. Share Transactions (continued)

minimum initial investment, unless the account balance has fallen below the minimum solely as a result of a decline in the Company’s net asset value per share. The Company will provide or will cause to be provided 30 days’ prior written notice to potentially affected investors, which notice may be included in a regular quarterly repurchase offer materials, of any such repurchase. Any such repurchases will be made at the Company’s most recent price at which the Company’s shares were issued pursuant to its distribution reinvestment plan.

There were no de minimis account liquidations during the year ended December 31, 2021. The following table summarizes the common shares repurchased by the Company relating to its de minimis account liquidations during the years ended December 31, 2020 and 2019:


For the Three Months Ended	Repurchase Date		Shares Repurchased			Percentage of Outstanding Shares Repurchased as of the Repurchase Date			Repurchase Price Per Share		Aggregate Consideration for Repurchased Shares
Fiscal 2019
December 31, 2018		January 16, 2019		423,643			0.10	%	$	6.10	$	2,584
March 31, 2019		April 11, 2019		297,672			0.07	%	$	6.20		1,846
June 30, 2019		August 8, 2019		312,841			0.07	%	$	6.20		1,940
September 30, 2019		October 17, 2019		490,174			0.11	%	$	5.85		2,868

Total				1,524,330							$	9,238

Fiscal 2020
December 31, 2019		January 17, 2020		522,996	��		0.12	%	$	5.50	$	2,876

Total				522,996							$	2,876

Note 4. Related Party Transactions

Compensation of the Investment Adviser

Pursuant to the FS/EIG investment advisory agreement, FS/EIG Advisor is entitled to an annual base management fee based on the average weekly value of the Company’s gross assets (gross assets equals total assets as set forth on the Company’s consolidated balance sheets) during the most recently completed calendar quarter and an incentive fee based on the Company’s performance. The base management fee is payable quarterly in arrears, and is calculated at an annual rate of 1.75% of the average weekly value of the Company’s gross assets. Pursuant to a letter dated May 13, 2020, or the May Letter, FS/EIG Advisor elected to defer the payment of 74.9% of the base management fee to which it was entitled for the investment advisory services provided during the quarterly period ended March 31, 2020 and thereafter until it notified the Company that it no longer intends to defer payments. Pursuant to the May Letter, FS/EIG Advisor agreed that it would take the deferred payment for any quarter upon the earlier of (1) the date provided by FS/EIG Advisor in a written notice to the Company and (2) the end of the third full calendar quarter following the quarter in which the provision of services to which such deferred payment relates. Pursuant to the May Letter, the deferred payment for any quarter would be deferred without interest and could be taken in such other quarter, in whole or in part, as FS/EIG Advisor determined. FS/EIG Advisor has received the deferred payments for the quarters ended March 31, 2020 and June 30, 2020 and elected not to defer the base management fee for the quarters ended September 30, 2020 and December 31, 2020. In addition, on February 26, 2021, FS/EIG Advisor notified the Company that it no longer intends to defer the payment of any portion of the management fee pursuant to the May Letter. See Note 2 for a discussion of the capital gains and subordinated income incentive fees that FS/EIG Advisor may be entitled to under the FS/EIG investment advisory agreement.

FS/EIG Advisor may receive structuring or other upfront fees from portfolio companies in which FS/EIG Advisor has caused the Company to invest. FS/EIG Advisor has agreed to offset the amount of any structuring or other upfront fees received by FS/EIG Advisor against the management fees payable by the Company under the FS/EIG investment advisory agreement. During the years ended December 31, 2021, 2020 and 2019, $1,439, $706 and $5,992, respectively, of structuring or other upfront fees received by FS/EIG Advisor were offset against management fees.

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

Pursuant to the FS/EIG investment advisory agreement, FS/EIG Advisor oversees the Company’s day-to-day operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations, certain government and regulatory affairs activities and other administrative services. FS/EIG Advisor also performs, or oversees the performance of, the Company’s corporate operations and required administrative services, which includes being responsible for the financial records that the Company is required to maintain and preparing reports for the Company’s shareholders and reports filed with the SEC.

The Company reimburses FS/EIG Advisor for expenses necessary to perform services related to the Company’s administration and operations, including FS/EIG Advisor’s allocable portion of the compensation and/or related expenses of certain personnel of FS Investments and EIG providing administrative services to the Company on behalf of FS/EIG Advisor, and for transactional expenses for prospective investments, such as fees and expenses associated with performing due diligence reviews of investments that do not close, often referred to as “broken deal” costs. The Company reimburses FS/EIG Advisor no less than quarterly for expenses necessary to perform services related to the Company’s administration and operations. The amount of this reimbursement is set at the lesser of (1) FS/EIG 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/EIG Advisor allocates the cost of such services to the Company based on factors such as time allocations and other reasonable metrics. The Company’s board of trustees reviews the methodology employed in determining how the expenses are allocated to the Company and assesses the reasonableness of such reimbursements for expenses allocated to the Company based on the breadth, depth and quality of such services as compared to the estimated cost to the Company of obtaining similar services from third-party providers known to be available. In addition, the Company’s board of trustees considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, the Company’s board of trustees, among other things, compares the total amount paid to FS/EIG 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 does not reimburse FS/EIG 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/EIG Advisor.

The following table describes the fees and expenses accrued under the FS/EIG investment advisory agreement during the years ended December 31, 2021, 2020 and 2019:


	Source Agreement		Description	Year Ended December 31,
Related Party	Source Agreement		Description	2021		2020		2019
FS/EIG Advisor		FS/EIG investment advisory agreement	Base Management Fee⁽¹⁾	$	40,122	$	48,323	$	62,534
FS/EIG Advisor		FS/EIG investment advisory agreement	Administrative Services Expenses⁽²⁾	$	5,713	$	6,579	$	4,760

(1)

During the years ended December 31, 2021, 2020 and 2019, $39,812, $53,749 and $63,358, respectively, in base management fees were paid to FS/EIG Advisor. The base management fee amount shown in the table above for the years ended December 31, 2021, 2020 and 2019 is shown net of $1,439, $706 and $5,992, respectively, in structuring or other upfront fees received by FS/EIG Advisor and offset against base management fees. As of December 31, 2021, $10,466 in base management fees were payable to FS/EIG Advisor.

(2)

During the years ended December 31, 2021, 2020 and 2019, $3,450, $3,821 and $2,914, respectively, of the accrued administrative services expenses related to the allocation of costs of administrative personnel for services rendered to the Company by FS/EIG Advisor and the remainder related to other reimbursable expenses. The Company paid $4,849, $5,316 and $3,662, respectively, in administrative services expenses to FS/EIG Advisor, or its affiliates, during the years ended December 31, 2021, 2020 and 2019.

Potential Conflicts of Interest

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 4. Related Party Transactions (continued)

Exemptive Relief

As a BDC, the Company is subject to certain regulatory restrictions in making its investments. For example, BDCs generally are not permitted to co-invest with certain affiliated entities in transactions originated by the BDC or its affiliates in the absence of an exemptive order from the SEC. However, BDCs are permitted to, and may, simultaneously co-invest in transactions where price is the only negotiated term. In an order dated June 4, 2013, or the Order, 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 its former investment adviser, including FS KKR Capital Corp., or collectively the Company’s co-investment affiliates. Effective April 9, 2018, or the JV Effective Date, and in connection with the transition of advisory services to a joint advisory relationship with EIG, the Company’s board of trustees authorized and directed that the Company (i) withdraw from the Order, except with respect to any transaction in which the Company participated in reliance on the Order prior to the JV Effective Date, and (ii) rely on an exemptive relief order dated April 10, 2018, granted to EIG and its affiliates which permits the Company to participate in co-investment transactions with certain other EIG advised funds, or the EIG Order.

Note 5. Distributions

The following table reflects the cash distributions per share that the Company has declared on its common shares during the years ended December 31, 2021, 2020 and 2019:


	Distribution
For the Year Ended December 31,	Per Share		Amount
2019	$	0.5000	$	218,187
2020	$	0.1733	$	75,656
2021	$	0.1200	$	53,264

Although the Company’s board of trustees has not declared or resumed regular cash distributions to shareholders for any period after March 31, 2020, the Company’s board of trustees has since declared three cash distributions in 2020 and four cash distributions in 2021, each in the amount of $0.03 per share. FS/EIG Advisor and the Company’s board of trustees expect that future regular cash distributions to shareholders will remain suspended until such time that the Company’s board of trustees and FS/EIG Advisor believe that market conditions and the financial condition of the Company support the resumption of such distributions. The Company’s board of trustees has and will continue to evaluate the Company’s ability to pay any distributions in the future. There can be no assurance that the Company will be able to pay distributions in the future. 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. Furthermore, the JPMorgan Facility restricts the ability of the Company to make certain discretionary cash dividends and distributions and other restricted payments. See Note 9 for a discussion of the JPMorgan Facility.

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.

Under the distribution reinvestment plan, cash distributions to participating shareholders will be reinvested in additional common shares at a purchase price determined by the Company’s board of trustees, or a committee thereof, in its sole discretion, that is (i) not less than the net asset value per common share as determined in good faith by the Company’s board of trustees or a committee thereof, in its sole discretion, immediately prior to the payment of the distribution and (ii) not more than 2.5% greater than the net asset value per common share as of such date. Any distributions reinvested under the plan will remain taxable to a U.S. shareholder.

The Company may fund its cash distributions to shareholders from any sources of funds legally available to it, including proceeds from the sale of the Company’s common shares, borrowings, net investment income from operations, capital gains

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 5. Distributions (continued)

proceeds from the sale of assets and 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. The Company has not established limits on the amount of funds it may use from available sources to make distributions. The Company’s distribution proceeds have exceeded and in the future may exceed its earnings. Therefore, portions of the distributions that the Company has made represented, and may make in the future may represent, a return of capital to shareholders, which lowers their tax basis in their common shares. A return of capital generally is a return of a shareholder’s investment rather than a return of earnings or gains derived from the Company’s investment activities. Each year a statement on Form 1099-DIV identifying the sources of the distributions (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of capital, which is a nontaxable distribution) will be mailed to the Company’s shareholders. There can be no assurance that the Company will be able to pay distributions at a specific rate or at all.

The following table reflects the sources of the cash distributions on a tax basis that the Company declared on its common shares during the year ended December 31, 2021, 2020 and 2019:


	Year Ended December 31,
	2021					2020					2019
Source of Distribution	Distribution Amount		Percentage			Distribution Amount		Percentage			Distribution Amount		Percentage
Net investment income⁽¹⁾⁽²⁾	$	53,264		100	%	$	63,272		84	%	$	217,484		100	%
Short-term capital gains proceeds from the sale of assets		—		—			—		—			—		—
Long-term capital gains proceeds from the sale of assets		—		—			—		—			—		—
Return of capital		—		—			12,384		16	%		—		—

Total	$	53,264		100	%	$	75,656		100	%	$	217,484		100	%

(1)

During the years ended December 31, 2021, 2020 and 2019, 74.1%, 72.7% and 92.8%, respectively, of the Company’s gross investment income was attributable to cash income earned, 18.5%, 13.7% and 3.0%, respectively, was attributable to paid-in-kind, or PIK, interest and 7.4%, 13.6% and 4.2%, respectively, was attributable to non-cash accretion of discount.

(2)	Of the distribution declared on December 30, 2020, $13,188 is treated as a distribution from 2021 tax-basis net investment income.

The Company’s net investment income on a tax basis for the years ended December 31, 2021, 2020 and 2019 was $80,892, $55,648 and $210,714, respectively. As of December 31, 2021 and 2020, the Company had $14,440 and $0, respectively, of undistributed ordinary income on a tax basis.

The Company has in the past and may experience additional restructurings or defaults in the future. Any restructuring or default may have an impact on the level of income received by the Company.

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

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 5. Distributions (continued)

The following table sets forth a reconciliation between GAAP-basis net investment income and tax-basis net investment income during the years ended December 31, 2021, 2020 and 2019:


	Year Ended December 31,
	2021			2020			2019
GAAP-basis net investment income	$	43,259		$	82,447		$	201,784
Reclassification of unamortized original issue discount and prepayment fees		(4,030	)		(404	)		(7,407	)
GAAP vs. tax-basis impact of consolidation of certain subsidiaries		13,532			(5,565	)		21,789
Income subject to tax not recorded for GAAP (income recorded for GAAP not subject to tax)		28,182			(24,640	)		(10,863	)
Other miscellaneous differences		(51	)		3,810			5,411

Tax-basis net investment income	$	80,892		$	55,648		$	210,714

The Company may make certain adjustments to the classification of shareholders’ equity as a result of permanent book-to-tax differences. During the years ended December 31, 2021 and 2020, the Company increased accumulated earnings (deficit) and reduced capital in excess of par value by $44,362 and $445,075, respectively.

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

As of December 31, 2021 and 2020, the components of accumulated earnings on a tax basis were as follows:


	December 31,
	2021			2020
Distributable ordinary income	$	14,440		$	—
Accumulated capital losses⁽¹⁾		(1,277,194	)		(1,303,633	)
Other temporary differences		(107	)		(13,320	)
Net unrealized appreciation (depreciation) on investments and unrealized gain/loss on foreign currency⁽²⁾		(264,514	)		(407,395	)

Total	$	(1,527,375	)	$	(1,724,348	)

(1)	Net capital losses may be carried forward indefinitely, and their character is retained as short-term or long-term. As of December 31, 2021, the Company had short-term and long-term capital loss carryforwards available to offset future realized capital gains of $86,927 and $1,190,267, respectively.

(2)

As of December 31, 2021 and 2020, the gross unrealized appreciation on the Company’s investments and unrealized gain on foreign currency was $288,368 and $179,295, respectively, and the gross unrealized depreciation on the Company’s investments and unrealized loss on foreign currency was $552,882 and $586,690, respectively.

The aggregate cost of the Company’s investments for federal income tax purposes totaled $2,659,737 and $2,588,883 as of December 31, 2021 and 2020, respectively. The aggregate net unrealized appreciation (depreciation) on a tax basis was $(264,514) and $(407,395) as of December 31, 2021 and 2020, respectively.

As of December 31, 2021 and 2020, the Company had deferred tax assets of $155,160 and $197,748, respectively, resulting primarily from net operating losses and capital losses of the Company’s wholly-owned taxable subsidiaries. As of December 31, 2021 and 2020, certain wholly-owned taxable subsidiaries anticipated that they would be unable to fully utilize their deferred tax assets, therefore the deferred tax assets were offset by valuation allowances of $155,160 and $197,748, respectively. For the years ended December 31, 2021 and 2020, the Company did not record a provision for taxes related to its wholly-owned taxable subsidiaries.

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 6. Financial Instruments

The Company may trade in financial instruments with off-balance sheet risk in the normal course of its investing activities. During the years ended December 31, 2020 and 2019, the Company utilized swap contracts to economically hedge certain risks against natural gas and crude oil price exposure related to certain investments in the Company’s portfolio. While the use of these derivative instruments limits the downside risk of adverse price movements, their use also limits future revenues from upward price movements.

The Company’s fixed price swaps were settled monthly based on differences between the fixed price specified in the contract and the referenced settlement price. When the referenced settlement price was less than the price specified in the contract, the Company received an amount from the counterparty based on the price difference multiplied by the volume. Similarly, when the referenced settlement price exceeded the price specified in the contract, the Company paid the counterparty an amount based on the price difference multiplied by the volume. The prices contained in these fixed price swaps are based on the NYMEX Henry Hub for natural gas and the NYMEX West Texas Intermediate, or NYMEX WTI, for oil. Gas volumes are measured in one million British thermal units, or MMBtus, and oil volumes are measured in barrels, or Bbls. As of December 31, 2021 and 2020, the Company did not have any fixed price swap positions.

In addition, the Company entered into oil basis swap positions, which settled on the pricing index to basis differential of Argus Light Louisiana Sweet Crude Oil, or Argus LLS, to NYMEX WTI. As of December 31, 2021 and 2020, the Company did not have any oil basis swap positions for Argus LLS.

The effect of swap contracts (which are not considered to be hedging instruments for accounting disclosure purposes) on the Company’s statements of operations for the years ended December 31, 2020 and 2019 were as follows:


	Year Ended December 31,
	2020					2019
Instrument	Realized Gain (Loss) on Derivatives Recognized in Income⁽¹⁾		Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income⁽²⁾			Realized Gain (Loss) on Derivatives Recognized in Income⁽¹⁾		Net Change in Unrealized Appreciation (Depreciation) on Derivatives Recognized in Income⁽²⁾
Swap Contracts—Crude Oil	$	19,313	$	(5,982	)	$	5,078	$	(13,787	)
Swap Contracts—Natural Gas		937		(569	)		375		684

Total	$	20,250	$	(6,551	)	$	5,453	$	(13,103	)

(1)	Reflected on the Company’s consolidated statements of operations as: Net realized gain (loss) on swap contracts.

(2)	Reflected on the Company’s consolidated statements of operations as: Net change in unrealized appreciation (depreciation) on swap contracts.

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 7. Investment Portfolio

The following table summarizes the composition of the Company’s investment portfolio at cost and fair value as of December 31, 2021 and 2020:


	December 31, 2021							December 31, 2020
	Amortized Cost⁽¹⁾		Fair Value		Percentage of Portfolio			Amortized Cost⁽¹⁾		Fair Value		Percentage of Portfolio
Senior Secured Loans—First Lien	$	832,257	$	812,335		34	%	$	649,708	$	607,338		28	%
Senior Secured Loans—Second Lien		83,322		84,083		3	%		277,018		276,312		13	%
Senior Secured Bonds		77,266		81,646		3	%		286,082		340,042		16	%
Unsecured Debt		425,715		397,068		17	%		245,180		134,560		6	%
Preferred Equity		515,711		497,288		21	%		689,253		471,077		22	%
Sustainable Infrastructure Investments, LLC		54,514		50,770		2	%		60,603		61,816		3	%
Equity/Other		364,272		472,033		20	%		367,561		290,331		12	%

	$	2,353,057	$	2,395,223		100	%	$	2,575,405	$	2,181,476		100	%

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

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

As of December 31, 2021, the Company held investments in four portfolio companies of which it is deemed to “control.” As of December 31, 2021, the Company held investments in five portfolio companies of which it is deemed to be an “affiliated person” but is not deemed to “control.” For additional information with respect to such portfolio companies, see footnotes (w) and (x) to the consolidated schedule of investments as of December 31, 2021.

As of December 31, 2020, the Company held investments in two portfolio companies of which it is deemed to “control.” As of December 31, 2020, the Company held investments in six portfolio companies of which it is deemed to be an “affiliated person” but is not deemed to “control.” For additional information with respect to such portfolio companies, see footnotes (w) and (x) to the consolidated schedule of investments as of December 31, 2020.

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 December 31, 2021, the Company had eight senior secured loan investments with aggregate unfunded commitments of $72,514 and unfunded commitments of $7,625 in U.S. dollars and $858 in Canadian dollars to contribute capital to Sustainable Infrastructure Investments, LLC. As of December 31, 2020, the Company had three senior secured loan investments with aggregate unfunded commitments of $19,403 and an unfunded commitment of $2,234 to contribute to Sustainable Infrastructure Investments, LLC. The Company maintains sufficient cash on hand, available borrowings and/or liquid securities to fund such unfunded commitments should the need arise.

During the year ended December 31, 2021, the Company’s debt and equity investments in Limetree Bay Ventures, LLC and Limetree Energy, LLC, or collectively Limetree, resulted in realized and unrealized losses of approximately $193,136. The losses are a result of a write-down of such investments due to the shut-down of Limetree’s refinery operations as a result of regulatory, operational and financial challenges. In July 2021, Limetree filed for bankruptcy. There is a substantial risk that no new cash flows will accrue to the Company’s investments in Limetree.

100

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 7. Investment Portfolio (continued)

The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of December 31, 2021 and 2020:


	December 31, 2021					December 31, 2020
Industry Classification	Fair Value		Percentage of Portfolio			Fair Value		Percentage of Portfolio
Upstream	$	1,071,201		44	%	$	1,080,577		50	%
Midstream		893,004		37	%		763,275		34	%
Power		302,510		13	%		131,356		6	%
Service & Equipment		65,534		3	%		131,571		6	%
Industrials		12,204		1	%		12,881		1	%
Sustainable Infrastructure Investments, LLC⁽¹⁾		50,770		2	%		61,816		3	%

Total	$	2,395,223		100	%	$	2,181,476		100	%

(1)	Sustainable Infrastructure Investments, LLC is generally comprised of midstream, renewables and power assets.

Sustainable Infrastructure Investments, LLC

Sustainable Infrastructure Investments, LLC, or SIIJV, is a joint venture between the Company and Imperial Sustainable Infrastructure Investments, LLC, or Imperial, a subsidiary of Imperial Capital Asset Management, LLC, or ICAM. The joint venture is governed pursuant to the terms of an amended and restated limited liability company agreement of SIIJV, dated as of January 2, 2020, between the Company and Imperial, or the SIIJV Agreement. The SIIJV Agreement requires the Company and Imperial to provide capital to SIIJV of up to $67,629 in U.S. dollars and $5,430 in Canadian dollars in the aggregate where the Company and Imperial would provide 87.5% and 12.5%, respectively, of the committed capital. Pursuant to the terms of the SIIJV Agreement, the Company and Imperial each have 50% voting control of SIIJV and are required to agree on all investment decisions as well as all other significant actions for SIIJV. SIIJV invests in senior secured loans (both first lien and second lien) to middle market companies, broadly syndicated loans and other midstream, renewables and power assets. As administrative agent of SIIJV, the Company performs certain day-to-day management responsibilities on behalf of SIIJV and is entitled to a fee in the annual amount of 0.25% of SIIJV’s net assets under administration, calculated and payable quarterly in arrears. As of December 31, 2021, the Company and Imperial funded approximately $62,300 to SIIJV, of which $54,514 was from the Company. The Company does not consolidate SIIJV in its consolidated financial statements.

On January 2, 2020, Seine Funding, LLC, or Seine Funding, a wholly-owned subsidiary of SIIJV, entered into a credit facility, as amended, or the Seine Funding Facility, with certain financial institutions as lender, agent, collateral agent, collateral administrator, and collateral custodian, and SIIJV, as collateral manager. The Seine Funding Facility provides for borrowings in U.S. dollars and certain agreed upon foreign currencies in an aggregate principal amount of up to $634,103 on a committed basis, which may be increased under certain circumstances at the request of Seine Funding and with the consent of the lender and agent. The end of the reinvestment period for the Seine Funding Facility was December 31, 2020. The maturity date for the Seine Funding Facility is the earlier of (i) the latest maturity date among the assets securing the facility and (ii) the first date, after the end of the reinvestment period, on which all assets securing the facility are paid in full. Under the Seine Funding Facility, borrowings bear interest at the rate of three-month LIBOR (or the relevant reference rate for any foreign currency borrowings) (subject to a 0% floor) plus 1.20% per annum. Borrowings under the Seine Funding Facility are secured by a first priority security interest in substantially all of the assets of Seine Funding. As of December 31, 2021, total outstanding borrowings under the Seine Funding Facility were $318,894.

101

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 7. Investment Portfolio (continued)

Below is a summary of SIIJV’s portfolio, followed by a listing of the individual loans in SIIJV’s portfolio as of December 31, 2021 and 2020:


	December 31, 2021			December 31, 2020
Total investments⁽¹⁾	$	316,422		$	442,916
Weighted average current interest rate on debt investments⁽²⁾		2.34	%		2.24	%
Number of portfolio assets in SIIJV		11			14
Largest investment in a single portfolio company⁽¹⁾	$	79,521		$	84,914

(1)

At cost.

(2)	Computed as the (a) annual stated interest rate on accruing debt, divided by (b) total debt at par amount.

Sustainable Infrastructure Investments, LLC Portfolio

As of December 31, 2021


Portfolio Company^(a)(f)	Footnotes		Industry		Rate^(b)		Maturity		Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Senior Secured Loans—First Lien—95.7%
AES DE Holdings V, LLC				Renewables		L+175		6/13/26	$	12,720	$	12,720	$	12,166
Alianca Transportadora de Gas Participacoes S.A.				Midstream		L+260		5/23/27		79,521		79,521		80,498
Blue Heron Intermediate Holdco I, LLC				Midstream		L+175		4/22/24		32,894		32,894		33,034
Cedar Creek II LLC				Renewables		L+188		11/18/23		9,574		9,574		9,633
Copper Mountain Solar 3, LLC				Renewables		L+175		5/29/25		19,189		19,189		19,315
FLNG Liquefaction 2, LLC				Midstream		L+150		12/31/26		29,753		29,753		29,893
Meikle Wind Energy, LP		(e)		Renewables		C+150		5/12/24	C$	16,777		12,907		13,567
NES Hercules Class B Member, LLC				Renewables		L+150		1/31/28	$	24,777		24,777		25,573
ST EIP Holdco LLC				Midstream		L+250		11/5/24		60,000		60,000		60,018
Top of the World Wind Energy LLC				Renewables		L+188		12/2/28		21,470		21,470		21,604

Total Senior Secured Loans—First Lien												302,805		305,301

Unsecured Debt—4.3%
Sociedad Minera Cerro Verde S.A.A.				Power		L+190		6/19/22		13,617		13,617		13,665

Total Unsecured Debt												13,617		13,665

TOTAL INVESTMENTS—100.0%											$	316,422	$	318,966

Percentages are shown as a percentage of total investments.

(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, 2021, the three-month LIBOR was 0.21% and Canadian Dollar Offer Rate, or C, was 0.52%.

(c)	Denominated in U.S. dollars unless otherwise noted.

(d)	Security is classified as Level 3.

(e)	Investment denominated in Canadian dollars. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2021.

(f)	Security or portion thereof is held within Seine Funding and is pledged as collateral supporting the amounts outstanding under the Seine Funding Facility.

102

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 7. Investment Portfolio (continued)

Sustainable Infrastructure Investments, LLC Portfolio

As of December 31, 2020


Portfolio Company^(a)(g)	Footnotes		Industry		Rate^(b)		Maturity		Principal Amount^(c)		Amortized Cost		Fair Value^(d)
Senior Secured Loans—First Lien—95.0%
AES DE Holdings V, LLC				Renewables		L+175		6/13/26	$	15,442	$	15,442	$	14,971
Alianca Transportadora de Gas Participacoes S.A.				Midstream		L+230		5/23/27		84,914		84,914		83,790
Astoria Energy II LLC				Power		L+150		8/31/24		58,789		58,789		59,178
Blue Heron Intermediate Holdco I, LLC				Midstream		L+175		4/22/24		33,884		33,884		33,872
Cedar Creek II LLC				Renewables		L+188		11/18/23		10,580		10,580		10,633
Copper Mountain Solar 3, LLC		(f)		Renewables		L+175		5/29/25		20,539		20,539		20,698
CPV Maryland, LLC		(f)		Power		L+425		3/31/22		12,386		12,386		12,353
Flex Intermediate Holdco, LLC		(f)		Midstream		L+250		5/15/23		30,151		30,151		29,921
FLNG Liquefaction 2, LLC				Midstream		L+150		12/31/26		31,330		31,330		31,165
Meikle Wind Energy, LP		(e)(f)		Renewables		C+150		5/29/24	C$	17,397		13,382		13,870
NES Hercules Class B Member, LLC		(f)		Renewables		L+125		12/15/27	$	24,906		24,906		24,412
ST EIP Holdco LLC				Midstream		L+250		11/5/24		60,000		60,000		59,779
Top of the World Wind Energy LLC				Renewables		L+188		12/2/28		24,617		24,617		24,556

Total Senior Secured Loans—First Lien												420,920		419,198

Unsecured Debt—5.0%
Sociedad Minera Cerro Verde S.A.A.				Power		L+190		6/19/22		21,996		21,996		21,934

Total Unsecured Debt												21,996		21,934

TOTAL INVESTMENTS—100.0%											$	442,916	$	441,132

Percentages are shown as a percentage of total investments.

(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, 2020, the three-month LIBOR was 0.24% and Canadian Dollar Offer Rate, or C, was 0.48%.

(c)	Denominated in U.S. dollars unless otherwise noted.

(d)	Security is classified as Level 3.

(e)	Investment denominated in Canadian dollars. Amortized cost and fair value are converted into U.S. dollars as of December 31, 2020.

(f)	Position or portion thereof unsettled as of December 31, 2020.

(g)	Security or portion thereof is held within Seine Funding and is pledged as collateral supporting the amounts outstanding under the Seine Funding Facility.

103

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 7. Investment Portfolio (continued)

Below is selected balance sheet information for SIIJV as of December 31, 2021 and 2020:


	December 31, 2021		December 31, 2020
Selected Balance Sheet Information
Total investments, at fair value	$	318,966	$	441,132
Cash and other assets		67,611		71,809

Total assets	$	386,577	$	512,941

Debt	$	318,894	$	439,533
Other liabilities		1,464		1,527

Total liabilities		320,358		441,060

Member’s equity	$	66,219	$	71,881

Below is selected statement of operations information for SIIJV for the years ended December 31, 2021 and 2020:


	Year Ended December 31,
	2021		2020
Selected Statement of Operations Information
Total investment income	$	9,007	$	18,426
Expenses
Interest expense		4,891		12,492
Administrative services		175		129
Custodian and accounting fees		175		157
Professional services		156		990
Other		23		—

Total expenses		5,420		13,768

Net investment income		3,587		4,658
Net realized and unrealized gain (loss)		4,276		(2,053	)

Net increase in net assets resulting from operations	$	7,863	$	2,605

Note 8. 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 valuation techniques that maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances. The Company classifies the inputs used to measure these fair values into the following hierarchy as defined by current accounting guidance:

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

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

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

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

104

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Fair Value of Financial Instruments (continued)

As of December 31, 2021 and 2020, the Company’s investments were categorized as follows in the fair value hierarchy:


Valuation Inputs	December 31, 2021		December 31, 2020
Level 1—Price quotations in active markets	$	11,797	$	35,305
Level 2—Significant other observable inputs		761,944		192,366
Level 3—Significant unobservable inputs		1,621,482		1,953,805

Total	$	2,395,223	$	2,181,476

The Company’s investments consist primarily of investments that were acquired directly from the issuer. Debt investments, for which broker quotes are not generally available, are valued by independent valuation firms, which determine 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 investments. Except as described below, the Company’s investment in SIIJV and all of the Company’s preferred equity and equity/other investments are also valued by independent valuation firms, which determine 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, PV-10 multiples or liquidation value. An investment that is newly issued and purchased near the date of the financial statements is valued at cost if the Company’s board of trustees determines that the cost of such investment is the best indication of its fair value. Such investments described above are typically classified as Level 3 within the fair value hierarchy. Investments that are traded on an active public market are valued at their closing price as of the date of the financial statements and are classified as Level 1 within the fair value hierarchy. In determining the fair values of swap contracts, the Company utilized an industry-standard pricing model that considers various inputs including quoted forward prices for commodities, time value and current market and contractual prices for the underlying instruments. These assumptions are observable in the marketplace or can be corroborated by active markets or broker quotes and are typically classified as Level 2 within the fair value hierarchy. Except as described above, the Company values 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 are provided by an independent third-party pricing service and screened for validity by such service and are typically classified as Level 2 within the fair value hierarchy.

The Company periodically benchmarks the bid and ask prices it receives from the third-party pricing service and/or dealers and independent valuation firms, 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. The valuation committee of the board of trustees, or the valuation committee, and the board of trustees reviewed and approved the valuation determinations made with respect to these investments in a manner consistent with the Company’s valuation policy.

105

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Fair Value of Financial Instruments (continued)

The following is a reconciliation for the year ended December 31, 2021 and 2020 of investments for which significant unobservable inputs (Level 3) were used in determining fair value:


	For the Year Ended December 31, 2021
	Senior Secured Loans— First Lien			Senior Secured Loans— Second Lien			Senior Secured Bonds			Unsecured Debt			Preferred Equity			Sustainable Infrastructure Investments, LLC			Equity/ Other			Total
Fair value at beginning of period	$	482,368		$	237,751		$	340,042		$	108,317		$	471,077		$	61,816		$	252,434		$	1,953,805
Accretion of discount (amortization of premium)		2,639			1,389			34			131			5,312			—			455			9,960
Net realized gain (loss)		(8,208	)		750			(100,555	)		(41,422	)		(156,872	)		—			(13,037	)		(319,344	)
Net change in unrealized appreciation (depreciation)		6,597			4,014			(53,605	)		61,751			199,753			(4,957	)		185,848			399,401
Purchases		63,483			18,750			53,291			969			11,942			—			52,615			201,050
Paid-in-kind interest		12,160			—			—			8,373			7,283			—			—			27,816
Sales and repayments		(144,964	)		(178,571	)		(228,836	)		(33,460	)		(41,207	)		(6,089	)		(18,079	)		(651,206	)
Net transfers in or out of Level 3		—			—			—			—			—			—			—			—

Fair value at end of period	$	414,075		$	84,083		$	10,371		$	104,659		$	497,288		$	50,770		$	460,236		$	1,621,482

The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to investments still held at the reporting date	$	(3,388	)	$	3,405		$	355		$	13,752		$	30,286		$	(4,957	)	$	166,497		$	205,950


	For the Year Ended December 31, 2020
	Senior Secured Loans— First Lien			Senior Secured Loans— Second Lien			Senior Secured Bonds			Unsecured Debt			Preferred Equity			Sustainable Infrastructure Investments, LLC		Equity/ Other			Total
Fair value at beginning of period	$	569,778		$	533,234		$	437,761		$	149,300		$	721,842		$	—	$	167,270		$	2,579,185
Accretion of discount (amortization of premium)		1,712			453			961			450			21,276			—		—			24,852
Net realized gain (loss)		(125,577	)		(482,045	)		(96,598	)		(44,131	)		(3,249	)		—		(207,995	)		(959,595	)
Net change in unrealized appreciation (depreciation)		45,240			180,705			57,797			(47,134	)		(242,869	)		1,213		146,304			141,256
Purchases		206,015			19,111			71,267			113,193			22,716			60,603		152,046			644,951
Paid-in-kind interest		4,599			—			4,489			5,939			15,369			—		—			30,396
Sales and repayments		(219,399	)		(13,707	)		(135,635	)		(69,300	)		(64,008	)		—		(5,191	)		(507,240	)
Net transfers in or out of Level 3		—			—			—			—			—			—		—			—

Fair value at end of period	$	482,368		$	237,751		$	340,042		$	108,317		$	471,077		$	61,816	$	252,434		$	1,953,805

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	$	(26,696	)	$	(2,678	)	$	49,569		$	(48,822	)	$	(243,489	)	$	1,213	$	13,569		$	(257,334	)

106

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Fair Value of Financial Instruments (continued)

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements as of December 31, 2021 and 2020 were as follows:

Type of Investment

Fair Value at
December 31, 2021

Valuation
Technique⁽¹⁾

Unobservable
Input

Range

Weighted
Average

Senior Secured Loans—First Lien

376,827

Market Comparables

Market Yield (%)

6.3% - 15.8%

9.1%

EBITDA Multiples (x)

3.5x - 6.7x

4.6x

34,195

Discounted Cash Flow

Discount Rate (%)

8.5% - 13.5%

10.8%

3,053

Other⁽²⁾

Senior Secured Loans—Second Lien

84,083

Market Comparables

Market Yield (%)

7.0% - 10.5%

8.8%

Senior Secured Bonds

10,371

Market Comparables

Market Yield (%)

6.5% - 7.0%

6.8%

Unsecured Debt

64,046

Market Comparables

Market Yield (%)

8.9% - 9.9%

9.4%

40,613

Other⁽²⁾

Preferred Equity

416,516

Market Comparables

Market Yield (%)

7.5% - 24.5%

14.9%

EBITDA Multiples (x)

9.0x - 10.0x

9.5x

Net Aircraft Book Value Multiple (x)

1.0x - 1.0x

1.0x

80,772

Discounted Cash Flow

Discount Rate (%)

9.5% - 10.0%

9.8%

Sustainable Infrastructure Investments, LLC

50,770

Discounted Cash Flow

Discount Rate (%)

11.8% - 12.3%

12.0%

Equity/Other

444,610

Market Comparables

EBITDA Multiples (x)

2.8x - 10.5x

4.7x

Production Multiples (Mboe/d)

$30,000.0 - $35,000.0

$32,500.0

Proved Reserves Multiples (Mmboe)

10.0x - 11.5x

10.8x

Production Multiples (MMcfe/d)

$2,900.0 - $3,200.0

$3,050.0

Proved Reserves Multiples (Bcfe)

0.7x - 0.7x

0.7x

PV-10 Multiples (x)

1.2x - 4.8x

2.8x

3,195

Discounted Cash Flow

Discount Rate (%)

8.0% - 32.0%

23.3%

6,385

Option Valuation Model

Volatility (%)

52.0% - 65.0%

63.6%

6,046

Other⁽²⁾

Total

1,621,482

Type of Investment

Fair Value at
December 31, 2020

Valuation
Technique⁽¹⁾

Unobservable
Input

Range

Weighted
Average

Senior Secured Loans—First Lien

450,698

Market Comparables

Market Yield (%)

6.8% - 26.3%

10.4%

EBITDA Multiples (x)

2.3x - 6.7x

4.1x

31,670

Discounted Cash Flow

Discount Rate (%)

10.0% - 12.5%

11.3%

Senior Secured Loans—Second Lien

237,751

Market Comparables

Market Yield (%)

8.0% - 15.3%

9.7%

Senior Secured Bonds

340,042

Market Comparables

Market Yield (%)

8.7% - 15.8%

12.6%

EBITDA Multiples (x)

6.0x - 8.0x

7.0x

Unsecured Debt

81,442

Market Comparables

Market Yield (%)

9.8% - 11.5%

10.8%

Net Aircraft Book Value Multiple (x)

1.0x - 1.0x

1.0x

26,875

Other⁽²⁾

Preferred Equity

5,354

Market Comparables

EBITDA Multiples (x)

6.0x - 10.5x

10.0x

465,723

Discounted Cash Flow

Discount Rate (%)

7.5% - 50.3%

18.8%

Sustainable Infrastructure Investments, LLC

61,816

Discounted Cash Flow

Discount Rate (%)

10.8% - 11.3%

11.0%

Equity/Other

92,002

Market Comparables

EBITDA Multiples (x)

2.3x - 10.5x

4.6x

Production Multiples (Mboe/d)

$26,500.0 - $31,500.0

$29,000.0

Proved Reserves Multiples
(Mmboe)

7.6x - 9.1x

8.4x

Production Multiples (MMcfe/d)

$1,650.0 - $3,400.0

$2,923.6

Proved Reserves Multiples (Bcfe)

0.4x - 0.7x

0.6x

PV - 10 Multiples (x)

0.5x - 1.6x

1.0x

3,695

Discounted Cash Flow

Discount Rate (%)

8.0% - 32.0%

24.0%

3,877

Option Valuation Model

Volatility (%)

55.0% - 65.0%

60.0%

152,860

Other⁽²⁾

Total

1,953,805

107

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 8. Fair Value of Financial Instruments (continued)

(1)

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

(2)	Fair valued based on expected outcome of proposed corporate transactions, the expected value of the liquidation preference of the investment or other factors.

Note 9. Financing Arrangements

The following tables present a summary of information with respect to the Company’s outstanding financing arrangements as of December 31, 2021 and 2020:


	As of December 31, 2021
Arrangement⁽¹⁾	Type of Arrangement	Rate⁽²⁾		Amount Outstanding		Amount Available		Maturity Date
JPMorgan Facility	Revolving/Term		L+3.00%	$	286,667	$	85,000		February 16, 2023
Senior Secured Notes⁽³⁾	Bond		7.50%		489,000		—		August 15, 2023

Total				$	775,667	$	85,000


	As of December 31, 2020
Arrangement⁽¹⁾	Type of Arrangement	Rate⁽²⁾		Amount Outstanding		Amount Available		Maturity Date
JPMorgan Facility	Revolving/Term		L+3.00%	$	416,667	$	—		February 16, 2023
Senior Secured Notes⁽³⁾	Bond		7.50%		489,000		—		August 15, 2023

Total				$	905,667	$	—

(1)	The carrying amount outstanding under the facility approximates its fair value, unless otherwise noted.

(2)	LIBOR is subject to a 0.00% floor.

(3)	As of December 31, 2021 and 2020, the fair value of the Senior Secured Notes was approximately $510,511 and $473,166, respectively. These valuations are considered Level 2 valuations within the fair value hierarchy.

For the years ended December 31, 2021, 2020 and 2019 the components of total interest expense for the Company’s financing arrangements were as follows:


	Year Ended December 31,
	2021						2020						2019
Arrangement⁽¹⁾	Direct Interest Expense⁽²⁾		Amortization of Deferred Financing Costs and Discount		Total Interest Expense		Direct Interest Expense⁽²⁾		Amortization of Deferred Financing Costs and Discount		Total Interest Expense		Direct Interest Expense⁽²⁾		Amortization of Deferred Financing Costs		Total Interest Expense
Goldman Facility⁽³⁾	$	—	$	—	$	—	$	13,882	$	773	$	14,655	$	26,343	$	481	$	26,824
JPMorgan Facility		9,623		3,780		13,403		16,687		2,417		19,104		18,398		1,591		19,989
Senior Secured Notes		36,675		4,044		40,719		37,009		4,333		41,342		37,500		4,051		41,551

Total	$	46,298	$	7,824	$	54,122	$	67,578	$	7,523	$	75,101	$	82,241	$	6,123	$	88,364

(1)	Borrowings of each of the Company’s wholly-owned special-purpose financing subsidiaries are considered borrowings of the Company for purposes of complying with the asset coverage requirements applicable to BDCs under the 1940 Act.

(2)	Direct interest expense includes the effect of non-usage fees, administration fees and make-whole fees, if any.

108

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 9. Financing Arrangements (continued)

(3)

On July 8, 2020, Gladwyne Funding LLC, or Gladwyne Funding, the Company’s wholly-owned subsidiary, repaid and terminated the committed credit facility which Gladwyne Funding originally entered into on April 19, 2017, with Goldman Sachs Bank U.S.A., as sole lead arranger, sole lender, and administrative agent, and Wells Fargo Bank, National Association, as collateral agent and collateral administrator, or the Goldman Facility.

The Company’s average borrowings and weighted average interest rate, including the effect of non-usage fees, for the year ended December 31, 2021 were $776,406 and 6.97%, respectively. As of December 31, 2021, the Company’s effective interest rate on borrowings was 6.07%.

The Company’s average borrowings and weighted average interest rate, including the effect of non-usage fees, for the year ended December 31, 2020 were $1,062,486 and 7.07%, respectively. As of December 31, 2020, the Company’s effective interest rate on borrowings was 5.52%.

Under its financing arrangements, the Company has made certain representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar financing arrangements. As a result of the COVID-19 pandemic, global lockdowns and negotiations regarding production levels between oil producing countries in 2020, the Company sold certain investments to satisfy certain margin obligations, and if such market conditions recur or worsen, the Company may need to sell additional investments at similarly or even more disadvantageous prices, or enter into other transactions on terms that are disadvantageous to the Company, to satisfy obligations under its financing arrangements. The Company did not comply with covenants under certain of its financing arrangements relating to the Company’s level of shareholder equity as of March 31, 2020. Accordingly, in early April 2020, the Company obtained waivers from the other parties to the applicable financing arrangements to satisfy those covenants. The Company was otherwise in compliance with all covenants required by its financing arrangements as of March 31, 2020. The Company was in compliance with all covenants required by its financing arrangements as of December 31, 2021 and 2020.

Goldman Facility

On July 8, 2020, Gladwyne Funding LLC, or Gladwyne Funding, the Company’s wholly-owned subsidiary, repaid and terminated the committed credit facility, or the Goldman Facility, which Gladwyne Funding originally entered into on April 19, 2017, with Goldman Sachs Bank U.S.A., as sole lead arranger, sole lender, and administrative agent, and Wells Fargo Bank, National Association, as collateral agent and collateral administrator. Prior to the termination of the Goldman Facility, $200,000 aggregate principal amount of loans were outstanding to Gladwyne Funding and such loans accrued interest at a rate equal to LIBOR (subject to a 0% floor) plus 5.20% per annum.

Gladwyne Funding incurred certain customary costs and expenses in connection with the termination of the Goldman Facility.

JPMorgan Facility

On August 16, 2018, the Company entered into that certain Senior Secured Credit Agreement, by and among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., or JPMorgan, as administrative agent and collateral agent, and the other parties signatory thereto, or as amended, the JPMorgan Facility. The JPMorgan Facility provides for borrowings in an aggregate amount of up to $371,667, consisting of (i) up to $140,000 of revolving loans available in U.S. dollars and certain agreed upon foreign currencies and (ii) $231,667 of term loans in U.S. dollars. The JPMorgan Facility provides for a revolving period through February 16, 2022, during which the Company is permitted to borrow, repay and re-borrow the revolving loans. Obligations under the JPMorgan Facility mature on February 16, 2023.

The interest under the JPMorgan Facility (i) for loans bearing interest by reference to the eurocurrency rate is 3.00% per annum plus the one-, two-, three- or six-month adjusted eurocurrency rate, as elected by the Company from time to time, and (ii) for loans bearing interest by reference to the base rate is 2.00% per annum plus the greater of (a) the U.S. Prime Rate on such date, (b) the Federal Reserve Bank of New York Rate for such day plus 0.50% per annum, (c) the adjusted eurocurrency rate for a one-month interest period on such day plus 1.00%, and (d) 1.00% per annum. Interest is payable in arrears at the end of each interest period (or at three-month intervals for interest periods longer than three months) for eurocurrency borrowings and

109

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 9. Financing Arrangements (continued)

quarterly for base rate borrowings. In addition, during the revolving period, the Company pays a commitment fee at a rate equal to 0.50% on the average daily undrawn revolving commitment.

On March 29, 2021, the Company made a $185,000 prepayment of outstanding borrowings under the JPMorgan Facility. Per the terms of the JPMorgan Facility, the first $45,000 of such prepayment was applied to permanently reduce the outstanding commitments under the JPMorgan Facility. The remaining $140,000 of such prepayment reduced outstanding borrowings, but such amount remains available to be re-drawn at any time, at the option of the Company, in accordance with the terms of the JPMorgan Facility.

The Company’s obligations under the JPMorgan Facility are secured, subject to certain exceptions, by (i) a first priority security interest in (a) the Credit Facility First Priority Collateral and (b) the Shared Collateral, and (ii) a second priority security interest in the Notes First Priority Collateral, each as defined in the Senior Secured Credit Agreement.

Pursuant to the JPMorgan Facility, the Company has made certain representations and warranties and must comply with various covenants and reporting requirements customary for facilities of this type, including the following financial covenants: (a) the Company must maintain a minimum shareholder’s equity, measured as of each fiscal quarter end, and (b) the Company must maintain at all times a 200% asset coverage ratio.

The JPMorgan Facility provides for events of default customary for financings of this type. Upon the occurrence of certain events of default, JPMorgan, at the instruction of the lenders, may terminate any remaining commitments and declare the outstanding loans and other obligations under the JPMorgan Facility immediately due and payable. Upon the occurrence of events of default related to bankruptcy, insolvency and similar events, the commitments will automatically terminate and the outstanding loans and other obligations under the JPMorgan Facility will become immediately due and payable. During the continuation of certain events of default and subject, in certain cases, to the instructions of the Lenders, the Company must pay interest at a default rate.

The Company incurred costs in connection with obtaining the JPMorgan Facility and its amendments to date, which the Company recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the facility. As of December 31, 2021, $2,036 of such deferred financing costs had yet to be amortized to interest expense.

7.500% Senior Secured Notes due 2023

On August 16, 2018, the Company, U.S. Bank National Association, or U.S Bank, as trustee, and certain subsidiaries of the Company, entered into an Indenture relating to the Company’s issuance of $500,000 aggregate principal amount of its 7.500% Senior Secured Notes due 2023, or the Notes.

The Notes will mature on August 15, 2023, unless repurchased or redeemed in accordance with their terms prior to such date. The Notes bear interest at a rate of 7.50% per annum, calculated on the basis of a 360-day year comprised of twelve 30-day periods, accruing from August 16, 2018. Interest on the Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2019.

The Notes are general senior secured obligations of the Company and rank pari passu in right of payment to all of the Company’s existing and future unsubordinated indebtedness and other liabilities. The Notes are secured, subject to certain exceptions, by (i) a first priority security interest in (a) the Secured Notes First Priority Collateral and (b) the Shared Collateral, and (ii) a second priority security interest in the Credit Facility First Priority Collateral, each as defined in the Indenture.

The Indenture contains certain covenants, including the requirement that the Company maintain a debt-to-equity ratio of less than or equal to 1.0x. The Notes are subject to certain events of default customary for financings of this type. Upon the occurrence of certain events of default, U.S. Bank or the holders of at least 25% in the aggregate principal amount of the then-outstanding Notes may declare all of the Notes to be due and payable immediately. Upon the occurrence of certain events of default related to bankruptcy, insolvency and similar events, all of the outstanding Notes, including accrued and unpaid interest thereon and premiums, if any, shall become due and payable automatically.

110

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 9. Financing Arrangements (continued)

The Company incurred costs in connection with obtaining the Notes, which the Company recorded as deferred financing costs on its consolidated balance sheets and amortizes to interest expense over the life of the Notes. As of December 31, 2021, $3,350 of such deferred financing costs had yet to be amortized to interest expense. In connection with issuing the Notes, the Company has charged a discount against the carrying amount of such notes. As of December 31, 2021, $3,213 of such discount had yet to be amortized to interest expense.

Note 10. 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. FS/EIG 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 4 for a discussion of the Company’s commitments to FS/EIG Advisor and its affiliates (including FS Investments) and Note 7 for a discussion of the Company’s unfunded commitments.

Note 11. Senior Securities Asset Coverage

Information about the Company’s senior securities is shown in the table below for the years ended December 31, 2021, 2020, 2019, 2018 and 2017.


Year Ended December 31,	Total Amount Outstanding Exclusive of Treasury Securities		Asset Coverage Per Unit⁽¹⁾		Involuntary Liquidation Preference per Unit⁽²⁾		Average Market Value per Unit (Exclude Bank Loans)⁽³⁾
2017	$	1,220,000		3.43		—		N/A
2018	$	1,131,667		3.34		—		N/A
2019	$	1,236,667		2.92		—		N/A
2020	$	905,667		2.58		—		N/A
2021	$	775,667		3.07		—		N/A

(1)	Asset coverage per unit is the ratio of the carrying value of the Company’s total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness.

(2)

The amount to which such class of senior security would be entitled upon the voluntary liquidation of the Company in preference to any security junior to it. The “—” in this column indicates that the SEC expressly does not require this information to be disclosed for certain types of senior securities.

(3)	Not applicable because senior securities are not registered for public trading on an exchange.

111

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 12. Financial Highlights

The following is a schedule of financial highlights of the Company for the years ended December 31, 2021, 2020, 2019, 2018 and 2017.


	Year Ended December 31,
	2021			2020			2019			2018			2017
Per Share Data:⁽¹⁾
Net asset value, beginning of year	$	3.25		$	5.43		$	6.01		$	6.65		$	7.61
Results of operations⁽²⁾
Net investment income		0.09			0.19			0.46			0.42			0.65
Net realized and unrealized appreciation (depreciation) on investments, swaps and gain/loss on foreign currency		0.37			(2.20	)		(0.54	)		(0.56	)		(0.90	)

Net increase (decrease) in net assets resulting from operations		0.46			(2.01	)		(0.08	)		(0.14	)		(0.25	)

Shareholder distributions⁽³⁾
Distributions from net investment income		(0.12	)		(0.14	)		(0.50	)		(0.50	)		(0.71	)
Distributions representing return of capital		—			(0.03	)		—			—			(0.00	)

Net decrease in net assets resulting from shareholder distributions		(0.12	)		(0.17	)		(0.50	)		(0.50	)		(0.71	)

Net asset value, end of year	$	3.59		$	3.25		$	5.43		$	6.01		$	6.65

Shares outstanding, end of year		446,089,499			440,020,123			438,477,007			440,451,167			446,045,135

Total return⁽⁴⁾		14.22	%		(37.68	)%		(1.83	)%		(2.49	)%		(3.65	)%

Total return (without assuming reinvestment of distributions)⁽⁴⁾		14.15	%		(37.02	)%		(1.33	)%		(2.11	)%		(3.29	)%

Ratio/Supplemental Data:
Net assets, end of year	$	1,602,323		$	1,428,577		$	2,379,605		$	2,648,186		$	2,966,042
Ratio of net investment income to average net assets⁽⁵⁾		2.77	%		4.82	%		7.76	%		6.40	%		8.82	%
Ratio of total expenses to average net assets⁽⁵⁾		6.96	%		8.20	%		6.54	%		5.19	%		4.94	%
Portfolio turnover		44.25	%		26.54	%		32.88	%		51.25	%		34.08	%
Total amount of senior securities outstanding, exclusive of treasury securities⁽⁶⁾	$	775,667		$	905,667		$	1,236,667		$	1,131,667		$	1,220,000
Asset coverage per unit⁽⁷⁾		3.07			2.58			2.92			3.34			3.43

(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 year.

(3)	The per share data for distributions reflects the actual amount of distributions paid per share during the applicable year.

(4)

The total return for each year presented was calculated based on the change in net asset value during the applicable year, including the impact of distributions reinvested in accordance with the Company’s distribution reinvestment plan. The total return (without assuming reinvestment of distributions) for each year presented was calculated by taking the net asset value per share as of the end of the applicable year, adding the cash distributions per share which were declared during the applicable year and dividing the total by the net asset value per share at the beginning of the applicable year. The total returns do not consider the effect of any sales commissions or charges that may be incurred in connection with the sale of the Company’s common shares. The total returns include 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 calculations of total returns in the table should not be considered representations of the Company’s future total returns, 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 year should not be relied upon as being indicative of performance in future years. The total return calculations set forth above represent the total returns on the Company’s investment portfolio during the applicable year and do not represent actual returns to shareholders.

112

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 12. Financial Highlights (continued)

(5)	Weighted average net assets during the applicable years are used for this calculation. The following is a schedule of supplemental ratios for the years ended December 31, 2021, 2020, 2019, 2018 and 2017:


	Year Ended December 31,
	2021			2020			2019			2018			2017
Ratio of subordinated income incentive fees to average net assets		—			—			—			—			0.32	%
Ratio of interest expense to average net assets		3.46	%		4.39	%		3.40	%		2.30	%		1.52	%

(6)	Total amount of each class of senior securities outstanding at the end of the year presented.

(7)	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 13. Selected Quarterly Financial Data (Unaudited)

The following is the quarterly results of operations for the years ended December 31, 2021 and 2020. The following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.


	Quarter Ended
	December 31, 2021			September 30, 2021			June 30, 2021			March 31, 2021
Investment income	$	35,699		$	37,891		$	38,956		$	38,161
Operating expenses
Total expenses		27,036			26,143			26,204			29,504
Less: Management fee offset		(90	)		(1,026	)		(321	)		(2	)

Net expenses		26,946			25,117			25,883			29,502

Net investment income		8,753			12,774			13,073			8,659
Realized and unrealized gain (loss)		14,543			50,598			(33,652	)		131,127

Net increase (decrease) in net assets resulting from operations	$	23,296		$	63,372		$	(20,579	)	$	139,786

Per share information—basic and diluted
Net investment income	$	0.01		$	0.03		$	0.03		$	0.02

Net increase (decrease) in net assets resulting from operations	$	0.05		$	0.14		$	(0.05	)	$	0.32

Weighted average shares outstanding		445,986,315			444,498,317			443,011,321			441,521,922

113

FS Energy and Power Fund

Notes to Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Note 13. Selected Quarterly Financial Data (Unaudited) (continued)


	Quarter Ended
	December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
Investment income	$	51,001		$	46,119		$	46,025		$	78,781
Operating expenses
Total expenses		28,901			35,424			35,267			40,593
Less: Management fee offset		(254	)		(2	)		—			(450	)

Net expenses		28,647			35,422			35,267			40,143

Net investment income		22,354			10,697			10,758			38,638
Realized and unrealized gain (loss)		(22,569	)		(17,154	)		(114,991	)		(802,518	)

Net increase (decrease) in net assets resulting from operations	$	(215	)	$	(6,457	)	$	(104,233	)	$	(763,880	)

Per share information—basic and diluted
Net investment income	$	0.05		$	0.02		$	0.02		$	0.09

Net increase (decrease) in net assets resulting from operations	$	(0.00	)	$	(0.01	)	$	(0.24	)	$	(1.75	)

Weighted average shares outstanding		439,914,053			438,305,464			436,770,076			435,458,944

The sum of quarterly per share amounts does not necessarily equal per share amounts reported for the years ended December 31, 2021 and 2020. This is due to changes in the number of weighted average shares outstanding and the effects of rounding for each period.

For the year ended December 31, 2021, 83.1% of distributions qualified as excess interest income for purposes of Internal Revenue Code Section 163(j).

114

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Exchange Act Rule 13(a)-15(b), 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 December 31, 2021. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were (a) designed to ensure that the information we are required to disclose in our reports under the Exchange Act is recorded, processed and reported in an accurate manner and on a timely basis and the information that we are required to disclose in our Exchange Act reports is accumulated and communicated to management to permit timely decisions with respect to required disclosure and (b) operating in an effective manner.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rules 13a-15(f) and 15d-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Our internal control over financial reporting includes those policies and procedures that:

1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions and the dispositions of assets of the Company;

2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and board of trustees; and

3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management’s report on internal control over financial reporting is set forth above under the heading “Management’s Report on Internal Control over Financial Reporting” in Item 8 of this annual report on Form 10-K.

Changes in Internal Control Over Financial Reporting

During the quarter ended December 31, 2021, there has been no change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) or 15d-15(f)) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.

Other Information.

None.

115

PART III

Item 10.

Trustees, Executive Officers and Corporate Governance.

The information required by Item 10 is hereby incorporated by reference from an amendment to this Annual Report on Form 10-K, to be filed with the SEC within 120 days following the end of our fiscal year.

Item 11.

Executive Compensation.

The information required by Item 11 is hereby incorporated by reference from an amendment to this Annual Report on Form 10-K, to be filed with the SEC within 120 days following the end of our fiscal year.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.

The information required by Item 12 is hereby incorporated by reference from an amendment to this Annual Report on Form 10-K, to be filed with the SEC within 120 days following the end of our fiscal year.

Item 13.

Certain Relationships and Related Transactions, and Trustee Independence.

The information required by Item 13 is hereby incorporated by reference from an amendment to this Annual Report on Form 10-K, to be filed with the SEC within 120 days following the end of our fiscal year.

Item 14.

Principal Accountant Fees and Services.

The information required by Item 14 is hereby incorporated by reference from an amendment to this Annual Report on Form 10-K, to be filed with the SEC within 120 days following the end of our fiscal year.

116

PART IV

Item 15.

Exhibits, Financial Statement Schedules.

a. Documents Filed as Part of this Report

The following financial statements are set forth in Item 8:


	Page
Management’s Report on Internal Control over Financial Reporting		66
Report of Independent Registered Public Accounting Firm		67
Consolidated Balance Sheets as of December 31, 2021 and 2020		69
Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019		70
Consolidated Statements of Changes in Net Assets for the years ended December 31, 2021, 2020 and 2019		71
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019		72
Consolidated Schedules of Investments as of December 31, 2021 and 2020		73
Notes to Consolidated Financial Statements		87

b. Exhibits

Please note that the agreements included as exhibits to this annual report on Form 10-K are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about FS Energy and Power Fund or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement that have been made solely for the benefit of the other parties to the applicable agreement and may not describe the actual state of affairs as of the date they were made or at any other time.

The following exhibits are filed as part of this annual report or hereby incorporated by reference to exhibits previously filed with the SEC:


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 Quarterly Report on Form 10-Q filed on August 10, 2017.)

3.2		Amendment No. 1 to the Third Amended and Restated Declaration of Trust of FS Energy and Power Fund. (Incorporated by reference to Exhibit 3.2 to FS Energy and Power Fund’s Quarterly Report on Form 10-Q filed on August 10, 2017.)

3.3		Second Amended and Restated Bylaws 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 June 1, 2017.)

4.1		Second Amended and Restated Distribution Reinvestment Plan of FS Energy and Power Fund. (Incorporated by reference to Exhibit 4.1 to FS Energy and Power Fund’s Current Report on Form 8-K filed on October 17, 2016.)

4.2		Indenture, dated August 16, 2018, by and between FS Energy and Power Fund, U.S. Bank National Association, as trustee, and the guarantors named therein. (Incorporated by reference to Exhibit 4.1 to FS Energy and Power Fund’s Current Report on Form 8-K filed on August 22, 2018.)

4.3		Form of 7.500% Senior Secured Notes due 2023 (included as Exhibit A to Exhibit 4.1 hereto) (Incorporated by reference to Exhibit 4.1 to FS Energy and Power Fund’s Current Report on Form 8-K filed on August 22, 2018.)

4.4*		Description of Securities

10.1		Investment Advisory and Administrative Services Agreement, dated as of April 9, 2018, by and between FS Energy and Power Fund and FS/EIG Advisor, LLC. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund’s Current Report on Form 8-K filed on April 9, 2018.)

10.2		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.)

10.3		Senior Secured Credit Agreement, dated August 16, 2018, by and among FS Energy and Power Fund, the Lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent and the other parties signatory thereto. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund’s Current Report on Form 8-K filed on August 22, 2018.)

117


10.4		Amendment No. 1 and Waiver, dated as of April 9, 2020, among FS Energy and Power Fund, each of the subsidiary guarantors party thereto, each of the lenders and conduit support providers party thereto, and JPMorgan Chase Bank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund’s Current Report on Form 8-K filed on April 9, 2020.)

10.5		Amendment No. 2, dated as of July 6, 2020, among FS Energy and Power Fund, each of the subsidiary guarantors party thereto, each of the lenders and conduit support providers party thereto, and JPMorgan Chase Bank, N.A. (Incorporated by reference to Exhibit 10.1 to FS Energy and Power Fund’s Current Report on Form 8-K filed on July 21, 2020.)

10.6		Guarantee and Security Agreement, dated August 16, 2018, made by FS Energy and Power Fund and certain of FS Energy and Power Fund’s subsidiaries in favor of JPMorgan Chase Bank, N.A. as collateral agent. (Incorporated by reference to Exhibit 10.2 to FS Energy and Power Fund’s Current Report on Form 8-K filed on August 22, 2018.)

10.7		Collateral Agency and Intercreditor Agreement, dated August 16, 2018, by and among FS Energy and Power Fund, FS Energy and Power Fund’s subsidiaries parties thereto, JPMorgan Chase Bank, N.A., as the initial credit facility representative, U.S. Bank National Association as the initial secured notes representative and JPMorgan Chase Bank, N.A., as collateral agent. (Incorporated by reference to Exhibit 10.3 to FS Energy and Power Fund’s Current Report on Form 8-K filed on August 22, 2018.)

21.1*		Subsidiaries of FS Energy and Power Fund.

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.

32.2*		Certification of Chief Financial 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.

c. Financial statement schedules

No financial statement schedules are filed herewith because (1) such schedules are not required or (2) the information has been presented in the aforementioned consolidated financial statements.

Item 16.

Form 10-K Summary.

None.

118

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.


		FS ENERGY AND POWER FUND
Date: March 11, 2022		/s/ Michael C. Forman
		Michael C. Forman Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated.


Date: March 11, 2022		/s/ Michael C. Forman
		Michael C. Forman Chief Executive Officer and Trustee (Principal Executive Officer)

Date: March 11, 2022		/s/ Edward T. Gallivan, Jr.
		Edward T. Gallivan, Jr. Chief Financial Officer (Principal Accounting and Financial Officer)

Date: March 11, 2022		/s/ R. Blair Thomas
		R. Blair Thomas Trustee

Date: March 11, 2022		/s/ Sidney Brown
		Sidney Brown Trustee

Date: March 11, 2022		/s/ Gregory P. Chandler
		Gregory P. Chandler Trustee

Date: March 11, 2022		/s/ Richard Goldstein
		Richard Goldstein Trustee

Date: March 11, 2022		/s/ Kathleen A. McGinty
		Kathleen A. McGinty Trustee

Date: March 11, 2022		/s/ Charles P. Pizzi
		Charles P. Pizzi Trustee

Date: March 11, 2022		/s/ Pedro A. Ramos
		Pedro A. Ramos Trustee

119

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Litigous
Readability	H.S. junior Avg

FS Specialty Lending Fund (FSEN) 10-K2021 FY Annual report

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