Edgar Filing: Special Value Continuation Fund, LLC

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT

OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-21936

SPECIAL VALUE CONTINUATION FUND, LLC

(Exact Name of Registrant as Specified in Charter)

2951 28TH STREET, SUITE 1000

SANTA MONICA, CALIFORNIA 90405

(Address of Principal Executive Offices) (Zip Code)

ELIZABETH GREENWOOD, SECRETARY

SPECIAL VALUE CONTINUATION FUND, LLC

2951 28TH STREET, SUITE 1000

SANTA MONICA, CALIFORNIA 90405

(Name and Address of Agent for Service)

Registrant's telephone number, including area code: (310) 566-1000

Copies to:

RICHARD T. PRINS, ESQ.

SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP

FOUR TIMES SQUARE

NEW YORK, NEW YORK 10036

Date of fiscal year end: DECEMBER 31, 2008

Date of reporting period: JUNE 30, 2008

ITEM 1. REPORTS TO STOCKHOLDERS.

Semi-Annual Shareholder Report

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

June 30, 2008

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Semi-Annual Shareholder Report

June 30, 2008

Contents

Performance Summary		1
Consolidated Portfolio Asset Allocation		2

Unaudited Consolidated Financial Statements

Consolidated Statement of Assets and Liabilities		3
Consolidated Statement of Investments		4
Consolidated Statement of Operations		9
Consolidated Statements of Changes in Net Assets		10
Consolidated Statement of Cash Flows		11
Notes to Consolidated Financial Statements		12
Consolidated Schedule of Changes in Investments in Affiliates		26

Supplemental Information

Consolidating Statement of Assets and Liabilities		27
Consolidating Statement of Operations		28
Approval of Investment Management Agreements		29

Special Value Continuation Fund, LLC (the “Company”) files a schedule of its investment in Special Value Continuation Partners, LP (the “Partnership”) with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. Investments listed in the Consolidated Statement of Investments are held by the Partnership, which also files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Forms N-Q of the Company and the Partnership are available on the SEC’s website at http://www.sec.gov. The Forms N-Q of the Company and the Partnership may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

A free copy of the proxy voting guidelines of the Company and the Partnership and information regarding how the Company and the Partnership voted proxies relating to portfolio securities during the most recent twelve-month period may be obtained without charge on the SEC’s website at http://www.sec.gov or by calling the advisor of the Company and the Partnership, Tennenbaum Capital Partners, LLC, at (310) 566-1000. Collect calls for this purpose are accepted.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Performance Summary

Fund Inception (July 31, 2006) through June 30, 2008

Fund Returns v. Merrill Lynch US High Yield and S&P 500 Indices

	Return on Equity ⁽¹⁾									IRR⁽²⁾
										Annualized
	2006		*	2007			2008		**	Inception-to-Date
Special Value Continuation Fund		8.2	%		9.2	%		-11.1	%		4.2	%
Merrill Lynch US High Yield Index		7.3	%		2.2	%		-1.2	%		4.2	%
Standard & Poor's 500 Index		12.0	%		5.5	%		-11.9	%		2.1	%

* Period from inception (July 31, 2006) through December 31, 2006

** Year to date

Past performance of Special Value Continuation Fund, LLC (the "Company") is not a guarantee of future performance. Company returns are net of dividends to preferred shareholders, performance allocations and Company expenses, including financing costs and management fees.

⁽¹⁾

Return on equity (net of dividends to preferred shareholders, performance allocations and Company expenses, including financing costs and management fees) calculated on a monthly geometrically liked, time-weighted basis. Returns are reduced in earlier periods because organizational costs and other expenses are high relative to assets.

⁽²⁾	Internal rate of return ("IRR") is the imputed annual return over an investment period and, mathematically, is the rate of return at which the discounted cash flows equal the initial outlays. The IRR presented assumes a liquidation of the Company at net asset value as of the period end date.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Portfolio Asset Allocation

June 30, 2008

Portfolio Holdings by Investment Type (% of Cash and Investments)

Portfolio Holdings by Industry (% of Cash and Investments)

Telecom Wireline	15.1	%
Data Processing, Hosting, and Related Services	9.7	%
Motor Vehicle Parts Manufacturing	8.8	%
Nonferrous Metal (except Aluminum) Production and Processing	7.8	%
Automotive Repair and Maintenance	6.3	%
Satellite Telecommunications	6.2	%
Other Information Services	5.5	%
Cable Service Carriers	5.3	%
Semiconductor and Other Electronic Component Manufacturing	4.4	%
Communications Equipment Manufacturing	3.7	%
Other Amusement and Recreation Industries	3.5	%
Glass and Glass Products Manufacturing	3.3	%
Offices of Real Estate Agents and Brokers	3.2	%
Plastics Product Manufacturing	2.3	%
Depository Credit Intermediation	1.8	%
Gambling Industries	1.6	%
Computer and Peripheral Equipment Manufacturing	1.2	%
Electric Power Generation, Transmission and Distribution	0.9	%
Radio and Television Broadcasting	0.9	%
Scheduled Air Transportation	0.6	%
Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments Manufacturing	0.2	%
Home Furnishings Stores	0.2	%
Support Activities for Air Transportation	0.0	%
Motor Vehicle Manufacturing	(0.3	%)⁽¹⁾
Miscellaneous	0.8	%
Cash and Cash Equivalents	7.0	%
Total	100.0	%

⁽¹⁾	Negative value is attributable to an undrawn revolving credit facility

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Assets and Liabilities (Unaudited)

June 30, 2008

	Cost		Fair Value
Assets
Investments:
Unaffiliated issuers	$	354,498,039	$	309,989,279
Controlled companies		36,592,911		14,824,509
Other affiliates		197,221,532		262,220,168

Total investments		588,312,482		587,033,956

Cash and cash equivalents				43,953,567
Accrued interest income:
Unaffiliated issuers				9,054,713
Controlled companies				10,900
Other affiliates				1,185,546
Receivable for investment securities sold				4,010,610
Deferred debt issuance costs				2,680,332
Prepaid expenses and other assets				315,167
Total assets				648,244,791

Liabilities
Credit facility payable				147,000,000
Unrealized depreciation on swaps and forward contracts				13,547,769
Distributions payable				4,000,000
Interest payable				1,079,848
Payable for investment securities purchased				699,835
Management and advisory fees payable				690,599
Futures contracts at fair value				312,300
Payable to affiliate				166,156
Accrued expenses and other liabilities				457,321
Total liabilities				167,953,828

Preferred stock
Series Z; $500/share liquidation preference; 400 shares authorized, 47 shares issued and outstanding				23,500
Accumulated dividends on Series Z preferred stock				937
Total Series Z preferred stock				24,437

Preferred limited partnership interest
Series A preferred limited partnership interest in Special Value Continuation Partners, LP; $20,000/interest liquidation preference; 6,700 interests authorized, issued and outstanding				134,000,000
Accumulated distributions on Series A preferred limited partnership interests				1,149,553
Total preferred limited partnership interest				135,149,553

Minority interest
General partnership interest in Special Value Continuation Partners, LP				-

Net assets applicable to common shareholders			$	345,116,973

Composition of net assets applicable to common shareholders
Common stock, $0.001 par value; unlimited shares authorized, 418,955.777 shares issued and outstanding			$	419
Paid-in capital in excess of par, net of contributed unrealized gains				358,676,540
Accumulated net investment income				11,482,973
Accumulated net realized losses				(10,229,584	)
Accumulated net unrealized depreciation				(14,812,438	)
Minority interest				-
Accumulated dividends to Series Z preferred shareholders				(937	)
Net assets applicable to common shareholders			$	345,116,973

Common stock, NAV per share			$	823.76

See accompanying notes.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Unaudited)

June 30, 2008

Showing Percentage of Total Cash and Investments of the Company

	Principal		Fair			Percent of Cash
Security	Amount		Value			and Investments
Debt Securities (57.11%)
*Bank Debt (49.29%)*⁽¹⁾
Automotive Repair and Maintenance (4.31%)
ESP Holdings, Inc., 1st Lien Revolver, LIBOR + 4.5%, due 6/30/09
(Acquired 4/27/07, Amortized Cost $204,854)^{(2), (12)}	$	5,000,269	$	199,857			0.03	%
ESP Holdings, Inc., 1st Lien Term Loan, LIBOR + 4.5%, due 6/30/09
(Acquired 4/25/07 and 4/27/07, Amortized Cost $3,633,933)^{(2), (12)}	$	3,596,655		3,596,655			0.57	%
ESP Holdings, Inc., 2^nd Lien Term Loan, LIBOR + 10%, due 9/12/14
(Acquired 9/12/07, Amortized Cost $18,154,571) ^{(2), (12)}	$	18,080,857		17,990,452			2.85	%
ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes, 18% PIK due 3/31/15
(Acquired 5/30/08, Amortized Cost $18,154,571) ^{(2), (12)}	$	5,321,627		5,401,452			0.86	%
Total Automotive Repair and Maintenance				27,188,416

Cable Service Carriers (5.33%)
Casema, Mezzanine Term Loan, EURIBOR+4.5% Cash + 4.75% PIK, due 9/12/16
(Acquired 10/3/06, Amortized Cost $27,719,597) - (Netherlands) ^{(9), (12)}	€	21,586,338		33,612,490			5.33	%

Communications Equipment Manufacturing (3.71%)
Enterasys Network Distribution Ltd., 2nd Lien Term Loan, LIBOR+ 9.25%, due 2/22/11
(Acquired 3/9/07, Amortized Cost $1,088,826) - (Ireland)	$	1,099,824		1,066,829			0.17	%
Enterasys Networks, Inc., 2nd Lien Term Loan, LIBOR + 9%, due 2/22/11
(Acquired 3/9/07, Amortized Cost $4,774,082)	$	4,822,306		4,677,636			0.74	%
Mitel Networks Corporation, 1st Lien Term Loan, LIBOR + 3.25%, due 8/10/14
(Acquired 12/13/07, Amortized Cost $18,686,785)	$	19,879,558		17,643,108			2.80	%
Total Communications Equipment Manufacturing				23,387,573

Computer and Peripheral Equipment Manufacturing (1.21%)
Palm, Inc., Tranche B Term Loan, LIBOR + 3.5%, due 4/24/14
(Acquired 5/24/07, Amortized Cost $10,239,200)	$	11,376,889		7,622,516			1.21	%

Data Processing, Hosting, and Related Services (8.95%)
Anacomp, Inc., Promissory Note, LIBOR + 6.5% PIK, due 8/31/09
(Acquired 5/24/07, Amortized Cost $1,122,303) ^{(2), (10)}	$	1,122,303		1,122,303			0.18	%
Anacomp, Inc., Senior Secured Subordinated Notes, 14% PIK, due 3/12/13
(Acquired 3/12/08, Amortized Cost $5,213,238) ^{(2), (10)}	$	5,213,238		5,213,238			0.83	%
GXS Worldwide, Inc., 1st Lien Term Loan, LIBOR + 4%, due 3/31/13
(Acquired 10/12/07, Amortized Cost $9,078,757)	$	9,264,038		9,032,437			1.43	%
GXS Worldwide, Inc., 2nd Lien Term Loan, LIBOR + 7.5%, due 9/30/13
(Acquired 10/12/07, Amortized Cost $22,259,238)	$	22,598,211		21,976,760			3.48	%
Terremark Worldwide, Inc., 1st Lien Term Loan, LIBOR + 3.75%, due 7/31/12
(Acquired 8/1/07, Amortized Cost $5,674,116)	$	5,674,116		5,418,781			0.86	%
Terremark Worldwide, Inc., 2nd Lien Term Loan, LIBOR + 3.25% cash + 4.5% PIK, due 1/31/13
(Acquired 8/1/07, Amortized Cost $14,318,963)	$	14,400,840		13,702,400			2.17	%
Total Data Processing, Hosting, and Related Services				56,465,919

Electric Power Generation, Transmission and Distribution (0.10%)
La Paloma Generating Company Residual Bank Debt
(Acquired 2/2/05, 3/18/05, and 5/6/05, Cost $2,010,533) ⁽³⁾	$	23,218,324		637,761			0.10	%

Motor Vehicle Manufacturing (-0.35%)
General Motors Corporation, Revolver, LIBOR + 1.5%, due 7/20/11
(Acquired 9/27/07, 11/27/07, and 12/14/07 Amortized Cost $(1,327,100))	$	15,000,000		(2,212,500	)		(0.35	%)

Motor Vehicle Parts Manufacturing (2.37%)
EaglePicher Corporation, 1st Lien Tranche B Term Loan, LIBOR + 4.5%, due 12/31/12
(Acquired 12/31/07, Amortized Cost $7,947,531) ^{(2), (12)}	$	7,947,531		7,901,173			1.25	%
EaglePicher Corporation, 2nd Lien Term Loan, LIBOR + 7.5%, due 12/31/13
(Acquired 12/31/07, Amortized Cost $7,000,000) ^{(2), (12)}	$	7,000,000		7,052,500			1.12	%
Total Motor Vehicle Parts Manufacturing				14,953,673

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Continued) (Unaudited)

June 30, 2008

Showing Percentage of Total Cash and Investments of the Company

	Principal		Fair		Percent of Cash
Security	Amount		Value		and Investments
Debt Securities (continued)
Offices of Real Estate Agents and Brokers (2.56%)
Realogy Corporation, Revolver, LIBOR + 2.25%, due 4/10/13
(Acquired 6/28/07, 7/9/07 and 7/13/07, Amortized Cost $3,330,000)	$	15,000,000	$	1,737,500		0.28	%
Realogy Corporation, Delayed Draw Term Loan, LIBOR + 3%, due 10/10/13
(Acquired 12/31/07, Amortized Cost $8,441,212)	$	8,932,500		7,624,523		1.21	%
Realogy Corporation, Term Loan B, LIBOR + 3%, due 10/10/13
(Acquired 7/17/07, 7/18/07, 7/19/07, 8/15/07, 9/12/07, 12/06/07, and 11/22/08, Amortized Cost $7,415,017)	$	7,926,929		6,766,197		1.07	%
Total Offices of Real Estate Agents and Brokers				16,128,220

Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments Manufacturing (0.21%)
Solutia, Inc., Senior Secured Term Loan B, LIBOR + 5%, due 2/28/14
(Acquired 3/3/08, Amortized Cost $1,209,915)	$	1,329,577		1,297,169		0.21	%

Radio and Television Broadcasting (0.9%)
Newport Television LLC, Term Loan B, LIBOR + 5%, due 9/14/16
(Acquired 5/1/08 and 5/29/08, Amortized Cost $5,425,166)	$	5,961,721		5,700,896		0.90	%

Satellite Telecommunications (6.11%)
WildBlue Communications, Inc., 1st Lien Delayed Draw Term Loan, LIBOR + 4% Cash + 2.5% PIK, due 12/31/09
(Acquired 9/29/06, Amortized Cost $18,535,244) ⁽¹²⁾	$	18,423,531		17,510,474		2.78	%
WildBlue Communications, Inc., 2nd Lien Delayed Draw Term Loan, LIBOR + 5% Cash + 4.5% PIK, due 8/15/11
(Acquired 9/29/06, Amortized Cost $22,314,106)⁽¹²⁾	$	22,863,631		21,023,109		3.33	%
Total Satellite Telecommunications				38,533,583

Semiconductor and Other Electronic Component Manufacturing (4.42%)
Celerity, Inc., Senior Secured Notes, LIBOR + 12%, due 12/31/09
(Acquired 4/15/08 , Amortized Cost $21,543,028) ⁽²⁾	$	21,543,028		20,573,592		3.26	%
Celerity, Inc., Senior Second Lien Secured Convertible Notes, 12% PIK, due 12/31/09
(Acquired 4/15/08, Amortized Cost $21,543,028) ⁽²⁾	$	7,316,698		7,316,698		1.16	%
Total Semiconductor and Other Electronic Component Manufacturing				27,890,290

Telecom Wireline (9.46%)
Cavalier Telephone Corporation, Senior Secured 1st Lien Term Loan, LIBOR + 7.25%, due 12/31/12
(Acquired 4/24/08, Amortized Cost $702,332)	$	900,059		747,049		0.12	%
Global Crossing Limited, Tranche B Term Loan, LIBOR +6.25%, due 5/9/12
(Acquired 6/4/07, Amortized Cost $8,487,944)	$	8,487,944		8,084,766		1.28	%
Integra Telecom, Inc., 2nd Lien Term Loan, LIBOR + 7%, due 2/28/14
(Acquired 9/05/07, Amortized Cost $3,360,000)	$	3,500,000		3,202,500		0.51	%
Integra Telecom, Inc., Term Loan, LIBOR + 10% PIK, due 8/31/14
(Acquired 9/05/07, Amortized Cost $4,445,481)	$	4,455,481		4,076,765		0.65	%
Interstate Fibernet, Inc., 1st Lien Term Loan, LIBOR + 4%, due 7/31/13
(Acquired 8/01/07, Amortized Cost $11,091,894) ^{(2), (12)}	$	11,405,547		10,618,564		1.68	%
Interstate Fibernet, Inc., 2nd Lien Term Loan, LIBOR + 7.5%, due 7/31/14
(Acquired 7/31/07, Amortized Cost $12,281,636) ^{(2), (12)}	$	12,281,636		11,916,257		1.89	%
NEF Telecom Company BV, 2nd Lien Tranche D Term Loan, EURIBOR + 5.5%, due 2/16/17
(Acquired 8/29/07, and 11/29/07 Amortized Cost $2,111,865) - (Bulgaria)⁽⁹⁾	€	1,538,600		2,333,162		0.37	%
NEF Telecom Company BV, Mezzanine Term Loan, EURIBOR + 10% PIK, due 8/16/17
(Acquired 8/29/07, Amortized Cost $18,071,530) - (Bulgaria)⁽⁹⁾	€	13,118,332		18,647,642		2.96	%
Total Telecom Wireline				59,626,705
Total Bank Debt (Cost $319,214,122)				310,832,711

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Continued) (Unaudited)

June 30, 2008

Showing Percentage of Total Cash and Investments of the Company

	Principal
	Amount		Fair		Percent of Cash
Security	or Shares		Value		and Investments
Debt Securities (continued)
*Other Corporate Debt Securities (7.82%)*
Gambling Industries (1.63%)
Harrah's Operating Company Inc., Senior Notes, 10.75%, due 2/1/16	$	11,958,000	$	10,273,716		1.63	%

Home Furnishings Stores (0.21%)
Linens n' Things, Floating Rate Note, LIBOR + 5.625%, due 1/15/14⁽³⁾	$	3,843,000		1,325,835		0.21	%

Plastics Product Manufacturing (1.89%)
Pliant Corporation, Senior Secured 2nd Lien Notes, 11.125%, due 9/1/09	$	14,027,000		11,922,950		1.89	%

Offices of Real Estate Agents and Brokers (0.60%)
Realogy Corporation, Senior Note, 10.5%, due 4/15/14	$	1,965,000		1,361,136		0.22	%
Realogy Corporation, Senior Subordinated Notes, 12.375%, due 4/15/15	$	4,915,000		2,426,290		0.38	%
Total Offices of Real Estate Agents and Brokers				3,787,426

Other Amusement and Recreation Industries (3.49%)
Bally Total Fitness Holdings, Inc., Senior Subordinated Notes, 14% Cash or 15.625% PIK, due 10/1/13
(Acquired 10/01/07, Amortized Cost $45,093,131)^{(5), (14)}	$	44,090,666		22,045,333		3.49	%

Total Other Corporate Debt Securities (Cost $76,039,338)				49,355,260
Total Debt Securities (Cost $395,253,460)				360,187,971

Equity Securities (35.94%)
Automotive Repair and Maintenance (1.95%)
ESP Holdings, Inc., Common Stock
(Acquired 9/12/07 Cost $9,311,782)^{(2), (3), (5), (6), (12)}		88,670		7,740,421		1.23	%
ESP Holdings, Inc., 15% PIK, Preferred Stock
(Acquired 9/12/07 Cost $4,502,521)^{(2), (3), (5), (6), (12)}		40,618		4,542,260		0.72	%
Total Automotive Repair and Maintenance				12,282,681

Data Processing, Hosting, and Related Services (0.77%)
Anacomp, Inc., Common Stock
(Acquired during 2002, 2003, 2005, and 2006, Cost $26,711,048) ^{(2), (3), (5), (10)}		1,253,969		4,871,670		0.77	%

Depository Credit Intermediation (1.84%)
Doral Holdings, LP Interest
(Acquired 7/12/07, Cost $11,138,132) ^{(3), (5)}		11,138,132		11,623,764		1.84	%

Electric Power Generation, Transmission and Distribution (0.77%)
Mach Gen, LLC, Common Units
(Acquired 2/21/07, Cost $931,596)^{(3), (5)}		5,198		4,418,300		0.70	%
Mach Gen, LLC, Warrants to purchase Warrant Units
(Acquired 2/21/07, Cost $387,063)^{(3), (5)}		2,098		472,050		0.07	%
Total Electric Power Generation, Transmission and Distribution				4,890,350

Glass and Glass Products Manufacturing (3.28%)
Owens Corning, Inc., Common Stock ⁽³⁾		910,755		20,719,676		3.28	%

Motor Vehicle Parts Manufacturing (6.38%)
EaglePicher Holdings, Inc., Common Stock
(Acquired 3/9/05, Cost $24,285,461)^{(2), (3), (5), (6), (7), (12)}		1,312,720		40,264,404		6.38	%

Nonferrous Metal (except Aluminum) Production and Processing (7.84%)
International Wire Group, Inc., Common Stock
(Acquired 10/20/04, Cost $29,012,690) ^{(2), (3), (5), (6), (14)}		1,979,441		49,486,025		7.84	%

Other Information Services (5.54%)
Information Resources, Inc., Series A Restricted Preferred Stock
(Acquired 11/10/04, Cost $1)^{(2), (3), (5), (6), (12)}		8,334,074		17,918,259		2.84	%
Information Resources, Inc., Series A Preferred Stock
(Acquired 11/10/04, Cost $1) ^{(2), (3), (5), (6), (12)}		7,921,579		17,031,395		2.70	%
Total Other Information Services				34,949,654

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Continued) (Unaudited)

June 30, 2008

Showing Percentage of Total Cash and Investments of the Company

	Principal Amount		Fair		Percent of Cash
Security	or Shares		Value		and Investments

Equity Securities (continued)
Plastics Product Manufacturing (0.46%)
Pliant Corporation, Common Stock
(Acquired 7/18/06, Cost $177) ^{(3), (5), (16)}		422	$	422		0.00	%
Pliant Corporation, 13% PIK, Preferred Stock		6,400,348		2,892,317		0.46	%
Total Plastics Product Manufacturing				2,892,739

Satellite Telecommunications (0.06%)
WildBlue Communications, Inc., Non-Voting Warrants
(Acquired 10/23/06, Cost $673,094) ^{(3), (5), (12)}		1,573,826		369,849		0.06	%

Scheduled Air Transportation (0.57%)
SVC Partners Corp. 2, Common Stock
(Acquired 5/15/07, Cost $3,546,322) ^{(2), (5), (10)}		100		3,617,298		0.57	%

Semiconductor and Other Electronic Component Manufacturing (0.00%)
Celerity, Inc., Common Stock
(Acquired 12/23/04, 9/8/05 and 2/1/06, Cost $12,135,924) ^{(2), (3), (5), (6)}		2,427,185		-		0.00	%
Kinetics Holdings, LLC, Common Units
(Acquired 1/7/05, Cost $2,587,349) ^{(3), (5)}		3,384,000		1		0.00	%
Total Semiconductor and Other Electronic Component Manufacturing				1

Support Activities for Air Transportation (0.04%)
Alabama Aircraft Industries, Inc., Common Stock
(Acquired 3/12/02, 3/13/02 and 12/11/02, Cost $3,550,121)^{(3), (5)}		164,636		248,600		0.04	%

Telecom Wireline (5.61%)
Interstate Fibernet, Inc., Common Stock
(Acquired 7/31/07 Cost $23,477,380) ^{(2), (3), (5), (6), (15)}		10,890,068		32,670,204		5.18	%
NEF Kamchia Co-Investment Fund, LP Interest
(Acquired 7/31/07, Cost $3,367,227) ^{(3), (5), (9)}		2,455,500		2,720,944		0.43	%
Total Telecom Wireline				35,391,148

Miscellaneous Securities (0.83%) ⁽⁴⁾		448,854		5,238,126		0.83	%

Total Equity Securities (Cost $193,059,022)				226,845,985

Total Investments (Cost $588,312,482) ⁽¹¹⁾				587,033,956

Cash and Cash Equivalents (6.95%)
General Electric Credit Corporation, Commercial Paper, 1.95%, due 7/07/08	$	21,000,000		20,993,175		3.33	%
Nestle Capital, Commercial Paper, 2.52%, due 7/01/08	$	4,000,000		4,000,000		0.63	%
Toyota Motor Credit Corporation, Commercial Paper, 2.10%, due 7/10/08	$	10,000,000		9,994,750		1.58	%
Wells Fargo, Certificate of Deposit, 2.5%, due 7/11/08	$	2,500,000		2,500,000		0.40	%
Cash denominated in foreign currencies (Cost $1,264,107)	$	812,479		1,280,061		0.20	%
Wells Fargo Overnight Repurchase Agreement, 1.75%,
Collateralized by FHLB Discount Notes, FNMA Discount Notes, and STRIPS	$	962,503		962,503		0.15	%
Cash Held on Account at Various Institutions	$	4,147,359		4,223,078		0.66	%
Total Cash and Cash Equivalents				43,953,567

Total Cash and Investments			$	630,987,523		100.00	%

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Continued) (Unaudited)

June 30, 2008

Notes to Statement of Investments:

⁽¹⁾	Investments in bank debt generally are bought and sold among institutional investors in transactions not subject to registration under the Securities Act of 1933. Such transactions are generally subject to contractual restrictions, such as approval of the agent or borrower.

⁽²⁾	Affiliated issuer - as defined under the Investment Company Act of 1940 (ownership of 5% or more of the outstanding voting securities of this issuer).

⁽³⁾	Non-income producing security.

⁽⁴⁾	Miscellaneous Securities is comprised of one or more unrestricted security positions that have not previously been publicly disclosed.

⁽⁵⁾	Restricted security.

⁽⁶⁾	Investment is not a controlling position.

⁽⁷⁾	The Company's advisor may demand registration at any time more than 180 days following the first initial public offering of common equity by the issuer.

⁽⁸⁾	Registration of this issue of restricted stock may be forced by a majority of the eligible holders of the issue by written notice to the issuer once the issuer becomes eligible to use a short form registration statement on Form S-3.

⁽⁹⁾	Principal amount denominated in euros. Amortized cost and fair value converted from euros to US dollars.

⁽¹⁰⁾	Issuer is a controlled company.

⁽¹¹⁾	Includes investments with an aggregate market value of $32,642,626 that have been segregated to collateralize certain unfunded commitments.

⁽¹²⁾	Priced by an independent third party pricing service.

⁽¹³⁾	Priced by one or more independent third party appraisers.

⁽¹⁴⁾	Priced using quotes from one or more independent third party broker-dealers.

⁽¹⁵⁾	Priced using the closing price per Pink Sheets.

⁽¹⁶⁾	The Partnership may demand registration of the shares as part of a majority (by interest) of the holders of the registrable shares of the issuer, or in connection with an initial public offering by the issuer.

Aggregate purchases and aggregate sales of investment securities, other than Government securities, totaled $86,621,511 and $84,165,999 respectively. Aggregate purchases includes securities received as payment in-kind. Aggregate sales includes principal paydowns on debt securities.

The total value of restricted securities as of June 30, 2008 was $530,873,910, or 84.1% of total cash and investments of the Company.

Swaps, futures contracts, and forward contracts at June 30, 2008 were as follows:

	Number of
	Contracts or		Fair
Instrument	Notional Amount		Value

Futures Contracts
90 Day Euro Dollar Future, due 12/14/09		72	$	(157,500	)
90 Day Euro Dollar Future, due 3/15/10		72		(154,800	)

Total Futures Contracts (Cost $(312,300))				(312,300	)

Forward Contracts
Euro/US Dollar Forward Currency Contract, Expire 9/15/09	$	946,444		(185,677	)
Euro/US Dollar Forward Currency Contract, Expire 2/1/10	$	1,403,277		(233,559	)

Total Forward Contracts				(419,236	)

Swaps
Euro/US Dollar Cross Currency Basis Swap, Expire 9/12/16	$	27,510,497		(7,754,132	)
Euro/US Dollar Cross Currency Basis Swap, Expire 5/16/12	$	18,122,832		(3,119,367	)
US Dollar Interest Rate Swap, Expire 4/14/12	$	6,500,000		(2,255,034	)

Total Swaps				(13,128,533	)

Total Swaps, Futures, and Forward Contracts			$	(13,860,069	)

See accompanying notes.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Operations (Unaudited)

Six Months Ended June 30, 2008

Investment income
Interest income:
Unaffiliated issuers	$	18,930,427
Controlled companies		271,183
Other affiliates		6,604,303
Dividend income - unaffiliated issuers		40,719
Other income - affiliates		23,501
Total investment income		25,870,133

Operating expenses
Management and advisory fees		4,143,594
Interest expense		2,827,626
Amortization of deferred debt issuance costs		219,542
Legal fees, professional fees and due diligence expenses		167,924
Commitment fees		129,805
Director fees		89,500
Custody fees		85,324
Insurance expense		61,270
Other operating expenses		165,852
Total expenses		7,890,437

Net investment income		17,979,696

Net realized and unrealized loss
Net realized loss from:
Investments in unaffiliated issuers		(9,084,767	)
Investments in affiliated issuers		(1,136,440	)
Foreign currency transactions		(6,011	)
Net realized loss		(10,227,218	)

Net change in net unrealized appreciation (depreciation) on:
Investments		(51,536,334	)
Foreign currency		15,953
Net change in unrealized appreciation (depreciation)		(51,520,381	)
Net realized and unrealized loss		(61,747,599	)

Net change in undistributed earnings of minority interestholder		3,149,915
Distributions to Series A preferred limited partners		(3,593,765	)
Net change in accumulated distributions to Series A preferred limited partners		788,650
Dividends to Series Z preferred shareholders		(2,673	)
Net change in reserve for dividends to Series Z preferred shareholders		1,736

Net decrease in net assets applicable to common shareholders resulting from operations	$	(43,424,040	)

See accompanying notes.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statements of Changes in Net Assets

	*Six Months Ended*			*Year Ended*
	*June 30, 2008 (Unaudited)*			*December 31, 2007*

Net assets applicable to common shareholders, beginning of period	$	392,541,013		$	434,092,909

Net investment income		17,979,696			69,772,636
Net realized loss on investments and foreign currency		(10,227,218	)		37,199,262
Net change in unrealized depreciation on investments and foreign currency		(51,520,381	)		(49,236,173	)
Distributions to minority interestholder from:
Net investment income		-			(12,457,669	)
Net realized loss on investments and foreign currency		-			(7,440,326	)
Returns of capital		-			(542,005	)
Net change in undistributed earnings of minority interestholder		3,149,915			10,426,419
Distributions to Series A preferred limited partners from net investment income		(3,593,765	)		(8,364,133	)
Net change in accumulated distributions to Series A preferred limited partners		788,650			148,999
Dividends to Series Z preferred shareholders from net investment income		(2,673	)		-
Net change in reserve for dividends to Series Z preferred shareholders		1,736			(1,906	)
Net decrease in net assets applicable to common shareholders resulting from operations		(43,424,040	)		39,505,104

Distributions to common shareholders from:
Net investment income		(4,000,000	)		(49,167,853	)
Net realized gains		-			(29,761,302	)
Returns of capital		-			(2,127,845	)
Total distributions to common shareholders		(4,000,000	)		(81,057,000	)

Net assets applicable to common shareholders, end of period (including accumulated net investment income of $11,482,973 and $311,064 respectively.)	$	345,116,973		$	392,541,013

See accompanying notes.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Cash Flows (Unaudited)

Six Months Ended June 30, 2008

Operating activities
Net decrease in net assets applicable to common shareholders resulting from operations	$	(43,424,040	)
Adjustments to reconcile net decrease in net assets applicable to common shareholders resulting from operations to net cash used in operating activities:
Net realized loss on investments and foreign currency		10,227,218
Net change in unrealized depreciation on investments		51,536,334
Distributions paid to Series A preferred limited partners		3,593,765
Net change in accumulated distributions to Series A preferred limited partners		(788,650	)
Dividends paid to Series Z preferred shareholders		2,673
Net change in reserve for dividends to Series Z preferred shareholders		(1,736	)
Net change in undistributed earnings of minority interestholder		(3,149,915	)
Accretion of original issue discount		(368,806	)
Accretion of market discount		(137,631	)
Income from paid in-kind capitalization		(2,790,955	)
Amortization of deferred debt issuance costs		219,542
Changes in assets and liabilities:
Purchases of investment securities		(83,830,556	)
Proceeds from sales, maturities and paydowns of investment securities		84,165,999
Increase in receivable for investment securities sold		(2,208,510	)
Increase in accrued interest income-unaffiliated issuers		(4,455,547	)
Decrease in accrued interest income-controlled companies		103
Decrease in accrued interest income-other affiliates		853,482
Increase in prepaid expenses and other assets		(234,788	)
Decrease in payable for investment securities purchased		(13,638,235	)
Decrease in interest payable		(930,764	)
Decrease in director fees payable		-
Increase in payable to affiliate		97,697
Increase in accrued expenses and other liabilities		77,482
Net cash used in operating activities		(5,185,838	)

Financing activities
Proceeds from draws on credit facility		128,000,000
Principal repayments on credit facility		(188,000,000	)
Distributions paid to Series A preferred limited partners		(3,593,765	)
Dividends paid to Series Z preferred shareholders		(2,673	)
Net cash used in financing activities		(63,596,438	)

Net decrease in cash and cash equivalents		(68,782,276	)
Cash and cash equivalents at beginning of period		112,735,843
Cash and cash equivalents at end of period	$	43,953,567

Supplemental cash flow information:
Interest payments	$	3,758,390

See accompanying notes.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2008

1.	Organization and Nature of Operations

Special Value Continuation Fund, LLC (the “Company”), a Delaware Limited Liability Company, is registered as a nondiversified, closed-end management investment company under the Investment Company Act of 1940 (the “1940 Act”). The Company was established for the purpose of enabling qualified investors to participate indirectly in the investment objectives of Special Value Continuation Partners, LP, a Delaware Limited Partnership (the “Partnership”), of which the Company owns 100% of the common limited partnership interests. The Partnership is also registered as a nondiversified, closed-end management investment company under the 1940 Act. The Partnership was formed to acquire a portfolio of investments consisting primarily of bank loans, distressed debt, stressed high yield debt, mezzanine investments and public equities. The stated objective of the Company is to achieve high total returns while minimizing losses.

On July 31, 2006, Special Value Bond Fund II, LLC and Special Value Absolute Return Fund, LLC (the “Predecessor Funds” or “SVBFII” and “SVAR”, respectively) contributed 76.5% and 92.7%, respectively, of their assets totaling $428,718,759 to the Partnership in exchange for 100% of the common limited partnership interests and general partnership interests in a non-taxable transaction. SVBFII contributed assets consisting of investment securities of $176,190,903 (including unrealized appreciation of $12,780,545), cash of $32,633,751 and liabilities over other assets of $115,220,209. SVAR contributed assets consisting of investment securities of $481,763,854 (including unrealized appreciation of $54,591,406), cash of $27,718,761 and liabilities over other assets of $174,368,301. SVBFII and SVAR then contributed their common limited partnership interests in the Partnership to the Company in exchange for 100% of the Company’s common shares, which SVBFII and SVAR then distributed to their respective members who chose to participate in the Company.

The Company has elected to be treated as a regulated investment company (“RIC”) for U.S. federal income tax purposes. As a RIC, the Company will not be taxed on its income to the extent that it distributes such income each year and satisfies other applicable income tax requirements. The Partnership has elected to be treated as a partnership for U.S. federal income tax purposes. The Certificate of Formation of the Company and the Certificate of Limited Partnership of the Partnership were both filed with the Delaware Secretary of State on July 17, 2006. Investment operations commenced and initial funding was received on July 31, 2006, prior to the time the Company and the Partnership were required to register as investment companies. Subsequently, the Company received additional investments from additional investors that caused both of them to be required to register as investment companies.

These consolidated financial statements include the accounts of the Company and the Partnership. All significant intercompany transactions and balances have been eliminated in the consolidation.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2008

1.	Organization and Nature of Operations (continued)

The General Partner of the Partnership is SVOF/MM, LLC (“SVOF/MM”). The managing member of SVOF/MM is Tennenbaum Capital Partners, LLC (“TCP”), which serves as the Investment Manager of both the Company and the Partnership. Babson Capital Management LLC serves as Co-Manager of both the Company and the Partnership. Substantially all of the equity interests in the General Partner are owned directly or indirectly by TCP, Babson Capital Management LLC and employees of TCP. The Company, the Partnership, TCP, SVOF/MM and their members and affiliates may be considered related parties.

Company management consists of the Investment Manager and the Board of Directors. Partnership management consists of the General Partner and the Board of Directors. The Investment Manager and the General Partner direct and execute the day-to-day operations of the Company and the Partnership, respectively, subject to oversight from the respective Board of Directors, which sets the broad policies of the Company and performs certain functions required by the 1940 Act in the case of the Partnership. The Board of Directors of the Partnership has delegated investment management of the Partnership’s assets to the Investment Manager and the Co-Manager. Each Board of Directors consists of three persons, two of whom are independent. The holders of the preferred limited interests voting separately as a class will be entitled to elect two of the Directors. The remaining directors will be subject to election by holders of common shares and preferred limited interests voting together as a single class.

Company Structure

Total initial capitalization of the consolidated Company is approximately $828.8 million, consisting of approximately $419.0 million of contributed common equity, an approximately $9.8 million initial general partnership interest (the “GP Interest”) in the Partnership held by SVOF/MM, $134 million of preferred limited partnership interests in the Partnership (the “Series A Preferred”), $266 million under a senior secured revolving credit facility (the “Senior Facility”) held by the Partnership and $23,500 in Series Z preferred shares of the Company. The GP Interest in the Partnership is shown as a minority interest in these consolidated financial statements. The contributed common equity, GP Interest, preferred limited interests and the amount drawn under the Senior Facility are used to purchase Partnership investments and to pay certain fees and expenses of the Partnership. Most of these investments are included in the collateral for the Senior Facility.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2008

1.	Organization and Nature of Operations (continued)

The Company will liquidate and distribute its assets and will be dissolved on June 30, 2016, subject to up to two one-year extensions if requested by the Investment Manager and approved by the outstanding common shares. The Partnership will liquidate and distribute its assets and will be dissolved on June 30, 2016, subject to up to two one-year extensions if requested by the General Partner and approved by SVCF as the holder of the common limited partnership interests in the Partnership. However, the Operating Agreement and Partnership Agreement will prohibit liquidation of the Company and the Partnership, respectively, prior to June 30, 2016 if the Series A Preferred are not redeemed in full prior to such liquidation.

Preferred Limited Partnership Interests

At June 30, 2008, the Partnership had 6,700 Series A preferred limited partnership interests (the “Series A Preferred”) issued and outstanding with a liquidation preference of $20,000 per interest. The Series A Preferred are redeemable at the option of the Partnership, subject to certain limitations. Additionally, under certain conditions, the Partnership may be required to either redeem certain of the Series A Preferred or repay indebtedness, at the Partnership’s option. Such conditions would include a failure by the Partnership to maintain adequate collateral as required by its credit facility agreement or by the Statement of Preferences of the Series A Preferred, or a failure by the Partnership to maintain sufficient asset coverage as required by the 1940 Act. As of June 30, 2008, the Partnership was in full compliance with such requirements.

The Series A Preferred accrue dividends at an annual rate equal to LIBOR plus 0.75%, or in the case of any holders of Series A Preferred that are CP Conduits, the higher of (i) LIBOR plus 0.75% or (ii) the CP Conduit’s cost of funds rate plus 0.75%, subject to certain limitations and adjustments.

2.	Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). In the opinion of the Investment Manager, the consolidated financial results of the Company included herein contain all adjustments necessary to present fairly the consolidated financial position of the Company as of June 30, 2008, the consolidated results of its operations and its consolidated cash flows for the six months then ended, and the consolidated changes in net assets for the six months ended June 30, 2008 and the year ended December 31, 2007. The following is a summary of the significant accounting policies of the Company and the Partnership.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2008

2.	Summary of Significant Accounting Policies (continued)

Investment Valuation

All of the investments of the Company are generally held by the Partnership. Management values investments held by the Partnership at fair value based upon the principles and methods of valuation set forth in policies adopted by the Partnership’s Board of Directors and in conformity with procedures set forth in the Senior Facility and Statement of Preferences for the Series A Preferred. Fair value is defined as the price that would be received to sell an investment in an orderly transaction between market participants at the measurement date.

Investments listed on a recognized exchange or market quotation system, whether U.S. or foreign, are valued for financial reporting purposes as of the last business day of the reporting period using the closing price on the date of valuation. Liquid investments not listed on a recognized exchange or market quotation system are valued by an approved nationally recognized pricing service or by using bid prices on the date of valuation as supplied by approved broker-dealers.

Semi-liquid investments, illiquid investments, and investments for which market quotations are determined to be unreliable are valued using valuations obtained from independent third party pricing or valuation services, or are valued internally by the Investment Manager under guidelines adopted by the Board of Directors and subject to their approval.

Investments valued internally by the Investment Manager are limited to 5% of the Total Capitalization of the Partnership, as defined in the Senior Facility. Generally, to increase objectivity in valuing the Partnership’s assets, the Investment Manager will utilize external measures of value, such as public markets or third-party transactions, whenever possible. The Investment Manager’s valuation is not based on long-term work-out value, immediate liquidation value, nor incremental value for potential changes that may take place in the future. The values assigned to investments that are valued by the Investment Manager are based on available information and do not necessarily represent amounts that might ultimately be realized, as these amounts depend on future circumstances and cannot reasonably be determined until the individual investments are actually liquidated.

Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”), establishes a hierarchy that prioritizes the inputs used to measure fair value. The level category in which an investment falls is based on the lowest level input that is significant to the valuation of the investment in its entirety. At June 30, 2008, the investments of the Partnership were categorized as follows:

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2008

2.	Summary of Significant Accounting Policies (continued)

Level	Basis for Determining Fair Value	Aggregate Value
1	Quoted prices in active markets for identical assets	$	25,957,802
2	Other observable market inputs*		405,345,323
3	Independent third-party pricing sources that employ significant unobservable inputs		142,247,491
3	Internal valuations with significant unobservable inputs