Consolidated Financial Statements
(Unaudited)

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)
 March 31, 2010

 
 
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Consolidated Financial Statements (Unaudited)

March 31, 2010

Contents

Consolidated Portfolio Asset Allocation
1
   
Consolidated Financial Statements
  
   
Consolidated Statement of Assets and Liabilities
2
Consolidated Statement of Investments
3
Consolidated Statement of Operations
8
Consolidated Statements of Changes in Net Assets
9
Consolidated Statement of Cash Flows
10
Notes to Consolidated Financial Statements
11
Consolidated Schedule of Changes in Investments in Affiliates
24
Consolidated Schedule of Restricted Securities of Unaffiliated Issuers
25
   
Supplemental Information
  
   
Consolidating Statement of Assets and Liabilities
26
Consolidating Statement of Operations
27

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)

March 31, 2010

 
Percent of Cash
Industry
and Investments
   
Wired Telecommunications Carriers
16.1%
Architectural, Engineering, and Related Services
9.8%
Other Electrical Equipment and Component Manufacturing
9.2%
Nonferrous Metal (except Aluminum) Production and Processing
6.7%
Other Information Services
5.9%
Radio and Television Broadcasting
4.3%
Communications Equipment Manufacturing
3.9%
Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments Manufacturing
3.1%
Other Financial Investment Activities
3.0%
Scheduled Air Transportation
3.0%
Data Processing, Hosting, and Related Services
2.8%
Book, Periodical, and Music Stores
2.4%
Full-Service Restaurants
2.0%
Offices of Real Estate Agents and Brokers
1.9%
Basic Chemical Manufacturing
1.6%
Industrial Machinery Manufacturing
1.6%
Other Professional, Scientific, and Technical Services
1.2%
Support Activities for Mining
1.1%
Computer and Peripheral Equipment Manufacturing
1.0%
Oil and Gas Extraction
1.0%
Depository Credit Intermediation
0.8%
Wireless Telecommunications Carriers (except Satellite)
0.8%
Gambling Industries
0.6%
Accounting, Tax Preparation, Bookkeeping, and Payroll Services
0.2%
Grocery Stores
0.2%
Semiconductor and Other Electronic Component Manufacturing
0.2%
Machine Shops, Turned Product, and Screw, Nut, and Bolt Manufacturing
0.2%
Other Amusement and Recreation Industries
0.2%
Electric Power Generation, Transmission and Distribution
0.1%
Other Financial Services
0.1%
Support Activities for Air Transportation
0.1%
Nondepository Credit Intermediation
0.0%
Cash and Cash Equivalents
14.9%
Total
100.0%

 
1
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Consolidated Statement of Assets and Liabilities (Unaudited)

March 31, 2010

Assets
      
Investments, at fair value:
      
Unaffiliated issuers (cost $286,307,940)
   $ 234,509,385  
Controlled companies (cost $37,838,172)
     11,966,712  
Other affiliates (cost $116,372,481)
     145,665,389  
Total investments (cost $440,518,593)
     392,141,486  
         
Cash and cash equivalents
     68,805,550  
Accrued interest income:
        
Unaffiliated issuers
     4,360,200  
Controlled companies
     4,327  
Other affiliates
     12,135  
Receivable for investment securities sold
     3,233,044  
Deferred debt issuance costs
     1,909,526  
Dividends receivable from other affiliates
     1,845,028  
Prepaid expenses and other assets
     38,787  
Total assets
     472,350,083  
         
Liabilities
        
Credit facility payable
     72,000,000  
Payable for investment securities purchased
     20,083,733  
Distribution payable
     3,000,000  
Management and advisory fees payable
     565,599  
Payable to affiliate
     134,824  
Interest payable
     32,718  
Unrealized depreciation on swaps
     24,531  
Accrued expenses and other liabilities
     411,519  
Total liabilities
     96,252,924  
         
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
     480  
Total Series Z preferred stock
     23,980  
         
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
     355,366  
Total preferred limited partner interests
     134,355,366  
         
Minority interest
        
General partner interest in Special Value Continuation Partners, LP
     -  
         
Net assets applicable to common shareholders
   $ 241,717,813  
         
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
     3,821,333  
Accumulated net realized losses
     (78,506,523 )
Accumulated net unrealized depreciation
     (48,361,644 )
Accumulated dividends to Series Z preferred shareholders
     (480 )
Net assets applicable to common shareholders
   $ 241,717,813  
         
Common stock, NAV per share
   $ 576.95  

See accompanying notes.

 
2
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Unaudited)

March 31, 2010

Showing Percentage of Total Cash and Investments of the Company

   
Principal
    
Fair
    
Percent of Cash
  
Investment
  
Amount
    
Value
    
and Investments
  
                   
Debt Investments (54.17%)
                  
Bank Debt (21.66%) (1)
                  
Book, Periodical, and Music Stores (2.45%)
                  
Borders Group, Inc., 2nd Lien FIFO Term Loan, LIBOR + 12.25%, due 4/1/14
   $ 11,798,247     $ 11,296,822       2.45 %
                         
Communications Equipment Manufacturing (3.91%)
                        
Mitel Networks Corporation, 1st Lien Term Loan, LIBOR + 3.25%, due 8/10/14
   $ 18,550,859       18,003,214       3.91 %
                         
Computer and Peripheral Equipment Manufacturing (1.01%)
                        
Palm, Inc., Tranche B Term Loan, LIBOR + 3.5%, due 4/24/14
   $ 134,975       110,229       0.02 %
Targus Group, 1st Lien Term Loan, LIBOR + 5.75% Cash + 3.5% PIK, due 11/22/12
   $ 5,760,632       4,584,501       0.99 %
Total Computer and Peripheral Equipment Manufacturing
             4,694,730          
                         
Electric Power Generation, Transmission and Distribution (0.05%)
                        
La Paloma Generating Company, Residual Bank Debt (3)
   $ 23,218,322       211,507       0.05 %
                         
Machine Shops, Turned Product, and Screw, Nut, and Bolt Manufacturing (0.18%)
                        
Acument Global Technologies, LLC, 1st Lien Term Loan, 10% Cash + 4% PIK, due 8/11/13
   $ 857,741       814,854       0.18 %
                         
Offices of Real Estate Agents and Brokers (1.16%)
                        
Realogy Corporation, Revolver, LIBOR + 2.25%, due 4/10/13
   $ 15,897,590       (2,245,535 )     (0.49 )%
Realogy Corporation, 2nd Lien Term Loan A, 13.5%, due 10/15/17
   $ 6,927,199       7,597,952       1.65 %
Total Offices of Real Estate Agents and Brokers
             5,352,417          
                         
Other Financial Investment Activities (2.96%)
                        
American Capital, Ltd., Senior Unsecured Revolver, PRIME + 5.75%, due 3/31/11
   $ 13,764,622       13,629,539       2.96 %
                         
Radio and Television Broadcasting (4.08%)
                        
Broadcast Facilities, Inc., 1st Lien Revolver, 13%, due 12/31/14
   $ 2,343,750       1,000,000       0.22 %
Broadcast Facilities, Inc., 1st Lien Term Loan, 13%, due 12/31/14
   $ 17,656,250       17,788,672       3.86 %
Total Radio and Television Broadcasting
             18,788,672          
                         
Wired Telecommunications Carriers (5.86%)
                        
Bulgaria Telecom Company AD, 1st Lien Tranche B Term Loan
                        
EURIBOR + 2.75%, due 8/9/15 - (Netherlands) (4)
   $ 2,574,080       2,666,871       0.58 %
Integra Telecom, Inc., 1st Lien Term Loan, LIBOR + 8.75%, due 8/31/13
   $ 156,054       156,835       0.03 %
Interstate Fibernet, Inc., 1st Lien Term Loan, LIBOR + 4%, due 7/31/13 (2)
   $ 10,449,354       10,449,354       2.27 %
Interstate Fibernet, Inc., 2nd Lien Term Loan, LIBOR +7.5%, due 7/31/14 (2)
   $ 8,281,636       8,281,636       1.80 %
NEF Telecom Company BV, 1st Lien Tranche C Term Loan, EURIBOR + 3.50%, due 8/9/16 (4)
                        
EURIBOR + 3.50%, due 8/9/16 - (Netherlands) (4)
   € 3,821,057       3,764,140       0.82 %
NEF Telecom Company BV, 2nd Lien Tranche D Term Loan,
                        
EURIBOR + 5.5%, due 2/16/17 - (Netherlands) (4)
   € 1,538,600       1,637,975       0.36 %
Total Wired Telecommunications Carriers
             26,956,811          
                         
Total Bank Debt (Cost $100,131,884)
             99,748,566          
                         
Other Corporate Debt Securities (32.51%)
                        
Accounting, Tax Preparation, Bookkeeping, and Payroll Services (0.25%)
                        
NCO Group, Inc., Senior Secured Floating Rate Notes, LIBOR + 4.875%, due 11/15/13
   $ 655,000       537,100       0.12 %
NCO Group, Inc., Senior Subordinated Notes, 11.875%, due 11/15/14
   $ 655,000       589,094       0.13 %
Total Accounting, Tax Preparation, Bookkeeping, and Payroll Services
             1,126,194          
                         
Architectural, Engineering, and Related Services (4.63%)
                        
Alion Science & Technology Corporation, Senior Notes, 10.25%, due 2/1/15
   $ 14,914,000       11,334,640       2.46 %
Alion Science & Technology Corporation, Senior Secured Notes, 10% Cash + 2% PIK, due 11/1/14 (5)
   $ 2,620,000       2,659,300       0.58 %
ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes, 18% PIK, due 3/31/15 (2), (5)
   $ 7,339,014       7,339,014       1.59 %
Total Architectural, Engineering, and Related Services
             21,332,954          

 
3
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Unaudited) (Continued)

March 31, 2010

Showing Percentage of Total Cash and Investments of the Company

   
Principal
    
Fair
    
Percent of Cash
  
Investment
  
Amount
    
Value
    
and Investments
  
                   
Debt Investments (continued)
                  
Basic Chemical Manufacturing (1.57%)
                  
Kronos International, Inc., Senior Secured Notes, 6.5%, due 4/15/13 (4)
   € 6,296,000     $ 7,214,063       1.57 %
                         
Data Processing, Hosting, and Related Services (2.31%)
                        
Anacomp, Inc., Senior Secured Subordinated Notes, 14% PIK, due 3/12/13 (2), (5), (8)
   $ 11,127,124       9,847,505       2.14 %
Terremark Worldwide, Inc., Senior Secured Notes, 12%, due 6/15/17 (5)
   $ 703,000       784,253       0.17 %
Total Data Processing, Hosting, and Related Services
             10,631,758          
                         
Full-Service Restaurants (2.04%)
                        
Real Mex Restaurants, Inc., Senior Secured Notes, 14%, due 1/1/13
   $ 9,613,000       9,420,740       2.04 %
                         
Gambling Industries (0.58%)
                        
Harrah's Operating Company Inc., Senior Secured Notes, 10%, due 12/15/18
   $ 3,212,000       2,673,990       0.58 %
Harrah's Operating Company Inc., Senior Secured Notes, 11.25%, due 6/1/17
   $ 18,000       19,530       0.00 %
Total Gambling Industries
             2,693,520          
                         
Grocery Stores (0.22%)
                        
Safeway, Inc., Senior Unsecured Notes, 4.95%, due 8/16/10
   $ 1,000,000       1,014,730       0.22 %
                         
Industrial Machinery Manufacturing (1.53%)
                        
GSI Group Corporation, Senior Notes, 11%, due 8/20/13 (3), (5)
   $ 7,778,000       7,039,090       1.53 %
                         
Nondepository Credit Intermediation (0.04%)
                        
Fannie Mae, Fixed Rate Notes, 2.5%, due 4/9/10
   $ 100,000       100,037       0.02 %
Federal Home Loan Bank, Fixed Rate Notes, 2.375%, due 4/30/10
   $ 100,000       100,129       0.02 %
Total Nondepository Credit Intermediation
             200,166          
                         
Offices of Real Estate Agents and Brokers (0.78%)
                        
Realogy Corporation, Senior Subordinated Notes, 12.375%, due 4/15/15
   $ 4,915,000       3,600,237       0.78 %
                         
Oil and Gas Extraction (0.96%)
                        
Forbes Energy Services, Senior Secured Notes, 11%, due 2/15/15
   $ 2,904,000       2,744,222       0.60 %
Seitel, Inc., Senior Notes, 9.75%, due 2/15/14 (5)
   $ 2,056,000       1,651,811       0.36 %
Total Oil and Gas Extraction
             4,396,033          
                         
Other Amusement and Recreation Industries (0.16%)
                        
Bally Total Fitness Holdings, Inc., Senior Subordinated Notes,
                        
14% Cash or 15.625% PIK, due 10/1/13 (3), (5)
   $ 50,979,834       746,345       0.16 %
                         
Other Financial Services (0.09%)
                        
State Street Corporation, Subordinated Notes, 7.65%, due 6/15/10
   $ 410,000       415,728       0.09 %
                         
Other Information Services (4.51%)
                        
IRI Holdco (RW), LLC, Note Receivable, 8%, due 12/12/11 (5)
   $ 20,806,522       20,806,522       4.51 %
                         
Other Professional, Scientific, and Technical Services (1.16%)
                        
MSX International, Inc., Senior Secured 2nd Lien Notes,
                        
12.5%, due 4/1/12 - (UK/France/Germany) (5)
   $ 6,810,000       5,324,943       1.16 %
                         
Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments Manufacturing (3.13%)
                  
AGY Holding Corporation, Senior Secured 2nd Lien Notes, 11%, due 11/15/14
   $ 16,655,000       14,406,575       3.13 %

 
4
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Unaudited) (Continued)

March 31, 2010

Showing Percentage of Total Cash and Investments of the Company

   
Principal Amount
    
Fair
    
Percent of Cash
  
Investment
  
or Shares
    
Value
    
and Investments
  
                   
Debt Investments (continued)
                  
Scheduled Air Transportation (2.71%)
                  
United Air Lines, Inc., Aircraft Secured Mortgage (N508UA), 20%, due 8/25/16 (5)
   $ 3,575,497     $ 4,649,934       1.01 %
United Air Lines, Inc., Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16 (5)
   $ 566,710       738,989       0.16 %
United Air Lines, Inc., Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16 (5)
   $ 567,284       741,723       0.16 %
United Air Lines, Inc., Aircraft Secured Mortgage (N530UA), 20%, due 11/25/13 (5)
   $ 3,352,037       4,148,146       0.90 %
United Air Lines, Inc., Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14 (5)
   $ 546,064       618,691       0.13 %
United Air Lines, Inc., Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15 (5)
   $ 641,491       740,922       0.16 %
United Air Lines, Inc., Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16 (5)
   $ 666,076       871,227       0.19 %
Total Scheduled Air Transportation
             12,509,632          
                         
Support Activities for Mining (1.07%)
                        
Allis-Chalmers Energy, Senior Unsecured Notes, 8.5%, due 3/1/17
   $ 5,511,000       4,917,741       1.07 %
                         
Wired Telecommunications Carriers (3.93%)
                        
NEF Telecom Company BV, Mezzanine Term Loan,
                        
EURIBOR + 10% PIK, due 8/16/17 - (Netherlands) (4), (5)
   € 17,000,187       14,159,311       3.07 %
Zayo Group, LLC, 1st Lien Senior Secured Notes, 10.25%, due 3/15/17 (5)
   € 3,885,079       3,969,054       0.86 %
Total Wired Telecommunications Carriers
             18,128,365          
                         
Wireless Telecommunications Carriers (except Satellite) (0.84%)
                        
Clearwire Communications, LLC, Senior Secured Notes, 12%, due 12/1/15  (5)
   $ 2,622,000       2,683,066       0.58 %
Clearwire Communications, LLC, Senior Secured Notes, 12%, due 12/1/15
   $ 1,179,000       1,206,459       0.26 %
Total Wireless Telecommunications Carriers (except Satellite)
             3,889,525          
                         
Total Other Corporate Debt Securities (Cost $192,490,921)
             149,814,861          
                         
Total Debt Investments (Cost $292,622,805)
             249,563,427          
                         
Equity Securities (30.92%)
                        
Architectural, Engineering, and Related Services (5.22%)
                        
Alion Science and Technology Corporation, Warrants (3), (5)
     2,620       –       0.00 %
ESP Holdings, Inc., Common Stock  (2), (3), (5), (6)
     88,670       18,642,166       4.04 %
ESP Holdings, Inc., 15% PIK, Preferred Stock (2), (3), (5), (6)
     40,618       5,432,121       1.18 %
Total Architectural, Engineering, and Related Services
             24,074,287          
                         
Data Processing, Hosting, and Related Services (0.46%)
                        
Anacomp, Inc., Common Stock (2), (3), (5), (8)
     1,253,969       2,119,207       0.46 %
                         
Depository Credit Intermediation (0.84%)
                        
Doral Holdings, LP Interest   (3), (5)
     855,916       3,883,810       0.84 %
                         
Industrial Machinery Manufacturing (0.05%)
                        
GSI Group Inc., Common Stock (3), (5)
     216,987       233,261       0.05 %
                         
Nonferrous Metal (except Aluminum) Production and Processing (6.73%)
                        
International Wire Group, Inc., Common Stock (2), (5), (6)
     1,979,441       31,037,635       6.73 %
                         
Other Electrical Equipment and Component Manufacturing (9.22%)
                        
EaglePicher Holdings, Inc., Common Stock  (2), (5), (6), (7)
     1,312,720       42,485,526       9.22 %
                         
Other Information Services (1.40%)
                        
IRI Holdco (RW), LLC, Warrants to Purchase IRI Preferred Stock (3), (5)
     4,063,914       6,441,304       1.40 %
                         
Radio and Television Broadcasting (0.20%)
                        
Broadcast Facilities, Inc., Common Stock (5)
     183,824       937,502       0.20 %

 
5
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Unaudited) (Continued)

March 31, 2010

Showing Percentage of Total Cash and Investments of the Company

   
Principal Amount
    
Fair
    
Percent of Cash
  
Investment
  
or Shares
    
Value
    
and Investments
  
                   
Equity Securities (continued)
                  
Scheduled Air Transportation (0.25%)
                  
United Air Lines, Inc., Equipment Trust Beneficial Interests (N510UA) (5)
     24     $ 223,110       0.05 %
United Air Lines, Inc., Equipment Trust Beneficial Interests (N512UA) (5)
     24       222,317       0.05 %
United Air Lines, Inc., Equipment Trust Beneficial Interests (N536UA) (5)
     24       217,735       0.05 %
United Air Lines, Inc., Equipment Trust Beneficial Interests (N545UA) (5)
     23       222,226       0.05 %
United Air Lines, Inc., Equipment Trust Beneficial Interests (N585UA) (5)
     24       247,324       0.05 %
Total Scheduled Air Transportation
             1,132,712          
                         
Semiconductor and Other Electronic Component Manufacturing (0.21%)
                        
AIP/IS Holdings, LLC, Membership Units (3), (5)
     352       982,382       0.21 %
                         
Support Activities for Air Transportation (0.05%)
                        
Alabama Aircraft Industries, Inc., Common Stock (3), (5)
     164,363       238,722       0.05 %
                         
Wired Telecommunications Carriers (6.29%)
                        
Integra Telecom, Inc., Common Stock (3), (5)
     1,274,522       6,741,689       1.46 %
Integra Telecom, Inc., Warrants (3), (5)
     346,939       43,075       0.01 %
ITC^DeltaCom, Inc., Common Stock (2), (3), (5), (6)
     10,890,068       21,997,937       4.77 %
NEF Kamchia Co-Investment Fund, LP Interest - (Cayman Islands) (3), (4), (5)
     2,455,500       229,010       0.05 %
Total Wired Telecommunications Carriers
             29,011,711          
                         
Total Equity Securities (Cost $147,895,788)
             142,578,059          
                         
Total Investments (Cost $440,518,593) (9)
             392,141,486          
                         
Cash and Cash Equivalents (14.91%)
                        
General Electric Capital Corporation, Commercial Paper, 0.03%, 4/1/10
   $ 9,000,000       9,000,000       1.95 %
American Express Credit Corporation, Commercial Paper, 0.13%, 4/6/10
   $ 15,000,000       14,999,729       3.25 %
Toyota Motor Credit Corporation, Commercial Paper, 0.10%, 4/9/10
   $ 15,000,000       14,999,667       3.25 %
Chevron Funding Corporation, Commercial Paper, 0.15%, 4/27/10
   $ 19,000,000       18,997,942       4.12 %
Cash Denominated in Foreign Currencies (Cost $13)
  
CAD 57
       56       0.00 %
Cash Denominated in Foreign Currencies Euro (Cost $3,197,824)
   € 2,329,044       3,146,539       0.68 %
Cash Denominated in Foreign Currencies GBP (Cost $511)
   £ 130       197       0.00 %
Cash Held on Account at Various Institutions
   $ 7,661,420       7,661,420       1.66 %
Total Cash and Cash Equivalents
             68,805,550          
                         
Total Cash and Investments
           $ 460,947,036       100.00 %

 
6
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Consolidated Statement of Investments (Unaudited) (Continued)

March 31, 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 $23,435,335 that have been segregated to collateralize certain unfunded commitments.
 
Aggregate purchases and aggregate sales of investments, other than Government securities, totaled $86,553,920 and $43,357,229, 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 March 31, 2010 was $331,846,471 or 71.99% of total cash and investments of the Company.
 
Swaps at March 31, 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     $ (24,531 )
 
See accompanying notes.

 
7
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Consolidated Statement of Operations (Unaudited)

Three Months Ended March 31, 2010

Investment income
      
Interest income:
      
Unaffiliated issuers
   $ 5,043,509  
Controlled companies
     376,426  
Other affiliates
     613,030  
Dividend income:
        
Other affiliates
     1,845,028  
Other income:
        
Unaffiliated issuers
     395,151  
Other affiliates
     9,111  
Total investment income
     8,282,255  
         
Operating expenses
        
Management and advisory fees
     1,696,797  
Amortization of deferred debt issuance costs
     108,564  
Portfolio asset depreciation
     89,199  
Commitment fees
     61,708  
Director fees
     48,250  
Legal fees, professional fees and due diligence expenses
     40,286  
Interest expense
     36,292  
Insurance expense
     34,261  
Custody fees
     26,257  
Other operating expenses
     120,093  
Total expenses
     2,261,707  
         
Net investment income
     6,020,548  
         
Net realized and unrealized gain
        
Net realized gain from:
        
Investments in unaffiliated issuers and foreign currency transactions
     3,571,235  
Investments in affiliated issuers
     735  
Net realized gain
     3,571,970  
         
Net change in net unrealized appreciation/depreciation
     2,601,339  
         
Net realized and unrealized gain
     6,173,309  
         
Dividends paid on Series A preferred equity facility
     (368,337 )
Net change in accumulated dividends on Series A preferred equity facility
     12,971  
Dividends paid to Series Z preferred shareholders
     (1,880 )
Net change in reserve for dividends to Series Z preferred shareholders
     1,411  
         
Net increase in net assets applicable to common shareholders resulting from operations
   $ 11,838,022  

See accompanying notes.

 
8
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Consolidated Statements of Changes in Net Assets

   
Three Month Ended
        
   
March 31, 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
     6,020,548       17,932,832  
Net realized gain
     3,571,970       (62,643,798 )
Net change in unrealized appreciation/depreciation
     2,601,339       98,786,144  
Dividends on Series A preferred equity facility
     (368,337 )     (2,544,220 )
Net change in accumulated dividends on Series A preferred equity facility
     12,971       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
     1,411       (1,875 )
Net increase in net assets applicable to common shareholders resulting from operations
     11,838,022       52,334,214  
                 
Distributions to common shareholders from:
                
Net investment income
     (3,000,000 )     (15,200,000 )
                 
Net assets applicable to common shareholders, end of period
                
(including accumulated net investment income of $3,823,213
                
and $1,158,031, respectively)
   $ 241,717,813     $ 232,879,791  

See accompanying notes.

 
9
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Consolidated Statement of Cash Flows (Unaudited)

Three Months Ended March 31, 2010

Operating activities
      
Net increase in net assets applicable to common shareholders resulting from operations
   $ 11,838,022  
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
     (3,571,970 )
Net change in unrealized appreciation/depreciation
     (2,597,302 )
Dividends paid on Series A preferred equity facility
     368,337  
Dividends paid to Series Z preferred shareholders
     1,880  
Net change in accumulated dividends on Series A preferred equity facility
     (12,971 )
Net change in reserve for dividends to Series Z preferred shareholders
     (1,411 )
Accretion of original issue discount
     (62,425 )
Income from paid in-kind capitalization
     (376,280 )
Amortization of deferred debt issuance costs
     108,564  
Changes in assets and liabilities:
        
Purchases of investments
     (86,177,640 )
Proceeds from sales, maturities and paydowns of investments
     43,357,229  
Increase in accrued interest income - unaffiliated issuers
     (445,930 )
Increase in accrued interest income - controlled companies
     (146 )
Decrease in accrued interest income - other affiliates
     341,658  
Increase in dividends receivable from other affiliates
     (1,845,028 )
Increase in receivable for investments sold
     (1,421,625 )
Decrease in prepaid expenses and other assets
     49,511  
Increase in payable for investments purchased
     7,334,301  
Increase in payable to affiliate
     134,824  
Decrease in interest payable
     (13,337 )
Decrease in accrued expenses and other liabilities
     (84,950 )
Net cash used in operating activities
     (33,076,689 )
         
Financing activities
        
Proceeds from draws on credit facility
     72,000,000  
Principal repayments on credit facility
     (75,000,000 )
Dividends paid on Series A preferred equity facility
     (368,337 )
Distributions paid to common shareholders
     (6,200,000 )
Dividends paid to Series Z preferred shareholders
     (1,880 )
Net cash used in financing activities
     (9,570,217 )
         
Net decrease in cash and cash equivalents
     (42,646,906 )
Cash and cash equivalents at beginning of period
     111,452,456  
Cash and cash equivalents at end of period
   $ 68,805,550  
         
Supplemental cash flow information:
        
Interest payments
   $ 49,629  
Tax payments
     21,751  

See accompanying notes.

 
10
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited)

March 31, 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

 
11
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

March 31, 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 March 31, 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 March 31, 2010, the Partnership was in full compliance with such requirements.

 
12
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

March 31, 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”).  Subsequent events have been evaluated through May 28, 2010, the date of issuance of the financial statements.  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 could 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.

 
13
 
 
Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2010

2.  Summary of Significant Accounting Policies (continued)

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 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 March 31, 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*
     31,079,386       77,367,442       26,120,470  
3
  
Independent third-party pricing sources that employ significant unobservable inputs
     68,457,673       71,701,074       116,457,589  
3
  
Internal valuations with significant unobservable inputs
     211,507       746,345       -  
Total
       $ 99,748,566     $ 149,814,861     $ 142,578,059  

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

 
14
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2010

2.  Summary of Significant Accounting Policies (continued)

Changes in investments categorized as Level 3 during the three months ended March 31, 2010 were as follows:
 
   
Independent Third Party Valuation
  
   
Bank Debt
    
Other
Corporate Debt
    
Equity
Securities
  
Beginning balance
   $ 45,255,960     $ 73,392,112     $ 96,160,272  
Net realized and unrealized gains (losses)
     2,405,592       (2,806,909 )     (75,502 )
Net acquisitions and dispositions
     20,796,121       1,115,871       (16,969 )
Net transfers into (out of) category
     -       -       20,389,788  
Ending balance
   $ 68,457,673     $ 71,701,074     $ 116,457,589  
                         
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)
   $ 2,415,225     $ (2,840,024 )   $ 493,922  

   
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)
     -       (47,287 )     -  
Net acquisitions and dispositions
     -       -       -  
Net transfers into (out of) category
     -       -       (20,389,788 )
Ending balance
   $ 211,507     $ 746,345     $ -  
                         
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)
   $ -     $ (47,287 )   $ -  

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

 
15
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2010

2.  Summary of Significant Accounting Policies (continued)

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 March 31, 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 March 31, 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.

 
16
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

March 31, 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 $349,869 from cross currency basis swaps during the three months ended March 31, 2010 were included in net change in unrealized appreciation/depreciation in the Statement of Operations.

Valuations of swap transactions at March  31, 2010 were determined as follows:

Level
  
Basis for Determining Fair Value
  
Aggregate Value
  
2
  
Other observable market inputs
   $ (24,531 )

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 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.

 
17
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2010

2.  Summary of Significant Accounting Policies (continued)

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 March 31, 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 March 31, 2010 were as follows:

Unrealized appreciation
   $ 52,870,447  
Unrealized depreciation
     (101,272,085 )
Net unrealized depreciation
   $  (48,401,638 )
         
Cost of investments
   $ 440,518,593  

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

 
18
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

March 31, 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 March 31, 2010, the Company had declared $127,000,000 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.
 
19
 
Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2010
 
4.  Management Fees and Other Expenses (continued)

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 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 March 31, 2010 was 0.62%.  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 March 31, 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.

 
20
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

March 31, 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 $17.5 million at March 31, 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 March 31, 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.

 
21
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2010

9.  Financial Highlights

   
Three Months
Ended
                      
July 31, 2006
(Inception) to
  
   
March 31, 2010
    
Year Ended December 31,
    
December 31,
  
   
(Unaudited)
    
2009
    
2008
    
2007
    
2006
  
                               
Per Common Share
                              
Net asset value, beginning of period
   $ 555.86     $ 467.22     $ 936.95     $ 1,036.13     $ 1,000.00  
                                         
Investment operations:
                                        
Net investment income
     14.37       42.80       53.75       166.54       48.14  
Net realized and unrealized gain (loss)
     14.73       86.27       (499.51 )     (28.73 )     62.27  
Distributions to minority interestholder from:
                                        
Net investment income
     -       -       -       (29.74 )     (7.98 )
Net realized gains
     -       -       -       (17.76 )     (3.39 )
Returns of capital
     -       -       -       (1.30 )     -  
Net change in undistributed earnings of minority interest holder
     -       -       7.52       24.89       (9.10 )
Dividends on Series A preferred equity facility
     (0.88 )     (6.07 )     (14.21 )     (19.96 )     (3.38 )
Net change in accumulated dividends on Series A preferred equity facility
     0.03       1.92       1.82       0.35       (4.98 )
Dividends to Series Z preferred shareholders from:
                                        
Net investment income
     -       -       (0.01 )     -       -  
Net change in reserve for dividends to Series Z preferred shareholders
     -       -       0.01       -       -  
                                         
Total from investment operations
     28.25       124.92       (450.63 )     94.29       81.58  
                                         
Distributions to common shareholders from:
                                        
Net investment income
     (7.16 )     (36.28 )     (19.10 )     (117.36 )     (31.90 )
Net realized gains
     -       -       -       (71.03 )     (13.55 )
Returns of capital
     -       -       -       (5.08 )     -  
Total distributions to common shareholders
     (7.16 )     (36.28 )     (19.10 )     (193.47 )     (45.45 )
                                         
Net asset value, end of period
   $ 576.95     $ 555.86     $ 467.22     $ 936.95     $ 1,036.13  
                                         
Return on invested assets (1), (2)
     3.6 %     19.3 %     (31.7 )%     11.7 %     8.4 %
                                         
Gross return to common shareholders (1)
     5.1 %     27.3 %     (49.3 )%     11.4 %     10.3 %
Less: Allocation to General Partner of Special Value
                                        
Continuation Partners, LP (1)
     0.0 %     0.0 %     0.5 %     (2.2 )%     (2.1 )%
Return to common shareholders (1), (3)
     5.1 %     27.3 %     (48.8 )%     9.2 %     8.2 %

 
22
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements (Unaudited) (Continued)

March 31, 2010

9.  Financial Highlights (continued)

   
Three Months Ended
                      
July 31, 2006
  
   
March 31, 2010
    
Year Ended December 31,
    
(Inception) to
  
   
(Unaudited)
    
2009
    
2008
    
2007
    
December 31, 2006
  
                               
Ratios and Supplemental Data:
                              
Ending net assets attributable to common shareholders
   $ 241,717,813     $ 232,879,791     $ 195,745,577     $ 392,541,013     $ 434,092,909  
Net investment income / average common shareholder equity (4), (5), (6)
     10.4 %     8.7 %     6.9 %     12.8 %     10.4 %
                                         
Operating expenses and General Partner allocation /average common shareholder equity
                                        
Operating expenses (4), (6)
     3.9 %     4.5 %     4.5 %     4.6 %     5.7 %
General Partner allocation (1)
     -       -       (1.0 )%     2.3 %     2.0 %
Total expenses and General Partner allocation
     3.9 %     4.5 %     3.5 %     6.9 %     7.7 %
                                         
Portfolio turnover rate (1), (7)
     11.7 %     44.2 %     33.3 %     64.6 %     17.3 %
Weighted-average debt outstanding
   $ 19,844,444     $ 26,882,192     $ 123,873,973     $ 162,460,274     $ 168,292,208  
Weighted-average interest rate
     0.7 %     1.0 %     3.7 %     5.8 %     5.8 %
Weighted-average number of shares
     418,956       418,956       418,956       418,956       418,956  
Average debt per share
   $ 47.37     $ 64.16     $ 295.67     $ 387.77     $ 401.69  
                                         
Annualized Inception-to-Date Performance Data as of March 31, 2010:
                                        
                                         
Return on invested assets (2)
     0.6 %                                
Internal rate of return to common shareholder equity (8)
     (4.4 )%                                
   
   
(1) 
Not annualized for periods of less than one year.
 
(2) 
Return on invested assets is a time-weighted, geometrically linked rate of return and excludes cash and cash equivalents.

(3) 
Returns (net of dividends on the preferred equity facility, allocations to General Partner and fund expenses, including financing costs and management fees) are calculated on a monthly geometrically linked, time-weighted basis.

(4) 
Annualized for periods of less than one year.

(5) 
Net of income and expense allocation to the minority interestholder.

(6) 
These ratios include interest expense but do not reflect the effect of dividends on the preferred equity facility.

(7) 
Excludes securities acquired from Special Value Bond Fund II, LLC and Special Value Absolute Return Fund, LLC at the inception of the Company and the Partnership.

(8) 
Net of dividends on the preferred equity facility of the Partnership, allocation to General Partner, and fund expenses, including financing costs and management fees.  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 cash outlays.  The internal rate of return presented assumes liquidation of the fund at net asset value as of the balance sheet date, and is reduced by the organizational costs that were expensed at the inception of the Company.

 
23
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Consolidated Schedule of Changes in Investments in Affiliates (1) (Unaudited)

Three Months Ended March 31, 2010

Security
  
Value,
 Beginning
of Period
    
Acquisitions
    
Dispositions
    
Value,
End of
Period
  
                         
Anacomp, Inc., Common Stock
   $ 2,783,811     $ -     $ -     $ 2,119,207  
Anacomp, Inc., Senior Secured Subordinated Notes, 14% PIK, due 3/12/13
     9,138,218               -       9,847,505  
EaglePicher Corporation, 1st Lien Tranche B Term Loan LIBOR + 4.5%, due 12/31/12
     7,827,719       -       (7,827,719 )     -  
EaglePicher Holdings, Inc., Common Stock
     43,313,196       -       -       42,485,526  
ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes, 18% PIK, due 3/31/15
     6,592,331       -       -       7,339,014  
ESP Holdings, Inc., Common Stock
     20,389,788       -       -       18,642,166  
ESP Holdings, Inc., 15% PIK, Preferred Stock
     5,412,228       -       -       5,432,121  
International Wire Group, Inc., Common Stock
     31,869,000       -       -       31,037,635  
Interstate Fibernet, Inc., 1st Lien Term Loan, LIBOR + 4%, due 7/31/13
     10,091,445       -       -       10,449,354  
Interstate Fibernet, Inc., 2nd Lien Senior Secured Note, LIBOR + 7.5%, due 7/31/14
     8,144,989       -       -       8,281,636  
ITC^DeltaCom, Inc., Common Stock
     20,146,626       -       -       21,997,937  

Note to Schedule of Changes in Investments in Affiliates:

(1) 
The issuers of the securities listed on this schedule are considered affiliates under the Investment Company Act of 1940 due to the ownership by the Company of 5% or more of the issuer's voting securities.

 
24
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Restricted Securities of Unaffiliated Issuers (Unaudited)

March 31, 2010

Investment
  
Acquisition
Date
  
Cost
  
           
AIP/IS Holdings, LLC, Membership Units
  
2/1/10
   $ 817,294  
Alabama Aircraft Industries, Inc., Common Stock
  
Various 2002
     3,550,121  
Alion Science & Technology Corporation, Senior Secured Notes, 10% Cash + 2% PIK, due 11/1/14
  
Various 2010
     2,379,902  
Alion Science and Technology Corporation, Warrants
  
3/10/10
     175,671  
Bally Total Fitness Holdings, Inc., Senior Subordinated Notes, 14% Cash or 15.625% PIK, due 10/1/13
  
10/1/07
     45,025,305  
Broadcast Facilities, Inc., Common Stock
  
1/15/10
     883,196  
Clearwire Communications, LLC, Senior Secured Notes, 12%, due 12/1/15
  
Various 2009
     2,568,118  
Doral Holdings, LP Interest
  
7/12/07
     11,138,132  
GSI Group Corporation, Senior Notes, 11%, due 8/20/13
  
8/20/08
     6,920,069  
GSI Group Inc., Common Stock
  
8/20/08
     1,136,229  
Integra Telecom, Inc., Common Stock
  
11/11/09
     8,433,884  
Integra Telecom, Inc., Warrants
  
11/19/09
     19,920  
IRI Holdco (RW), LLC, Note Receivable, 8%, due 12/12/11
  
10/31/08
     19,636,115  
IRI Holdco (RW), LLC, Warrants to Purchase IRI Preferred Stock
  
10/31/08
     1,170,407  
MSX International, Inc., Senior Secured 2nd Lien Notes, 12.5%, due 4/1/12
  
2/24/10
     4,971,300  
NEF Kamchia Co-Investment Fund, LP Interest
  
7/31/07
     3,367,227  
Seitel, Inc., Senior Notes, 9.75%, due 2/15/14
  
Various 2009 & 2010
     1,411,735  
Terremark Worldwide, Inc., Senior Secured Notes, 12%, due 6/15/17
  
6/17/09
     668,792  
United Air Lines, Inc., Aircraft Secured Mortgage (N508UA), 20%, due 8/25/16
  
8/26/09
     3,575,497  
United Air Lines, Inc., Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16
  
8/27/09
     566,710  
United Air Lines, Inc., Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16
  
8/27/09
     567,283  
United Air Lines, Inc., Aircraft Secured Mortgage (N530UA), 20%, due 11/25/13
  
8/26/09
     3,352,037  
United Air Lines, Inc., Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14
  
12/21/09
     546,064  
United Air Lines, Inc., Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15
  
12/17/09
     641,491  
United Air Lines, Inc., Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16
  
8/26/09
     666,076  
United Air Lines, Inc., Equipment Trust Beneficial Interests (N510UA)
  
8/27/09
     142,154  
United Air Lines, Inc., Equipment Trust Beneficial Interests (N512UA)
  
8/27/09
     141,580  
United Air Lines, Inc., Equipment Trust Beneficial Interests (N536UA)
  
12/21/09
     158,883  
United Air Lines, Inc., Equipment Trust Beneficial Interests (N545UA)
  
12/17/09
     177,170  
United Air Lines, Inc., Equipment Trust Beneficial Interests (N585UA)
  
8/26/09
     166,234  
Zayo Group, LLC, 1st Lien Senior Secured Notes, 10.25%, due 3/15/17
  
3/5/10
     3,885,079  

 
25
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Consolidating Statement of Assets and Liabilities (Unaudited)

March 31, 2010

   
Special Value
    
Special Value
          
Special Value
  
   
Continuation
    
Continuation
          
Continuation
  
   
Fund, LLC
    
Partners, LP
          
Fund, LLC
  
   
Standalone
    
Standalone
    
Eliminations
    
Consolidated
  
Assets
                        
Investments:
                        
Unaffiliated issuers
   $ -     $ 234,509,385     $ -     $ 234,509,385  
Investment in subsidiary
     241,873,190       -       (241,873,190 )     -  
Controlled companies
     -       11,966,712       -       11,966,712  
Other affiliates
     -       145,665,389       -       145,665,389  
Total investments
     241,873,190       392,141,486       (241,873,190 )     392,141,486  
                                 
Cash and cash equivalents
     467       68,805,083       -       68,805,550  
Accrued interest income
     -       4,376,662       -       4,376,662  
Deferred debt issuance costs
     -       1,909,526       -       1,909,526  
Receivable for investment securities sold
     -       3,233,044       -       3,233,044  
Dividends receivable
     3,113,000       1,845,028       (3,113,000 )     1,845,028  
Receivable from parent
     -       157,356       (157,356 )     -  
Prepaid expenses and other assets
     6,344       32,443       -       38,787  
Total assets
     244,993,001       472,500,628       (245,143,546 )     472,350,083  
                                 
Liabilities
                                
Credit facility payable
     -       72,000,000       -       72,000,000  
Payable for investment securities purchased
     -       20,083,733       -       20,083,733  
Distribution payable
     3,000,000       3,113,000       (3,113,000 )     3,000,000  
Management and advisory fees payable
     -       565,599       -       565,599  
Payable to affiliate
     -       134,824       -       134,824  
Interest payable
     -       32,718       -       32,718  
Unrealized depreciation on swaps
     -       24,531       -       24,531  
Payable to subsidiary
     157,356       -       (157,356 )     -  
Accrued expenses and other liabilities
     93,852       317,667       -       411,519  
Total liabilities
     3,251,208       96,272,072       (3,270,356 )     96,252,924  
                                 
Preferred stock
                                
Series Z preferred stock
     23,500       -       -       23,500  
Accumulated dividends on Series Z preferred stock
     480       -       -       480  
Total preferred stock
     23,980       -       -       23,980  
                                 
Preferred equity facility
                                
Series A preferred limited partner interests
     -       134,000,000       -       134,000,000  
Accumulated dividends on Series A preferred equity facility
     -       355,366       -       355,366  
Total preferred limited partner interests
     -       134,355,366       -       134,355,366  
                                 
Minority interests
                                
General partner interest in Special Value Continuation Partners, LP
     -       -       -       -  
                                 
Net assets
   $ 241,717,813     $ 241,873,190     $ (241,873,190 )   $ 241,717,813  
                                 
Composition of net assets
                                
Common stock
   $ 419     $ -     $ -     $ 419  
Paid-in capital in excess of par, net of contributed unrealized gains
     364,764,708       -       -       364,764,708  
Paid-in capital
     -       358,636,781       (358,636,781 )     -  
Distributable earnings
     (123,046,834 )     (116,763,591 )     116,763,591       (123,046,834 )
Minority interest
     -       -       -       -  
Accumulated dividends to Series Z preferred shareholders
     (480 )     -       -       (480 )
Net assets
   $ 241,717,813     $ 241,873,190     $ (241,873,190 )   $ 241,717,813  

 
26
 

Special Value Continuation Fund, LLC
(A Delaware Limited Liability Company)

Consolidating Statement of Operations (Unaudited)

Three Months Ended March 31, 2010

   
Special Value
    
Special Value
          
Special Value
  
   
Continuation
    
Continuation
          
Continuation
  
   
Fund, LLC
    
Partners, LP
          
Fund, LLC
  
   
Standalone
    
Standalone
    
Eliminations
    
Consolidated
  
Investment income
                        
Interest income:
                        
Unaffiliated issuers
   $ -     $ 5,043,509     $ -     $ 5,043,509  
Controlled companies
     -       376,426       -       376,426  
Affiliates
     -       613,030       -       613,030  
Dividend income:
                                
Other affiliates
     -       1,845,028       -       1,845,028  
Other income:
                                
Unaffiliated issuers
     -       395,151       -       395,151  
Other affiliates
     -       9,111       -       9,111  
Total interest and related investment income
     -       8,282,255       -       8,282,255  
                                 
Operating expenses
                                
Management and advisory fees
     -       1,696,797       -       1,696,797  
Amortization of deferred debt issuance costs
     -       108,564       -       108,564  
Portfolio asset depreciation
     -       89,199       -       89,199  
Commitment fees
     -       61,708       -       61,708  
Director fees
     18,416       29,834       -       48,250  
Legal fees, professional fees and due diligence expenses
     477       39,809       -       40,286  
Interest expense
     -       36,292       -       36,292  
Insurance expense
     11,420       22,841       -       34,261  
Custody fees
     875       25,382       -       26,257  
Other operating expenses
     54,711       65,382       -       120,093  
Total expenses
     85,899       2,175,808       -       2,261,707  
                                 
Net investment income
     (85,899 )     6,106,447       -       6,020,548  
                                 
Net realized and unrealized gain
                                
Net realized gain from:
                                
Investments in unaffiliated issuers and foreign currency transactions
     -       3,571,235       -       3,571,235  
Investments in affiliated issuers
     -       735       -       735  
Net realized gain
     -       3,571,970       -       3,571,970  
                                 
Net change in net unrealized appreciation/depreciation
     11,924,390       2,601,339       (11,924,390 )     2,601,339  
                                 
Net realized and unrealized gain
     11,924,390       6,173,309       (11,924,390 )     6,173,309  
                                 
Dividends paid on Series A preferred equity facility
     -       (368,337 )     -       (368,337 )
Net change in accumulated dividends on Series A preferred equity facility
     -       12,971       -       12,971  
Dividends to Series Z preferred shareholders
     (1,880 )     -       -       (1,880 )
Net change in reserve for dividends to Series Z preferred shareholders
     1,411       -       -       1,411  
                                 
Net increase in net assets resulting from operations
   $ 11,838,022     $ 11,924,390     $ (11,924,390 )   $ 11,838,022  

 
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