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, 2010

Date of reporting period JUNE 30, 2010

ITEM 1. reports to stockholders.

Semi–Annual Shareholder Report

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

June 30, 2010

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Semi–Annual Shareholder Report

June 30, 2010

Contents

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			10
Consolidated Statements of Changes in Net Assets			11
Consolidated Statement of Cash Flows			12
Notes to Consolidated Financial Statements			13
Consolidated Schedule of Changes in Investments in Affiliates			26
Consolidated Schedule of Restricted Securities of Unaffiliated Issuers			27

Supplemental Information

Consolidating Statement of Assets and Liabilities			28
Consolidating Statement of Operations			29
Approval of Investment Management Agreements			30

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 investments 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)

Consolidated Portfolio Asset Allocation (Unaudited)

June 30, 2010

	Percent of Cash
Industry	and Investments

Wired Telecommunications Carriers	13.1%
Architectural, Engineering, and Related Services	11.2%
Other Electrical Equipment and Component Manufacturing	10.3%
Nonferrous Metal (except Aluminum) Production and Processing	6.4%
Other Information Services	5.8%
Radio and Television Broadcasting	4.7%
Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments Manufacturing	3.5%
Data Processing, Hosting, and Related Services	3.2%
Other Financial Investment Activities	3.0%
Communications Equipment Manufacturing	3.0%
Scheduled Air Transportation	2.9%
Book, Periodical, and Music Stores	2.6%
Support Activities for Mining	2.6%
Full-Service Restaurants	2.4%
Machine Shops, Turned Product, and Screw, Nut, and Bolt Manufacturing	2.4%
Industrial Machinery Manufacturing	1.9%
Offices of Real Estate Agents and Brokers	1.8%
Other Professional, Scientific, and Technical Services	1.5%
Basic Chemical Manufacturing	1.5%
Gambling Industries	1.4%
Computer and Peripheral Equipment Manufacturing	1.3%
Accounting, Tax Preparation, Bookkeeping, and Payroll Services	0.9%
Wireless Telecommunications Carriers (except Satellite)	0.8%
Depository Credit Intermediation	0.7%
Semiconductor and Other Electronic Component Manufacturing	0.7%
Oil and Gas Extraction	0.6%
Grocery Stores	0.2%
Other Amusement and Recreation Industries	0.1%
Support Activities for Air Transportation	0.1%
Electric Power Generation, Transmission and Distribution	0.0%
Cash and Cash Equivalents	9.4%
Total	100.0%

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Assets and Liabilities (Unaudited)

June 30, 2010

Assets
Investments, at fair value:
Unaffiliated issuers (cost $318,024,804)	$	265,301,308
Controlled companies (cost $38,227,622)		13,705,248
Other affiliates (cost $105,298,355)		126,301,407
Total investments (cost $461,550,781)		405,307,963

Cash and cash equivalents		42,013,414
Accrued interest income:
Unaffiliated issuers		5,182,210
Controlled companies		4,479
Other affiliates		730,048
Receivable for investment securities sold		6,045,871
Deferred debt issuance costs		1,799,755
Unrealized appreciation on swaps		529,584
Prepaid expenses and other assets		101,371
Total assets		461,714,695

Liabilities
Credit facility payable		60,000,000
Payable for investment securities purchased		13,852,037
Distribution payable		7,000,000
Management and advisory fees payable		565,599
Payable to affiliate		86,247
Interest payable		58,903
Accrued expenses and other liabilities		426,627
Total liabilities		81,989,413

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		948
Total Series Z preferred stock		24,448

Preferred equity facility
Series A preferred limited partner interests in Special Value Continuation Partners, LP;
$20,000/interest liquidation preference; 6,700 interests authorized, issued and outstanding		134,000,000
Accumulated dividends on Series A preferred equity facility		385,589
Total preferred limited partner interests		134,385,589

Net assets applicable to common shareholders	$	245,315,245

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		364,764,708
Accumulated net investment income		12,496,823
Accumulated net realized losses		(76,339,825	)
Accumulated net unrealized depreciation		(55,605,932	)
Accumulated dividends to Series Z preferred shareholders		(948	)
Net assets applicable to common shareholders	$	245,315,245

Common stock, NAV per share	$	585.54

See accompanying notes.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Unaudited)

June 30, 2010

Showing Percentage of Total Cash and Investments of the Company

	Principal		Fair			Percent of Cash
Investment	Amount		Value			and Investments

Debt Investments (59.74%)
Bank Debt (24.39%) (1)
Book, Periodical, and Music Stores (2.57%)
Borders Group, Inc., 2nd Lien Term Loan, LIBOR + 12.25%, due 4/1/14	$	11,798,247	$	11,503,291			2.57	%

Communications Equipment Manufacturing (2.97%)
Mitel Networks Corporation, 1st Lien Term Loan, LIBOR + 3.25%, due 8/10/14	$	14,773,839		13,296,455			2.97	%

Computer and Peripheral Equipment Manufacturing (1.26%)
Targus Group, 1st Lien Term Loan, LIBOR + 5.75% Cash + 3.5% PIK, due 11/22/12	$	6,598,723		5,658,405			1.26	%

Electric Power Generation, Transmission and Distribution (0.05%)
La Paloma Generating Company, Residual Bank Debt (3)	$	23,218,322		211,508			0.05	%

Machine Shops, Turned Product, and Screw, Nut, and Bolt Manufacturing (2.40%)
Acument Global Technologies, LLC, 1st Lien Term Loan, Prime + 6% Cash + 4% PIK, due 8/11/13	$	7,754,839		7,580,355			1.69	%
Precision Partners Holdings, 1st Lien Delayed Draw Term Loan, LIBOR + 6.5%, due 10/2/13	$	266,058		210,186			0.05	%
Precision Partners Holdings, 1st Lien Term Loan, LIBOR + 6.5%, due 10/2/13	$	3,744,895		2,958,467			0.66	%
Total Machine Shops, Turned Products, and Screw, Nut, and Bolt Manufacturing				10,749,008

Offices of Real Estate Agents and Brokers (0.96%)
Realogy Corporation, 2nd Lien Term Loan A, 13.5%, due 10/15/17	$	6,891,566		7,239,018			1.62	%
Realogy Corporation, Revolver, LIBOR + 2.25%, due 4/10/13	$	15,897,590		(2,941,054	)		(0.66	)%
Total Offices of Real Estate Agents and Brokers				4,297,964

Other Financial Investment Activities (2.99%)
American Capital, Ltd., 1st Lien Senior Secured Term Loan, LIBOR + 6.5%, due 12/31/12	$	13,550,504		13,369,831			2.99	%

Radio and Television Broadcasting (4.48%)
Encompass Digital Media Group, Inc., 1st Lien Revolver, 13%, due 12/31/14	$	2,343,750		953,125			0.21	%
Encompass Digital Media Group, Inc., 1st Lien Term Loan, 13%, due 12/31/14	$	18,378,947		19,114,105			4.27	%
Total Radio and Television Broadcasting				20,067,230

Support Activities for Mining (1.55%)
Trico Marine Services, Inc., 1st Lien Term Loan, LIBOR + 11.5%, due 12/31/2011	$	3,277,291		3,277,291			0.73	%
Trico Shipping AS, 1st Lien Term Loan A, 13.5%, due 07/01/2014	$	6,554,582		3,683,509			0.82	%
Trico Shipping AS, 1st Lien Term Loan B, 13.5%, due 07/01/2014	$	1,966,375		-			0.00	%
Total Support Activities for Mining				6,960,800

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Unaudited) (Continued)

June 30, 2010

Showing Percentage of Total Cash and Investments of the Company

	Principal		Fair		Percent of Cash
Investment	Amount		Value		and Investments

Debt Investments (continued)
Wired Telecommunications Carriers (5.16%)
Bulgaria Telecom Company AD, 1st Lien Tranche B Term Loan,
EURIBOR + 2.75%, due 8/9/15 - (Netherlands) (4)	€	2,113,201	$	2,146,492		0.48	%
Integra Telecom Holdings, Inc., 1st Lien Term Loan, LIBOR + 7.25%, due 4/15/15	$	1,990,353		1,995,329		0.45	%
NEF Telecom Company BV, 1st Lien Tranche C Term Loan,
EURIBOR + 3.50%, due 8/9/16 - (Netherlands) (4)	€	4,927,730		4,771,677		1.07	%
NEF Telecom Company BV, 2nd Lien Tranche D Term Loan,
EURIBOR + 5.5%, due 2/16/17 - (Netherlands) (4)	€	2,535,452		2,420,251		0.54	%
NEF Telecom Company BV, Mezzanine Term Loan,
EURIBOR + 10% PIK, due 8/16/17 - (Netherlands) (4)	€	17,000,187		11,702,716		2.62	%
Total Wired Telecommunications Carriers				23,036,465

Total Bank Debt (Cost $122,156,392)				109,150,957

Other Corporate Debt Securities (35.35%)
Accounting, Tax Preparation, Bookkeeping, and Payroll Services (0.92%)
NCO Group, Inc., Senior Secured Floating Rate Notes, LIBOR + 4.875%, due 11/15/13	$	655,000		550,200		0.12	%
NCO Group, Inc., Senior Subordinated Notes, 11.875%, due 11/15/14	$	3,747,000		3,592,661		0.80	%
Total Accounting, Tax Preparation, Bookkeeping, and Payroll Services				4,142,861

Architectural, Engineering, and Related Services (4.89%)
Alion Science & Technology Corporation, Senior Notes, 10.25%, due 2/1/15	$	14,914,000		11,918,772		2.66	%
Alion Science & Technology Corporation, Senior Secured Notes, 10% Cash + 2% PIK, due 11/1/14 (5)	$	2,625,683		2,638,811		0.59	%
ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes, 18% PIK, due 3/31/15 (2), (5)	$	7,339,014		7,339,014		1.64	%
Total Architectural, Engineering, and Related Services				21,896,597

Basic Chemical Manufacturing (1.51%)
Kronos International, Inc., Senior Secured Notes, 6.5%, due 4/15/13 (4)	€	6,558,000		6,741,572		1.51	%

Data Processing, Hosting, and Related Services (2.69%)
Anacomp, Inc., Senior Secured Subordinated Notes, 14% PIK, due 3/12/13 (2), (5), (8)	$	11,516,574		11,228,659		2.51	%
Terremark Worldwide, Inc., Senior Secured Notes, 12%, due 6/15/17 (5)	$	703,000		797,905		0.18	%
Total Data Processing, Hosting, and Related Services				12,026,564

Full-Service Restaurants (2.41%)
Real Mex Restaurants, Inc., Senior Secured Notes, 14%, due 1/1/13 (5)	$	10,727,000		10,780,635		2.41	%

Gambling Industries (1.41%)
Harrah's Operating Company Inc., Senior Secured Notes, 10%, due 12/15/18	$	7,695,000		6,329,138		1.41	%
Harrah's Operating Company Inc., Senior Secured Notes, 11.25%, due 6/1/17	$	18,000		18,990		0.00	%
Total Gambling Industries				6,348,128

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Unaudited) (Continued)

June 30, 2010

Showing Percentage of Total Cash and Investments of the Company

	Principal		Fair		Percent of Cash
Investment	Amount		Value		and Investments

Debt Investments (continued)
Grocery Stores (0.22%)
Safeway Inc., Senior Unsecured Notes, 4.95%, due 8/16/10	$	1,000,000	$	1,005,210		0.22	%

Industrial Machinery Manufacturing (1.74%)
GSI Group Corporation, Senior Notes, 11%, due 8/20/13 (3), (5)	$	7,778,000		7,778,000		1.74	%

Nonferrous Metal (except Aluminum) Production and Processing (1.99%)
International Wire Group, Inc., Senior Secured Notes, 9.75%, due 4/15/15 (2), (5)	$	9,078,000		8,890,766		1.99	%

Offices of Real Estate Agents and Brokers (0.84%)
Realogy Corporation, Senior Subordinated Notes, 12.375%, due 4/15/15	$	4,915,000		3,744,247		0.84	%

Oil and Gas Extraction (0.59%)
Forbes Energy Services, Senior Secured Notes, 11%, due 2/15/15	$	2,904,000		2,642,640		0.59	%

Other Information Services (3.62%)
IRI Holdco (RW), LLC, Note Receivable, 8%, due 12/12/11 (5)	$	16,175,253		16,175,252		3.62	%

Other Professional, Scientific, and Technical Services (1.51%)
MSX International, Inc., Senior Secured 2nd Lien Notes,
12.5%, due 4/1/12 (144A) - (UK/France/Germany) (5)	$	8,209,000		6,772,425		1.51	%

Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments Manufacturing (3.48%)
AGY Holding Corporation, Senior Secured 2nd Lien Notes, 11%, due 11/15/14	$	17,959,000		15,562,371		3.48	%

Scheduled Air Transportation (2.64%)
United Air Lines, Inc., Aircraft Secured Mortgage (N508UA), 20%, due 8/25/16 (5)	$	3,504,788		4,409,023		0.99	%
United Air Lines, Inc., Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16 (5)	$	555,756		701,642		0.16	%
United Air Lines, Inc., Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16 (5)	$	556,565		704,612		0.16	%
United Air Lines, Inc., Aircraft Secured Mortgage (N530UA), 20%, due 11/25/13 (5)	$	3,245,421		3,839,333		0.86	%
United Air Lines, Inc., Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14 (5)	$	524,316		564,164		0.13	%
United Air Lines, Inc., Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15 (5)	$	622,002		689,489		0.15	%
United Air Lines, Inc., Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16 (5)	$	653,491		827,973		0.19	%
Total Scheduled Air Transportation				11,736,236

Support Activities for Mining (1.02%)
Allis-Chalmers Energy, Senior Unsecured Notes, 8.5%, due 3/1/17	$	5,221,000		4,542,270		1.02	%

Wired Telecommunications Carriers (3.02%)
ITC Deltacom Inc., Senior Secured Notes, 10.5%, due 4/1/16 (5)	$	9,830,000		9,473,663		2.12	%
Zayo Group, LLC, 1st Lien Senior Secured Notes, 10.25%, due 3/15/17 (5)	$	3,933,000		4,031,325		0.90	%
Total Wired Telecommunications Carriers				13,504,988

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Unaudited) (Continued)

June 30, 2010

Showing Percentage of Total Cash and Investments of the Company

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

Debt Investments (continued)
Wireless Telecommunications Carriers (except Satellite) (0.85%)
Clearwire Communications, LLC, Senior Secured Notes, 12%, due 12/1/15 (144A) (5)	$	2,622,000	$	2,617,630		0.59	%
Clearwire Communications, LLC, Senior Secured Notes, 12%, due 12/1/15	$	1,179,000		1,177,035		0.26	%
Total Wireless Telecommunications Carriers (except Satellite)				3,794,665

Total Other Corporate Debt Securities (Cost $146,480,689)				158,085,427

Total Debt Investments (Cost $268,637,081)				267,236,384

Equity Securities (30.87%)
Architectural, Engineering, and Related Services (6.36%)
Alion Science and Technology Corporation, Warrants (3)		2,620		142,554		0.03	%
ESP Holdings, Inc., 15% PIK, Preferred Stock (2), (5), (6)		40,618		5,638,152		1.26	%
ESP Holdings, Inc., Common Stock (2), (3), (5), (6)		88,670		22,659,377		5.07	%
Total Architectural, Engineering, and Related Services				28,440,083

Data Processing, Hosting, and Related Services (0.55%)
Anacomp, Inc., Class A, Common Stock (2), (3), (5), (8)		1,253,969		2,476,589		0.55	%

Depository Credit Intermediation (0.70%)
Doral Financial Corporation, Non-Contingent Offered Preferred Stock Shares (3), (5)		676		676,000		0.15	%
Doral Holdings, LP Interest (3), (5)		855,916		2,482,303		0.55	%
Total Depository Credit Intermediation				3,158,303

Industrial Machinery Manufacturing (0.12%)
GSI Group Inc., Common Stock (3), (5)		216,987		525,109		0.12	%

Nonferrous Metal (except Aluminum) Production and Processing (4.47%)
International Wire Group, Inc., Common Stock (2), (5), (6)		1,979,441		19,992,354		4.47	%

Other Amusement and Recreation Industries (0.06%)
Bally Total Fitness Holding Corporation, Common Stock (3), (5)		6,058		222,225		0.05	%
Bally Total Fitness Holding Corporation, Warrant (3), (5)		10,923		52,430		0.01	%
Total Other Amusement and Recreation Industries				274,655

Other Electrical Equipment and Component Manufacturing (10.27%)
EP Management Corporation, Common Stock (2), (5), (6), (7)		1,312,720		45,991,145		10.27	%

Other Information Services (2.17%)
IRI Holdco (RW), LLC, Warrants to Purchase IRI Preferred Stock (3), (5)		4,063,914		9,692,435		2.17	%

Radio and Television Broadcasting (0.21%)
Encompass Digital Media Group, Inc., Common Stock (3), (5)		183,824		937,502		0.21	%

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Unaudited) (Continued)

June 30, 2010

Showing Percentage of Total Cash and Investments of the Company

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

Equity Securities (continued)
Scheduled Air Transportation (0.30%)
United Air Lines, Inc., Equipment Trust Beneficial Interests (N510UA) (5)		25	$	250,730		0.06	%
United Air Lines, Inc., Equipment Trust Beneficial Interests (N512UA) (5)		25		249,302		0.06	%
United Air Lines, Inc., Equipment Trust Beneficial Interests (N536UA) (5)		26		264,997		0.06	%
United Air Lines, Inc., Equipment Trust Beneficial Interests (N545UA) (5)		25		263,596		0.06	%
United Air Lines, Inc., Equipment Trust Beneficial Interests (N585UA) (5)		25		276,365		0.06	%
Total Scheduled Air Transportation				1,304,990

Semiconductor and Other Electronic Component Manufacturing (0.68%)
AIP/IS Holdings, LLC, Membership Units (3), (5)		352		3,025,853		0.68	%

Support Activities for Air Transportation (0.06%)
Alabama Aircraft Industries, Inc., Common Stock (3), (5)		164,636		246,954		0.06	%

Wired Telecommunications Carriers (4.92%)
Integra Telecom, Inc., Common Stock (3), (5)		1,274,522		6,064,756		1.36	%
Integra Telecom, Inc., Warrants (3), (5)		346,939		-		0.00	%
ITC^DeltaCom, Inc., Common Stock (2), (3), (5), (6)		10,890,068		15,790,599		3.53	%
NEF Kamchia Co-Investment Fund, LP Interest - (Cayman Islands) (3), (4), (5)		2,455,500		150,252		0.03	%
Total Wired Telecommunications Carriers				22,005,607

Total Equity Securities (Cost $192,913,700)				138,071,579

Total Investments (Cost $461,550,781) (9)				405,307,963

Cash and Cash Equivalents (9.39%)
Wells Fargo & Company, Overnight Repurchase Agreement, 0.05%, Collateralized by Federal Home Loan Banks Note	$	2,673,904		2,673,904		0.60	%
American Express Credit Corporation, Commercial Paper, 0.05%, 7/1/10	$	17,000,000		17,000,000		3.80	%
Union Bank of California, Commercial Paper, 0.05%, 7/7/10	$	11,000,000		10,999,908		2.46	%
General Electric Company, Commercial Paper, 0.08%, 7/15/10	$	11,000,000		10,999,658		2.46	%
Cash Denominated in Foreign Currencies CAD	CAD	15,078		14,172		0.00	%
Cash Denominated in Foreign Currencies Euro	€	41,762		51,108		0.01	%
Cash Denominated in Foreign Currencies GBP	£	35,597		53,200		0.01	%
Cash Held on Account at Various Institutions	$	221,464		221,464		0.05	%
Total Cash and Cash Equivalents				42,013,414

Total Cash and Investments			$	447,321,377		100.00	%

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Unaudited) (Continued)

June 30, 2010

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

(5)	Restricted security.

(6)	Investment is not a controlling position.

(7)	The Partnership'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)	Issuer is a controlled company.

(9)	Includes investments with an aggregate market value of $30,110,368 that have been segregated to collateralize certain unfunded commitments.

Aggregate purchases and aggregate sales of investments, other than Government securities, totaled $176,294,645 and $114,380,257, respectively.

Aggregate purchases includes investment assets received as payment in-kind. Aggregate sales includes principal paydowns on debt investments.

The total value of restricted securities and bank debt as of June 30, 2010 was $347,340,303 or 77.65% of total cash and investments of the Company.

Swaps at June 30, 2010 were as follows:

Instrument	Notional Amount		Fair Value

Euro/US Dollar Cross Currency Basis Swap, Pay Euros/Receive USD, Expires 5/16/14	$	6,040,944	$	529,584

See accompanying notes.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Operations (Unaudited)

Six Months Ended June 30, 2010

Investment income
Interest income:
Unaffiliated issuers	$	11,256,307
Controlled companies		766,028
Other affiliates		2,130,011
Dividend income:
Unaffiliated issuers		280,138
Other affiliates		11,031,614
Other income:
Unaffiliated issuers		1,106,392
Other affiliates		16,222
Total investment income		26,586,712

Operating expenses
Management and advisory fees		3,393,594
Amortization of deferred debt issuance costs		218,335
Portfolio asset depreciation		178,398
Commitment fees		116,437
Legal fees, professional fees and due diligence expenses		110,082
Interest expense		95,850
Director fees		86,500
Insurance expense		71,595
Custody fees		52,679
Other operating expenses		181,615
Total expenses		4,505,085

Net investment income		22,081,627

Net realized and unrealized gain (loss)
Net realized gain from investments in unaffiliated issuers
and foreign currency transactions		5,738,668
Net change in net unrealized appreciation/depreciation		(4,642,949	)
Net realized and unrealized gain		1,095,719

Dividends paid on Series A preferred equity facility		(723,703	)
Net change in accumulated dividends on Series A preferred equity facility		(17,252	)
Dividends paid to Series Z preferred shareholders		(1,880	)
Net change in reserve for dividends to Series Z preferred shareholders		943

Net increase in net assets applicable to common shareholders
resulting from operations	$	22,435,454

See accompanying notes.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statements of Changes in Net Assets

	Six Months Ended
	June 30, 2010			Year Ended
	(Unaudited)			December 31, 2009

Net assets applicable to common shareholders, beginning of period	$	232,879,791		$	195,745,577

Net investment income		22,081,627			17,932,832
Net realized gain (loss)		5,738,668			(62,643,798	)
Net change in unrealized appreciation/depreciation		(4,642,949	)		98,786,144
Dividends on Series A preferred equity facility		(723,703	)		(2,544,220	)
Net change in accumulated dividends on Series A preferred
equity facility		(17,252	)		805,131
Dividends to Series Z preferred shareholders from net
investment income		(1,880	)		-
Net change in reserve for dividends to Series Z preferred
shareholders		943			(1,875	)
Net increase in net assets applicable to common shareholders
resulting from operations		22,435,454			52,334,214

Distributions to common shareholders from:
Net investment income		(10,000,000	)		(15,200,000	)

Net assets applicable to common shareholders, end of period
(including accumulated net investment income of $12,496,823
and $1,158,031, respectively)	$	245,315,245		$	232,879,791

See accompanying notes.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Consolidated Statement of Cash Flows (Unaudited)

Six Months Ended June 30, 2010

Operating activities
Net increase in net assets applicable to common shareholders resulting
from operations	$	22,435,454
Adjustments to reconcile net increase in net assets applicable to common
shareholders resulting from operations to net cash used in operating
activities:
Net realized gain		(5,738,668	)
Net change in unrealized appreciation/depreciation		4,714,295
Dividends paid on Series A preferred equity facility		723,703
Dividends paid to Series Z preferred shareholders		1,880
Net change in accumulated dividends on Series A preferred equity facility		17,252
Net change in reserve for dividends to Series Z preferred shareholders		(943	)
Accretion of original issue discount		(210,219	)
Income from paid in-kind capitalization		(2,359,158	)
Amortization of deferred debt issuance costs		218,335
Changes in assets and liabilities:
Purchases of investments		(173,935,487	)
Proceeds from sales, maturities and paydowns of investments		114,380,257
Increase in accrued interest income - unaffiliated issuers		(1,267,940	)
Increase in accrued interest income - controlled companies		(298	)
Increase in accrued interest income - other affiliates		(376,255	)
Increase in receivable for investments sold		(4,234,452	)
Increase in prepaid expenses and other assets		(13,073	)
Increase in payable for investments purchased		1,102,605
Increase in payable to affiliate		86,247
Increase in interest payable		12,848
Decrease in accrued expenses and other liabilities		(69,842	)
Net cash used in operating activities		(44,513,459	)

Financing activities
Proceeds from draws on credit facility		123,000,000
Principal repayments on credit facility		(138,000,000	)
Dividends paid on Series A preferred equity facility		(723,703	)
Distributions paid to common shareholders		(9,200,000	)
Dividends paid to Series Z preferred shareholders		(1,880	)
Net cash used in financing activities		(24,925,583	)

Net decrease in cash and cash equivalents		(69,439,042	)
Cash and cash equivalents at beginning of period		111,452,456
Cash and cash equivalents at end of period	$	42,013,414

Supplemental cash flow information:
Interest payments	$	83,002
Tax payments		21,751

See accompanying notes.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2010

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 partner 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.

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. Investment operations commenced and initial funding was received on July 31, 2006.

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.

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. If the Company or the Partnership has preferred equity interests outstanding, as each currently

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2010

1. Organization and Nature of Operations (continued)

does, the holders of the preferred 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 the common shares and preferred interests voting together as a single class.

Company Structure

Total capitalization of the consolidated Company is approximately $678.8 million, consisting of approximately $419.0 million of initial contributed common equity, an approximately $9.8 million initial general partner interest (the “GP Interest”) in the Partnership held by SVOF/MM, $134 million of preferred limited partner interests in the Partnership (the “Series A Preferred”), $116 million under a senior secured revolving credit facility issued by the Partnership (the “Senior Facility”) 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 and the Company. Most of the cash and investments of the Partnership are included in the collateral for the Senior Facility.

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 partner 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 Equity Facility

At June 30, 2010, the Partnership had 6,700 Series A preferred limited partner 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 conditions. 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, 2010, the Partnership was in full compliance with such requirements.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2010

1. Organization and Nature of Operations (continued)

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 (as defined in the leveraging documents), 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 consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The following is a summary of the significant accounting policies of the Company and the Partnership.

Use of Estimates

The preparation of the financial statements 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, as well as the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates and assumptions to be reasonable, actual results could differ from those estimates.

Investment Valuation

All of the Company’s investments 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 generally defined as the amount for which an investment would be sold 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 priced by a nationally recognized pricing service or by using quotations from broker-dealers. Investments not priced by a pricing service or for which market quotations are either not readily available or are determined to be unreliable are valued by one or more independent valuation services or, for investments aggregating less than 5% of the total capitalization of the Partnership, by the Investment Manager.

Fair valuations of investments are determined under guidelines adopted by the Partnership’s Board of Directors, and are subject to their approval. Generally, to increase objectivity in

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2010

2. Summary of Significant Accounting Policies (continued)

valuing the Partnership’s investments, 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. The foregoing policies apply to all investments, including those in companies and groups of affiliated companies aggregating more than 5% of the Company’s assets.

Investments of the Partnership may be categorized based on the types of inputs used in valuing such investments. The level in the GAAP valuation hierarchy in which an investment falls is based on the lowest level input that is significant to the valuation of the investment in its entirety. Transfers between levels are recognized as of the beginning of the reporting period. At June 30, 2010, the investments of the Partnership were categorized as follows:

Level	Basis for Determining Fair Value	Bank Debt		Other Corporate Debt		Equity Securities
1	Quoted prices in active markets for identical assets	$	-	$	-	$	-
2	Other observable market inputs*		39,820,053		103,828,266		19,044,964
3	Independent third-party pricing sources that employ significant unobservable inputs		62,158,597		54,257,161		118,609,405
3	Internal valuations with significant unobservable inputs		7,172,307		-		417,210
Total		$	109,150,957	$	158,085,427	$	138,071,579

* E.g. quoted prices in inactive markets or quotes for comparable instruments

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2010

2. Summary of Significant Accounting Policies (continued)

Changes in investments categorized as Level 3 during the six months ended June 30, 2010 were as follows:

	Independent Third Party Valuation
	Bank Debt			Other Corporate Debt			Equity Securities
Beginning balance	$	45,255,960		$	73,392,113		$	96,160,272
Net realized and unrealized gains (losses)		(2,289,924	)		2,455,761			2,346,806
Net acquisitions and dispositions		2,172,720			(4,570,872	)		(186,019	)
Transfers into category		17,019,841			-			-
Transfers out of category		-			(17,019,841	)		20,389,787
Ending balance	$	62,158,597		$	54,257,161		$	118,609,405

Net change in unrealized gains (losses) during the period on investments still held at period end (included in net realized and unrealized gains/losses, above)	$	(3,795,231	)	$	2,234,108		$	2,939,480

	Investment Manager Valuation
	Bank Debt		Other Corporate Debt			Equity Securities
Beginning balance	$	211,507	$	793,632		$	20,389,788
Net realized and unrealized gains (losses)		-		44,231,673			(44,945,424	)
Net acquisitions and dispositions		6,960,800		(45,025,305	)		45,362,634
Transfers into category		-		-			-
Transfers out of category		-		-			(20,389,788	)
Ending balance	$	7,172,307	$	-		$	417,210

Net change in unrealized gains (losses) during the period on investments still held at period end (included in net realized and unrealized gains/losses, above)	$	-	$	-		$	(44,945,424	)

There were no transfers between Level 1 and 2 during the six months ended June 30, 2010.

Investment Transactions

The Partnership records investment transactions on the trade date, except for private transactions that have conditions to closing, which are recorded on the closing date. The cost of investments purchased is based upon the purchase price plus those professional fees which are specifically identifiable to the investment transaction. Realized gains and losses on investments are recorded

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2010

2. Summary of Significant Accounting Policies (continued)

based on the specific identification method, which typically allocates the highest cost inventory to the basis of investments sold.

Cash and Cash Equivalents

Cash consists of amounts held in accounts with brokerage firms and the custodian bank. Cash equivalents consist of highly liquid investments with an original maturity of three months or less. For purposes of reporting cash flows, cash consists of the cash held with brokerage firms and the custodian bank, and cash equivalents maturing within 90 days.

Repurchase Agreements

In connection with transactions in repurchase agreements, it is the Partnership’s policy that its custodian take possession of the underlying collateral, the fair value of which is required to exceed the principal amount of the repurchase transaction, including accrued interest, at all times. If the seller defaults, and the fair value of the collateral declines, realization of the collateral by the Partnership may be delayed or limited.

Restricted Investments

The Partnership may invest without limitation in instruments that are subject to legal or contractual restrictions on resale. These instruments generally may be resold to institutional investors in transactions exempt from registration or to the public if the securities are registered. Disposal of these investments may involve time-consuming negotiations and additional expense, and prompt sale at an acceptable price may be difficult. Information regarding restricted investments is included at the end of the Statement of Investments. Restricted investments, including any restricted investments in affiliates, are valued in accordance with the investment valuation policies discussed above.

Foreign Investments

The Partnership may invest in instruments traded in foreign countries and denominated in foreign currencies. At June 30, 2010, the Partnership held foreign currency denominated investments comprising approximately 6.9% of the Partnership’s total investments. Such positions were converted at the closing rate in effect at June 30, 2010 and reported in U.S. dollars. Purchases and sales of investments and income and expense items denominated in foreign currencies, when they occur, are translated into U.S. dollars on the respective dates of such transactions. The portion of gains and losses on foreign investments resulting from fluctuations in foreign currencies is included in net realized and unrealized gain or loss from investments.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2010

2. Summary of Significant Accounting Policies (continued)

Investments in foreign companies and securities of foreign governments may involve special risks and considerations not typically associated with investing in U.S. companies and securities of the U.S. government. These risks include, among other things, revaluation of currencies, less reliable information about issuers, different transactions clearance and settlement practices and potential future adverse political and economic developments. Moreover, investments in foreign companies and securities of foreign governments and their markets may be less liquid and their prices more volatile than those of comparable U.S. companies and the U.S. government.

Derivatives

In order to mitigate certain currency exchange and interest rate risks, the Partnership has entered into several swap transactions. All derivatives are recognized as either assets or liabilities in the statement of assets and liabilities. The transactions entered into are accounted for using the mark-to-market method with the resulting change in fair value recognized in earnings for the current period. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in interest rates and the value of foreign currency relative to the U.S. dollar.

Unrealized gains of $903,984 from cross currency basis swaps during the six months ended June 30, 2010 were included in net change in unrealized appreciation/depreciation in the Statement of Operations.

Valuations of swap transactions at June 30, 2010 were determined as follows:

Level		Basis for Determining Fair Value		Aggregate Value
2		Other observable market inputs		$	529,584

Debt Issuance Costs

Costs of approximately $3.5 million were incurred in connection with placing the Partnership’s Senior Facility. These costs were deferred and are being amortized on a straight-line basis over eight years, the estimated life of the Senior Facility. The impact of utilizing the straight-line amortization method versus the effective-interest method is not expected to be material to the operations of the Company or the Partnership.

Purchase Discounts

The majority of the Partnership’s high yield and distressed debt investments are purchased at a considerable discount to par as a result of the underlying credit risks and financial results of the

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2010

2. Summary of Significant Accounting Policies (continued)

issuer, as well as general market factors that influence the financial markets as a whole. GAAP generally requires that discounts on the acquisition of corporate (investment grade) bonds municipal bonds and treasury bonds be amortized using the effective-interest or constant-yield method. However, GAAP also requires the Partnership to consider the collectibility of interest when making accruals.

Accordingly, when accounting for purchase discounts, the Partnership recognizes discount accretion income when it is probable that such amounts will be collected and when such amounts can be estimated.

Income Taxes

The Company intends to comply with the applicable provisions of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes. Accordingly, no provision for income taxes is required in the consolidated financial statements. The Partnership’s income or loss is reported in the partners’ income tax returns. As of June 30, 2010, all tax years of the Company and the Partnership since inception remain subject to examination by federal and state tax authorities. No such examinations are currently pending.

Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from accounting principles generally accepted in the United States. Capital accounts within the financial statements are adjusted at year-end for permanent book and tax differences. Temporary differences are primarily attributable to differing book and tax treatments for the timing of the recognition of gains and losses on certain investment transactions and the timing of the deductibility of certain expenses, and will reverse in subsequent periods.

Cost and unrealized appreciation (depreciation) for U.S. federal income tax purposes of the investments of the Partnership at June 30, 2010 were as follows:

Unrealized appreciation	$	64,613,938
Unrealized depreciation		(120,327,172	)
Net unrealized depreciation	$	(55,713,234	)

Cost of investments	$	461,550,781

Dividends to holders of the Series A Preferred are treated as ordinary income for federal tax purposes.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2010

3. Allocations and Distributions

Common distributions are generally based on the estimated taxable earnings of the Company, and are recorded on the ex-dividend date. Distributions to the common shareholders of the Company are generally based on distributions received from the Partnership, less any Company-level expenses and dividends to Series Z preferred shareholders.

Net income and gains of the Partnership are distributed first to the Company until it has received an 8% annual weighted-average return on its undistributed contributed equity, and then to the General Partner until it has received 20% of all cumulative income and gain distributions. 80% of all remaining net income and gain distributions are allocated to the Company, with the remaining 20% allocated to the General Partner. Net investment income or loss, realized gain or loss on investments, and appreciation or depreciation on investments for the period are allocated to the Company and the General Partner in a manner consistent with that used to determine distributions.

The timing of distributions to the Company is determined by the General Partner, which has provided the Investment Manager with certain criteria for such distributions. The timing and amount to be paid by the Company as a distribution to its shareholders is determined by its Board of Directors, which has provided the Investment Manager with criteria for such distributions. Any net long-term capital gains are distributed at least annually. As of June 30, 2010, the Company had declared $133,297,000 in distributions to the common shareholders since inception.

The Company’s Series Z share dividend rate is fixed at 8% per annum.

4. Management Fees and Other Expenses

The Investment Manager receives an annual management and advisory fee, payable monthly in arrears, equal to 1.0% of the sum of the maximum amount of the Series A Preferred, the maximum amount available under the Senior Facility, the initial value of the contributed general partnership equity and the initial value of the contributed common equity, subject to reduction by the amount of the Senior Facility commitment when the Senior Facility is no longer outstanding, and by the amount of the Series A Preferred when less than $1 million in liquidation preference of preferred securities remains outstanding. In addition to the management fee, the General Partner is entitled to a performance allocation as discussed in Note 3, above. As compensation for its services, the Co-Manager receives a portion of the management fees paid to the Investment Manager. The Co-Manager also receives a portion of any performance allocation paid to the General Partner.

The Company and the Partnership pay all respective expenses incurred in connection with the business of the Company and the Partnership, including fees and expenses of outside contracted

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2010

4. Management Fees and Other Expenses (continued)

services, such as custodian, administrative, legal, audit and tax preparation fees, costs of valuing investments, insurance costs, brokers’ and finders’ fees relating to investments and any other transaction costs associated with the purchase and sale of investments of the Partnership.

5. Senior Secured Revolving Credit Facility

The Partnership has entered into a credit agreement with certain lenders, which provides for a senior secured revolving credit facility (the “Senior Facility”), pursuant to which amounts may be drawn up to $116 million. The Senior Facility matures July 31, 2014, subject to extension by the lenders at the request of the Partnership for one 12-month period.

Advances under the Senior Facility bear interest at LIBOR plus 0.375% per annum, except in the case of loans from CP Conduits, which bear interest at the higher of LIBOR plus 0.375% or the CP Conduit’s cost of funds plus 0.375%, subject to certain limitations. The weighted-average interest rate on outstanding borrowings at June 30, 2010 was 0.72%. In addition to amounts due on outstanding debt, the Senior Facility accrues commitment fees of 0.20% per annum on the unused portion of the Senior Facility, or 0.25% per annum when less than $46,400,000 in borrowings are outstanding. The Senior Facility may be terminated, and any outstanding amounts thereunder may become due and payable, should the Partnership fail to satisfy certain financial or other covenants. As of June 30, 2010, the Partnership was in full compliance with such covenants.

6. Commitments, Concentration of Credit Risk and Off-Balance Sheet Risk

The Partnership conducts business with brokers and dealers that are primarily headquartered in New York and Los Angeles and are members of the major securities exchanges. Banking activities are conducted with a firm headquartered in the New York area.

In the normal course of business, the Partnership’s investment activities involve executions, settlement and financing of various transactions resulting in receivables from, and payables to, brokers, dealers and the Partnership’s custodian. These activities may expose the Company and the Partnership to risk in the event such parties are unable to fulfill contractual obligations. Management does not anticipate any material losses from counterparties with whom it conducts business.

Consistent with standard business practice, the Company and the Partnership enter into contracts that contain a variety of indemnifications. The maximum exposure of the Company and the Partnership under these arrangements is unknown. However, the Company and the Partnership expect the risk of loss to be remote.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2010

6. Commitments, Concentration of Credit Risk and Off-Balance Sheet Risk (continued)

The Consolidated Statement of Investments includes certain revolving loan facilities held by the Partnership with aggregate unfunded balances of approximately $22.2 million at June 30, 2010. These instruments are reflected at fair value in the Statement of Investments and may be drawn up to the principal amount shown.

7. Related Parties

From time to time the Partnership advances payments to third parties on behalf of the Company which are reimbursable through deductions from distributions to the Company.

8. Series Z Preferred Capital

In addition to the Series A Preferred of the Partnership described in Note 1, the Company had 47 Series Z preferred shares authorized, issued and outstanding as of June 30, 2010. The Series Z preferred shares have a liquidation preference of $500 per share plus accumulated but unpaid dividends and pay dividends at an annual rate equal to 8% of liquidation preference. The Series Z preferred shares are redeemable at any time at the option of the Company and may only be transferred with the consent of the Company.

Special Value Continuation Fund, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

June 30, 2010

9. Financial Highlights