UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549










FORM 10-K










| | x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | - | ------------------------------------------------------------------------------------



For the Year Ended December 31, 2012



| |  ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | - | ----------------------------------------------------------------------------------------



Commission File Number: 814-00897



Special
Value Continuation Partners, LP

(Exact Name of Registrant as Specified in
Charter)



|Delaware                                      |  |  |  | 68-0631675                      
|--------------------------------------------- |  |  |  | --------------------------------
|(State or Other Jurisdictionof Incorporation) |  |  |  | (IRS EmployerIdentification No.)



|2951 28th Street, Suite 1000
        Santa Monica, California |  | 90405     
|------------------------------------------------------------- |  | ----------
|(Address of Principal Executive Offices)                      |  | (Zip Code)



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



Securities registered pursuant to Section
12(b) of the Act: None





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



Common Limited
Partner Interests

(Title of class)



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days: YesxNo ̈



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



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





| | Large accelerated filer  ̈ |  | Accelerated filer                ̈
| | ------------------------- |  | ---------------------------------
| |                           |  |                                  
| | Non-accelerated filer   x |  | Smaller Reporting company  ̈      







Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ̈Nox



The number of the
Registrant’s common limited partner interests outstanding as of December 31, 2012 was 317,209,574.





Documents Incorporated by Reference: Portions
of the Registrant’s Proxy Statement relating to the Registrant’s 2012 Annual Meeting of Stockholders to be filed not
later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated by reference into
Part III of this Report.
























Table of Contents

Special
Value Continuation Partners, LP

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31,
2012



TABLE OF CONTENTS





|         |                                                                                                                  | Page
|-------- | ---------------------------------------------------------------------------------------------------------------- | ----
|         |                                                                                                                  |     
|         | PART I                                                                                                           |     
|Item 1.  | Business                                                                                                         | 2   
|Item 1A. | Risk Factors                                                                                                     | 16  
|Item 1B. | Unresolved Staff Comments                                                                                        | 30  
|Item 2.  | Properties                                                                                                       | 30  
|Item 3.  | Legal Proceedings                                                                                                | 30  
|Item 4.  | Mine Safety Disclosures                                                                                          | 30  
|         |                                                                                                                  |     
|         | PART II                                                                                                          |     
|Item 5.  | Market for Registrant’s Common
    Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 31  
|Item 6.  | Selected Financial Data                                                                                          | 31  
|Item 7.  | Management’s Discussion and
    Analysis of Financial Condition and Results of Operations                        | 32  
|Item 7A. | Quantitative and Qualitative Disclosures
    about Market Risk                                                   | 40  
|Item 8.  | Financial Statements and Supplementary
    Data                                                                  | 42  
|Item 9.  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                         | 76  
|Item 9A. | Controls and Procedures                                                                                          | 76  
|Item 9B. | Other Information                                                                                                | 76  
|         |                                                                                                                  |     
|         | PART III                                                                                                         |     
|Item 10. | Directors, Executive Officers and
    Corporate Governance                                                       | 77  
|Item 11. | Executive Compensation                                                                                           | 77  
|Item 12. | Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters               | 77  
|Item 13. | Certain Relationships and Related Transactions, and Director
    Independence                                    | 77  
|Item 14. | Principal Accountant Fees and Services                                                                           | 77  
|         |                                                                                                                  |     
|         | PART IV                                                                                                          |     
|Item 15. | Exhibits and Financial Statement
    Schedules                                                                   | 78  
|         |                                                                                                                  |     
|         | Signatures                                                                                                       | 79  









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Part I



In this annual report in Form 10-K, except
as otherwise indicated, the terms:



“Partnership,”
“we,” “us” and “our” refer to Special Value Continuation Partners, LP, a Delaware
limited partnership;



“Holding Company” refers
to Special Value Continuation Fund, LLC, a Delaware limited liability company, for the periods prior to the consummation of the
Conversion described elsewhere in this report and to TCP Capital Corp. for the periods after the consummation of the Conversion;



The “Advisor” refers to Tennenbaum
Capital Partners, LLC, a Delaware limited liability company and the investment manager; and



“General Partner” and “Administrator”
refer to SVOF/MM, LLC, a Delaware limited liability company, the general partner of the Partnership and an affiliate of the Advisor
and administrator of the Holding Company and the Partnership.



Item 1. Business



The Partnership is a Delaware limited partnership
formed on July 31, 2006 and is an externally managed, closed-end, non-diversified management investment company. On April 2, 2012
(the “Conversion”) we elected to be treated as a business development company (“BDC”) under the Investment
Company Act of 1940, as amended (the “1940 Act”). Our investment objective is to achieve high total returns through
current income and capital appreciation, with an emphasis on principal protection. We seek to achieve our investment objective
primarily through investments in debt securities of middle-market companies, which we typically define as those with enterprise
values between $100 million and $1.5 billion. While we intend to primarily focus on privately negotiated investments in debt of
middle-market companies, we may make investments of all kinds and at all levels of the capital structure, including in equity interests
such as preferred or common stock and warrants or options received in connection with our debt investments. Our investment activities
will benefit from what we believe are the competitive advantages of our Advisor, including its diverse in-house skills, proprietary
deal flow, and consistent and rigorous investment process focused on established, middle-market companies. We expect to generate
returns through a combination of the receipt of contractual interest payments on debt investments and origination and similar fees,
and, to a lesser extent, equity appreciation through options, warrants, conversion rights or direct equity investments.



Investment operations are conducted in the
Partnership, of which the Holding Company owns 100% of the common limited partner interests. The Holding Company has also elected
to be treated as a BDC under the 1940 Act. The General Partner of the Partnership is SVOF/MM, LLC (“SVOF/MM”), which
also serves as the administrator (the “Administrator”) of the Holding Company and the Partnership. The managing member
of SVOF/MM is Tennenbaum Capital Partners, LLC (the “Advisor”), which serves as the investment manager to both the
Holding Company and the Partnership. Most of the equity interests in the General Partner are owned directly or indirectly by the
Advisor and its employees.



Tennenbaum Capital Partners, LLC



Our investment activities are managed by
the Advisor. The Advisor is a leading investment manager (including specialty lending to middle-market companies). The Advisor
is a Delaware limited liability company and is registered as an investment advisor under the Investment Advisers Act of 1940. As
of December 31, 2012, the Advisor had in excess of $4.5 billion in committed capital under management, approximately 12% of which
consists of the Holding Company’s committed capital, and a team of over 70 people including investment professionals and
other personnel that focus on operations, finance, legal and compliance, accounting and reporting, investor relations, information
technology, and administration. The Advisor was founded in 1999 by Michael E. Tennenbaum, Mark K. Holdsworth and Howard M. Levkowitz,
and its predecessor entity, formed by the same individuals, commenced operations in 1996. The three founders along with David Adler,
David A. Hollander, Michael E. Leitner, Philip M. Tseng and Rajneesh Vig constitute the Advisor’s active partners (the “Advisor
Partners”). The Advisor Partners have significant industry experience, including experience investing in middle-market companies.
Together, the Advisor Partners have invested over $11.0 billion in more than 250 companies since the Advisor’s inception,
through multiple business and credit cycles, across all segments of the capital structure and through a broad set of credit-oriented
strategies including leveraged loan origination, secondary investments of discounted debt securities, and distressed and control
opportunities. We refer to the products that employ these strategies within the Advisor platform as the Opportunity Funds. We believe
the Advisor Partners’ investment perspectives, complementary skills, and collective investment experience provide the Advisor
with a strategic and competitive advantage in middle-market investing.



As our investment advisor, the Advisor is
responsible for sourcing potential investments, conducting research, analyzing investment opportunities and structuring our investments
and monitoring our portfolio companies on an ongoing basis. We believe that the Advisor has a proven long-term track record of
positive performance, notwithstanding some periods during which losses were incurred, of sourcing deals, originating loans and
successfully investing in middle-market companies and that the relationships of its investment professionals are integral to the
Advisor’s success. The Advisor’s investment professionals have long-term working relationships with key sources of
investment opportunities and industry expertise, including investment bankers, financial advisors, attorneys, private equity sponsors,
other senior lenders, high-yield bond specialists, research analysts, accountants, and senior management teams. Additionally, the
Advisor’s structure includes both a board of advisors and a group of Senior Executive Advisors, a team comprised of approximately
20 current and former executives from a variety of industries, which extends the reach of the Advisor’s relationships through
a group of seasoned industry leaders and that can enhance our deal sourcing and due diligence activities.





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We also benefit from the existing
infrastructure and administrative capabilities of an established investment manager. The General Partner, an affiliate of the
Advisor, serves as our Administrator and provides us with office space, equipment and office services. The tasks of our
Administrator include overseeing our financial records, preparing reports to our limited partners and reports filed with the
SEC and generally monitoring the payment of our expenses and the performance of administrative and professional services
rendered to us by others.



Since the beginning of 2011, the Advisor
executed in its Opportunity Funds over $980 million in direct origination leveraged loans primarily to middle-market companies,
of which over $313 million was for our account. There can be no assurance that similar deal flow or terms will be available in
the future for loans in which we may invest.



Operating and Regulatory Tax Structure



The Partnership has elected to be treated
as a partnership for tax purposes. The Holding Company and the Partnership have elected to be treated as BDCs under the 1940 Act.
As a BDC we are required to invest at least 70% of our total assets primarily in securities of private and certain U.S. public
companies (other than certain financial institutions), cash, cash equivalents, U.S. Government securities, and other high-quality
debt investments that mature in one year or less and to comply with other regulatory requirements, including limitations on our
use of debt. Because the Holding Company and the Partnership are each BDCs, their assets, liabilities and results of operations
will be consolidated for purposes of this 70% requirement.



Investment Strategy



To achieve our investment objectives, we
intend to focus on a subset of the broader investment strategies historically pursued by the Advisor. Our primary investment focus
is the ongoing origination of and investments in leveraged loans of performing middle-market companies, building on the Advisor’s
established track record of origination and participation in the original syndication of approximately $4.3 billion of leveraged
loans to 85 companies since 1999, of which we invested over $830 million in 53 companies. For the purposes of this filing, the
term “leveraged loans” refers to senior debt investments that rank ahead of subordinated debt and that generally have
the benefit of security interests in the assets of the borrower. Our investments generally range from $10 million to $35 million
per company, the size of which may grow over time in proportion with our capital base. We expect to generate current returns through
a combination of the receipt of contractual interest payments on debt investments and origination and similar fees, and, to a lesser
extent, equity appreciation through options, warrants, conversion rights or direct equity investments. We often receive equity
interests such as preferred or common stock and warrants or options in connection with our debt investments. From time to time
we may also use other investment strategies, which are not our primary focus, to attempt to enhance the overall return of our portfolio.
These investment strategies may include, but are not limited to, the purchase of discounted debt, opportunistic investments, and
financial instruments to hedge currency or interest rate risk associated with our portfolio.



Our typical investments are in performing
middle-market companies. We believe that middle-market companies are generally less able to secure financing than larger companies
and thus offer better return opportunities for those able to conduct the necessary diligence to appropriately evaluate these companies.
We focus primarily on U.S. companies where we believe our Advisor’s perspective, complementary skills and investment experience
provides us with a competitive advantage and in industries where our Advisor sees an attractive risk reward profile due to macroeconomic
trends and existing the Advisor industry expertise.



Investment Portfolio



At December 31, 2012, our existing investment
portfolio consisted of debt and equity positions in 54 portfolio companies valued at approximately $517.7 million. Debt positions
represented approximately 93% of the total portfolio fair value and had a weighted-average effective yield and yield to maturity
of approximately 11.3% and 11.6%, respectively. For purposes of this report, references to “yield to maturity” assume
that debt investments in our portfolio as of a certain date are purchased at fair value on that date and held until their respective
maturities with no prepayments or losses and are exited at par upon maturity. At December 31, 2012, the weighted-average remaining
term of our debt investments was approximately 4.7 years. At December 31, 2012, the average investment size in our existing portfolio
by issuer was $9.6 million.





3









The following charts summarize our portfolio
mix by industry and type based on the fair value of our investments as of December 31, 2012.





|Investment by Industry                                                          | Investment by Asset Type                                                     
|------------------------------------------------------------------------------- | -----------------------------------------------------------------------------
|                                                                                |                                                                              
|http:||www.sec.gov|Archives|edgar|data|1370755|000114420413013426|image_008.jpg | http:||www.sec.gov|Archives|edgar|data|1370755|000114420413013426|graph2i.jpg





Investment Process



The Advisor’s investment process is
designed to maximize its strategic advantages: a strong brand name as a specialty lender to the middle-market, and diverse in-house
expertise and skills. The Advisor seeks out opportunities by conducting a rigorous and disciplined investment process that combines
the following characteristics:



Deal Sourcing



As a leading middle-market corporate debt
investment manager with a 15-year history and in excess of $4.7 billion in committed capital as of December 31, 2012, approximately
12% of which consists of the Holding Company’s committed capital, the Advisor is active in new deal financing opportunities
in the middle-market segment. However, we believe that the Advisor’s real deal flow advantage comes from the proprietary
network of established relationships of its investment professionals and synergies among its professionals and portfolio companies.
Members of the Advisor’s Investment Committee for the Partnership ( the “Investment Committee”) have long-term
relationships with deal sources including investment bankers, restructuring professionals, bankruptcy attorneys, senior lenders,
high yield bond specialists, research analysts, accountants, fund management teams, the Advisor’s Advisory Board, Senior
Executive Advisors, board members of former clients, former colleagues and other operating professionals to facilitate deal flow.
The Investment Committee is currently comprised of six voting members. In total, the Investment Committee consists of approximately
25 members from the Advisor, of which approximately 19 are non-voting members. The number of voting and non-voting members of the
Investment Committee is subject to increase or decrease in the sole discretion of the Advisor. All members of the Investment Committee
attend investment meetings and are encouraged to participate in discussions. In addition, members of the Investment Committee have
relationships with other investors, including insurance companies, bond funds, mezzanine funds, private equity funds, hedge funds
and other funds which invest in similar assets. Further, the Advisor regularly calls on both active and recently retired senior
executives from the relevant industries to assist with the due diligence of potential investments. Historically, these relationships
with retired senior executives have also been a valuable source of transactions and information. The Advisor anticipates that they
will continue to provide future opportunities. We believe the Advisor’s strong relationships with its portfolio companies
facilitate positive word-of-mouth recommendations to other companies seeking the Advisor’s expertise. The Advisor’s
relationships often result in the ability to access investment opportunities earlier than many of its competitors and in some cases
on an exclusive basis.





4









Due Diligence Process



The foundation of the Advisor’s investment
process is intensive investment research and analysis by its experienced staff of investment professionals. The Advisor’s
senior professionals have worked together for numerous years and we believe that they have a superior level of credit investing
knowledge relative to other credit investors. The Advisor supplements its in-house knowledge with industry experts, including CEO/CFO-level
executives, with direct management experience in the industries under consideration. The Advisor prefers these industry experts
to consultants because of the practical business advice that comes from having managed businesses. The Advisor rigorously and comprehensively
analyzes issuers of securities of interest. The process includes a quantitative and qualitative assessment of the issuer’s
business, an evaluation of its management, an analysis of the business strategy and industry trends, and an in-depth examination
of the Partnership’s capital structure, financial results and projections. The Advisor’s due diligence process includes:



| | · | an assessment of the outlook for the industry and general macroeconomic trends;
| | - | -------------------------------------------------------------------------------



| | · | discussions with issuer management and other industry executives, including the assessment of management/board strengths and weaknesses;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | · | an analysis of the fundamental asset values and the enterprise value of the issuer;
| | - | -----------------------------------------------------------------------------------



| | · | review of the issuer’s key assets, core competencies, competitive advantages, historical and projected financial statements, capitalization, financial flexibility, debt amortization requirements, and tax, environmental, legal and regulatory contingencies;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | review of the issuer’s existing credit documents, including credit agreements, indentures, intercreditor agreements, and security agreements; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| | · | review of documents governing the issuer, including charter, by-laws, and key contracts.
| | - | ----------------------------------------------------------------------------------------



Structuring Originations



As an early non-bank participant
in the leveraged loan market, we believe that loan origination is a core competency of the Advisor. Supplementing industry deal
teams’ experience and competency, the Advisor has seven professionals (including investment professionals) with legal experience,
two of whom have a quarter-century each of relevant experience in secured credit. Deal teams work with the Advisor’s in-house
legal specialists and outside counsel to structure over-collateralized loans with what we believe to be strong creditor protections
and contractual controls over borrower operations. In many cases, the Advisor works to obtain contractual governance rights and
board seats to protect principal and maximize post-investment returns. Deals usually include upfront fees and/or equity participations
through warrants or direct equity stakes.



Trading and Secondary Market Purchases



A key element in maximizing investment returns
in secondary purchases is buying and selling investments at the best available prices. The Advisor has a dedicated trading staff
for both the highly specialized traded loan market and for high-yield bonds. Through its trading operations, the Advisor maintains
its established relationships with a network of broker-dealers in the debt securities markets. These relationships provide the
Advisor with access to the trading dynamics of existing or potential investments and assist it in effectively executing transactions.
These relationships may also lead to the early identification of potential investment opportunities for the Partnership.



Portfolio Management & Monitoring



The Advisor actively monitors the financial
performance of its portfolio companies and market developments. This constant monitoring permits the Advisor to update position
risk assessments, seek to address potential problems early, refine exit plans, and make follow-on investment decisions quickly.
We view active portfolio monitoring as a vital part of our investment process.



We consider board observation and information
rights, regular dialogue with company management and sponsors, and detailed internally generated monitoring reports to be critical
to our performance. We have developed a monitoring template that seeks to ensure compliance with these standards and that is used
as a tool by the Investment Committee to assess investment performance relative to plan.



| | · | Deal teams maintain contact with portfolio company management through regularly scheduled and ad hoc conference calls and onsite visits.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------





5









| | · | Deal teams review portfolio company progress relative to plan and pre-determined performance benchmarks.
| | - | --------------------------------------------------------------------------------------------------------



| | · | Adverse or unexpected developments, as well as consequential routine updates, are reported to the Investment Committee and thoroughly discussed at regularly scheduled weekly meetings. If merited, the Investment Committee will hold ad hoc meetings as necessary to address urgent issues.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Deal teams, with Investment Committee approval, encourage portfolio company managers to catalyze events to monetize holdings for greater return, or where needed, corrective actions to address shortfalls to plan or benchmarks.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | All existing portfolio holdings are formally reviewed in detail by the entire Investment Committee once per quarter at the Advisor’s quarterly portfolio review.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



Investment Committee and Decision Process



The Advisor’s investment process is
organized around the Investment Committee that provides for a centralized, repeatable decision process. The Investment Committee
meets weekly and, with respect to each fund the Advisor advises, certain members of the Investment Committee are voting members.
The Investment Committee has six voting members: Todd R. Gerch, Mark K. Holdsworth, Michael E. Leitner, Howard M. Levkowitz, Michael
E. Tennenbaum and Rajneesh Vig. Approval by a simple majority vote of the voting members of the Investment Committee for each respective
fund is required for the purchase or sale of any investment, with certain de-minimis exceptions. No voting member has veto power.
The Advisor’s investment process is designed to maximize risk-adjusted returns and preserve downside protection.



Regulation



We have filed an election to be regulated
as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their
affiliates (including any investment advisors or co-advisors), principal underwriters and affiliates of those affiliates or underwriters
and requires that a majority of the directors be persons other than “interested persons,” as that term is defined in
the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to
withdraw our election as, a BDC unless approved by “a majority of our outstanding voting securities”, which is defined
in the 1940 Act as the lesser of a majority of the outstanding voting securities or 67% or more of the securities voting if a quorum
of a majority of the outstanding voting securities is present.



We may invest up to 100% of our assets in
securities acquired directly from issuers in privately negotiated transactions. With respect to such securities, we may, for the
purpose of public resale, be deemed an “underwriter” as that term is defined in the Securities Act of 1933, or the
Securities Act. We do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940
Act. Under these limits, except for registered money market funds we generally cannot acquire more than 3% of the voting stock
of any investment company, invest more than 5% of the value of our total assets in the securities of one investment company or
invest more than 10% of the value of our total assets in the securities of more than one investment company. With regard to that
portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might
indirectly subject our limited partners to additional expenses as they will indirectly be responsible for the costs and expenses
of such companies. None of our investment policies are fundamental and any may be changed without limited partner approval.



Qualifying assets



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



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



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



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





6









| | · | satisfies
either of the following:
| | - | ----------------------------------



| | · | has
a market capitalization of less than $250 million or does not have any class of securities listed on a national securities exchange;
or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | · | is
controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over the management
or policies of the eligible portfolio company, and, as a result thereof, the BDC has an affiliated person who is a director of
the eligible portfolio company.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Securities
of any eligible portfolio company which we control.
| | - | --------------------------------------------------------------



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



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



| | · | Securities
received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise of warrants
or rights relating to such securities.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Managerial assistance to portfolio companies



A BDC must have been organized and have
its principal place of business in the United States and must be operated for the purpose of making investments in the types of
securities described in “Qualifying assets” above. However, in order to count portfolio securities as qualifying assets
for the purpose of the 70% test, the BDC must either control the issuer of the securities or must offer to make available to the
issuer of the securities significant managerial assistance. Where the BDC purchases such securities in conjunction with one or
more other persons acting together, the BDC will satisfy this test if one of the other persons in the group makes available such
managerial assistance, although reliance on other investors may not be the sole method by which the BDC satisfies the requirement
to make available managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby
the BDC, through its investment manager, directors, officers or employees, offers to provide, and, if accepted, does so provide,
significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.



Taxation of the company



We have elected to be taxed as a partnership
for U.S. federal income tax purposes. The Partnership’s income or loss is reported in the partner’s income tax
returns. Consequently, no income taxes are paid at the Partnership level or reflected in the Partnership’s financial statements.



Investment Structure



Once we determine that a prospective portfolio
company is suitable for a direct investment, we work with the management of that company and its other capital providers, including
senior and junior lenders, and equity holders, to structure an investment. We negotiate among these parties to agree on how our
investment is expected to be structured relative to the other capital in the portfolio company’s capital structure.



Leveraged Loans



We structure our investments primarily as
secured leveraged loans. Leveraged loans are generally senior debt instruments that rank ahead of subordinated debt of the portfolio
company. Leveraged loans generally have the benefit of security interests on the assets of the portfolio company, which may rank
ahead of, or be junior to, other security interests.





7









High-Yield Securities



The Partnership’s portfolio currently
includes high-yield securities and the Partnership may invest in high-yield securities in the future. High-yield securities have
historically experienced greater default rates than has been the case for investment grade securities and are generally rated below
investment grade by one or more nationally recognized statistical rating organizations or will be unrated but of comparable credit
quality to obligations rated below investment grade, and have greater credit and liquidity risk than more highly rated obligations.
High-yield securities are generally unsecured and may be subordinate to other obligations of the obligor and are often issued in
connection with leveraged acquisitions or recapitalizations in which the issuers incur a substantially higher amount of indebtedness
than the level at which they had previously operated. The Partnership’s portfolio also includes mezzanine investments which
are generally unsecured and rated below investment grade. Mezzanine investments of the type in which the Partnership invests in
are primarily privately negotiated subordinated debt securities often issued in connection with leveraged transactions, such as
management buyouts, acquisitions, re-financings, recapitalizations and later stage growth capital financings, and are generally
accompanied by related equity participation features such as options, warrants, preferred and common stock. In some cases, our
debt investments may provide for a portion of the interest payable to be paid-in-kind interest. To the extent interest is paid-in-kind,
it will be payable through the increase of the principal amount of the obligation by the amount of interest due on the then-outstanding
aggregate principal amount of such obligation.



Warrants, Options and Minority Equity



In some cases, we will also receive nominally
priced warrants or options to buy a minority equity interest in the portfolio company in connection with a loan. As a result, if
a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. We may structure
such warrants to include provisions protecting our rights as a minority-interest holder, as well as a “put,” or right
to sell such securities back to the issuer, upon the occurrence of specified events. In many cases, we may also seek to obtain
registration rights in connection with these equity interests, which may include demand and “piggyback” registration
rights.



Distressed Debt



The Partnership’s portfolio currently
includes distressed debt investments and the Partnership is authorized to continue to invest in the securities and other obligations
of distressed and bankrupt issuers, including debt obligations that are in covenant or payment default. As of December 31, 2012,
none of the Partnership’s debt investments were in non-accrual status. The Partnership does not anticipate distressed debt
to be a significant part of its ongoing investment strategy. Such investments generally trade significantly below par and are considered
speculative. The repayment of defaulted obligations is subject to significant uncertainties. Defaulted obligations might be repaid
only after lengthy workout or bankruptcy proceedings, during which the issuer might not make any interest or other payments. Typically
such workout or bankruptcy proceedings result in only partial recovery of cash payments or an exchange of the defaulted obligation
for other debt or equity securities of the issuer or its affiliates, which may in turn be illiquid or speculative.



Opportunistic Investments



Opportunistic investments may include, but
are not limited to, investments in debt securities of all kinds and at all levels of the capital structure and may include equity
securities of public companies that are thinly traded, emerging market debt, structured finance vehicles such as CLO funds and
debt of middle-market companies located outside the United States. We do not intend such investments to be our primary focus.



We tailor the terms of each investment to
the facts and circumstances of the transaction and the prospective portfolio company, negotiating a structure that protects our
rights and manages our risk while creating incentives for the portfolio company to achieve its business plan and improve its operating
results. We seek to limit the downside potential of our investments by:



| | · | requiring
a total return on our investments (including both interest and potential equity appreciation) that we believe will compensate
us appropriately for credit risk;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | negotiating
covenants in connection with our investments that afford our portfolio companies as much flexibility in managing their businesses
as possible, consistent with the preservation of our capital. Such restrictions may include affirmative and negative covenants,
default penalties, lien protection, change of control provisions and board rights, including either observation or rights to a
seat on the board of directors under some circumstances; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | selecting
investments that we believe have a very low probability of loss.
| | - | --------------------------------------------------------------------------



We expect to hold most of our investments
to maturity or repayment, but we may sell some of our investments earlier if a liquidity event occurs, such as a sale, recapitalization
or worsening of the credit quality of the portfolio company.





8









Code of Ethics



We and the Advisor have each adopted a
code of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Investment Advisers Act of 1940 (the “Advisers
Act”), respectively, that establishes procedures for personal investments and restricts certain transactions by our personnel.
Our codes of ethics generally do not permit investments by our employees in securities that may be purchased or held by us. You
may read and copy these codes of ethics at the SEC’s Public Reference Room in Washington, D.C. You may obtain information
on the operation of the Public Reference Room by calling the SEC at 1 (800) SEC-0330. In addition, each code of ethics is available
on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. You may also obtain
copies of the codes of ethics, after paying a duplicating fee, by electronic request at the following Email address: publicinfo@sec.gov,
or by writing the SEC’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.



Compliance Policies and Procedures



We and the Advisor have adopted and implemented
written policies and procedures reasonably designed to detect and prevent violation of the federal securities laws. We are required
to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation and
to designate a chief compliance officer to be responsible for their administration. Elizabeth Greenwood currently serves as our
chief compliance officer.



Proxy Voting Policies and Procedures



We have delegated our proxy voting responsibility
to our investment adviser. A summary of the Proxy Voting Policies and Procedures of the Advisor are set forth below. The guidelines
are reviewed periodically by the adviser and our non-interested directors, and, accordingly, are subject to change.



The Advisor is registered under the Investment
Advisers Act of 1940 and has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, it recognizes
that it must vote securities held by its clients in a timely manner free of conflicts of interest. These policies and procedures
for voting proxies for investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers
Act.



Our investment adviser votes proxies relating
to our portfolio securities in the best interest of our limited partners. The Advisor reviews on a case-by-case basis each proposal
submitted for a proxy vote to determine its impact on our investments. Although it generally votes against proposals that may have
a negative impact on our investments, it may vote for such a proposal if there exists compelling long-term reasons to do so.



The proxy voting decisions of the Advisor
are made by the senior officers who are responsible for monitoring each of our investments. To ensure that our vote is not the
product of a conflict of interest, it requires that: (i) anyone involved in the decision making process disclose to the managing
member any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding
a proxy vote; and (ii) employees involved in the decision making process or vote administration are prohibited from revealing how
we intend to vote on a proposal in order to reduce any attempted influence from interested parties.



You may obtain information about how we
voted proxies by making a written request for proxy voting information to: Tennenbaum Capital Partners, LLC, 2951 28th
Street, Suite 1000, Santa Monica, CA 90405.



Privacy Principles



We are committed to maintaining the privacy
of our limited partners and to safeguarding their non-public personal information. The following information is provided to help
you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information
with select other parties.



Generally, we do not receive any non-public
personal information relating to our limited partners, although certain non-public personal information of our limited partners
may become available to us. We do not disclose any non-public personal information about our limited partners or former limited
partners to anyone, except as permitted by law or as is necessary in order to service limited partners accounts (for example, to
a transfer agent or third-party administrator).



We restrict access to non-public personal
information about our limited partners to employees of the Advisor and its affiliates with a legitimate business need for the information.
We maintain physical, electronic and procedural safeguards designed to protect the non-public personal information of our limited
partners.





9









Investment Management Agreements



The Partnership and the
Holding Company have entered into separate but substantially identical investment management agreements with the Advisor,
under which the Advisor, subject to the overall supervision of our respective boards of directors, manages the day-to-day
operations and provides investment advisory services to the Partnership and the Holding Company. In addition, pursuant to the
Amended and Restated Limited Partnership Agreement, the General Partner directs and executes the day-to-day operational
activities of the Partnership. For providing these services, the Advisor receives a base management fee and, in addition, the
Advisor or the General Partner may receive incentive compensation.



The base management fee is currently
paid by the Partnership to the Advisor and the incentive compensation, if any, is paid by the Partnership to the General
Partner or the Advisor. If the Partnership is terminated or for any other reasons incentive compensation is not paid by the
Partnership, such amounts will be paid directly by the Holding Company to the Advisor pursuant to its investment management
agreement with the Advisor.



Under the terms of our investment management
agreements, the Advisor:



| | · | determines
the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| | · | identifies,
evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio
companies); and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | closes,
monitors and administers the investments we make, including the exercise of any voting or consent rights.
| | - | -----------------------------------------------------------------------------------------------------------------



The Advisor’s services under the investment
management agreements are not exclusive, and it is free to furnish similar services to other entities so long as its services to
us are not impaired.



Pursuant to our investment management agreements,
we pay the Advisor compensation for investment advisory and management services consisting of base management compensation and
a two-part incentive compensation.



Management Fee. The base management
fee is calculated at an annual rate of 1.5% of the Holding Company’s total assets (excluding cash and cash equivalents) at
the end of the most recently completed calendar quarter, payable quarterly in arrears. For purposes of calculating the base management
fee, “total assets” is determined without deduction for any borrowings or other liabilities. The base management fee
for any partial quarter is appropriately pro-rated.



Incentive Compensation. We also pay
incentive compensation to the Advisor or the General Partner. Under the investment management agreements and the Amended and Restated
Limited Partnership Agreement, no incentive compensation was incurred until after January 1, 2013.



Beginning January 1, 2013, the incentive
compensation equals the sum of (1) 20% of all ordinary income since that date and (2) 20% of all net realized capital gains (net
of any net unrealized capital depreciation) since that date, with each component being subject to a total return requirement of
8% of contributed common equity of the Holding Company annually. The incentive compensation initially is an equity allocation
to the General Partner under the Amended and Restated Limited Partnership Agreement. If the Partnership is terminated or for any
other reasons incentive compensation is not distributed by the Partnership, it would be paid pursuant to the investment management
agreement between the Holding Company and the Advisor.



The incentive compensation has two components,
ordinary income and capital gains. Each component will be payable or distributable quarterly in arrears (or upon termination of
the Advisor as the investment manager or the General Partner as the general partner of the Partnership, as of the termination date)
beginning January 1, 2013 and calculated as follows:



Each of the two components of incentive
compensation is separately subject to a total return limitation. Thus, notwithstanding the following provisions, we are not be
obligated to pay or distribute any ordinary income incentive compensation or any capital gains incentive compensation if our cumulative
total return does not exceed an 8% annual return on daily weighted average contributed common equity of the Holding Company. If
the cumulative annual total return of the Holding Company is above 8%, the total cumulative incentive compensation we pay will
not be more than 20% of its cumulative total return, or, if lower, the amount of the Holding Company’s cumulative total return
that exceeds the 8% annual rate.



Subject to the above limitation, the ordinary
income component is the amount, if positive, equal to 20% of the cumulative ordinary income before incentive compensation, less
cumulative ordinary income incentive compensation previously paid or distributed.



Subject to the above limitation, the capital
gains component is the amount, if positive, equal to 20% of the cumulative realized capital gains (computed net of cumulative realized
losses and cumulative net unrealized capital depreciation), less cumulative capital gains incentive compensation previously paid
or distributed. For assets held on January 1, 2013, capital gain, loss and depreciation will be measured on an asset by asset basis
against the value thereof as of December 31, 2012. The capital gains component will be paid or distributed in full prior to payment
or distribution of the ordinary income component.





10









For purposes of the foregoing computations
and the total return limitation, the following definitions apply:



| | · | “cumulative”
means amounts for the period commencing January 1, 2013 and ending as of the applicable calculation date.
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | “contributed
common equity” means the value of net assets attributable to the common stock of the Holding Company as of December 31,
2012 plus the proceeds to us of all issuances of common stock less (A) offering costs of any of the Holding Company securities
or leverage facilities, (B) all distributions by the Holding Company representing a return of capital and (C) the total cost of
all repurchases of the Holding Company’s common stock by the Holding Company, in each case after December 31, 2012 and through
the end of the preceding calendar quarter in question, in each case as determined on an accrual and consolidated basis.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “ordinary income before incentive compensation” means
                                                                                                                              the Holding Company’s consolidated interest income, dividend income and any other income (including any other fees,
                                                                                                                              such as
                                                                                                                              commitment,
                                                                                                                              origination,
                                                                                                                              structuring, diligence, managerial assistance and consulting fees or other fees that we receive from portfolio companies)
                                                                                                                              during the period, (i) minus the Holding Company’s consolidated operating expenses during the period (including the
                                                                                                                              base management
                                                                                                                              fee, expenses
                                                                                                                              payable
                                                                                                                              under
                                                                                                                              the administration agreement, any interest expense and any dividends paid on any issued and outstanding preferred stock),
                                                                                                                              (ii) plus increases and minus decreases in net assets not treated as components of income, operating expense, gain, loss,
                                                                                                                              appreciation or depreciation and not treated as contributions or distributions in respect of common equity, and (iii)
                                                                                                                              without
                                                                                                                              reduction for any incentive compensation and any organization or offering costs, in each case determined on an accrual and
                                                                                                                              consolidated basis.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “total
return” means the amount equal to the combination of ordinary income before incentive compensation, realized capital gains
and losses and unrealized capital appreciation and depreciation of the Holding Company for the period, in each case determined
on an accrual and consolidated basis.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If the Holding Company’s total return
does not exceed the total return limitation, the limitation will not have the effect of eliminating the possibility of paying such
incentive compensation, but rather will postpone any incentive compensation until its cumulative annual total return exceeds the
8% threshold. The nature of the total return limitation may also make it easier for the Advisor to earn incentive compensation
in higher interest rate environments or if our net asset value has increased.



Total Return Limitation
(based on cumulative annual total return)







Percentage of ordinary income and net realized capital gain

separately payable at various levels of total return.



The financial highlights in the notes to the Holding Company’s financial statements include a calculation
of total return based on the change in the market value of its shares. The financial highlights in the notes to the Holding Company’s
financial statements also include a calculation of total return based on the change in its net asset value from period to period.
The total return limitation for purposes of the incentive compensation calculations is based on the stated elements of return:
ordinary income before incentive compensation, realized capital gain and loss and unrealized capital appreciation and depreciation.
It differs from the total return based on the market value or net asset value of the Holding Company’s shares in that it
is a cumulative measurement that is compared to the Holding Company’s daily weighted-average contributed common equity rather
than a periodic measurement that is compared to its net asset value or market value, and in that it excludes incentive compensation.





11









Examples of Incentive Compensation Calculation



Example 1: Income Portion of Incentive Compensation:



Assumptions



| | · | Total
return limitation(1) = 8%
| | - | -------------------------------



| | · | Management
fee(2) = 1.5%
| | - | ------------------------



| | · | Other
expenses (legal, accounting, custodian, transfer agent, etc.)(3) = 1%
| | - | ---------------------------------------------------------------------------



Alternative 1



Additional Assumptions



| | · | cumulative
gross ordinary income (including interest, dividends, fees, etc.) = 11.5%
| | - | ------------------------------------------------------------------------------------



| | · | cumulative
ordinary income before incentive compensation (gross ordinaryincome-(management fee + other expenses)) = 9%
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | cumulative
annual total return = 7%
| | - | -----------------------------------



| | · | prior
ordinary income incentive compensation = 0%
| | - | -------------------------------------------------



Cumulative total return does not exceed total return
limitation, therefore there is no income incentive compensation.










| | (1) | Represents
8.0% annualized total return limitation.
| | --- | ---------------------------------------------------



| | (2) | Represents
1.5% annualized management fee, assuming no liabilities.
| | --- | -------------------------------------------------------------------



| | (3) | Excludes
organizational and offering costs.
| | --- | -------------------------------------------



Alternative 2



Additional Assumptions



| | · | cumulative
gross ordinary income (including interest, dividends, fees, etc.) = 11%
| | - | ----------------------------------------------------------------------------------



| | · | cumulative
ordinary income before incentive compensation (gross ordinaryincome–(management fee + other expenses)) = 8.5%
| | - | ------------------------------------------------------------------------------------------------------------------------



| | · | cumulative
annual total return = 9.5%
| | - | -------------------------------------



| | · | prior
ordinary income incentive compensation = 0%
| | - | -------------------------------------------------



Cumulative ordinary income before incentive compensation
is positive and the cumulative total return exceeds the total return limitation, therefore there is income incentive compensation.



Income incentive compensation = ((20% x ordinary
income before incentive compensation) but not more than ((100% x (cumulative total return up to 10%–8% total return limitation))
+ (20% x cumulative total return above 10%)))



= ((20% x 8.5%) or, if less, ((100% x (9.5%–8%)
+ (20% x 0%)))



= 1.7% or, if less, 1.5%



= 1.5%





12









Alternative 3



Additional Assumptions



| | · | cumulative
gross ordinary income (including interest, dividends, fees, etc.) = 15.5%
| | - | ------------------------------------------------------------------------------------



| | · | cumulative
ordinary income before incentive compensation (gross ordinary income–(management fee + other expenses)) = 13%
| | - | ------------------------------------------------------------------------------------------------------------------------



| | · | cumulative
annual total return = 18%
| | - | ------------------------------------



| | · | prior
ordinary income incentive compensation = 1%
| | - | -------------------------------------------------



Cumulative ordinary income before incentive compensation
is positive and cumulative total return exceeds the total return limitation, therefore there is income incentive compensation.



Income incentive compensation = ((20% x ordinary
income before incentive compensation) but not more than ((100% x (cumulative total return up to 10%–8% total return limitation))
+ (20% x cumulative total return above 10%))), less income incentive compensation previously paid



= ((20% x 13%) or, if less, ((100% x (10%–8%)
+ (20% x (18%–10%)))–1%



= (2.6% or, if less, ((2% + (20% x 8%)))–1%



= (2.6% or, if less, (2% + 1.6%))–1%



= (2.6% or, if less, 3.6%)–1%



= 1.6%



Note that due to the priority of capital gains compensation
over ordinary income compensation, had the 5%(4) of cumulative unrealized capital gains been realized, the capital gains incentive
compensation would have been 1% (i.e. 20% x 5%) and would have reduced ordinary income compensation from 1.6% to 0.6%. Further,
if there had been 1.6% or more of prior capital gains compensation, the ordinary income compensation payment would have been zero.












| | (4) | 5%
of cumulative unrealized capital gains = 18% cumulative annual total return — 13% cumulative ordinary income before incentive
compensation
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------



Example 2: Capital Gains Portion of Incentive Compensation:



Alternative 1:



Assumptions



| | · | Year
1: $20 million investment made in Company A (“Investment A’’), and $30 million investment made in Company B
(“Investment B”).
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | · | Year
2: Investment A sold for $50 million and fair market value, or FMV, of Investment B determined to be $32 million. Cumulative annual
total return of 40%.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Year
3: FMV of Investment B determined to be $25 million. Cumulative annual total return of 15%.
| | - | ------------------------------------------------------------------------------------------------



| | · | Year
4: Investment B sold for $31 million. Cumulative annual total return of 10%.
| | - | ---------------------------------------------------------------------------------



The capital gains portion of the incentive
compensation would be:



| | · | Year
1: None
| | - | ------------



| | · | Year
2: Capital gains incentive compensation of $6 million ($6 million = $30 million realized capital gains on sale of Investment A
multiplied by 20% and total return limitation satisfied)
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





13









| | · | Year
3: None; no realized capital gains.
| | - | ----------------------------------------



| | · | Year
4: Capital gains incentive compensation of $0.2 million ($31 million cumulative realized capital gains multiplied by 20%, less
$6 million of capital gains incentive compensation paid in year 2 and total return limitation satisfied)
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Alternative 2



Assumptions



| | · | Year
1: $20 million investment made in Company A (“Investment A’’), $30 million investment made in Company B (“Investment
B”) and $25 million investment made in Company C (“Investment C”)
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Year
2: Investment A sold for $50 million, FMV of Investment B determined to be $25 million and FMV of Investment C determined to be
$25 million. Cumulative annual total return of 15%.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Year
3: FMV of Investment B determined to be $27 million and Investment C sold for $30 million. Cumulative annual total return of 7%.
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | · | Year
4: FMV of Investment B determined to be $35 million. Cumulative annual total return of 20%.
| | - | ------------------------------------------------------------------------------------------------



| | · | Year
5: Investment B sold for $40 million. Cumulative annual total return of 20%.
| | - | ---------------------------------------------------------------------------------



The capital gains portion of the incentive
compensation would be:



| | · | Year
1: None
| | - | ------------



| | · | Year
2: Capital gains incentive compensation of $5 million; 20% multiplied by $25 million ($30 million realized capital gains on Investment
A less $5 million unrealized capital depreciation on Investment B, and the total return limitation is satisfied)
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Year
3: None as the total return limitation is not satisfied
| | - | ------------------------------------------------------------



| | · | Year
4: Capital gains incentive compensation of $2 million ($35 million cumulative realized capital gains (including $5 million of
realized capital gains from year 3 at a time when the total return limitation was not satisfied and no cumulative unrealized capital
depreciation) multiplied by 20%, less $5 million capital gains incentive compensation paid in year 2, and the total return limitation
is satisfied).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Year
5: Capital gains incentive compensation of $2 million ($45 million cumulative realized capital gains multiplied by 20%, less $7
million in capital gains incentive compensation paid in years 2 and 4, and the total return limitation is satisfied).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Payment of our expenses



All investment professionals and staff of
the Advisor, when and to the extent engaged in providing investment advisory and management services, and the compensation and
routine overhead expenses of such personnel allocable to such services (including health insurance, 401(k) plan benefits, payroll
taxes and other compensation related matters), are provided and paid for by the Advisor. We bear all other costs and expenses of
our operations and transactions, including those relating to:



| | · | our
organization;
| | - | -----------------



| | · | calculating
our net asset value (including the cost and expenses of any independent valuation firm);
| | - | ----------------------------------------------------------------------------------------------------



| | · | expenses, including travel expense, incurred by the Advisor or payable to third parties in performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | interest payable on debt, if any, incurred to finance our investments;
| | - | ----------------------------------------------------------------------



| | · | the base management fee and any incentive management fee;
| | - | ---------------------------------------------------------





14









| | · | administration fees payable under our administration agreement;
| | - | ---------------------------------------------------------------



| | · | transfer agent and custody fees and expenses;
| | - | ---------------------------------------------



| | · | the allocated costs incurred by the General Partner as our Administrator in providing managerial assistance to those portfolio companies that request it;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | amounts payable to third parties relating to, or associated with, evaluating, making and disposing of investments;
| | - | ------------------------------------------------------------------------------------------------------------------



| | · | brokerage fees and commissions;
| | - | -------------------------------



| | · | registration fees;
| | - | ------------------



| | · | director fees and expenses;
| | - | ---------------------------



| | · | costs of preparing and filing reports or other documents with the SEC;
| | - | ----------------------------------------------------------------------



| | · | the costs of any reports, proxy statements or other notices to our limited partners, including printing costs;
| | - | --------------------------------------------------------------------------------------------------------------



| | · | costs of holding special meetings of limited partners, if any;
| | - | --------------------------------------------------------------



| | · | our fidelity bond;
| | - | ------------------



| | · | directors and officers/errors and omissions liability insurance, and any other insurance premiums;
| | - | --------------------------------------------------------------------------------------------------



| | · | litigation, indemnification and other non-recurring or extraordinary expenses;
| | - | ------------------------------------------------------------------------------



| | · | direct costs and expenses of administration and operation, including audit and legal costs;
| | - | -------------------------------------------------------------------------------------------



| | · | dues, fees and charges of any trade association of which we are a member; and
| | - | -----------------------------------------------------------------------------



| | · | all other expenses reasonably incurred by us or the Administrator in connection with administering our business, such as the allocable portion of overhead under our administration agreement, including rent and other allocable portions of the cost of certain of our officers and their respective staffs.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



From time to time, the Advisor may pay amounts
owed by us to third party providers of goods or services. We will subsequently reimburse the Advisor for such amounts paid on our
behalf.



Limitation of liability and indemnification



The investment management agreements provide
that the Advisor and its officers, directors, employees and affiliates are not liable to us or any of our limited partners for
any act or omission by it or its employees in the supervision or management of our investment activities or for any loss sustained
by us or our limited partners, except that the foregoing exculpation does not extend to any act or omission constituting willful
misfeasance, bad faith, gross negligence or reckless disregard of its obligations under the investment management agreement. The
investment management agreements also provide for indemnification by us of the Advisor’s members, directors, officers, employees,
agents and control persons for liabilities incurred by it in connection with their services to us, subject to the same limitations
and to certain conditions.



Board and shareholder approval of the investment management
agreements



Our board of directors held an in-person
meeting on December 17, 2010, in order to consider and approve our investment management agreements. In its consideration of the
investment management agreement, the board of directors focused on information it had received relating to, among other things:
(a) the nature, quality and extent of the advisory and other services to be provided to us by our investment advisor, the Advisor;
(b) comparative data with respect to advisory fees or similar expenses paid by other business development companies with similar
investment objectives; (c) our projected operating expenses and expense ratio compared to business development companies with similar
investment objectives; (d) any existing and potential sources of indirect income to the Advisor from its relationships with us
and the profitability of those relationships; (e) information about the services to be performed and the personnel performing such
services under the investment management agreements; (f) the organizational capability and financial condition of the Advisor and
its affiliates; (g) the Advisor’s practices regarding the selection and compensation of brokers that may execute our portfolio
transactions and the brokers’ provision of brokerage and research services to our investment advisor; and (h) the possibility
of obtaining similar services from other third party service providers or through an internally managed structure.





15









Based on the information reviewed and the
discussions, the board of directors, including a majority of the non-interested directors, concluded that the investment management
fee rates are reasonable in relation to the services to be provided.



A majority of our currently existing limited partners approved
the new investment management agreement. A discussion regarding the basis for our board of directors’ approval of the investment
management agreements is available in our consent solicitation statement filed with the SEC on April 8, 2011.



Duration and termination



The investment management agreements were
most recently re-approved by our board of directors on April 27, 2012 and will remain in effect from year to year if approved annually
by our board of directors or by the affirmative vote of the holders of a majority of our outstanding voting securities, including,
in either case, approval by a majority of our directors who are not interested persons. The investment management agreements will
automatically terminate in the event of its assignment. The investment management agreements may be terminated by either party
without penalty upon not less than 60 days written notice to the other. Any termination by us must be authorized either by our
board of directors or by vote of our limited partners. See “Risk Factors — Risks related to our business — We
are dependent upon senior management personnel of the Advisor for our future success, and if the Advisor is unable to retain qualified
personnel or if the Advisor loses any member of its senior management team, our ability to achieve our investment objective could
be significantly harmed.”



Administration Agreement



We have entered into administration agreements
with the Administrator, which we refer to as the administration agreement, under which the Administrator provides administrative
services to us. The Administrator provides services including, but not limited to, the arrangement for the services of, and the
overseeing of, custodians, depositories, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers,
banks, and such other persons in any such other capacity deemed to be necessary or desirable. The Administrator also makes reports
to the board of its performance of obligations under the administration agreement and furnishes advice and recommendations with
respect to such other aspects of our business and affairs that we determine to be desirable. The Administrator is responsible for
our financial and other records that are required to be maintained and prepares all reports and other materials required by any
agreement or to be filed with the Securities and Exchange Commission or any other regulatory authority, including reports on Forms
8-K, 10-Q and periodic reports to limited partners, determining the amounts available for distribution as dividends and distributions
to be paid by us to our limited partners, maintaining or overseeing the maintenance of our books and records as required under
the 1940 Act, and maintaining (or overseeing maintenance by other persons) such other books and records required by law or for
our proper operation. For providing these services, facilities and personnel, we reimburse the Administrator for expenses incurred
by the Administrator in performing its obligations under the administration agreement, including our allocable portion of overhead
under the administration agreement and the cost of certain of our officers and the Administrator’s administrative staff and
providing, at our request and on our behalf, significant managerial assistance to our portfolio companies to which we are required
to provide such assistance. From time to time, the Administrator may pay amounts owed by us to third-party providers of goods or
services. We subsequently reimburse the Administrator for such amounts paid on our behalf.





Item 1A.	Risk Factors



An investment in our securities involves
certain risks relating to our structure and investment objectives. The risks set forth below are not the only risks we face, and
we face other risks which we have not yet identified, which we do not currently deem material or which are not yet predictable.
If any of the following risks occur, our business, financial condition and results of operations could be materially adversely
affected. In such case, our net asset value could decline, and you may lose all or part of your investment.



Risks related to our business



We may not replicate the Partnership’s historical
performance or the historical performance of other entities managed or supported by the Advisor.



We may not be able to replicate the Partnership’s
historical performance or the historical performance of the Advisor’s investments, and our investment returns may be substantially
lower than the returns achieved by the Partnership in the past. We can offer no assurance that the Advisor will be able to continue
to implement our investment objective with the same degree of success as it has had in the past.





16









We may suffer credit losses.



Investment in middle-market companies is
highly speculative and involves a high degree of risk of credit loss, and therefore our securities may not be suitable for someone
with a low tolerance for risk. These risks are likely to increase during an economic recession, such as the United States and many
other economies experienced over the past several years.



Our use of borrowed funds and preferred securities, including
under the Leverage Program, to make investments exposes us to risks typically associated with leverage.



The Partnership borrows money and has the
Preferred Interests outstanding through the Leverage Program. As a result:



| | · | our common limited partner interests are exposed to incremental risk of loss and a decrease in the value of our investments would have a greater negative impact on the value of our common limited partner interests than if we did not use leverage;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | adverse changes in interest rates could reduce or eliminate the incremental income we make with the proceeds of any leverage;
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | · | we, and indirectly our common limited partners, bear the entire cost of issuing and paying interest or dividends on any borrowed funds or preferred securities issued by us;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to pay distributions will be restricted if our asset coverage ratio is not at least 200% and any amounts used to service indebtedness or preferred stock would not be available for such distributions; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to amend the Partnership’s organizational documents or investment management agreements may be restricted if such amendment could have a material adverse impact on the lenders under our Leverage Program.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Preferred Interests have similar risks
to our common limited partners as borrowings. The Preferred Interests rank “senior” to the common limited partners
in our capital structure, resulting in the Preferred Interests having certain separate voting rights, dividend and liquidation
rights, and possibly other rights, preferences or privileges more favorable than those granted to holders of our common limited
partners. For example, payment of dividends and repayment of the liquidation preference of the Preferred Interests takes preference
over any dividends or other payments to our common limited partners, and preferred holders are not subject to any of our expenses
or losses. Furthermore, our Preferred Interests and the issuance of any additional preferred securities could delay, defer or prevent
a transaction or a change of control that might involve a premium price for our common limited partners or otherwise be in the
best interest.



The use of leverage creates increased
risk of loss and is considered a speculative investment technique. The use of leverage magnifies the potential gains and
losses from an investment and increases the risk of loss of capital. To the extent that income derived by us from investments
purchased with borrowed funds or the issuances of preferred stock is greater than the cost of borrowing or issuing and
servicing the preferred stock, our net income will be greater than if borrowing had not been used. Conversely, if the income
from investments purchased from these sources is not sufficient to cover the cost of the leverage, our net investment income
will be less than if leverage had not been used, and the amount available for ultimate distribution to the common limited
partners will be reduced. The extent to which the gains and losses associated with leveraged investing are increased will
generally depend on the degree of leverage employed. We may, under some circumstances, be required to dispose of investments
under unfavorable market conditions in order to maintain our leverage, thus causing us to recognize a loss that might not
otherwise have occurred. In the event  of a sale of investments upon default under our borrowing arrangements, secured
creditors will be contractually entitled to direct such sales and may be expected to do so in their interest, rather than in
the interests of common limited partners. The common limited partners will incur losses if the proceeds from a sale in any of
the foregoing circumstances are insufficient, after payment in full of amounts due and payable on leverage, including
administrative expenses, to repay the common limited partners. As a result, the common limited partner could experience a
total loss of its investment. Any decrease in our revenue would cause our net income to decline more than it would have had
we not borrowed funds and could negatively affect our ability to make distributions on our common limited partner interests.
The ability to service any debt or the Preferred Interests that we have or may have outstanding depends largely on our
financial performance and is subject to prevailing economic conditions and competitive pressures. There is no limitation on
the percentage of portfolio investments that can be pledged to secure borrowings. The amount of leverage that we employ at
any particular time will depend on our Advisor’s and our board of director’s assessments of market and other
factors at the time of any proposed borrowing.





17









In addition to regulatory restrictions that restrict our
ability to raise capital, the Leverage Program contains various covenants which, if not complied with, could accelerate repayment
under the Revolving Facility or require redemption of the Preferred Interests, thereby materially and adversely affecting our liquidity,
financial condition and results of operations.



Under the Leverage Program, we must comply
with certain financial and operational covenants. These covenants include:



| | · | restrictions on the level of indebtedness that we are permitted to incur and the number of Preferred Interests we are permitted to have outstanding in relation to the value of our assets;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | restrictions on our ability to make distributions and other restricted payments under certain circumstances;
| | - | ------------------------------------------------------------------------------------------------------------



| | · | restrictions on extraordinary events, such as mergers, consolidation and sales of assets;
| | - | -----------------------------------------------------------------------------------------



| | · | restrictions on our ability to incur liens and incur indebtedness; and
| | - | ----------------------------------------------------------------------



| | · | maintenance of a minimum level of common limited partner equity.
| | - | ----------------------------------------------------------------



In addition, by limiting the circumstances
in which borrowings may occur under the Revolving Facility, the credit agreement related to the Revolving Facility, or the Credit
Agreement, in effect provides for various asset coverage, credit quality and diversification limitations on our investments. Such
limitations may cause us to be unable to make or retain certain potentially attractive investments or to be forced to sell investments
at an inappropriate time and consequently impair our profitability or increase losses or result in adverse tax consequences. As
of March 6, 2013, we were in compliance with these covenants. However our continued compliance with these covenants depends on
many factors, some of which are beyond our control. Accordingly, there are no assurances that we will continue to comply with the
covenants in the Credit Agreement. Failure to comply with these covenants would result in a default under the Credit Agreement
which, if we were unable to obtain a waiver from the lenders thereunder, could result in an acceleration of repayments under the
Credit Agreement. In addition, a default under the Credit Agreement will, in certain circumstances, require the Preferred Interests
to be redeemed. As such, failure to comply with these covenants could have a material adverse impact on our business, financial
condition and results of operations.



The Revolving Facility also has certain
“key man” provisions. For example, it is an event of default if any of Michael E. Tennenbaum, Howard M. Levkowitz or
Mark K. Holdsworth ceases to be actively involved in the management of the Advisor and is not replaced with someone with comparable
skills within 180 days. Further, if any two of the individuals cease to be actively involved in management of the Advisor, the
administrative agent under the Credit Agreement may veto a proposed replacement for one of such individuals and may veto any of
the Partnership’s portfolio transactions that are in excess of 15% of its total assets until a replacement has been appointed
to fill one of such positions.



The Revolving Facility matures in July 2014 and the Preferred
Interests will be subject to mandatory redemption in July 2016. Any inability to renew, extend or replace the Revolving Facility
or replace the Preferred Interests could adversely impact our liquidity and ability to find new investments or maintain distributions
to our common limited partner.



The Revolving Facility matures July 31,
2014, subject to extension by the lenders at our request for one 12-month period. Advances under the Revolving Facility generally
bear interest at LIBOR plus 0.44%, subject to certain limitations. The Preferred Interests will be subject to mandatory redemption
on July 31, 2016. We do not currently know whether we will renew, extend or replace the Revolving Facility upon its maturity or
replace the Preferred Interests, or if we do either or both, whether we will be able to do so on terms that are as favorable as
the Revolving Facility or Preferred Interests, respectively.



Upon the termination of the Revolving
Facility, there can be no assurance that we will be able to enter into a replacement facility on terms that are as favorable to
us, if at all. We expect that any facility we enter into will likely be on terms less favorable than currently contained in the
Revolving Facility. Our ability to replace the Revolving Facility may be constrained by then-current economic conditions affecting
the credit markets. In the event that we are not able to replace the Revolving Facility at the time of its maturity, this could
have a material adverse effect on our liquidity and ability to fund new investments and our ability to make distributions to our
common limited partner and our ability to qualify as a RIC.



The creditors under the Revolving Facility have a first
claim on all of the Partnership’s assets included in the collateral for the Revolving Facility.



Lenders have fixed dollar claims on our
assets that are superior to the claims of our common limited partners or any preferred holders. Substantially all of our current
assets have been pledged as collateral under the Revolving Facility. If an event of default occurs under the Revolving Facility,
the lenders would be permitted to accelerate amounts due under the Revolving Facility and liquidate our assets to pay off amounts
owed under the Revolving Facility and limitations would be imposed on us with respect to the purchase or sale of investments. Such
limitations may cause us to be unable to make or retain certain potentially attractive investments or to be forced to sell investments
at an inappropriate time and consequently impair our profitability or increase our losses or result in adverse tax consequences.





18









In the event of the dissolution of the Partnership
or otherwise, if the proceeds of the Partnership’s assets (after payment in full of obligations to any such debtors and of
any liquidation preference to any holders of preferred stock) are insufficient to repay capital invested in us by common limited
partner, no other assets will be available for the payment of any deficiency. None of our board of directors, the Advisor, the
General Partner or any of their respective affiliates, have any liability for the repayment of capital contributions made to the
Partnership by the common limited partner. The common limited partner could experience a total loss of its investment in the Partnership.



Lenders under the Revolving Facility may have a veto power
over the Partnership’s investment policies.



If a default has occurred under the Revolving
Facility, the lenders under the Revolving Facility may veto changes in investment policies. The Revolving Facility also has certain
limitations on unusual types of investments such as commodities, real estate and speculative derivatives, which are not part of
the Partnership’s investment strategy or policies in any event.



If we incur additional leverage, it will increase the
risk of investing in shares of our common stock.



The Partnership has indebtedness and the
Preferred Interests outstanding pursuant to the Leverage Program and expects, in the future, to borrow additional amounts under
the Revolving Facility and may increase the size of the Revolving Facility or enter into other borrowing arrangements.



Illustration. The following table
illustrates the effect of leverage on returns from an investment in our common limited partner intrests assuming various annual
returns, net of expenses and preferred dividends. The calculations in the table below are hypothetical and actual returns may be
higher or lower than those appearing below. The calculation is based on our level of leverage at December 31, 2012, which represented
borrowings and preferred stock equal to 37.9% of our total assets. On such date, we also had $549.2 million in total assets; an
average cost of funds of 0.92%; $208.0 million aggregate principal amount of debt and liquidation preference of the Preferred Interests
outstanding; and $316.0 million of total net assets. In order to compute the ‘‘Corresponding Return to Common Limited
Partners,” the ‘‘Assumed Return on Portfolio (Net of Expenses Other than Interest)” is multiplied by the
total value of our investment portfolio at December 31, 2012 to obtain an assumed return to us. From this amount, the interest
expense and preferred dividends calculated by multiplying the interest rate and dividends of 0.92% by the $208.0 million debt and
preferred stock is subtracted to determine the return available to limited partners. The return available to limited partners is
then divided by the total value of our net assets at December 31, 2012 to determine the “Corresponding Return to Common Limited
Partners.” Actual interest payments and preferred dividends may be different.



|Assumed Return on Portfolio (Net of Expenses Other than Interest and Preferred Dividends) |  |  | -10 | % |  |  | -5 | % |  |  | 0  | % |  |  | 5 | % |  |  | 10 | %
|----------------------------------------------------------------------------------------- |  |  | --- | - |  |  | -- | - |  |  | -- | - |  |  | - | - |  |  | -- | -
|Corresponding Return to Common Limited Partners                                           |  |  | -17 | % |  |  | -9 | % |  |  | -1 | % |  |  | 8 | % |  |  | 16 | %



The assumed portfolio return in the table
is based on SEC regulations and is not a prediction of, and does not represent, our projected or actual performance. The table
also assumes that we will maintain a constant level of leverage. The amount of leverage that we use will vary from time to time.



The lack of liquidity in substantially
all of our investments may adversely affect our business.



Our investments generally are made and will
continue to be made in private companies. Substantially all of these securities will be subject to legal and other restrictions
on resale or will be otherwise less liquid than publicly traded securities. The illiquidity of our investments may make it difficult
for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio
quickly, we may realize significantly less than the value at which we had previously recorded our investments. Further, we may
face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we or an affiliated
manager has material non-public information regarding such portfolio company.



A substantial portion of our portfolio investments may
be recorded at fair value as determined in good faith by or under the direction of our board of directors and, as a result, there
may be uncertainty regarding the value of our portfolio investments.



The debt and equity investments that we
make for which market quotations are not readily available will be valued at fair value as determined in good faith by or under
the direction of our board of directors. Due to the inherent uncertainty of determining the fair value of investments that do not
have a readily available market value, the fair value of our investments may differ significantly from the values that would have
been used had a readily available market value existed for such investments, and the differences could be material. Our net asset
value could be adversely affected if determinations regarding the fair value of these investments were materially higher than the
values ultimately realized upon the disposal of such investments.





19









We are exposed to risks associated
with changes in interest rates.



General interest rate fluctuations may have
a substantial negative impact on our investments, the value of our common stock and our rate of return on invested capital. A reduction
in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on
our net investment income. An increase in interest rates could decrease the value of any investments we hold that earn fixed interest
rates, including subordinated loans, senior and junior secured and unsecured debt securities and loans and high-yield bonds, and
also could increase our interest expense, thereby decreasing our net income. Also, an increase in interest rates available to investors
could make investment in our common stock less attractive if we are not able to increase our dividend rate, which could reduce
the value of our common stock.



The Advisor may face conflicts in
allocating investment opportunities between us and certain other entities that could adversely impact our investment returns.



The Advisor and its affiliates, employees
and associates currently do and in the future may manage other funds and accounts, including for other accounts in which certain
holders of our common stock have investments, which we refer to as Other Advisor Accounts. Other Advisor Accounts invest in assets
that are also eligible for purchase by us. Our investment policies, fee arrangements and other circumstances may vary from those
of Other Advisor Accounts. Accordingly, conflicts may arise regarding the allocation of investments or opportunities among us and
Other Advisor Accounts. In general, the Advisor and its affiliates will allocate investment opportunities pro rata among us and
Other Advisor Accounts (assuming the investment satisfies the objectives of each) based on the amount of committed capital each
then has available. The allocation of certain investment opportunities in private placements is subject to independent director
approval pursuant to the terms of the co-investment exemptive order applicable to us and described below. In certain cases, investment
opportunities may be made other than on a pro rata basis. For example, we may desire to retain an asset at the same time that one
or more Other Advisor Accounts desire to sell it or we may not have additional capital to invest at a time Other Advisor Accounts
do. When our investment allocations are made on a basis other than pro rata our investment performance may be less favorable when
compared to the investment performance of Other Advisor Accounts with respect to those investments. The Advisor and its affiliates
intend to allocate investment opportunities to us and Other Advisor Accounts in a manner that they believe in their judgment and
based upon their fiduciary duties to be appropriate given the investment objectives, size of transaction, investable assets, alternative
investments potentially available, prior allocations, liquidity, maturity, expected holding period, diversification, lender covenants
and other limitations of ours and the Other Advisor Accounts. See “— Risks related to our operations as a BDC —
While our ability to enter into transactions with our affiliates are restricted under the 1940 Act, we have received an exemptive
order from the SEC permitting certain affiliated investments subject to certain conditions. As a result, the Advisor may face conflicts
of interests and investments made pursuant to the exemptive order conditions could in certain circumstances affect adversely the
price paid or received by us or the availability or size of the position purchased or sold by us.”



There may be situations in which Other
Advisor Accounts and the Partnership might invest in different securities issued by the same portfolio company. It is possible
that if the portfolio company’s financial performance and condition deteriorates such that one or both investments are or
could be impaired, the Advisor might face a conflict of interest given the difference in seniority of the respective investments.
In such situations, the Advisor would review the conflict on a case-by-case basis and implement procedures consistent with its
fiduciary duty to enable it to act fairly to the Other Advisor Accounts and the Partnership in the circumstances. Any steps by
the Advisor will take into consideration the interests of each of the affected clients, the circumstances giving rise to the conflict,
the procedural efficacy of various methods of addressing the conflict and applicable legal requirements.



Moreover, the Advisor’s investment
professionals, its Investment Committee (as defined below), its senior management and employees serve or may serve as officers,
directors or principals of entities that operate in the same or a related line of business. Accordingly, these individuals may
have obligations to investors in those entities or funds, the fulfillment of which might not be in our best interests or the best
interests of our limited partners. In addition, certain of the personnel employed by the Advisor or focused on our business may
change in ways that are detrimental to our business.



We have limited operating history as a BDC and, if the
Advisor is unable to manage our investments effectively, we may be unable to achieve our investment objective.



Our ability to achieve our investment objective
will depend on our ability to manage our business, which will depend, in turn, on the ability of the Advisor to identify, invest
in and monitor companies that meet our investment criteria. Accomplishing this result largely will be a function of the Advisor’s
investment process. Although the Advisor manages closed-end funds with similar restrictions, the 1940 Act imposes numerous constraints
on the operations of BDCs. The Advisor’s limited experience in operating under these constraints may hinder the Advisor’s
ability to help us take advantage of attractive investment opportunities and to achieve our investment objectives. For example,
BDCs are prohibited from making any nonqualifying investment unless at least 70% of their total assets are primarily in qualifying
investments, which are primarily securities of private or thinly-traded U.S. companies (excluding certain financial companies),
cash, cash equivalents, U.S. Government securities and other high quality debt investments that mature in one year or less. The
Advisor has limited experience investing under these constraints. In addition, the General Partner has limited experience administering
a BDC.





20









Our Advisor and its partners, officers, directors, limited
partners, members, managers, employees, affiliates and agents may be subject to certain potential or actual conflicts of interest
in connection with the activities of, and investments by, us.



The Advisor and its affiliates may spend
substantial time on other business activities, including investment management and advisory activities for entities with the same
or overlapping investment objectives, investing for their own account, financial advisory services (including services for entities
in which we invest), and acting as directors, officers, creditor committee members or in similar capacities. Subject to the requirements
of the 1940 Act and other applicable laws, the Advisor and its affiliates and associates intend to engage in such activities and
may receive compensation from third parties for their services. Subject to the same requirements, such compensation may be payable
by entities in which we invest in connection with actual or contemplated investments, and the Advisor may receive fees and other
compensation in connection with structuring investments which they will share.



The Advisor’s management fee is based
on a percentage of our total assets (other than cash or cash equivalents) and the Advisor may have conflicts of interest in connection
with decisions that could affect our total assets, such as decisions as to whether to incur additional debt to increase management
fees paid.



Our incentive compensation may induce our Advisor to make
certain investments, including speculative investments.



The incentive compensation payable by us
to the Advisor and the General Partner may create an incentive for the Advisor to make investments on our behalf that are risky
or more speculative than would be the case in the absence of such compensation arrangement. The way in which the incentive compensation
payable to the Advisor is determined may encourage the Advisor to increase the use of leverage or take additional risk to increase
the return on our investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would
disfavor the holders of our common stock, or of securities convertible into our common stock or warrants representing rights to
purchase our common stock or securities convertible into our common stock. A rise in the general level of interest rates can be
expected to lead to higher interest rates applicable to certain of our debt investments and may accordingly result in a substantial
increase in the amount of incentive compensation payable to the Advisor with respect to our cumulative investment income. Although
the incentive compensation payable to the General Partner or the Advisor is subject to a total return limitation, the Advisor may
have some ability to accelerate the realization of gains to obtain incentive compensation earlier than it otherwise would when
it may be in our best interests to not yet realize gains. Our directors monitor our use of leverage and the Advisor’s management
of our investment program in the best interests of our common limited partners.

We may invest, to the extent permitted
by law, in the securities and instruments of other investment companies, including private funds, and, to the extent we so invest,
we will bear our ratable share of any such investment company’s expenses, including management and performance fees. We will
also remain obligated to pay management and incentive compensation to the Advisor with respect to the assets invested in the securities
and instruments of other investment companies. With respect to each of these investments, each of our common limited partners will
bear his or her share of our management and incentive compensation as well as indirectly bear the management and performance fees
and other expenses of any investment companies in which we invest.



We may be obligated to pay the Advisor incentive compensation
payments in excess of the amounts we would have paid if such compensation was subject to clawback arrangements.



The Advisor or the General Partner is entitled
to incentive compensation for each fiscal quarter after January 1, 2013 in an amount equal to a percentage of our ordinary income
(before deducting incentive compensation) since that date and, separately, a percentage of our realized capital gains (net of realized
capital losses and unrealized depreciation) since that date, in each case subject to a cumulative total return requirement. If
we pay incentive compensation and thereafter experience additional realized capital losses or unrealized capital depreciation such
that we would no longer have been required to provide incentive compensation, we will not be able to recover any portion of the
incentive compensation previously paid or distributed because our incentive compensation arrangements do not contain any clawback
provisions. As a result, the incentive compensation could exceed 20% of our cumulative total return, depending on the timing of
unrealized appreciation, net unrealized depreciation and net realized capital losses. For example, part of the incentive compensation
payable or distributable by us that relates to our ordinary income is computed on income that may include interest that has been
accrued but not yet received in cash. If a portfolio company defaults on a loan, it is possible that accrued interest previously
used in the calculation of the incentive compensation will become uncollectible. Similarly, the income component is measured against
a total return limitation that includes unrealized gains. Such gains may not be realized or may be realized at a lower amount.
Consequently, we may have paid incentive compensation on income in circumstances where we otherwise would not have done so and
with respect to which we do not have a clawback right against the Advisor or the General Partner.





21









The General Partner may have certain interests that conflict
with the interests of the board of directors in the governance of the Partnership.



The General Partner, an affiliate of our
Advisor, is responsible for the day-to-day operations of the Partnership subject to the general supervision of the board of directors
including various significant matters such as the issuance of additional classes of securities of the Partnership and the determination
of the timing and amounts of distributions payable by the Partnership. The decisions of the General Partner with respect to these
and other matters may be subject to various conflicts of interest arising out of its relationship with us and its affiliates. The
General Partner could be confronted with decisions where it will, directly or indirectly, have an economic incentive to place its
interests or the interests of its affiliates above ours.



The procedures for the appointment and removal of directors
from the board of directors of the Partnership differ from those of the Holding Company, which may result in the boards of directors
of the Partnership and the Holding Company consisting of different members.



The procedures for the appointment and removal
of directors from the board of directors of the Partnership differ from those of the Holding Company, which may result in the boards
of directors of the Partnership and the Holding Company consisting of different members. If the boards of directors of the Partnership
and the Holding Company consist of different members, the objectives of the boards of directors may differ and decisions regarding
the management of the Partnership may adversely affect the Holding Company.



We are dependent upon senior management personnel of the
Advisor for our future success, and if the Advisor is unable to retain qualified personnel or if the Advisor loses any member of
its senior management team, our ability to achieve our investment objective could be significantly harmed.



The success of the Partnership is highly
dependent on the financial and managerial expertise of the Advisor. The loss of one or more of the voting members of the Investment
Committee could have a material adverse effect on the performance of the Partnership. Although the Advisor and the voting members
of the Investment Committee devote a significant amount of their respective efforts to the Partnership, they actively manage investments
for other clients and are not required to (and will not) devote all of their time to the Partnership’s affairs.



The
Advisor or its affiliates may, from time to time, possess material non-public information, limiting our investment discretion.



The Advisor’s investment professionals,
Investment Committee or their respective affiliates may serve as directors of, or in a similar capacity with, companies in which
we invest. In the event that material non-public information is obtained with respect to such companies, or we became subject to
trading restrictions under the internal trading policies of those companies or as a result of applicable law or regulations, we
could be prohibited for a period of time from purchasing or selling the securities of such companies, and this prohibition may
have an adverse effect on us and, consequently, your interests as a limited partner.



Our Advisor can resign on 60 days’ notice, and we
may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely
affect our financial condition, business and results of operations.



Our Advisor has the right, under our investment
management agreement, to resign at any time upon not more than 60 days’ written notice, whether we have found a replacement
or not. If our Advisor resigns, we may not be able to find a new investment advisor or hire internal management with similar expertise
and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so
quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well
as our ability to pay distributions are likely to be adversely affected and the market price of our shares may decline. In addition,
the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach
an agreement with a single institution or group of executives having the expertise possessed by our Advisor and its affiliates.
Even if we are able to retain comparable management, whether internal or external, the integration of such management and their
lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our
financial condition, business and results of operations.



We may experience fluctuations in our periodic operating
results.



We could experience fluctuations in our
periodic operating results due to a number of factors, including the interest rates payable on the debt securities we acquire,
the default rate on such securities, the level of our expenses (including the interest rates payable on our borrowings), the dividend
rates payable on preferred stock we issue, variations in and the timing of the recognition of realized and unrealized gains or
losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors,
results for any period should not be relied upon as being indicative of performance in future periods.





22









If we fail to maintain our status as a business development
company, our business and operating flexibility could be significantly reduced.



We qualify as business development companies
under the 1940 Act. The 1940 Act imposes numerous constraints on the operations of business development companies. For example,
BDCs are prohibited from making any unqualifying investments unless at least 70% of their total assets are invested in qualifying
investments which are primarily securities of private or thinly-traded U.S. companies, cash, cash equivalents, U.S. government
securities and other high quality debt investments that mature in one year or less. Failure to comply with the requirements imposed
on business development companies by the 1940 Act could cause the SEC to bring an enforcement action against us and/or expose us
to claims of private litigants. In addition, any such failure could cause an event of default under the Leverage Program, which
could have a materially adverse effect on our business, financial conditions or results of operations.



Because we intend to distribute substantially all of our
income to the Holding Company to maintain its status as a RIC, we will continue to need additional capital to finance growth. If
additional funds are unavailable or not available on favorable terms, our ability to grow will be impaired.



In order for the Holding Company to qualify
for the tax benefits available to RICs and to minimize payment of excise taxes, we intend to distribute substantially all of our
annual taxable income, except that we may retain certain net capital gains for reinvestment. As a result of these requirements,
we will likely need to raise capital from other sources to grow our business. Unfavorable economic or capital market conditions
may increase our funding costs, limit our access to the capital markets or could result in a decision by lenders not to extend
credit to us. An inability to successfully access the capital markets could limit our ability to grow our business and fully execute
our business strategy and could decrease our earnings, if any.



As a BDC, we are not able to issue
senior securities unless after giving effect thereto we meet a coverage ratio of total assets, less liabilities and
indebtedness not represented by senior securities, to total senior securities, which includes all of our borrowings and any
outstanding preferred interests, of at least 200%. These requirements limit the amount that we may borrow. Because we will
continue to need capital to grow our investment portfolio, these limitations may prevent us from incurring debt and require
us to raise additional equity at a time when it may be disadvantageous to do so. While we expect we will be able to borrow
and to issue additional debt securities and expect that we will be able to issue additional equity securities, we cannot
assure you that debt and equity financing will be available to us on favorable terms, or at all. In addition, as a business
development company, the Holding Company generally will not be permitted to issue equity securities priced below net asset
value without stockholder approval. If additional funds are not available to us, we could be forced to curtail or cease new
investment activities and our net asset value could decline.



The highly competitive market in which we operate may
limit our investment opportunities.



A number of entities compete with us
to make the types of investments that we make. We compete with other BDCs, public and private funds, commercial and
investment banks, commercial financing companies, and, to the extent they provide an alternative form of financing, private
equity funds. Additionally, because competition for investment opportunities generally has increased among alternative
investment vehicles, such as hedge funds, those entities now invest in areas in which they have not traditionally invested.
As a result of these new entrants, competition for investment opportunities intensified in recent years and may intensify
further in the future. Some of our existing and potential competitors are substantially larger and have considerably greater
financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and
access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances
or different risk assessments, which could allow them to consider a wider variety of investments and establish more
relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions and valuation
requirements that the 1940 Act imposes on us as a BDC. We cannot assure you that the competitive pressures we face will not
have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this
existing and potentially increasing competition, we may not be able to take advantage of attractive investment
opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are
consistent with our investment objective.



We do not seek to compete primarily based
on the interest rates we offer, and we believe that some of our competitors make loans with interest rates that are comparable
to or lower than the rates we offer.



We may lose investment opportunities if
we do not match our competitors’ pricing, terms and structure. If we match our competitors’ pricing, terms and structure,
we may experience decreased net interest income and increased risk of credit loss. As a result of operating in such a competitive
environment, we may make investments that are on better terms to our portfolio companies than what we may have originally anticipated,
which may impact our return on these investments.





23









Our board of directors may change our operating policies
and strategies without prior notice or stockholder approval.



Our board of directors has the authority
to modify or waive our operating policies and strategies without prior notice and without stockholder approval. We cannot predict
the effect any changes to our current operating policies and strategies would have on our business or operating results. Nevertheless,
the effects could adversely affect our business and impact our ability to make distributions and cause the Holding Company to lose
all or part of its investment.



Risks related to our investments



Our investments may be risky, and you could lose all or
part of your investment.



We invest generally in middle-market companies
primarily through leveraged loans.



Risks Associated with middle-market companies.
Investing in private middle-market companies involves a number of significant risks, including:



| | · | these
companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we
hold, which may be accompanied by a deterioration in the value of any collateral;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | · | they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our executive officers, directors and the Advisor may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | changes in laws and regulations, as well as their interpretations, may adversely affect their respective businesses, financial structures or prospects; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | they may have difficulty accessing the capital markets to meet future capital needs.
| | - | ------------------------------------------------------------------------------------



Little public information exists about private
middle-market companies, and we expect to rely on the Advisor’s investment professionals to obtain adequate information to
evaluate the potential returns from investing in these companies. These companies and their financial information are not subject
to the Sarbanes-Oxley Act of 2002 and other rules that govern disclosures and financial controls of public companies. If we are
unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we
may lose money on our investment.



Lower Credit Quality Obligations.
Most of our debt investments are likely to be in lower grade obligations. The lower grade investments in which we invest may be
rated below investment grade by one or more nationally-recognized statistical rating agencies at the time of investment or may
be unrated but determined by the Advisor to be of comparable quality. Debt securities rated below investment grade are commonly
referred to as “junk bonds” and are considered speculative with respect to the issuer’s capacity to pay interest
and repay principal. The debt that we invest in typically is not initially rated by any rating agency, but we believe that if such
investments were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s Investors Service,
lower than “BBB-” by Fitch Ratings or lower than “BBB-” by Standard & Poor’s). We may invest
without limit in debt of any rating, as well as debt that has not been rated by any nationally recognized statistical rating organization.



Investment in lower grade investments involves
a substantial risk of loss. Lower grade securities or comparable unrated securities are considered predominantly speculative with
respect to the issuer’s ability to pay interest and principal and are susceptible to default or decline in market value due
to adverse economic and business developments. The market values for lower grade debt tend to be very volatile and are less liquid
than investment grade securities. For these reasons, the investment in our company is subject to the following specific risks:





24









| | · | increased price sensitivity to a deteriorating economic environment;
| | - | --------------------------------------------------------------------



| | · | greater risk of loss due to default or declining credit quality;
| | - | ----------------------------------------------------------------



| | · | adverse company specific events are more likely to render the issuer unable to make interest and/or principal payments; and
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | · | if a negative perception of the lower grade debt market develops, the price and liquidity of lower grade securities may be depressed. This negative perception could last for a significant period of time.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Adverse changes in economic conditions are
more likely to lead to a weakened capacity of a lower grade issuer to make principal payments and interest payments than an investment
grade issuer. The principal amount of lower grade securities outstanding has proliferated in the past decade as an increasing number
of issuers have used lower grade securities for corporate financing. An economic downturn could severely affect the ability of
highly leveraged issuers to service their debt obligations or to repay their obligations upon maturity. Similarly, downturns in
profitability in specific industries could adversely affect the ability of lower grade issuers in that industry to meet their obligations.
The market values of lower grade debt tend to reflect individual developments of the issuer to a greater extent than do higher
quality investments, which react primarily to fluctuations in the general level of interest rates. Factors having an adverse impact
on the market value of lower grade debt may have an adverse effect on our net asset value and the market value of our common stock.
In addition, we may incur additional expenses to the extent we are required to seek recovery upon a default in payment of principal
of or interest on our portfolio holdings. In certain circumstances, we may be required to foreclose on an issuer’s assets
and take possession of its property or operations. In such circumstances, we would incur additional costs in disposing of such
assets and potential liabilities from operating any business acquired.



The secondary market for lower grade debt
is unlikely to be as liquid as the secondary market for more highly rated debt, a factor which may have an adverse effect on our
ability to dispose of a particular instrument. There are fewer dealers in the market for lower grade securities than investment
grade obligations. The prices quoted by different dealers may vary significantly and the spread between the bid and asked price
is generally larger than for higher quality instruments. Under adverse market or economic conditions, the secondary market for
lower grade debt could contract further, independent of any specific adverse changes in the condition of a particular issuer, and
these instruments may become highly illiquid. As a result, we could find it more difficult to sell these instruments or may be
able to sell the securities only at prices lower than if such instruments were widely traded. Prices realized upon the sale of
such lower rated or unrated securities, under these circumstances, may be less than the prices used in calculating our net asset
value.



Since investors generally perceive that
there are greater risks associated with lower grade debt of the type in which we may invest a portion of our assets, the yields
and prices of such debt may tend to fluctuate more than those for higher rated instruments. In the lower quality segments of the
fixed income markets, changes in perceptions of issuers’ creditworthiness tend to occur more frequently and in a more pronounced
manner than do changes in higher quality segments of the income securities market, resulting in greater yield and price volatility.



Distressed Debt Securities Risk.
At times, distressed debt obligations may not produce income and may require us to bear certain extraordinary expenses (including
legal, accounting, valuation and transaction expenses) in order to protect and recover our investment. Therefore, our ability to
achieve current income for our limited partners may be diminished. We also will be subject to significant uncertainty as to when
and in what manner and for what value the distressed debt we invest in will eventually be satisfied (e.g., through a liquidation
of the obligor’s assets, an exchange offer or plan of reorganization involving the distressed debt securities or a payment
of some amount in satisfaction of the obligation). In addition, even if an exchange offer is made or plan of reorganization is
adopted with respect to distressed debt we hold, there can be no assurance that the securities or other assets received by us in
connection with such exchange offer or plan of reorganization will not have a lower value or income potential than may have been
anticipated when the investment was made. Moreover, any securities received by us upon completion of an exchange offer or plan
of reorganization may be restricted as to resale. As a result of our participation in negotiations with respect to any exchange
offer or plan of reorganization with respect to an issuer of distressed debt, we may be restricted from disposing of such securities.



Payment-in-kind Interest Risk. Our
loans may contain a payment-in-kind, or PIK, interest provision. PIK investments carry additional risk as holders of these types
of securities receive no cash until the cash payment date unless a portion of such securities is sold. If the issuer defaults the
Partnership may obtain no return on its investment. The PIK interest, computed at the contractual rate specified in each loan agreement,
is added to the principal balance of the loan and recorded as interest income. To avoid the imposition of corporate-level tax on
us, this non-cash source of income needs to be paid out to limited partners in cash distributions or, in the event that we determine
to do so and in certain cases, in shares of our common stock, even though we have not yet collected and may never collect the cash
relating to the PIK interest. As a result, if we distribute taxable dividends in the form of our common stock, we may have to distribute
a stock dividend to account for PIK interest even though we have not yet collected the cash.





25









Preferred Stock Risk. To the extent
we invest in preferred securities, there are special risks, including:



Deferral. Preferred securities
may include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without any adverse
consequences to the issuer. If we own a preferred security that is deferring its distributions, we may be required to report income
for tax purposes although we have not yet received such income.



Subordination. Preferred
securities are subordinated to bonds and other debt instruments in a company’s capital structure in terms of priority to
corporate income and liquidation payments, and therefore will be subject to greater credit risk than more senior debt instruments.



Liquidity. Preferred securities
may be substantially less liquid than many other securities, such as common stocks or U.S. Government securities.

Limited Voting Rights.
Generally, preferred security holders have no voting rights with respect to the issuing company unless preferred dividends have
been in arrears for a specified number of periods, at which time the preferred security holders may elect a number of directors
to the issuer’s board. Generally, once all the arrearages have been paid, the preferred security holders no longer have voting
rights.



Equity Security Risk. We may
have exposure to equity securities. Although equity securities have historically generated higher average total returns than fixed-income
securities over the long term, equity securities also have experienced significantly more volatility in those returns. The equity
securities that we acquire may fail to appreciate and may decline in value or become worthless.



Hedging Transactions. We may employ hedging techniques to minimize currency exchange rate risks or interest rate risks, but we can offer no assurance that such strategies will be effective. If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price.



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



Over the past several years, the U.S. has
been in a prolonged recessionary period followed by slower than historical rates of GDP growth and may return to a recessionary
period or continue to a period of slow growth. Many other economies are currently in a prolonged recessionary period. Although
these conditions have ameliorated to some degree, they could continue for a prolonged period of time or worsen in the future. In
addition, several EU countries, continue to face budget issues, some of which may have negative long-term effects for the economies
of those countries and other EU countries. Economic slowdowns or recessions could lead to financial losses in our portfolio and
a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our
access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from
increasing investments and harm our operating results.



A portfolio company’s failure to satisfy
financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans
and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize our portfolio company’s
ability to meet its obligations under the debt securities that we hold. We may incur expenses to the extent necessary to seek recovery
upon default or to negotiate new terms with a defaulting portfolio company. In addition, if one of our portfolio companies were
to go bankrupt, even though we or one of our affiliates may have structured our interest in such portfolio company as senior debt,
depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio
company, a bankruptcy court might re-characterize our debt holding as equity and subordinate all or a portion of our claim to claims
of other creditors.



We may not be in a position to exercise control over our
portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.



We do not generally intend to take controlling
equity positions in our portfolio companies. To the extent that we do not hold a controlling equity interest in a portfolio company,
we are subject to the risk that such portfolio company may make business decisions with which we disagree, and the limited partners
and management of such portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the
lack of liquidity for the debt and equity investments that we typically hold in our portfolio companies, we may not be able to
dispose of our investments in the event we disagree with the actions of a portfolio company, and may therefore suffer a decrease
in the value of our investments.



In addition, we may not be in a position
to control any portfolio company by investing in its debt securities. As a result, we are subject to the risk that a portfolio
company in which we invest may make business decisions with which we disagree and the management of such company, as representatives
of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors.





26









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



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



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



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



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



Our portfolio companies may prepay loans, which prepayment
may reduce stated yields in the future if capital returned cannot be invested in transactions with equal or greater expected yields.



Certain of the loans we make are prepayable
at any time, some of them of them at no premium to par. We cannot predict when such loans may be prepaid. Whether a loan is prepaid
will depend both on the continued positive performance of the portfolio company and the existence of favorable financing market
conditions that permit such company to replace existing financing with less expensive capital. As market conditions change frequently,
it is unknown when, and if, this may be possible for each portfolio company. In the case of some of these loans, having the loan
prepaid early may reduce the achievable yield for the Partnership in the future below the current yield disclosed for our portfolio
if the capital returned cannot be invested in transactions with equal or greater expected yields.





27









Our failure to make follow-on investments in our portfolio
companies could impair the value of our portfolio.



Following an initial investment in a portfolio
company, we may make additional investments in that portfolio company as “follow-on” investments in order to: (1) increase
or maintain in whole or in part our equity ownership percentage; (2) exercise warrants, options or convertible securities that
were acquired in the original or subsequent financing; or (3) attempt to preserve or enhance the value of our initial investment.



We may elect not to make follow-on investments
or otherwise lack sufficient funds to make those investments. Our failure to make follow-on investments may, in some circumstances,
jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for
us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment,
we may elect not to make such follow-on investment because we may not want to increase our concentration of risk, because we prefer
other opportunities, because we are inhibited by compliance with BDC requirements or because we desire to maintain our tax status.



Our investments in foreign securities may involve significant
risks in addition to the risks inherent in U.S. investments.



|Our investment strategy contemplates that a portion of our investments may be in securities of foreign companies in order to provide diversification or to complement our U.S. investments, although we are required generally to invest at least 70% of our assets in companies organized and having their principal place of business within the U.S. and its possessions. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. These risks may be more pronounced for portfolio companies located or operating primarily in emerging markets, whose economies, markets and legal systems may be less developed.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Although it is anticipated that most of
our investments will be denominated in U.S. dollars, our investments that are denominated in a foreign currency will be subject
to the risk that the value of a particular currency may change in relation to the U.S. dollar. Among the factors that may affect
currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in
different currencies, long-term opportunities for investment and capital appreciation and political developments. We may employ
hedging techniques to minimize these risks, but we can offer no assurance that we will, in fact, hedge currency risk or, that if
we do, such strategies will be effective. As a result, a change in currency exchange rates may adversely affect our profitability.



Risks related to our operations as a BDC



While our ability to enter into transactions with our
affiliates is restricted under the 1940 Act, we have received an exemptive order from the SEC permitting certain affiliated investments
subject to certain conditions. As a result, our Advisor may face conflict of interests and investments made pursuant to the exemptive
order conditions could in certain circumstances adversely affect the price paid or received by us or the availability or size of
the position purchased or sold by us.



We are prohibited under the 1940 Act from
participating in certain transactions with certain of our affiliates without the prior approval of our independent directors and,
in some cases, of the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be
our affiliate for purposes of the 1940 Act and we are generally prohibited from buying or selling any security from or to such
affiliate, absent the prior approval of our independent directors. The 1940 Act also prohibits certain “joint” transactions
with certain of our affiliates, which could include investments in the same portfolio company (whether at the same or different
times), without prior approval of our independent directors and, in some cases, of the SEC. We are prohibited from buying or selling
any security from or to any person who owns more than 25% of our voting securities and from or to certain of that person’s
affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions
limit our ability to transact business with our officers or directors or their affiliates.



The Advisor and the funds managed by the
Advisor have received an exemption from certain SEC regulations prohibiting transactions with affiliates. The exemptive order requires
that certain procedures be followed prior to making an investment subject to the order and such procedures could in certain circumstances
adversely affect the price paid or received by us or the availability or size of the position purchased or sold by us. In addition,
the Advisor may face conflicts of interests in making investments pursuant to the exemptive order.





28











Regulations governing our operation as a BDC may limit
our ability to, and the way in which we raise additional capital, which could have a material adverse impact on our liquidity,
financial condition and results of operations.



Our business may in the future require a
substantial amount of capital. We may acquire additional capital from the issuance by the Holding Company of additional shares
of its common stock or from the additional issuance of senior securities (including debt and preferred stock). However, we may
not be able to raise additional capital in the future on favorable terms or at all.



The Holding Company’s board of directors
may decide to issue common stock to finance our operations rather than issuing debt or other senior securities. As a BDC, the Holding
Company is generally not able to issue our common stock at a price below net asset value without first obtaining required approvals
from its stockholders and its independent directors. If the Holding Company’s common stock trades at a discount to net asset
value, those restrictions could adversely affect its ability to raise equity capital. Except in connection with the exercise of
warrants or the conversion of convertible securities, in any such case the price at which the Holding Company’s securities
are to be issued and sold may not be less than a price, that in the determination of its board of directors, closely approximates
the market value of such securities at the relevant time. The Holding Company may also make rights offerings to its stockholders
at prices per share less than the net asset value per share, subject to the requirements of the 1940 Act. If the Holding Company
raises additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, its common stock,
the percentage ownership of its stockholders at that time would decrease, and such stockholders may experience dilution.



We and the Holding Company may only issue
senior securities up to the maximum amount permitted by the 1940 Act. The 1940 Act permits us and the Holding Company to issue
senior securities only in amounts such that asset coverage, as defined in the 1940 Act, equals at least 200% after such issuance
or incurrence. If assets decline in value and we or the Holding Company fail to satisfy this test or any stricter test under the
terms of our leverage instruments, we may be required to liquidate a portion of our investments and repay a portion of our indebtedness
at a time when such sales or repayment may be disadvantageous, which could have a material adverse impact on our liquidity, financial
condition and results of operations.





Changes
in the laws or regulations governing our business or the business of our portfolio companies, or changes in the interpretations
thereof or newly enacted legislation and regulations, and any failure by us or our portfolio companies to comply with these laws
or regulations, could have a material adverse effect on our business, results of operations or financial condition of us or our
portfolio companies.



We are subject to changing rules and regulations
of federal and state governments, as well as the stock exchange in which our common stock is listed. These entities, including
the Public Company Accounting Oversight Board, the SEC and The Nasdaq Global Select Market, have issued a significant number of
new and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional
regulations.



Changes in the laws or regulations or the
interpretations of the laws and regulations that govern BDCs, RICs or non-depository commercial lenders could significantly affect
our operations and our cost of doing business. We are subject to federal, state and local laws and regulations and are subject
to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees
and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures
and other trade practices. If these laws, regulations or decisions change, or if we expand our business into jurisdictions that
have adopted more stringent requirements than those in which we currently conduct business, we may have to incur significant expenses
in order to comply, or we might have to restrict our operations. In addition, if we do not comply with applicable laws, regulations
and decisions, we may lose licenses needed for the conduct of our business and may be subject to civil fines and criminal penalties.



On July 21, 2010, President Obama signed
into law the Dodd-Frank Act. Many of the provisions of the Dodd-Frank Act have extended implementation periods and delayed effective
dates and will require extensive rulemaking by regulatory authorities. While the impact of the Dodd-Frank Act on us and our portfolio
companies may not be known for an extended period of time, the Dodd-Frank Act, including future rules implementing its provisions
and the interpretation of those rules, along with other legislative and regulatory proposals directed at the financial services
industry or affecting taxation that are proposed or pending in the U.S. Congress, may negatively impact the operations, cash flows
or financial condition of us or our portfolio companies, impose additional costs on us or our portfolio companies, intensify the
regulatory supervision of us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio
companies.



If we do not invest a sufficient portion of our assets
in qualifying assets, we could be precluded from investing in certain assets or could be required to dispose of certain assets,
which could have a material adverse effect on our business, financial condition and results of operations.



As a BDC, we are prohibited from acquiring
any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least
70% of our total assets are qualifying assets. As of December 31, 2012, approximately $45.8 million, or approximately 8.4%, of
our total assets were not “qualifying assets.” If we do not invest a sufficient portion of our assets in qualifying
assets, we will be prohibited from investing in additional non-qualifying assets, which could have a material adverse effect on
our business, financial condition and results of operations. Similarly, these rules could prevent us from making follow-on investments
in existing portfolio companies (which could result in the dilution of our position) or could require us to dispose of investments
at inopportune times in order to come into compliance with the 1940 Act. If we need to dispose of these investments quickly, it
may be difficult to dispose of such investments on favorable terms. For example, we may have difficulty in finding a buyer and,
even if a buyer is found, we may have to sell the investments at a substantial loss.



There is a risk that you may not receive distributions
or that our distributions may not grow over time and a portion of our distributions may be a return of capital.



We intend to make distributions on a quarterly
basis to our limited partner out of assets legally available for distribution. We cannot assure you that we will achieve investment
results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. Our
ability to pay distributions might be adversely affected by the impact of one or more of the risk factors described in this filing.
Due to the asset coverage test applicable to us under the 1940 Act as a BDC, we may be limited in our ability to make distributions.





29









|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------







None



|Item 2. | Properties
|------- | ----------



We do not own any real estate or other physical properties materially important to our operation. Our executive offices are located at 2951 28th Street Suite 1000, Santa Monica, CA 90405, and are provided by the Advisor in accordance with the terms of the Administration Agreement. We believe that our office facilities are suitable and adequate for our business as it is contemplated to be conducted.



|Item 3. | Legal Proceedings
|------- | -----------------



We and the Advisor are not currently subject
to any material pending legal proceedings threatened against us. From time to time, we may be a party to certain legal proceedings
incidental to the normal course of our business including the enforcement of our rights under contracts with our portfolio companies.
While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have
a material effect upon our business, financial condition or results of operations.





|Item 4. | Mine Safety Disclosures
|------- | -----------------------



Not applicable.





30









PART II



| | Item 5. | Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities Price Range of Common Stock
| | ------- | ----------------------------------------------------------------------------------------------------------------------------------------



Not applicable.





|Item 6. | Selected Financial Data
|------- | -----------------------



The selected financial and other data below
reflects the historical operations of the Partnership.



The selected financial data below for the
years ended December 31, 2012, 2011, 2010, 2009, and 2008 has been derived from the financial statements that were audited by our
independent registered public accounting firm. This selected financial data should be read in conjunction with our financial statements
and related notes thereto.



|                                           |  | For the Year Ended December 31, |            
|------------------------------------------ |  | ------------------------------- | -----------
|                                           |  | 2012                            |            
|Performance Data:                          |  |                                 |            
|Interest income                            |  | $                               | 49,243,332 
|Dividend income                            |  |                                 | 1,811,189  
|Other income                               |  |                                 | 1,138,238  
|Total investment income                    |  |                                 | 52,192,759 
|Interest and credit agreement expenses     |  |                                 | 857,757    
|Investment advisory expense                |  |                                 | 6,907,650  
|Other expenses                             |  |                                 | 1,954,219  
|Total expenses                             |  |                                 | 9,719,626  
|Net investment income                      |  |                                 | 42,473,133 
|Realized and unrealized gains (losses)     |  |                                 | (12,784,251
|Dividends to preferred interest holders    |  |                                 | (1,602,799 
|Net increase in net assets from operations |  | $                               | 28,086,083 
|Assets and Liabilities Data:               |  |                                 |            
|Investments                                |  | $                               | 517,683,087
|Other assets                               |  |                                 | 31,538,409 
|Total assets                               |  |                                 | 549,221,496
|Amount drawn on credit facility            |  |                                 | 74,000,000 
|Other liabilities                          |  |                                 | 23,485,637 
|Total liabilities                          |  |                                 | 97,485,637 
|                                           |  |                                 |            
|Preferred limited partnership interest     |  |                                 | 134,526,285
|Net assets                                 |  | $                               | 317,209,574
|Investment Activity Data:                  |  |                                 |            
|No. of portfolio companies at period end   |  |                                 | 54         
|Acquisitions                               |  | $                               | 359,020,926
|Sales, repayments, and other disposals     |  | $                               | 211,216,033
|Weighted-Average Yield at end of period    |  |                                 | 11.3       







31











|Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



The information contained in this section
should be read in conjunction with our audited financial statements and related notes thereto appearing elsewhere in this annual
report on Form 10-K. For periods prior to April 2, 2012, the consolidated financial statements and related footnotes reflect the
performance of Special Value Continuation Fund, LLC which was formed on July 17, 2006. In addition, some of the statements in this
report (including in the following discussion) constitute forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, which relate to future events or the future performance or financial condition of Special Value
Continuation Partners, LP. (the “Partnership,” “we,” “us,” or “our”).
The forward-looking statements contained in this report involve a number of risks and uncertainties, including statements concerning:



| | • | our,
or our portfolio companies’, future business, operations, operating results or prospects;
| | - | ----------------------------------------------------------------------------------------------



| | • | the return or impact of current and future investments;
| | - | -------------------------------------------------------



| | • | the impact of a protracted decline in the liquidity of credit markets on our business;
| | - | --------------------------------------------------------------------------------------



| | • | the impact of fluctuations in interest rates on our business;
| | - | -------------------------------------------------------------



| | • | the impact of changes in laws or regulations governing our operations or the operations of our portfolio companies;
| | - | -------------------------------------------------------------------------------------------------------------------



| | • | our contractual arrangements and relationships with third parties;
| | - | ------------------------------------------------------------------



| | • | the general economy and its impact on the industries in which we invest;
| | - | ------------------------------------------------------------------------



| | • | the financial condition of and ability of our current and prospective portfolio companies to achieve their objectives;
| | - | ----------------------------------------------------------------------------------------------------------------------



| | • | our expected financings and investments;
| | - | ----------------------------------------



| | • | the adequacy of our financing resources and working capital;
| | - | ------------------------------------------------------------



| | • | the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments;
| | - | --------------------------------------------------------------------------------------------------------------------------



| | • | the timing of cash flows, if any, from the operations of our portfolio companies;
| | - | ---------------------------------------------------------------------------------



| | • | the timing, form and amount of any dividend distributions; and
| | - | --------------------------------------------------------------



| | • | our ability to maintain our qualification as a regulated investment company and as a business development company.
| | - | ------------------------------------------------------------------------------------------------------------------



We use words such as “anticipate,”
“believe,” “expect,” “intend,” “will,” “should,” “could,”
“may,” “plan” and similar words to identify forward-looking statements. The forward looking statements
contained in this quarterly report involve risks and uncertainties. Our actual results could differ materially from those implied
or expressed in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” in
this report and included in our amended registration statement on Form N-2 filed with the Securities and Exchange Commission on
December 7, 2012.



We have based the forward-looking statements
included in this report on information available to us on the date of this report, and we assume no obligation to update any such
forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as
a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make
directly to you or through reports that we have filed or in the future may file with the SEC, including annual reports on Form
10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.



Overview



The Partnership is a Delaware limited liability
company formed on July 31, 2006 and is an externally managed, closed-end, non-diversified management investment company. On
April 2, 2012, we elected to be treated as a business development company (“BDC”) under the Investment Company
Act of 1940, as amended (the “1940 Act”) (the “Conversion”). The Partnership’s investment
objective is to achieve high total returns while minimizing losses. The Partnership invests primarily in the debt of
middle-market companies, including senior secured loans, junior loans, mezzanine debt and bonds. Such investments may include
an equity component, and, to a lesser extent, the Partnership may make equity investments directly. TCP Capital Corp.
(“TCPC”) owns 100% of the common limited partner interests of the Partnership. TCPC has also elected to be
treated as a BDC under the 1940 Act. The General Partner of the Partnership is SVOF/MM, LLC (“SVOF/MM”),
which also serves as the administrator (“Administrator”) of TCPC and the Partnership. The managing member of
SVOF/MM is Tennenbaum Capital Partners, LLC (“TCP” or the “Advisor”), which serves as the investment
manager to both TCPC and the Partnership. Most of the equity interests in the General Partner are owned directly or
indirectly by TCP and its employees. The Partnership has elected to be treated as a partnership for U.S. federal income tax
purposes.





32









Investments



Our level of investment activity can and
does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available
to middle-market companies, the level of merger and acquisition activity, the general economic environment and the competitive
environment for the types of investments we make.



As a BDC, we are required to comply with
certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying
assets,” including securities and indebtedness of private U.S. companies, public U.S. operating companies whose securities
are not listed on a national securities exchange or registered under the Securities Exchange Act of 1934, as amended, public domestic
operating companies having a market capitalization of less than $250 million, cash, cash equivalents, U.S. government securities
and high-quality debt investments that mature in one year or less. We are also permitted to make certain follow-on investments
in companies that were eligible portfolio companies at the time of initial investment but that no longer meet the definition.



Revenues



We generate revenues primarily in the form
of interest on the debt we hold. We also generate revenue from dividends on our equity interests and capital gains on the sale
of warrants and other debt or equity interests that we acquire. Our investments in fixed income instruments generally have an expected
maturity of three to five years, although we have no lower or upper constraint on maturity. Interest on our debt investments is
generally payable quarterly or semi-annually. Payments of principal of our debt investments may be amortized over the stated term
of the investment, deferred for several years or due entirely at maturity. In some cases, our debt investments and preferred stock
investments may defer payments of cash interest or dividends or PIK. Any outstanding principal amount of our debt investments and
any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form
of prepayment fees, commitment, origination, structuring or due diligence fees, fees for providing significant managerial assistance,
consulting fees and other investment related income.



Expenses



Our primary operating expenses include the
payment of a base management fee and, depending on our operating results, incentive compensation, expenses reimbursable under the
management agreement, administration fees and the allocable portion of overhead under the administration agreement. The base management
fee and incentive compensation remunerates the Advisor for work in identifying, evaluating, negotiating, closing and monitoring
our investments. Our administration agreement with SVOF/MM, LLC (the “Administrator”) provides that the Administrator
may be reimbursed for costs and expenses incurred by the Administrator for office space rental, office equipment and utilities
allocable to us under the administration agreement, as well as any costs and expenses incurred by the Administrator or its affiliates
relating to any non-investment advisory, administrative or operating services provided by the Administrator or its affiliates to
us. We also bear all other costs and expenses of our operations and transactions, which may include those relating to:



| | • | our organization;
| | - | -----------------



| | • | calculating our net asset value (including the cost and expenses of any independent valuation firms);
| | - | -----------------------------------------------------------------------------------------------------



| | • | interest payable on debt, if any, incurred to finance our investments;
| | - | ----------------------------------------------------------------------



| | • | the base management fee and any incentive compensation;
| | - | -------------------------------------------------------



| | • | dividends and distributions on our preferred shares, if any;
| | - | ------------------------------------------------------------



| | • | administration fees payable under the administration agreement;
| | - | ---------------------------------------------------------------



| | • | fees payable to third parties relating to, or associated with, making investments;
| | - | ----------------------------------------------------------------------------------



| | • | transfer agent and custodial fees;
| | - | ----------------------------------





33









| | • | registration fees;
| | - | ------------------



| | • | director fees and expenses;
| | - | ---------------------------



| | • | costs of preparing and filing reports or other documents with the SEC;
| | - | ----------------------------------------------------------------------



| | • | costs of any reports, proxy statements or other notices to our limited partners, including printing costs;
| | - | ----------------------------------------------------------------------------------------------------------



| | • | our fidelity bond;
| | - | ------------------



| | • | directors and officers/errors and omissions liability insurance, and any other insurance premiums;
| | - | --------------------------------------------------------------------------------------------------



| | • | indemnification payments;
| | - | -------------------------



| | • | direct costs and expenses of administration, including audit and legal costs; and
| | - | ---------------------------------------------------------------------------------



| | • | all other expenses reasonably incurred by us and the Administrator in connection with administering our business, such as the allocable portion of overhead under the administration agreement, including rent and other allocable portions of the cost of certain of our officers and their respective staffs.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The investment management agreement provides
that the base management fee be calculated at an annual rate of 1.5% of our total assets (excluding cash and cash equivalents)
payable quarterly in arrears. For purposes of calculating the base management fee, “total assets” is determined without
deduction for any borrowings or other liabilities. For the first calendar quarter (or portion thereof) of our operations as a BDC,
the base management fee was calculated based on the initial value of our total assets (excluding cash and cash equivalents) as
of a date as close as practicable to the Conversion. Beginning with our second calendar quarter of operations as a BDC, the base
management fee is calculated based on the value of our total assets (excluding cash and cash equivalents) at the end of the most
recently completed calendar quarter.



Additionally, the investment management
agreement and the Amended and Restated Limited Partnership Agreement provide that the Advisor or its affiliates may be entitled
to incentive compensation under certain circumstances. No incentive compensation was incurred prior to January 1, 2013. Beginning
January 1, 2013, the incentive compensation equals the sum of (1) 20% of all of the ordinary income of TCPC since that
date and (2) 20% of all net realized capital gains (net of any net unrealized capital depreciation) since that date, with
each component being subject to a total return requirement of 8% of TCPC’s contributed common equity annually. The incentive
compensation initially is payable to the General Partner by the Partnership pursuant to the Amended and Restated Limited Partnership
Agreement. If the Partnership is terminated or for any other reason incentive compensation is not paid by the Partnership, it would
be paid pursuant to the investment management agreement between us and the Advisor. The determination of incentive compensation
is subject to limitations under the 1940 Act and the Advisers Act.



Critical accounting policies



Our discussion and analysis of our financial
condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP.
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters
used in determining such estimates could cause actual results to differ. Management considers the following critical accounting
policies important to understanding the financial statements. In addition to the discussion below, our critical accounting policies
are further described in the notes to our financial statements.



Valuation of portfolio
investments



We value our portfolio investments at fair
value based upon the principles and methods of valuation set forth in policies adopted by our board of directors. Fair value is
defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement
date. Market participants are buyers and sellers in the principal (or most advantageous) market for the asset that (i) are
independent of us, (ii) are knowledgeable, having a reasonable understanding about the asset based on all available information
(including information that might be obtained through due diligence efforts that are usual and customary), (iii) are able
to transact for the asset, and (iv) are willing to transact for the asset or liability (that is, they are motivated but not
forced or otherwise compelled to do so).





34









Investments for which market quotations
are readily available are valued at such market quotations unless the quotations are deemed not to represent fair value. We generally
obtain market quotations from recognized exchanges, market quotation systems, independent pricing services or one or more broker-dealers
or market makers. However, short term debt investments with remaining maturities within 90 days are generally valued at amortized
cost, which approximates fair value. Debt and equity securities for which market quotations are not readily available or for which
market quotations are deemed not to represent fair value are valued at fair value as determined in good faith by our board of directors.
Because a readily available market value for many of the investments in our portfolio is often not available, we value many of
our portfolio investments at fair value as determined in good faith by our board of directors using a consistently applied valuation
process in accordance with a documented valuation policy that has been reviewed and approved by our board of directors. Due to
the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market
value, the fair value of our investments may differ significantly from the values that would have been used had a readily available
market value existed for such investments and may differ materially from the values that we may ultimately realize. In addition,
changes in the market environment and other events may have differing impacts on the market quotations used to value some of our
investments than on the fair values of our investments for which market quotations are not readily available. Market quotations
may be deemed not to represent fair value in certain circumstances where we believe that facts and circumstances applicable to
an issuer, a seller or purchaser, or the market for a particular security cause current market quotations to not reflect the fair
value of the security. Examples of these events could include cases where a security trades infrequently causing a quoted purchase
or sale price to become stale, where there is a “forced” sale by a distressed seller, where market quotations vary
substantially among market makers, or where there is a wide bid-ask spread or significant increase in the bid-ask spread.



The valuation process adopted by our board
of directors with respect to investments for which market quotations are not readily available or for which market quotations are
deemed not to represent fair value is as follows:



| | • | The investment professionals of the Advisor provide recent portfolio company financial statements and other reporting materials to independent valuation firms approved by our board of directors.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Such firms evaluate this information along with relevant observable market data to conduct independent appraisals each quarter, and their preliminary valuation conclusions are documented and discussed with senior management of the Advisor.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The board of directors discusses the valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Advisor, the respective independent valuation firms and the audit committee of the board of directors.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



However, smaller investments aggregating
less than 5% of our total capitalization may be valued at fair value as determined in good faith by the board of directors based
on valuations provided by the Advisor without the employment of an independent valuation firm.



Those investments for which market quotations
are not readily available or for which market quotations are deemed not to represent fair value are valued utilizing a market approach,
an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated
by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses
valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The
measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches,
the types of factors that we may take into account in determining the fair value of our investments include, as relevant and among
other factors: available current market data, including relevant and applicable market trading and transaction comparables, applicable
market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value
of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets
in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, merger and acquisition
comparables, our principal market (as the reporting entity) and enterprise values.



When valuing all of our investments, we
strive to maximize the use of observable inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions
that market participants would use in pricing an asset, including assumptions about risk. Inputs may be observable or unobservable.
Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed
based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about
the assumptions market participants would use in pricing an asset or liability developed based on the best information available
in the circumstances.



Our investments may be categorized based
on the types of inputs used in their valuation. 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. Investments are classified by
GAAP into the three broad levels as follows:





35









Level 1 — Investments
valued using unadjusted quoted prices in active markets for identical assets.



Level 2 — Investments
valued using other unadjusted observable market inputs, e.g. quoted prices in markets that are not active or quotes for comparable
instruments.



Level 3 — Investments
that are valued using quotes and other observable market data to the extent available, but which also take into consideration one
or more unobservable inputs that are significant to the valuation taken as a whole.



As of December 31, 2012, 0.2% of our investments
were categorized as Level 1, 19.1% were categorized as Level 2, 79.0% were Level 3 investments valued based on valuations
by independent third party sources, and 1.7% were Level 3 investments valued based on valuations by the Advisor.



Determination of fair value involves subjective
judgments and estimates. Accordingly, the notes to our financial statements express the uncertainty with respect to the possible
effect of such valuations, and any change in such valuations, on the financial statements.



Revenue recognition



Interest and dividend income, including
income paid in kind, is recorded on an accrual basis to the extent that such amounts are determined to be collectible. Origination,
structuring, closing, commitment and other upfront fees earned with respect to capital commitments are generally amortized or accreted
into interest income over the life of the respective debt investment. Other fees, including certain amendment fees, prepayment
fees and commitment fees on broken deals, are recognized as earned. Prepayment fees and similar income received upon the early
repayment of a loan or debt security are included in interest income.



Certain of our 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
bonds, municipal bonds and treasury bonds be amortized using the effective-interest or constant-yield method. GAAP also requires
that we consider the collectability of interest when making accruals. Accordingly, when accounting for purchase discounts, we recognize
discount accretion income when it is probable that such amounts will be collected.



Net realized gains or
losses and net change in unrealized appreciation or depreciation



We measure realized gains or losses by the
difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to
unrealized appreciation or depreciation previously recognized. Realized gains and losses are computed using the specific identification
method. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting
period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.



Portfolio and investment activity



During the year ended December 31, 2012,
we invested approximately $359.0 million across 28 new and 14 existing portfolio companies. Of these investments, 98% were
senior secured debt comprised of senior loans ($312.6 million, or 87% of the total) and senior secured notes ($40.3 million,
or 11% of the total). The remaining $6.1 million (2% of the total) of new investments were in unsecured debt and equity securities.
Additionally, we received approximately $211.2 million in proceeds from sales or repayments of investments during year ended
December 31, 2012 respectively.



At December 31, 2012, our investment portfolio
of $517.7 million (at fair value) consisted of 54 portfolio companies and was invested 93% in debt investments, of which 96%
was in senior secured debt and 4% in unsecured or subordinated debt. In aggregate, our investment portfolio was invested 77% in
senior secured loans, 12% in senior secured notes, 4% in unsecured or subordinated debt, and 7% in equity investments. Our average
portfolio company investment at fair value was approximately $9.6 million. Our largest portfolio company investment by value
was approximately $19.4 million and our five largest portfolio company investments by value comprised approximately 17% of
our portfolio at December 31, 2012. At December 31, 2011, our investment portfolio of $379.0 million (at fair value) consisted
of 41 portfolio companies and was invested 48% in senior secured loans, 24% in senior secured notes, 9% in unsecured or subordinated
debt, and 19% in equity investments. Our average portfolio company investment at amortized cost was approximately $11.6 million.
Our largest portfolio company investment by value was approximately $48.3 million and our five largest portfolio company investments
by value comprised approximately 33% of our portfolio at December 31, 2011.





36









The industry composition of our portfolio
at fair value at December 31, 2012 was as follows:



|                                                               |  | Percent of Total |      
|-------------------------------------------------------------- |  | ---------------- | -----
|Industry                                                       |  | Investments      |      
|Software Publishers                                            |  |                  | 8.8  
|Gaming Industries                                              |  |                  | 5.8  
|Scheduled Air Transportation                                   |  |                  | 5.1  
|Radio and Television Broadcasting                              |  |                  | 4.8  
|Wired Telecommunications Carriers                              |  |                  | 4.2  
|Business Support Services                                      |  |                  | 3.8  
|Full-Service Restaurants                                       |  |                  | 3.5  
|Electric Power Generation, Transmission and Distribution       |  |                  | 3.5  
|Equipment Rental and Leasing                                   |  |                  | 3.4  
|Accounting, Tax Preparation, Bookkeeping, and Payroll Services |  |                  | 3.3  
|Other Electrical Equipment and Component Manufacturing         |  |                  | 3.1  
|Nonferrous Metal Production and Processing                     |  |                  | 3.0  
|Scientific Research and Development Services                   |  |                  | 3.0  
|Motion Picture and Video Industries                            |  |                  | 2.9  
|Grocery Stores                                                 |  |                  | 2.7  
|Semiconductor and Other Electronic Component Manufacturing     |  |                  | 2.7  
|Metal and Mineral (except Petroleum) Merchant Wholesalers      |  |                  | 2.6  
|Architectural, Engineering, and Related Services               |  |                  | 2.5  
|Motor Vehicle Parts Manufacturing                              |  |                  | 2.5  
|Electronic Shopping                                            |  |                  | 2.4  
|Other Professional, Scientific, and Technical Services         |  |                  | 2.3  
|Other Amusement and Recreation Industries                      |  |                  | 2.2  
|Promoters of Performing Arts, Sports, and Similar Events       |  |                  | 2.1  
|Wireless Telecommunications                                    |  |                  | 2.6  
|Retail                                                         |  |                  | 2.0  
|Nondepository Credit Intermediation                            |  |                  | 1.9  
|Computer Equipment Manufacturing                               |  |                  | 1.8  
|Artificial Synthetic Fibers and Filaments Manufacturing        |  |                  | 1.8  
|Data Processing, Hosting, and Related Services                 |  |                  | 1.6  
|Petroleum and Coal Products Manufacturing                      |  |                  | 1.6  
|Pharmaceutical and Medicine Manufacturing                      |  |                  | 1.6  
|Iron and Steel Mills and Ferroalloy Manufacturing              |  |                  | 1.3  
|Other                                                          |  |                  | 3.6  
|Total                                                          |  |                  | 100.0





The weighted average effective yield of
the debt securities in our portfolio was 11.3% at December 31, 2012 and 11.9% at December 31, 2011. The weighted effective yields
on our senior debt and other debt investments were 11.4% and 9.9%, respectively, at December 31, 2012, versus 11.6% and 15.9% at
December 31, 2011.



At December 31, 2012, 63.8% of our debt
investments bore interest based on floating rates, such as LIBOR, EURIBOR, the Federal Funds Rate or the Prime Rate, and 36.2%
bore interest at fixed rates. The percentage of our floating rate debt investments that bore interest based on an interest rate
floor was 95.6% at December 31, 2012. At December 31, 2011, 33% of our debt investments bore interest based on floating rates and
67% bore interest at fixed rates. The percentage of our floating rate debt investments that bore interest based on an interest
rate floor was 60% at December 31, 2011.



Results of operations



Results of operations of the Partnership
for the year ended December 31, 2012 are not directly comparable to the year ended December 31, 2011, since 2011 reflects a portfolio
prior to the Conversion with different investment objectives.



Investment income



Investment income totaled $52.2 million
and $54.9 million, respectively, for the years ended December 31, 2012 and 2011, of which $49.3 million and $42.1 million
were attributable to interest and fees on our debt investments, $1.8 million and $10.6 million to dividends from equity
securities and $1.1 million and $2.1 million to other income, respectively. The decrease in investment income in the
year ended December 30, 2012 compared to the year ended December 31, 2011 reflects significant dividends received from two equity
positions in the year ended December 31, 2011 totaling $10.6 million compared to receipt of $1.8 million in dividends from one
equity investment in the year ended December 31, 2012, partially offset by an increase in interest income due to the larger investment
portfolio and the higher percentage of the portfolio in income-producing assets in the year ended December 31, 2012 compared to
the year ended December 31, 2011.





37









Expenses



Net expenses for the years ended December
31, 2012 and 2011 were $9.7 million and $9.0 million, respectively, which consisted of $6.9 million and $6.8 million
in base management fees, $0.8 million and $0.2 million in legal and professional fees, $0.2 million and $0.3 million
in interest expense and fees related to the Revolving Facility, $0.4 million and $0.4 million in amortization of debt
issuance costs, and $1.4 million and $1.3 million in other expenses, respectively. No incentive compensation was paid
during the years ended December 31, 2012 and 2011. The increase in expenses in the year ended December 31, 2012 compared to the
year ended December 31, 2011 primarily reflects $0.4 million in professional fees relating to the Conversion and an overall increase
in ongoing professional fees subsequent to the Conversion.



Net investment income



Net investment income was $42.5 million
and $45.8 million respectively, for the years ended December 31, 2012 and 2011. The decrease in in net investment income in
the year ended December 31, 2012 compared to the year ended December 31, 2011 primarily reflects the decrease in dividend income,
the increase in professional fees and other expenses, partially offset by the increase in interest and other income in the year
ended December 31, 2012.



Net realized and unrealized gain or
loss



Net realized gains (losses) for the years
ended December 31, 2012 and 2011 were $(16.0) million and $18.1 million, respectively. The net realized losses during
the year ended December 31, 2012 were due a charge of $33.8 million on the Bulgaria Telecom restructuring, $29.3 million of which
were previously included in unrealized losses and a reorganization charge on one other debt investment of $(5.5) million, partially
offset by a gain of $17.0 million from the sale of International Wire Group Holdings, Inc. equity, and net gains of $6.3 million
primarily from three debt investments,. For the years ended December 31, 2012 and 2011, the change in net unrealized appreciation
or depreciation was $3.2 million and $(57.0) million, respectively.



Dividends to preferred limited partners



Dividends on the Preferred Interests for
the years ended December 31, 2012 and 2011 were $1.6 million and $1.5 million, respectively, as average LIBOR rates for
the two periods were similar.



Net increase or decrease in net assets
resulting from operations



The net increase in net assets resulting
from operations was $28.1 million and $5.4 million for the years ended December 31, 2012 and 2011, respectively.
The increased amount in the year ended December 31, 2012 compared to the year ended December 31, 2011 primarily reflects a lower
net realized and unrealized loss, partially offset by the decrease in dividend income.



Liquidity and capital resources



Since our inception, our liquidity and capital
resources have been generated primarily through contributions from the common limited partner of the Partnership (which came from
the initial private placement of common shares of SVCF (the predecessor entity) which were subsequently converted to common stock
of TCPC), net proceeds from the Offering, our preferred equity facility and our revolving credit facility (together, the “Leverage
Program”), and cash flows from operations, including investments sales and repayments and income earned from investments
and cash equivalents. The primary uses of cash have been investments in portfolio companies, cash distributions to our equity holders,
payments to service our Leverage Program and other general corporate purposes.



Net cash used in operating activities during
the year ended December 31, 2012 was $87.8 million. Our primary use of cash in operating activities during this period consisted
of settlements of investment acquisitions (net of dispositions) of $145.0 million, partially offset by net investment income
(net of non-cash income) of approximately $57.2 million.



Net cash provided by financing activities
was $95.0 million during the year ended December 31, 2012, consisting primarily of $82.7 million of net proceeds from our
initial public offering, reduced by $31.2 million of dividends on common equity, $1.5 million of dividends on our preferred
equity facility (the “Preferred Interests”), and $45.0 million of net draws under our revolving credit facility
(the “Revolving Facility”).





38









At December 31, 2012, we had $18.0 million
in cash and cash equivalents.



The Revolving Facility is secured by substantially
all of the assets in our portfolio, including cash and cash equivalents. At December 31, 2012, we had $74.0 million drawn
and outstanding under the Revolving Facility, with an additional $42.0 million available to us, subject to compliance with
customary affirmative and negative covenants, including the maintenance of a minimum shareholders’ equity, the maintenance
of ratios of not less than 300% of total assets (less total liabilities other than indebtedness) to total indebtedness and not
less than 200% of total assets (less total liabilities other than indebtedness) to the sum of total preferred equity and indebtedness,
and restrictions on certain payments and issuance of debt. Economic conditions, like those that began in 2007 and which have continued,
may result in a decrease in the value of our investments, which would affect both the asset coverage ratios and the value of the
collateral securing the Revolving Facility, and may therefore impact our ability to borrow under the Revolving Facility. In addition
to regulatory restrictions that restrict our ability to raise capital, the Leverage Program contains various covenants which, if
not complied with, could accelerate repayment under the Revolving Facility or require redemption of the Preferred Interests, thereby
materially and adversely affecting our liquidity, financial condition and results of operations. At December 31, 2012, we were
in compliance with all financial and operational covenants required by the Revolving Facility.



Economic conditions, like those that began
in 2007 and which have continued, while creating attractive opportunities for us, may decrease liquidity and raise the cost of
capital generally, which could limit our ability to renew, extend or replace the Leverage Program on terms as favorable as are
currently included therein. If we are unable to renew, extend or replace the Leverage Program upon its maturity, we expect to have
sufficient funds to repay the outstanding balance in full from our net investment income and sales of, and repayments of principal
from, our portfolio company investments, as well as from anticipated debt and equity capital raises, among other sources. Economic
conditions, like those that began in 2007 and which have continued, may limit our ability to raise capital or the ability of the
companies in which we invest to repay our loans or engage in a liquidity event, such as a sale, recapitalization or initial public
offering. The Revolving Facility matures in July 2014 and the Preferred Interests will be subject to mandatory redemption in July
2016. Any inability to renew, extend or replace the Revolving Facility or replace the Preferred Interests could adversely impact
our liquidity and ability to find new investments or maintain distributions to our common limited partners.



Contractual obligations



Our Revolving Facility is a senior secured
revolving credit facility with certain lenders pursuant to which amounts may be drawn up to $116 million. The Revolving Facility
matures on July 31, 2014, and may be extended at our option for one 12-month period. At December 31, 2012, $74 million
in advances were outstanding under the Revolving Facility, all of which were short-term draws of less than one year.



We have also entered into several contracts
under which we have future commitments. Pursuant to an investment management agreement, the Advisor manages our day-to-day operations
and provides investment advisory services to us. Payments under the investment management agreement will be equal to a percentage
of the value of our gross assets (excluding cash and cash equivalents) and an incentive compensation, plus reimbursement of certain
expenses incurred by the Advisor. Under our administration agreement, the Administrator provides us with administrative services,
facilities and personnel. Payments under the administration agreement are equal to an allocable portion of overhead and other expenses
incurred by the Administrator in performing its obligations to us, and may include rent and our allocable portion of the cost of
certain of our officers and their respective staffs. We are responsible for reimbursing the Advisor for due diligence and negotiation
expenses, fees and expenses of custodians, administrators, transfer and distribution agents, counsel and directors, insurance,
filings and registrations, proxy expenses, expenses of communications to investors, compliance expenses, interest, taxes, portfolio
transaction expenses, costs of responding to regulatory inquiries and reporting to regulatory authorities, costs and expenses of
preparing and maintaining our books and records, indemnification, litigation and other extraordinary expenses and such other expenses
as are approved by the directors as being reasonably related to the organization, offering, capitalization, operation or administration
of the Partnership and any portfolio investments, as applicable. The Advisor is not responsible for any of the foregoing expenses
and such services are not investment advisory services under the 1940 Act. Either party may terminate each of the investment management
agreement and administration agreement without penalty upon not less than 60 days’ written notice to the other.



Distributions



Our quarterly distributions to the Common
Limited Partner are recorded on the ex-dividend date and are determined under guidelines established by our board of directors.
Distributions are declared considering our estimate of annual taxable income available for distribution to limited partners and
the amount of taxable income carried over from the prior year for distribution in the current year. We do not have a policy to
pay distributions at a specific level and expect to continue to distribute substantially all of our taxable income. We cannot assure
limited partners that they will receive any distributions or distributions at a particular level.





The following table summarizes the Partnership’s
distributions to the common limited partner for the year ended December 31, 2012:



|Payment Date       |  | Total Amount |          
|------------------ |  | ------------ | ---------
|April 3, 2012      |  | $            | 5,400,000
|June 29, 2012      |  | $            | 7,935,515
|September 28, 2012 |  | $            | 9,042,808
|December 31, 2012  |  | $            | 8,796,675





39









Related Parties



We have entered into a number of business
relationships with affiliated or related parties, including the following:



| | • | Each
of the Holding Company and the Partnership has entered into an investment management agreement with the Advisor.
| | - | ---------------------------------------------------------------------------------------------------------------------



| | • | The Administrator provides us with administrative services
necessary to conduct our day-to-day operations. For providing these services, facilities and personnel, the Administrator may
be reimbursed by us for expenses incurred by the Administrator in performing its obligations under the administration agreement,
including our allocable portion of the cost of certain of our officers and the Administrator’s administrative staff and
providing, at our request and on our behalf, significant managerial assistance to our portfolio companies to which we are required
to provide such assistance.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | • | Pursuant to its limited partnership agreement, the
general partner of the Partnership is SVOF/MM, LLC. SVOF/MM, LLC is an affiliate of the Advisor and the general partners
or managing member of certain other funds managed by the Advisor.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Advisor and its affiliates, employees
and associates currently do and in the future may manage other funds and accounts. The Advisor and its affiliates may determine
that an investment is appropriate for us and for one or more of those other funds or accounts. Accordingly, conflicts may arise
regarding the allocation of investments or opportunities among us and those accounts. In general, the Advisor will allocate investment
opportunities pro rata among us and the other funds and accounts (assuming the investment satisfies the objectives of each) based
on the amount of committed capital each then has available. The allocation of certain investment opportunities in private placements
is subject to independent director approval pursuant to the terms of the co-investment exemptive order applicable to us. In certain
cases, investment opportunities may be made other than on a pro rata basis. For example, we may desire to retain an asset at the
same time that one or more other funds or accounts desire to sell it or we may not have additional capital to invest at a time
the other funds or accounts do. If the Advisor is unable to manage our investments effectively, we may be unable to achieve our
investment objective. In addition, the Advisor may face conflicts in allocating investment opportunities between us and certain
other entities that could impact our investment returns. While our ability to enter into transactions with our affiliates will
be restricted under the 1940 Act, we have received an exemptive order from the SEC permitting certain affiliated investments subject
to certain conditions. As a result, we may face conflict of interests and investments made pursuant to the exemptive order conditions
which could in certain circumstances affect adversely the price paid or received by us or the availability or size of the position
purchased or sold by us.



Recent Developments



From January 1, 2013 through February 28,
2013, the Partnership has invested approximately $32.3 million in four loans with an effective yield of approximately 10.7%.





On March 7, 2013, the Holding Company’s
board of directors declared a first quarter cash dividend to its stockholders of $0.35 per share and a special dividend of $0.05
per share, both payable on March 29, 2013 to its stockholders of record as of the close of business on March 18, 2013 based on
distributions by us to the Holding Company.





Item 7A: Quantitative and qualitative disclosure about market
risk



We are subject to financial market risks,
including changes in interest rates. At December 31, 2012, 63.8% of our debt investments bore interest based on floating rates,
such as LIBOR, EURIBOR, the Federal Funds Rate or the Prime Rate. The interest rates on such investments generally reset by reference
to the current market index after one to six months. At December 31, 2012, the percentage of our floating rate debt investments
that bore interest based on an interest rate floor was 95.6%. Floating rate investments subject to a floor generally reset by reference
to the current market index after one to six months only if the index exceeds the floor.



Interest rate sensitivity refers to the
change in earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with
borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we
borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse
effect on our net investment income.





40









Based on our December 31, 2012 balance sheet,
the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors
for variable rate instruments) assuming no changes in our investment and borrowing structure:



|Basis Point Change    |  | Interest income |           |   | Interest Expense |   |            | Net Income | 
|--------------------- |  | --------------- | --------- | - | ---------------- | - | ---------- | ---------- | 
|Up 300 basis points   |  | $               | 6,043,091 |   |                  | $ | (6,240,000 | )          | 
|Up 200 basis points   |  | $               | 2,904,624 |   |                  | $ | (4,160,000 | )          | 
|Up 100 basis points   |  | $               | 324,264   |   |                  | $ | (2,080,000 | )          | 
|Down 100 basis points |  | $               | (52,239   | ) |                  | $ | 1,464,600  |            | 
|Down 200 basis points |  | $               | (52,239   | ) |                  | $ | 1,464,600  |            | 
|Down 300 basis points |  | $               | (52,239   | ) |                  | $ | 1,464,600  |            | 





41









|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



INDEX TO FINANCIAL STATEMENTS



|                                                                                                | Page
|----------------------------------------------------------------------------------------------- | ----
|                                                                                                |     
|Report
    of Independent Registered Public Accounting Firm                                     | 43  
|Statements
    of Assets and Liabilities as of December 31, 2012 and 2011                       | 44  
|Statements
    of Investments as of December 31, 2012 and 2011                                  | 45  
|Statements
    of Operations for the years ended December 31, 2012, 2011 and 2010               | 57  
|Statements
    of Changes in Net Assets for the years ended December 31, 2012, 2011 and 2010    | 58  
|Statements
    of Cash Flows for the years ended December 31, 2012, 2011 and 2010               | 59  
|Notes to
    Financial Statements                                                               | 60  
|Schedules
    of Changes in Investments in Affiliates as of December 31, 2012 and 2011          | 73  
|Schedules
    of Restricted Securities of Unaffiliated Issuers as of December 31, 2012 and 2011 | 75  





42









Report of Independent Registered Public
Accounting Firm





The Partners and Board of Directors of

Special Value Continuation Partners, LP





We have audited the accompanying statements
of assets and liabilities of Special Value Continuation Partners, LP (a Delaware Limited Liability Partnership) (the Partnership),
including the statements of investments, as of December 31, 2012 and 2011, and the related statements of operations, changes in
net assets and cash flows for each of the three years in the period ended December 31, 2012, and the financial highlights for the
year ended December 31, 2012. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These
financial statements and financial highlights are the responsibility of the Partnership’s management. Our responsibility
is to express an opinion on these financial statements and financial highlights based on our audits.



We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement.
We were not engaged to perform an audit of the Partnership’s internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian and brokers. We believe
that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements
and financial highlights referred to above present fairly, in all material respects, the financial position of Special Value Continuation
Partners, LP at December 31, 2012 and 2011, the results of its operations, changes in its net assets and its cash flows for each
of the three years in the period ended December 31, 2012, and the financial highlights for the year then ended, in conformity with
U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth
therein.







/s/ Ernst & Young LLP

Los Angeles, California

March 18, 2013







43









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statements of Assets and Liabilities



|                                                                                                                                          |  | December 31, 2012 |             |   | December 31, 2011 |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | -
|                                                                                                                                          |  |                   |             |   |                   |  
|Assets                                                                                                                                    |  |                   |             |   |                   |  
|Investments, at fair value:                                                                                                               |  |                   |             |   |                   |  
|Unaffiliated issuers (cost of $508,302,758 and $380,905,101, respectively)                                                                |  | $                 | 440,772,190 |   |                   | $
|Controlled companies (cost of $44,964,189 and $26,711,048 respectively)                                                                   |  |                   | 22,489,208  |   |                   |  
|Other affiliates (cost of $55,803,421 and $66,175,217, respectively)                                                                      |  |                   | 54,421,689  |   |                   |  
|Total investments (cost of $609,070,368 and $473,791,366, respectively)                                                                   |  |                   | 517,683,087 |   |                   |  
|                                                                                                                                          |  |                   |             |   |                   |  
|Cash and cash equivalents                                                                                                                 |  |                   | 18,035,189  |   |                   |  
|Accrued interest income:                                                                                                                  |  |                   |             |   |                   |  
|Unaffiliated issuers                                                                                                                      |  |                   | 4,039,149   |   |                   |  
|Controlled companies                                                                                                                      |  |                   | 53,524      |   |                   |  
|Other affiliates                                                                                                                          |  |                   | 482,634     |   |                   |  
|Receivable for investments sold                                                                                                           |  |                   | 7,727,415   |   |                   |  
|Deferred debt issuance costs                                                                                                              |  |                   | 696,018     |   |                   |  
|Unrealized appreciation on swaps                                                                                                          |  |                   | 179,364     |   |                   |  
|Prepaid expenses and other assets                                                                                                         |  |                   | 325,116     |   |                   |  
|Total assets                                                                                                                              |  |                   | 549,221,496 |   |                   |  
|                                                                                                                                          |  |                   |             |   |                   |  
|Liabilities                                                                                                                               |  |                   |             |   |                   |  
|Credit facility payable                                                                                                                   |  |                   | 74,000,000  |   |                   |  
|Payable for investments purchased                                                                                                         |  |                   | 21,814,819  |   |                   |  
|Payable to the Investment Manager                                                                                                         |  |                   | 48,149      |   |                   |  
|Management and advisory fees payable                                                                                                      |  |                   | -           |   |                   |  
|Interest payable                                                                                                                          |  |                   | 119,233     |   |                   |  
|Accrued expenses and other liabilities                                                                                                    |  |                   | 1,503,436   |   |                   |  
|Total liabilities                                                                                                                         |  |                   | 97,485,637  |   |                   |  
|                                                                                                                                          |  |                   |             |   |                   |  
|Preferred equity facility                                                                                                                 |  |                   |             |   |                   |  
|Series A preferred limited partner interests; $20,000/interest liquidation preference; 6,700 interests authorized, issued and outstanding |  |                   | 134,000,000 |   |                   |  
|Accumulated dividends on Series A preferred interests                                                                                     |  |                   | 526,285     |   |                   |  
|Total preferred limited partner interests                                                                                                 |  |                   | 134,526,285 |   |                   |  
|                                                                                                                                          |  |                   |             |   |                   |  
|Net assets applicable to common limited and general partners                                                                              |  | $                 | 317,209,574 |   |                   | $
|                                                                                                                                          |  |                   |             |   |                   |  
|Composition of net assets applicable to common limited and general partners                                                               |  |                   |             |   |                   |  
|Paid-in capital                                                                                                                           |  |                   | 441,328,968 |   |                   |  
|Accumulated net investment income                                                                                                         |  |                   | 26,677,138  |   |                   |  
|Accumulated net realized losses                                                                                                           |  |                   | (59,026,227 | ) |                   |  
|Accumulated net unrealized depreciation                                                                                                   |  |                   | (91,770,305 | ) |                   |  
|Net assets applicable to common limited and general partners                                                                              |  | $                 | 317,209,574 |   |                   | $



See accompanying notes.





44









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statement of Investments



December 31, 2012



Showing Percentage of Total Cash and Investments
of the Partnership





|                                                                                                                              |  |           |            |  |      |   |            |       |  |   | Percent of  | 
|----------------------------------------------------------------------------------------------------------------------------- |  | --------- | ---------- |  | ---- | - | ---------- | ----- |  | - | ----------- | 
|                                                                                                                              |  | Principal |            |  |      |   |            | Fair  |  |   | Cash and    | 
|Investment                                                                                                                    |  | Amount    |            |  | Cost |   |            | Value |  |   | Investments | 
|                                                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Debt Investments (90.12%)                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Bank Debt (75.60%) (1)                                                                                                        |  |           |            |  |      |   |            |       |  |   |             | 
|Accounting, Tax Preparation, Bookkeeping, and Payroll Services (3.16%)                                                        |  |           |            |  |      |   |            |       |  |   |             | 
|Expert Global Solutions, LLC, Senior Secured 1st Lien Term Loan B, LIBOR + 6.75%, 1.25% LIBOR Floor, due 4/2/18               |  | $         | 1,916,252  |  |      | $ | 1,882,302  |       |  | $ | 1,925,239   | 
|Expert Global Solutions, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 9.5%, 1.5% LIBOR Floor, due 10/2/18                  |  | $         | 14,976,011 |  |      |   | 14,493,414 |       |  |   | 14,953,547  | 
|Total Accounting, Tax Preparation, Bookkeeping, and Payroll Services                                                          |  |           |            |  |      |   | 16,375,716 |       |  |   | 16,878,786  | 
|                                                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Business Support Services (3.58%)                                                                                             |  |           |            |  |      |   |            |       |  |   |             | 
|STG-Fairway Acquisitions, Inc., Senior Secured 2nd Lien Term Loan, 12.5%, due 12/29/15                                        |  | $         | 19,878,935 |  |      |   | 18,821,586 |       |  |   | 19,193,112  | 
|                                                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Computer Equipment Manufacturing (1.78%)                                                                                      |  |           |            |  |      |   |            |       |  |   |             | 
|ELO Touch Solutions, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 10.5%, 1.5% LIBOR Floor, due 12/4/18                    |  | $         | 10,000,000 |  |      |   | 9,621,530  |       |  |   | 9,550,000   | 
|                                                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Electric Power Generation, Transmission and Distribution (3.41%)                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Panda Sherman Power, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 7.5%,1.5% LIBOR Floor, due 9/14/18                       |  | $         | 11,070,172 |  |      |   | 10,910,286 |       |  |   | 11,263,900  | 
|Astoria Generating Company Acquisitions, LLC, Senior Secured 1st Lien Term Loan,LIBOR + 9.35%, 1.5% LIBOR Floor, due 12/28/15 |  | $         | 7,000,000  |  |      |   | 6,727,929  |       |  |   | 7,040,845   | 
|Total Electric Power Generation, Transmission and Distribution                                                                |  |           |            |  |      |   | 17,638,215 |       |  |   | 18,304,745  | 
|                                                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Electronic Shopping (2.13%)                                                                                                   |  |           |            |  |      |   |            |       |  |   |             | 
|Shopzilla, Inc., Senior Secured 2nd Lien Term Loan, 13%, due 6/1/14                                                           |  | $         | 11,382,687 |  |      |   | 10,869,637 |       |  |   | 11,422,526  | 
|                                                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Equipment Rental and Leasing (3.28%)                                                                                          |  |           |            |  |      |   |            |       |  |   |             | 
|Sky Funding AMR Lease Portfolio, Senior Subordinated 1st Lien Term Loan, 10%, due 9/6/16 - (Ireland)                          |  | $         | 17,000,000 |  |      |   | 16,412,490 |       |  |   | 17,595,000  | 
|                                                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Financial Investment Activities (0.02%)                                                                                       |  |           |            |  |      |   |            |       |  |   |             | 
|Marsico Capital Management, Senior Secured 1st Lien Term Loan, LIBOR + 5%, due 12/31/22                                       |  | $         | 11,281,905 |  |      |   | 14,205,420 |       |  |   | 5,753,772   | 
|                                                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Full-Service Restaurants (3.20%)                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche A, 11%, due 3/19/16 (2)                                               |  | $         | 3,759,156  |  |      |   | 3,759,156  |       |  |   | 3,759,156   | 
|RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B, 12% Cash + 7% PIK, due 3/19/16 (2)                                 |  | $         | 6,258,122  |  |      |   | 6,258,122  |       |  |   | 6,258,122   | 
|RM Holdco, LLC, Subordinated Convertible Term Loan, 1.12% PIK, due 3/21/18 (2)                                                |  | $         | 5,106,805  |  |      |   | 5,106,805  |       |  |   | 5,106,805   | 
|RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B-1, 12% Cash + 7% PIK,due 3/19/16 (2)                                |  | $         | 1,976,470  |  |      |   | 1,922,118  |       |  |   | 1,976,470   | 
|Total Full-Service Restaurants                                                                                                |  |           |            |  |      |   | 17,046,201 |       |  |   | 17,100,553  | 
|                                                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Gaming Industries (5.61%)                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Golden Gaming, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 7% Cash + 1% PIK, 2% LIBOR Floor, due 4/15/16                 |  | $         | 15,975,628 |  |      |   | 15,600,947 |       |  |   | 15,735,993  | 
|AGS LLC, 1st Lien Term Loan, LIBOR + 10%, 1.5% LIBOR Floor, due 8/15/16                                                       |  | $         | 13,269,231 |  |      |   | 12,781,083 |       |  |   | 13,395,288  | 
|AGS LLC, DDTL 1st Lien Term Loan, LIBOR + 10%, 1.5% LIBOR Floor, due 8/15/16                                                  |  | $         | 865,385    |  |      |   | 796,154    |       |  |   | 881,827     | 
|Total Gaming Industries                                                                                                       |  |           |            |  |      |   | 29,178,184 |       |  |   | 30,013,108  | 
|                                                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Grocery Stores (2.58%)                                                                                                        |  |           |            |  |      |   |            |       |  |   |             | 
|Bashas, Inc., Senior Secured 1st Lien FILO Term Loan, LIBOR + 9.35%, 1.5% LIBOR Floor, due 12/28/15                           |  | $         | 13,461,182 |  |      |   | 13,461,182 |       |  |   | 13,797,711  | 







45









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statement of Investments (Continued)



December 31, 2012



Showing Percentage of Total Cash and Investments
of the Partnership





|                                                                                                                     |  |           |            |  |      |   |            |       |  |   | Percent of  | 
|-------------------------------------------------------------------------------------------------------------------- |  | --------- | ---------- |  | ---- | - | ---------- | ----- |  | - | ----------- | 
|                                                                                                                     |  | Principal |            |  |      |   |            | Fair  |  |   | Cash and    | 
|Investment                                                                                                           |  | Amount    |            |  | Cost |   |            | Value |  |   | Investments | 
|                                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Debt Investments (continued)                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Insurance Related Activities (1.04%)                                                                                 |  |           |            |  |      |   |            |       |  |   |             | 
|Confie Seguros Holding II Co., 2nd Lien Term Loan, LIBOR + 9%, 1.25% LIBOR Floor, due 7/26/19                        |  | $         | 5,600,000  |  |      | $ | 5,490,103  |       |  | $ | 5,590,676   | 
|                                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Iron and Steel Mills and Ferroalloy Manufacturing (1.22%)                                                            |  |           |            |  |      |   |            |       |  |   |             | 
|Essar Steel Algoma, Inc., Senior Secured Term Loan, LIBOR + 7.5%,1.25% LIBOR Floor, due 9/20/14                      |  | $         | 6,581,231  |  |      |   | 6,464,979  |       |  |   | 6,537,367   | 
|                                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Motion Picture and Video Industries (2.83%)                                                                          |  |           |            |  |      |   |            |       |  |   |             | 
|CORE Entertainment, Inc., Senior Secured 1st Lien Term Loan, 9%, due 6/21/17                                         |  | $         | 9,462,231  |  |      |   | 9,362,125  |       |  |   | 8,220,313   | 
|CORE Entertainment, Inc., Senior Secured 2nd Lien Term Loan, 13.5%, due 6/21/18                                      |  | $         | 7,569,785  |  |      |   | 7,488,038  |       |  |   | 6,964,202   | 
|Total Motion Picture and Video Industries                                                                            |  |           |            |  |      |   | 16,850,163 |       |  |   | 15,184,515  | 
|                                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Motor Vehicle Parts Manufacturing (2.41%)                                                                            |  |           |            |  |      |   |            |       |  |   |             | 
|DMI SMW Holding Corporation, Term Loan, LIBOR + 7.75%, 1.5% LIBOR Floor, due 12/21/17                                |  | $         | 12,935,000 |  |      |   | 12,938,292 |       |  |   | 12,902,663  | 
|                                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Other Amusement and Recreation Industries (2.14%)                                                                    |  |           |            |  |      |   |            |       |  |   |             | 
|Intrawest Cayman L.P., 1st Lien Term Loan, LIBOR + 5.75%, 1.25% LIBOR Floor, due 12/4/17 - (Cayman Islands)          |  | $         | 1,250,000  |  |      |   | 1,231,250  |       |  |   | 1,257,813   | 
|Intrawest Cayman L.P., 2nd Lien Term Loan, LIBOR + 9.5%, 1.25% LIBOR Floor, due 12/4/18 - (Cayman Islands)           |  | $         | 10,250,000 |  |      |   | 9,993,750  |       |  |   | 10,250,000  | 
|Total Other Amusement and Recreation Industries                                                                      |  |           |            |  |      |   | 11,225,000 |       |  |   | 11,507,813  | 
|                                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Other Electrical Equipment and Component Manufacturing (3.03%)                                                       |  |           |            |  |      |   |            |       |  |   |             | 
|Palladium Energy, Inc., Term Loan, LIBOR + 9%, 1% LIBOR Floor, due 12/21/17                                          |  | $         | 16,500,317 |  |      |   | 16,170,991 |       |  |   | 16,219,812  | 
|                                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Other Professional, Scientific, and Technical Services (2.27%)                                                       |  |           |            |  |      |   |            |       |  |   |             | 
|Connolly, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 9.25%, 1.25% LIBOR Floor, due 7/26/19                      |  | $         | 12,000,000 |  |      |   | 11,808,454 |       |  |   | 12,157,500  | 
|                                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Petroleum and Coal Products Manufacturing (1.57%)                                                                    |  |           |            |  |      |   |            |       |  |   |             | 
|Boomerang Tube, LLC, 2nd Lien Term Loan, LIBOR + 9.5%, 1.5% LIBOR Floor, due 10/2/17                                 |  | $         | 8,522,741  |  |      |   | 8,277,159  |       |  |   | 8,416,206   | 
|                                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Pharmaceutical and Medicine Manufacturing (1.51%)                                                                    |  |           |            |  |      |   |            |       |  |   |             | 
|Pharmaceutical Research Associates, Inc., 2nd Lien Term Loan, LIBOR + 9.25%, 1.25% LIBOR Floor, due 6/10/19          |  | $         | 8,000,000  |  |      |   | 7,840,000  |       |  |   | 8,085,000   | 
|                                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Promoters of Perfoming Arts, Sports, and Similar Events (2.06%)                                                      |  |           |            |  |      |   |            |       |  |   |             | 
|Stadium Management Group, Senior Secured 2nd Lien Term Loan, LIBOR + 9.50%, 1.25% LIBOR Floor, due 12/7/18           |  | $         | 11,000,000 |  |      |   | 10,792,091 |       |  |   | 11,055,000  | 
|                                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Radio and Television Broadcasting (4.58%)                                                                            |  |           |            |  |      |   |            |       |  |   |             | 
|Encompass Digital Media, Inc., 1st Lien Term Loan, LIBOR + 6.5%, 1.5% LIBOR Floor, due 8/10/17                       |  | $         | 7,940,000  |  |      |   | 7,802,595  |       |  |   | 8,039,250   | 
|Granite Broadcasting Corporation, Senior Secured 1st Lien Term Loan B, LIBOR + 7.25%, 1.25% LIBOR Floor, due 5/23/18 |  | $         | 9,950,000  |  |      |   | 9,719,719  |       |  |   | 9,974,875   | 
|SiTV, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6% Cash + 4% PIK, 2% LIBOR Floor, due 8/3/16                  |  | $         | 6,806,343  |  |      |   | 6,421,282  |       |  |   | 6,523,880   | 
|Total Radio and Television Broadcasting                                                                              |  |           |            |  |      |   | 23,943,596 |       |  |   | 24,538,005  | 
|                                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Retail (1.90%)                                                                                                       |  |           |            |  |      |   |            |       |  |   |             | 
|Kenneth Cole Productions, Inc., Senior Secured 1st Lien FILO Term Loan, LIBOR + 10.60%, 1% LIBOR Floor, due 9/25/17  |  | $         | 10,000,000 |  |      |   | 9,717,763  |       |  |   | 10,200,000  | 









46









Special Value
Continuation Partners, LP

(A Delaware Limited Partnership)



Statement of Investments (Continued)



December 31, 2012



Showing Percentage of Total Cash and Investments
of the Partnership





|                                                                                                                                                                                                                              |  |           |            |  |      |   |            |       |  |   | Percent of  | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ---------- |  | ---- | - | ---------- | ----- |  | - | ----------- | 
|                                                                                                                                                                                                                              |  | Principal |            |  |      |   |            | Fair  |  |   | Cash and    | 
|Investment                                                                                                                                                                                                                    |  | Amount    |            |  | Cost |   |            | Value |  |   | Investments | 
|                                                                                                                                                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Debt Investments (continued)                                                                                                                                                                                                  |  |           |            |  |      |   |            |       |  |   |             | 
|Scheduled Air Transportation (3.11%)                                                                                                                                                                                          |  |           |            |  |      |   |            |       |  |   |             | 
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N913DL), 8%, due 7/15/18 (6)                                                                                                                                                |  | $         | 366,557    |  |      | $ | 366,557    |       |  | $ | 367,370     | 
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N918DL), 8%, due 7/15/18 (6)                                                                                                                                                |  | $         | 456,613    |  |      |   | 456,613    |       |  |   | 454,580     | 
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N954DL), 8%, due 9/20/19 (6)                                                                                                                                                |  | $         | 593,200    |  |      |   | 593,200    |       |  |   | 597,720     | 
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N955DL), 8%, due 9/20/19 (6)                                                                                                                                                |  | $         | 609,107    |  |      |   | 609,107    |       |  |   | 612,000     | 
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N956DL), 8%, due 9/20/19 (6)                                                                                                                                                |  | $         | 609,360    |  |      |   | 609,360    |       |  |   | 612,850     | 
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N957DL), 8%, due 9/20/19 (6)                                                                                                                                                |  | $         | 614,434    |  |      |   | 614,434    |       |  |   | 617,440     | 
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N959DL), 8%, due 9/20/19 (6)                                                                                                                                                |  | $         | 619,468    |  |      |   | 619,468    |       |  |   | 622,030     | 
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N960DL), 8%, due 9/20/19 (6)                                                                                                                                                |  | $         | 639,631    |  |      |   | 639,631    |       |  |   | 640,730     | 
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N961DL), 8%, due 9/20/19(6)                                                                                                                                                 |  | $         | 635,009    |  |      |   | 635,009    |       |  |   | 636,990     | 
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N976DL), 8%, due 7/15/18 (6)                                                                                                                                                |  | $         | 474,007    |  |      |   | 474,007    |       |  |   | 473,280     | 
|United Air Lines, Inc., Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16 (2)                                                                                                                                              |  | $         | 410,410    |  |      |   | 410,410    |       |  |   | 548,340     | 
|United Air Lines, Inc., Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16 (2)                                                                                                                                             |  | $         | 414,343    |  |      |   | 414,343    |       |  |   | 556,225     | 
|United Air Lines, Inc., Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14 (2)                                                                                                                                              |  | $         | 251,941    |  |      |   | 251,941    |       |  |   | 277,780     | 
|United Air Lines, Inc., Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15 (2)                                                                                                                                              |  | $         | 377,925    |  |      |   | 377,925    |       |  |   | 436,810     | 
|United Air Lines, Inc., Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16 (2)                                                                                                                                             |  | $         | 486,501    |  |      |   | 486,501    |       |  |   | 653,220     | 
|United Air Lines, Inc., Aircraft Secured Mortgage (N659UA), 12%, due 3/28/16 (6)                                                                                                                                              |  | $         | 3,707,430  |  |      |   | 3,707,430  |       |  |   | 4,264,148   | 
|United Air Lines, Inc., Aircraft Secured Mortgage (N661UA), 12%, due 5/4/16 (6)                                                                                                                                               |  | $         | 3,849,284  |  |      |   | 3,849,284  |       |  |   | 4,351,424   | 
|                                                                                                                                                                                                                              |  |           |            |  |      |   | 15,115,220 |       |  |   | 16,722,937  | 
|Semiconductor and Other Electronic Component Manufacturing (2.61%)                                                                                                                                                            |  |           |            |  |      |   |            |       |  |   |             | 
|Isola USA Corporation, 1st Lien Term Loan, LIBOR + 8%, 2% LIBOR Floor,due 9/29/15                                                                                                                                             |  | $         | 14,000,000 |  |      |   | 13,975,000 |       |  |   | 14,000,000  | 
|                                                                                                                                                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Software Publishers (8.47%)                                                                                                                                                                                                   |  |           |            |  |      |   |            |       |  |   |             | 
|Blackboard,
    Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6%, 1.5% LIBOR Floor, due 10/4/18                                                                                                                            |  | $         | 2,671,613  |  |      |   | 2,457,884  |       |  |   | 2,705,008   | 
|Deltek,
    Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 8.75%, 1.25% LIBOR Floor, due 10/10/19                                                                                                                           |  | $         | 15,000,000 |  |      |   | 14,781,719 |       |  |   | 15,275,025  | 
|Edmentum, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 9.75%, 1.5% LIBOR Floor, due 5/8/19                                                                                                                                |  | $         | 15,000,000 |  |      |   | 14,717,168 |       |  |   | 14,831,250  | 
|SumTotal Systems, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 9%, 1.25% LIBOR Floor, due 5/13/19                                                                                                                          |  | $         | 7,600,000  |  |      |   | 7,449,234  |       |  |   | 7,524,000   | 
|The TriZetto Group, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 7.25%, 1.25% LIBOR Floor, due 3/28/19                                                                                                                    |  | $         | 5,000,000  |  |      |   | 4,927,523  |       |  |   | 4,979,175   | 
|Total Software Publishers                                                                                                                                                                                                     |  |           |            |  |      |   | 44,333,528 |       |  |   | 45,314,458  | 
|                                                                                                                                                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Support Activities for Mining (0.06%)                                                                                                                                                                                         |  |           |            |  |      |   |            |       |  |   |             | 
|Trico Shipping AS, 1st Lien Term Loan A, LIBOR + 8.5%, 1.5% LIBOR Floor, due 5/13/14 - (Norway)                                                                                                                               |  | $         | 228,803    |  |      |   | 228,803    |       |  |   | 228,803     | 
|Trico Shipping AS, 1st Lien Term Loan B, LIBOR + 8.5%, 1.5% LIBOR Floor, due 5/13/14 - (Norway)                                                                                                                               |  | $         | 80,543     |  |      |   | 80,543     |       |  |   | 80,543      | 
|Total Support Activities for Mining                                                                                                                                                                                           |  |           |            |  |      |   | 309,346    |       |  |   | 309,346     | 
|                                                                                                                                                                                                                              |  |           |            |  |      |   |            |       |  |   |             | 
|Wired Telecommunications Carriers (2.52%)                                                                                                                                                                                     |  |           |            |  |      |   |            |       |  |   |             | 
|Bulgaria Telecom Company AD, 1st Lien Facility 1A Term Loan, EURIBOR + 5.5%, due 11/9/17 - (Bulgaria) (4)                                                                                                                     |  | €         | 3,262,515  |  |      |   | 3,525,355  |       |  |   | 3,744,685   | 
|Integra
    Telecom Holdings, Inc., 1st Lien Term Loan, LIBOR + 7.25%, 2% LIBOR Floor, due 4/15/15                                                                                                                            |  | $         | 8,477,489  |  |      |   | 8,070,172  |       |  |   | 8,518,096   | 
|Viva Telecom Bulgaria EAD, 1st Lien
                                                                                                                     Facility 1B Term Loan, EURIBOR + 5.5%, due 11/9/17 - (Luxembourg)(4) |  | €         | 980,713    |  |      |   | 1,059,723  |       |  |   | 1,125,653   | 
|Total Wired Telecommunications Carriers                                                                                                                                                                                       |  |           |            |  |      |   | 12,655,250 |       |  |   | 13,388,434  | 







47









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statement of Investments (Continued)



December 31, 2012



Showing Percentage of Total Cash
and Investments of the Partnership





|                                                                                                             |  |           |            |  |      |   |             |       |  |   | Percent of  | 
|------------------------------------------------------------------------------------------------------------ |  | --------- | ---------- |  | ---- | - | ----------- | ----- |  | - | ----------- | 
|                                                                                                             |  | Principal |            |  |      |   |             | Fair  |  |   | Cash and    | 
|Investment                                                                                                   |  | Amount    |            |  | Cost |   |             | Value |  |   | Investments | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Debt Investments (continued)                                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Wireless Telecommunications Carriers (0.56%)                                                                 |  |           |            |  |      |   |             |       |  |   |             | 
|Globalive Wireless Management Corp., Senior Secured 1st Lien Term Loan, LIBOR + 8.9%, due 10/9/12 - (Canada) |  | $         | 3,037,292  |  |      | $ | 2,933,872   |       |  | $ | 3,000,845   | 
|Gogo, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 9.75%, 1.5% LIBOR Floor,due 6/21/17                    |  | $         | 10,168,765 |  |      |   | 9,762,014   |       |  |   | 10,270,452  | 
|Total Wireless Telecommunications                                                                            |  |           |            |  |      |   | 12,695,886  |       |  |   | 13,271,297  | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Total Bank Debt                                                                                              |  |           |            |  |      |   | 404,232,982 |       |  |   | 405,010,342 | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Other Corporate Debt Securities (14.51%)                                                                     |  |           |            |  |      |   |             |       |  |   |             | 
|Architectural, Engineering, and Related Services (1.33%)                                                     |  |           |            |  |      |   |             |       |  |   |             | 
|ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes, 6% Cash + 10% PIK, due 12/31/19 (2), (5) |  | $         | 7,209,840  |  |      |   | 7,209,840   |       |  |   | 7,134,137   | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Artificial Synthetic Fibers and Filaments Manufacturing (1.72%)                                              |  |           |            |  |      |   |             |       |  |   |             | 
|AGY Holding Corporation, Senior Secured 2nd Lien Notes, 11%, due 11/15/14                                    |  | $         | 18,536,000 |  |      |   | 15,172,634  |       |  |   | 9,221,660   | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Data Processing, Hosting, and Related Services (1.34%)                                                       |  |           |            |  |      |   |             |       |  |   |             | 
|The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19 (5)                             |  | $         | 6,958,697  |  |      |   | 6,820,215   |       |  |   | 7,167,458   | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Metal and Mineral (except Petroleum) Merchant Wholesalers (2.48%)                                            |  |           |            |  |      |   |             |       |  |   |             | 
|Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16 (5)                       |  | $         | 12,500,000 |  |      |   | 12,322,875  |       |  |   | 13,296,875  | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Nondepository Credit Intermediation (1.87%)                                                                  |  |           |            |  |      |   |             |       |  |   |             | 
|Caribbean Financial Group, Senior Secured Notes, 11.5%, due 11/15/19 (5)                                     |  | $         | 10,000,000 |  |      |   | 9,803,494   |       |  |   | 10,037,500  | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Nonferrous Metal Production and Processing (2.88%)                                                           |  |           |            |  |      |   |             |       |  |   |             | 
|International Wire Group Holdings, Inc., Senior Secured Notes, 8.5%, due 10/15/17 (2), (5)                   |  | $         | 15,000,000 |  |      |   | 15,000,000  |       |  |   | 15,450,000  | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Scientific Research and Development Services (2.89%)                                                         |  |           |            |  |      |   |             |       |  |   |             | 
|BPA Laboratories, Inc., Senior Secured Notes, 12.25%, due 4/1/17 (5)                                         |  | $         | 17,110,000 |  |      |   | 16,446,295  |       |  |   | 15,484,550  | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Total Other Corporate Debt Securities                                                                        |  |           |            |  |      |   | 82,775,353  |       |  |   | 77,792,180  | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Total Debt Investments                                                                                       |  |           |            |  |      |   | 487,008,335 |       |  |   | 482,802,522 | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Equity Securities (6.51%)                                                                                    |  |           |            |  |      |   |             |       |  |   |             | 
|Other Amusement and Recreation Industries (0.01%)                                                            |  |           |            |  |      |   |             |       |  |   |             | 
|Bally Total Fitness Holding Corporation, Common Stock (3), (5)                                               |  |           | 6,058      |  |      |   | 45,186,963  |       |  |   | 27,746      | 
|Bally Total Fitness Holding Corporation, Warrants (3), (5)                                                   |  |           | 10,924     |  |      |   | -           |       |  |   | 1           | 
|Total Other Amusement and Recreation Industries                                                              |  |           |            |  |      |   | 45,186,963  |       |  |   | 27,747      | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Architectural, Engineering, and Related Services (1.10%)                                                     |  |           |            |  |      |   |             |       |  |   |             | 
|ESP Holdings, Inc., Cumulative Preferred 15% (2), (3), (5)                                                   |  |           | 20,297     |  |      |   | 2,249,930   |       |  |   | 3,643,088   | 
|ESP Holdings, Inc., Common Stock (2), (3), (5)                                                               |  |           | 88,670     |  |      |   | 9,311,782   |       |  |   | 2,263,124   | 
|Total Architectural, Engineering, and Related Services                                                       |  |           |            |  |      |   | 11,561,712  |       |  |   | 5,906,212   | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Business Support Services (0.05%)                                                                            |  |           |            |  |      |   |             |       |  |   |             | 
|STG-Fairway Holdings, LLC, Class A Units (3), (5)                                                            |  |           | 80,396     |  |      |   | 1,100,348   |       |  |   | 241,188     | 
|                                                                                                             |  |           |            |  |      |   |             |       |  |   |             | 
|Data Processing, Hosting, and Related Services (0.23%)                                                       |  |           |            |  |      |   |             |       |  |   |             | 
|Anacomp, Inc., Class A Common Stock (3), (5), (6)                                                            |  |           | 1,255,527  |  |      |   | 26,711,048  |       |  |   | 1,255,527   | 







48









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statement of Investments (Continued)



December 31, 2012



Showing Percentage of Total Cash and Investments
of the Partnership





|                                                                               |  |        |            |  |      |   |            |       |  |   | Percent of  | 
|------------------------------------------------------------------------------ |  | ------ | ---------- |  | ---- | - | ---------- | ----- |  | - | ----------- | 
|                                                                               |  |        |            |  |      |   |            | Fair  |  |   | Cash and    | 
|Investment                                                                     |  | Shares |            |  | Cost |   |            | Value |  |   | Investments | 
|                                                                               |  |        |            |  |      |   |            |       |  |   |             | 
|Equity Securities (continued)                                                  |  |        |            |  |      |   |            |       |  |   |             | 
|                                                                               |  |        |            |  |      |   |            |       |  |   |             | 
|Depository Credit Intermediation (0.15%)                                       |  |        |            |  |      |   |            |       |  |   |             | 
|Doral Financial Corporation, Common Stock (3)                                  |  |        | 1,077,795  |  |      | $ | 11,699,417 |       |  | $ | 780,431     | 
|                                                                               |  |        |            |  |      |   |            |       |  |   |             | 
|Electric Power Generation, Transmission and Distribution (0.01%)               |  |        |            |  |      |   |            |       |  |   |             | 
|La Paloma Residual Bank Debt Claim (3), (5)                                    |  |        | 1,830,453  |  |      |   | 1,574,284  |       |  |   | 51,253      | 
|                                                                               |  |        |            |  |      |   |            |       |  |   |             | 
|Electronic Shopping (0.21%)                                                    |  |        |            |  |      |   |            |       |  |   |             | 
|Shop Holding, LLC, Class A Units (3), (5)                                      |  |        | 490,037    |  |      |   | 462,576    |       |  |   | 915,198     | 
|Shop Holding, LLC, Warrants to Purchase Class A Units (3), (5)                 |  |        | 326,691    |  |      |   | -          |       |  |   | 283,346     | 
|Total Electronic Shopping                                                      |  |        |            |  |      |   | 462,576    |       |  |   | 1,198,544   | 
|                                                                               |  |        |            |  |      |   |            |       |  |   |             | 
|Financial Investment Activities (0.02%)                                        |  |        |            |  |      |   |            |       |  |   |             | 
|Marsico Holdings, LLC, Common Interest Units (3), (5)                          |  |        | 168,698    |  |      |   | 172,694    |       |  |   | 84,349      | 
|                                                                               |  |        |            |  |      |   |            |       |  |   |             | 
|Full-Service Restaurants (0.16%)                                               |  |        |            |  |      |   |            |       |  |   |             | 
|RM Holdco, LLC, Membership Units (2), (3), (5)                                 |  |        | 13,161,000 |  |      |   | 2,010,777  |       |  |   | 849,478     | 
|                                                                               |  |        |            |  |      |   |            |       |  |   |             | 
|Machine Shops; Turned Product; and Screw, Nut, and Bolt Manufacturing (0.00%)  |  |        |            |  |      |   |            |       |  |   |             | 
|Precision Holdings, LLC, Class C Membership Interests (3), (5)                 |  |        | 33         |  |      |   | 1,396      |       |  |   | 21,317      | 
|                                                                               |  |        |            |  |      |   |            |       |  |   |             | 
|Nonmetallic Mineral Mining and Quarrying (0.51%)                               |  |        |            |  |      |   |            |       |  |   |             | 
|EPMC HoldCo, LLC, Membership Units (2), (5)                                    |  |        | 1,312,720  |  |      |   | -          |       |  |   | 2,730,458   | 
|                                                                               |  |        |            |  |      |   |            |       |  |   |             | 
|Radio and Television Broadcasting (0.06%)                                      |  |        |            |  |      |   |            |       |  |   |             | 
|SiTV, Inc., Warrants to Purchase Common Stock(3), (5)                          |  |        | 233,470    |  |      |   | 300,322    |       |  |   | 336,197     | 
|                                                                               |  |        |            |  |      |   |            |       |  |   |             | 
|Scheduled Air Transportation (1.83%)                                           |  |        |            |  |      |   |            |       |  |   |             | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N913DL) (5), (6)  |  |        | 466        |  |      |   | 113,899    |       |  |   | 111,520     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N918DL) (5), (6)  |  |        | 433        |  |      |   | 130,664    |       |  |   | 120,530     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N954DL) (5), (6)  |  |        | 421        |  |      |   | 161,952    |       |  |   | 113,390     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N955DL) (5), (6)  |  |        | 417        |  |      |   | 164,481    |       |  |   | 160,650     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N956DL) (5), (6)  |  |        | 418        |  |      |   | 164,726    |       |  |   | 163,200     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N957DL) (5), (6)  |  |        | 417        |  |      |   | 165,755    |       |  |   | 163,880     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N959DL) (5), (6)  |  |        | 416        |  |      |   | 166,778    |       |  |   | 164,390     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N960DL) (5), (6)  |  |        | 412        |  |      |   | 171,075    |       |  |   | 169,660     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N961DL) (5), (6)  |  |        | 415        |  |      |   | 170,315    |       |  |   | 171,360     | 
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N976DL) (5), (6)  |  |        | 442        |  |      |   | 136,326    |       |  |   | 83,300      | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N510UA) (2), (5) |  |        | 43         |  |      |   | 151,759    |       |  |   | 479,682     | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N512UA) (2), (5) |  |        | 43         |  |      |   | 148,561    |       |  |   | 473,761     | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N536UA) (2), (5) |  |        | 62         |  |      |   | 298,394    |       |  |   | 624,746     | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N545UA) (2), (5) |  |        | 52         |  |      |   | 267,249    |       |  |   | 616,897     | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N585UA) (2), (5) |  |        | 43         |  |      |   | 167,806    |       |  |   | 583,391     | 
|United N659UA-767, LLC (N659UA) (5), (6)                                       |  |        | 312        |  |      |   | 1,773,072  |       |  |   | 2,771,428   | 
|United N661UA-767, LLC (N661UA) (5), (6)                                       |  |        | 303        |  |      |   | 1,759,997  |       |  |   | 2,789,809   | 
|Total Scheduled Air Transportation                                             |  |        |            |  |      |   | 6,112,809  |       |  |   | 9,761,594   | 
|                                                                               |  |        |            |  |      |   |            |       |  |   |             | 
|Semiconductor and Other Electronic Component Manufacturing (0.01%)             |  |        |            |  |      |   |            |       |  |   |             | 
|AIP/IS Holdings, LLC, Membership Units (3), (5)                                |  |        | 352        |  |      |   | -          |       |  |   | 68,922      | 
|                                                                               |  |        |            |  |      |   |            |       |  |   |             | 
|Support Activities for Mining (0.61%)                                          |  |        |            |  |      |   |            |       |  |   |             | 
|DeepOcean Group Holding AS, Common Stock - (Norway) (3), (5)                   |  |        | 145,824    |  |      |   | 3,477,627  |       |  |   | 3,255,535   | 







49









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statement of Investments (Continued)



December 31, 2012



Showing Percentage of Total Cash and Investments
of the Partnership





|                                                                       |  |        |           |  |      |   |             |       |  |   | Percent of  | 
|---------------------------------------------------------------------- |  | ------ | --------- |  | ---- | - | ----------- | ----- |  | - | ----------- | 
|                                                                       |  |        |           |  |      |   |             | Fair  |  |   | Cash and    | 
|Investment                                                             |  | Shares |           |  | Cost |   |             | Value |  |   | Investments | 
|                                                                       |  |        |           |  |      |   |             |       |  |   |             | 
|Equity Securities (continued)                                          |  |        |           |  |      |   |             |       |  |   |             | 
|                                                                       |  |        |           |  |      |   |             |       |  |   |             | 
|Wired Telecommunications Carriers (1.55%)                              |  |        |           |  |      |   |             |       |  |   |             | 
|Integra Telecom, Inc., Common Stock (3), (5)                           |  |        | 1,274,522 |  |      | $ | 8,433,884   |       |  | $ | 5,038,718   | 
|Integra Telecom, Inc., Warrants (3), (5)                               |  |        | 346,939   |  |      |   | 19,920      |       |  |   | -           | 
|V Telecom Investment S.C.A, Common Shares - (Luxembourg) (3), (4), (5) |  |        | 1,393     |  |      |   | 3,236,256   |       |  |   | 3,273,095   | 
|Total Wired Telecommunications Carriers                                |  |        |           |  |      |   | 11,690,060  |       |  |   | 8,311,813   | 
|                                                                       |  |        |           |  |      |   |             |       |  |   |             | 
|Total Equity Securities                                                |  |        |           |  |      |   | 122,062,033 |       |  |   | 34,880,565  | 
|                                                                       |  |        |           |  |      |   |             |       |  |   |             | 
|Total Investments (7)                                                  |  |        |           |  |      |   | 609,070,368 |       |  |   | 517,683,087 | 
|                                                                       |  |        |           |  |      |   |             |       |  |   |             | 
|Cash and Cash Equivalents                                              |  |        |           |  |      |   |             |       |  |   | 18,035,189  | 
|                                                                       |  |        |           |  |      |   |             |       |  |   |             | 
|Total Cash and Investments                                             |  |        |           |  |      |   |             |       |  | $ | 535,718,276 | 










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) | Non-controlled
affiliate – as defined under the Investment Company Act of 1940 (ownership of between 5% and 25% of the outstanding voting
securities of this issuer).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Non-income
producing security.
| | --- | ------------------------------



| | (4) | Principal
amount denominated in foreign currency. Amortized cost and fair value converted from foreign currency to US dollars. (See Note
2)
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Restricted
security. (See Note 2)
| | --- | ---------------------------------



| | (6) | Controlled
issuer – as defined under the Investment Company Act of 1940 (ownership of 25% or more of the outstanding voting securities
of this issuer).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Includes
investments with an aggregate market value of $1,382,875 that have been segregated to collateralize certain unfunded commitments.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------



Aggregate acquisitions and aggregate dispositions of investments,
other than government securities, totaled $359,020,926 and $211,216,033, respectively for the year ended December 31, 2012. Aggregate
acquisitions includes investment assets received as payment in kind. Aggregate dispositions includes principal paydowns on and
maturities of debt investments. The total value of restricted securities and bank debt as of December 31, 2012 was $507,680,996,
or 94.8% of total cash and investments of the Partnership.



Swaps at December 31, 2012 were as follows:



|Investment                                                                       |  | Notional  Amount |           |  | Fair Value |  
|-------------------------------------------------------------------------------- |  | ---------------- | --------- |  | ---------- | -
|                                                                                 |  |                  |           |  |            |  
|Euro/US Dollar Cross-Currency Basis Swap, Pay Euros/Receive USD, Expires 5/16/14 |  | $                | 6,040,944 |  |            | $



See accompanying notes.





50









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statement of Investments



December 31, 2011



Showing Percentage of Total Cash
and Investments of the Partnership



|                                                                                                           |  |           |            |  |       |   |            | Percent of  | 
|---------------------------------------------------------------------------------------------------------- |  | --------- | ---------- |  | ----- | - | ---------- | ----------- | 
|                                                                                                           |  | Principal |            |  | Fair  |   |            | Cash and    | 
|Investment                                                                                                 |  | Amount    |            |  | Value |   |            | Investments | 
|                                                                                                           |  |           |            |  |       |   |            |             | 
|Debt Investments (78.77%)                                                                                  |  |           |            |  |       |   |            |             | 
|Bank Debt (47.16%) (1)                                                                                     |  |           |            |  |       |   |            |             | 
|Accounting, Tax Preparation, Bookkeeping, and Payroll Services (0.18%)                                     |  |           |            |  |       |   |            |             | 
|NCO Group, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 5.5%, 2.5% LIBOR Floor, due 11/15/13           |  | $         | 705,163    |  |       | $ | 695,761    |             | 
|                                                                                                           |  |           |            |  |       |   |            |             | 
|Business Support Services (4.91%)                                                                          |  |           |            |  |       |   |            |             | 
|STG-Fairway Acquisitions, Inc., Senior Secured 2nd Lien Term Loan, 12.5%, due 12/29/15                     |  | $         | 18,820,923 |  |       |   | 19,169,110 |             | 
|                                                                                                           |  |           |            |  |       |   |            |             | 
|Commercial and Industrial Machinery and Equipment Rental and Leasing (2.67%)                               |  |           |            |  |       |   |            |             | 
|AerCap Holdings N.V., Secured 1st Lien Term Loan, 10.25%, due 12/3/15 - (Netherlands)                      |  | $         | 10,411,593 |  |       |   | 10,411,591 |             | 
|                                                                                                           |  |           |            |  |       |   |            |             | 
|Communications Equipment Manufacturing (2.37%)                                                             |  |           |            |  |       |   |            |             | 
|Mitel US Holdings, Inc., 2nd Lien Term Loan, LIBOR + 7%, due 8/16/15                                       |  | $         | 9,951,762  |  |       |   | 9,230,260  |             | 
|                                                                                                           |  |           |            |  |       |   |            |             | 
|Data Processing, Hosting, and Related Services (1.92%)                                                     |  |           |            |  |       |   |            |             | 
|The Telx Group, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6.5%, 1.25% LIBOR Floor, due 9/22/17      |  | $         | 7,481,250  |  |       |   | 7,481,250  |             | 
|                                                                                                           |  |           |            |  |       |   |            |             | 
|Electric Power Generation, Transmission and Distribution (0.01%)                                           |  |           |            |  |       |   |            |             | 
|La Paloma Generating Company, Residual Bank Debt Claim (3)                                                 |  | $         | 1,830,453  |  |       |   | 51,436     |             | 
|                                                                                                           |  |           |            |  |       |   |            |             | 
|Electronic Shopping and Mail-Order Houses (3.59%)                                                          |  |           |            |  |       |   |            |             | 
|Shopzilla, Inc., Senior Secured 2nd Lien Term Loan, 13%, due 6/1/14                                        |  | $         | 13,723,983 |  |       |   | 14,002,946 |             | 
|                                                                                                           |  |           |            |  |       |   |            |             | 
|Grocery Stores (3.92%)                                                                                     |  |           |            |  |       |   |            |             | 
|Bashas, Inc., Senior Secured 1st Lien FILO Term Loan, LIBOR + 7.5%, 1.5% LIBOR Floor, due 10/1/13          |  | $         | 15,000,000 |  |       |   | 15,262,500 |             | 
|                                                                                                           |  |           |            |  |       |   |            |             | 
|Machine Shops; Turned Product; and Screw, Nut, and Bolt Manufacturing (1.23%)                              |  |           |            |  |       |   |            |             | 
|Precision Partners Holdings, 1st Lien Delayed Draw Term Loan, Prime + 6.5%, 4.5% Prime Floor, due 10/1/13  |  | $         | 289,734    |  |       |   | 283,940    |             | 
|Precision Partners Holdings, 1st Lien Term Loan, Prime + 6.5%, 4.5% Prime Floor, due 10/1/13               |  | $         | 4,600,740  |  |       |   | 4,508,724  |             | 
|Total Machine Shops; Turned Product; and Screw, Nut, and Bolt Manufacturing                                |  |           |            |  |       |   | 4,792,664  |             | 
|                                                                                                           |  |           |            |  |       |   |            |             | 
|Motion Picture and Video Industries (4.26%)                                                                |  |           |            |  |       |   |            |             | 
|CKX Entertainment, Inc., Senior Secured 1st Lien Term Loan, 9%, due 6/21/17                                |  | $         | 9,462,231  |  |       |   | 9,239,869  |             | 
|CKX Entertainment, Inc., Senior Secured 2nd Lien Term Loan, 13.5%, due 6/21/18                             |  | $         | 7,569,785  |  |       |   | 7,384,325  |             | 
|Total Motion Picture and Video Industries                                                                  |  |           |            |  |       |   | 16,624,194 |             | 
|                                                                                                           |  |           |            |  |       |   |            |             | 
|Motor Vehicle Parts Manufacturing (2.82%)                                                                  |  |           |            |  |       |   |            |             | 
|Diversified Machine, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 7.75%, 1.5% LIBOR Floor, due 12/1/16 |  | $         | 11,000,000 |  |       |   | 11,000,000 |             | 







51









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statement of Investments (Continued)



December 31, 2011



Showing Percentage of Total Cash and Investments
of the Partnership



|                                                                                                                                                                                                                               |  |           |            |  |       |   |            | Percent of  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------- | ---------- |  | ----- | - | ---------- | ----------- | 
|                                                                                                                                                                                                                               |  | Principal |            |  | Fair  |   |            | Cash and    | 
|Investment                                                                                                                                                                                                                     |  | Amount    |            |  | Value |   |            | Investments | 
|                                                                                                                                                                                                                               |  |           |            |  |       |   |            |             | 
|Debt Investments (continued)                                                                                                                                                                                                   |  |           |            |  |       |   |            |             | 
|Other Financial Investment Activities (1.60%)                                                                                                                                                                                  |  |           |            |  |       |   |            |             | 
|Marsico Capital Management, Senior Secured 1st Lien Term Loan, LIBOR + 5%, due 12/14/14                                                                                                                                        |  | $         | 19,338,970 |  |       | $ | 6,252,927  |             | 
|                                                                                                                                                                                                                               |  |           |            |  |       |   |            |             | 
|Radio and Television Broadcasting (5.09%)                                                                                                                                                                                      |  |           |            |  |       |   |            |             | 
|Encompass Digital Media, Inc., 1st Lien Term Loan, LIBOR + 6%, 1.75% LIBOR Floor, due 2/28/16                                                                                                                                  |  | $         | 2,713,867  |  |       |   | 2,648,734  |             | 
|Encompass Digital Media, Inc., 2nd Lien Term Loan, 16.5%, due 8/28/16                                                                                                                                                          |  | $         | 16,453,486 |  |       |   | 16,700,288 |             | 
|Hubbard Radio, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 7.25%, 1.5% LIBOR Floor, due 4/11/18                                                                                                                            |  | $         | 500,000    |  |       |   | 497,500    |             | 
|Total Radio and Television Broadcasting                                                                                                                                                                                        |  |           |            |  |       |   | 19,846,522 |             | 
|                                                                                                                                                                                                                               |  |           |            |  |       |   |            |             | 
|Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments                                                                                                                                                         |  |           |            |  |       |   |            |             | 
|Manufacturing (3.86%)                                                                                                                                                                                                          |  |           |            |  |       |   |            |             | 
|Gundle/SLT Environmental, Inc.,
                                                                                                Senior Secured 2nd Lien Term Loan, 
LIBOR + 9.5% Cash + 2% PIK, 1.5% LIBOR Floor, due 11/27/16 |  | $         | 15,110,056 |  |       |   | 15,034,505 |             | 
|                                                                                                                                                                                                                               |  |           |            |  |       |   |            |             | 
|Scheduled Air Transportation (3.38%)                                                                                                                                                                                           |  |           |            |  |       |   |            |             | 
|United Air Lines, Inc., Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16 (2)                                                                                                                                               |  | $         | 477,297    |  |       |   | 624,066    |             | 
|United Air Lines, Inc., Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16 (2)                                                                                                                                              |  | $         | 479,793    |  |       |   | 630,208    |             | 
|United Air Lines, Inc., Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14 (2)                                                                                                                                               |  | $         | 374,009    |  |       |   | 414,963    |             | 
|United Air Lines, Inc., Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15 (2)                                                                                                                                               |  | $         | 487,311    |  |       |   | 563,575    |             | 
|United Air Lines, Inc., Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16 (2)                                                                                                                                              |  | $         | 563,348    |  |       |   | 739,958    |             | 
|United Air Lines, Inc., Aircraft Secured Mortgage (N659UA), 12%, due 3/28/16 (2)                                                                                                                                               |  | $         | 4,594,240  |  |       |   | 5,014,613  |             | 
|United Air Lines, Inc., Aircraft Secured Mortgage (N661UA), 12%, due 5/4/16 (2)                                                                                                                                                |  | $         | 4,709,310  |  |       |   | 5,192,014  |             | 
|Total Scheduled Air Transportation                                                                                                                                                                                             |  |           |            |  |       |   | 13,179,397 |             | 
|                                                                                                                                                                                                                               |  |           |            |  |       |   |            |             | 
|Software Publishers (2.44%)                                                                                                                                                                                                    |  |           |            |  |       |   |            |             | 
|Blackboard, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6%, 1.5% LIBOR Floor, due 9/23/18                                                                                                                                 |  | $         | 10,000,000 |  |       |   | 9,525,000  |             | 
|                                                                                                                                                                                                                               |  |           |            |  |       |   |            |             | 
|Support Activities for Mining (0.06%)                                                                                                                                                                                          |  |           |            |  |       |   |            |             | 
|Trico Shipping AS, 1st Lien Term Loan A, LIBOR + 8.5%, 1.5% LIBOR Floor, due 5/13/14 - (Norway)                                                                                                                                |  | $         | 228,803    |  |       |   | 228,803    |             | 
|Trico Shipping AS, 1st Lien Term Loan B, LIBOR + 8.5%, 1.5% LIBOR Floor, due 5/13/14 - (Norway)                                                                                                                                |  | $         | 402,714    |  |       |   | -          |             | 
|Total Support Activities for Mining                                                                                                                                                                                            |  |           |            |  |       |   | 228,803    |             | 





52









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statement of Investments (Continued)



December 31, 2011



Showing Percentage of Total Cash and Investments
of the Partnership



|                                                                                                           |  |           |            |  |       |   |             | Percent of  | 
|---------------------------------------------------------------------------------------------------------- |  | --------- | ---------- |  | ----- | - | ----------- | ----------- | 
|                                                                                                           |  | Principal |            |  | Fair  |   |             | Cash and    | 
|Investment                                                                                                 |  | Amount    |            |  | Value |   |             | Investments | 
|                                                                                                           |  |           |            |  |       |   |             |             | 
|Debt Investments (continued)                                                                               |  |           |            |  |       |   |             |             | 
|Wired Telecommunications Carriers (2.84%)                                                                  |  |           |            |  |       |   |             |             | 
|Bulgaria Telecom Company AD, 1st Lien Tranche B Term Loan, EURIBOR + 2.75%, due 8/9/15 - (Bulgaria) (4)    |  | €         | 2,084,507  |  |       | $ | 1,864,193   |             | 
|Integra Telecom Holdings, Inc., 1st Lien Term Loan, LIBOR + 7.25%, 2% LIBOR Floor, due 4/15/15             |  | $         | 1,564,438  |  |       |   | 1,332,380   |             | 
|NEF Telecom Company BV, 1st Lien Tranche C Term Loan,                                                      |  |           |            |  |       |   |             |             | 
|EURIBOR + 3.5%, due 8/9/16 - (Netherlands) (4)                                                             |  | €         | 4,927,730  |  |       |   | 4,167,407   |             | 
|NEF Telecom Company BV, 2nd Lien Tranche D Term Loan, EURIBOR + 5.5%, due 2/16/17 - (Netherlands) (3), (4) |  | €         | 4,736,002  |  |       |   | 3,686,069   |             | 
|Total Wired Telecommunications Carriers                                                                    |  |           |            |  |       |   | 11,050,049  |             | 
|                                                                                                           |  |           |            |  |       |   |             |             | 
|Total Bank Debt (Cost $185,948,729)                                                                        |  |           |            |  |       |   | 183,838,915 |             | 
|                                                                                                           |  |           |            |  |       |   |             |             | 
|Other Corporate Debt Securities (31.61%)                                                                   |  |           |            |  |       |   |             |             | 
|Accounting, Tax Preparation, Bookkeeping, and Payroll Services (4.25%)                                     |  |           |            |  |       |   |             |             | 
|NCO Group, Inc., Senior Subordinated Notes, 11.875%, due 11/15/14                                          |  | $         | 9,655,000  |  |       |   | 9,172,250   |             | 
|NCO Group, Inc., Senior Unsecured Floating Rate Notes, LIBOR + 4.875%, due 11/15/13                        |  | $         | 7,824,000  |  |       |   | 7,394,932   |             | 
|Total Accounting, Tax Preparation, Bookkeeping, and Payroll Services                                       |  |           |            |  |       |   | 16,567,182  |             | 
|                                                                                                           |  |           |            |  |       |   |             |             | 
|Aerospace Product and Parts Manufacturing (0.36%)                                                          |  |           |            |  |       |   |             |             | 
|Hawker Beechcraft, Inc., Senior Unsecured Notes, 8.5%, due 4/1/15                                          |  | $         | 7,448,000  |  |       |   | 1,402,706   |             | 
|                                                                                                           |  |           |            |  |       |   |             |             | 
|Architectural, Engineering, and Related Services (2.69%)                                                   |  |           |            |  |       |   |             |             | 
|Alion Science & Technology Corporation, Senior Secured Notes, 10% Cash + 2% PIK, due 11/1/14               |  | $         | 4,687,736  |  |       |   | 4,267,762   |             | 
|ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes, 18% PIK, due 3/31/15 (2), (5)          |  | $         | 6,209,347  |  |       |   | 6,240,393   |             | 
|Total Architectural, Engineering, and Related Services                                                     |  |           |            |  |       |   | 10,508,155  |             | 
|                                                                                                           |  |           |            |  |       |   |             |             | 
|Data Processing, Hosting, and Related Services (2.19%)                                                     |  |           |            |  |       |   |             |             | 
|GXS Worldwide, Inc., Fixed Notes, 9.75%, due 6/15/15                                                       |  | $         | 1,170,000  |  |       |   | 1,094,874   |             | 
|The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19 (5)                           |  | $         | 7,539,583  |  |       |   | 7,464,188   |             | 
|Total Data Processing, Hosting, and Related Services                                                       |  |           |            |  |       |   | 8,559,062   |             | 
|                                                                                                           |  |           |            |  |       |   |             |             | 
|Full-Service Restaurants (3.18%)                                                                           |  |           |            |  |       |   |             |             | 
|Real Mex Restaurants, Inc., Senior Secured Notes, 14%, due 1/1/13 (3)                                      |  | $         | 13,161,000 |  |       |   | 12,410,823  |             | 
|                                                                                                           |  |           |            |  |       |   |             |             | 
|Gambling Industries (1.44%)                                                                                |  |           |            |  |       |   |             |             | 
|Harrah's Operating Company, Inc., 2nd Priority Secured Notes, 10%, due 12/15/18                            |  | $         | 8,169,000  |  |       |   | 5,595,765   |             | 
|                                                                                                           |  |           |            |  |       |   |             |             | 
|Metal and Mineral (except Petroleum) Merchant Wholesalers (6.02%)                                          |  |           |            |  |       |   |             |             | 
|Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16 (5)                     |  | $         | 12,500,000 |  |       |   | 11,823,750  |             | 
|Edgen Murray Corporation, Senior Secured Notes, 12.25%, due 1/15/15                                        |  | $         | 13,076,000 |  |       |   | 11,637,640  |             | 
|Total Metal and Mineral (except Petroleum) Merchant Wholesalers                                            |  |           |            |  |       |   | 23,461,390  |             | 





53









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statement of Investments (Continued)



December 31, 2011



Showing Percentage of Total Cash and Investments
of the Partnership



|                                                                                                      |  | Principal |            |  |       |   |             | Percent of  | 
|----------------------------------------------------------------------------------------------------- |  | --------- | ---------- |  | ----- | - | ----------- | ----------- | 
|                                                                                                      |  | Amount    |            |  | Fair  |   |             | Cash and    | 
|Investment                                                                                            |  | or Shares |            |  | Value |   |             | Investments | 
|                                                                                                      |  |           |            |  |       |   |             |             | 
|Debt Investments (continued)                                                                          |  |           |            |  |       |   |             |             | 
|Nonferrous Metal (except Aluminum) Production and Processing (4.66%)                                  |  |           |            |  |       |   |             |             | 
|International Wire Group Holdings, Inc., Senior Notes, 11.5% Cash or 12.25% PIK, due 4/15/15 (2), (5) |  | $         | 18,000,000 |  |       | $ | 18,180,000  |             | 
|                                                                                                      |  |           |            |  |       |   |             |             | 
|Oil and Gas Extraction (1.27%)                                                                        |  |           |            |  |       |   |             |             | 
|Geokinetics Holdings, Inc., Senior Secured Notes, 9.75%, due 12/15/14                                 |  | $         | 1,342,000  |  |       |   | 853,848     |             | 
|Saratoga Resources, Inc., Senior Secured Notes, 12.5%, due 7/1/16                                     |  | $         | 4,000,000  |  |       |   | 4,080,000   |             | 
|Total Oil and Gas Extraction                                                                          |  |           |            |  |       |   | 4,933,848   |             | 
|                                                                                                      |  |           |            |  |       |   |             |             | 
|Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments Manufacturing (2.86%)          |  |           |            |  |       |   |             |             | 
|AGY Holding Corporation, Senior Secured 2nd Lien Notes, 11%, due 11/15/14                             |  | $         | 18,536,000 |  |       |   | 11,134,946  |             | 
|                                                                                                      |  |           |            |  |       |   |             |             | 
|Wired Telecommunications Carriers (2.69%)                                                             |  |           |            |  |       |   |             |             | 
|ITC^DeltaCom, Inc., Senior Secured Notes, 10.5%, due 4/1/16 (5)                                       |  | $         | 8,945,000  |  |       |   | 9,168,625   |             | 
|NEF Telecom Company BV, Mezzanine Term Loan,                                                          |  |           |            |  |       |   |             |             | 
|EURIBOR + 4.5% Cash + 7.5% PIK, due 8/16/17 - (Netherlands) (3), (4), (5)                             |  | €         | 20,523,306 |  |       |   | 1,330,013   |             | 
|Total Wired Telecommunications Carriers                                                               |  |           |            |  |       |   | 10,498,638  |             | 
|                                                                                                      |  |           |            |  |       |   |             |             | 
|Total Other Corporate Debt Securities (Cost $155,179,568)                                             |  |           |            |  |       |   | 123,252,515 |             | 
|                                                                                                      |  |           |            |  |       |   |             |             | 
|Total Debt Investments (Cost $341,128,297)                                                            |  |           |            |  |       |   | 307,091,430 |             | 
|                                                                                                      |  |           |            |  |       |   |             |             | 
|Equity Securities (18.45%)                                                                            |  |           |            |  |       |   |             |             | 
|Architectural, Engineering, and Related Services (2.80%)                                              |  |           |            |  |       |   |             |             | 
|Alion Science & Technology Corporation, Warrants (3)                                                  |  |           | 3,625      |  |       |   | 147,574     |             | 
|ESP Holdings, Inc., 15% PIK, Preferred Stock (2), (5), (6)                                            |  |           | 20,297     |  |       |   | 3,287,872   |             | 
|ESP Holdings, Inc., Common Stock (2), (3), (5), (6)                                                   |  |           | 88,670     |  |       |   | 7,473,887   |             | 
|Total Architectural, Engineering, and Related Services                                                |  |           |            |  |       |   | 10,909,333  |             | 
|                                                                                                      |  |           |            |  |       |   |             |             | 
|Business Support Services (0.43%)                                                                     |  |           |            |  |       |   |             |             | 
|STG-Fairway Holdings, LLC, Class A Units (3), (5)                                                     |  |           | 80,396     |  |       |   | 1,669,278   |             | 
|                                                                                                      |  |           |            |  |       |   |             |             | 
|Data Processing, Hosting, and Related Services (0.19%)                                                |  |           |            |  |       |   |             |             | 
|Anacomp, Inc., Class A Common Stock (2), (3), (5), (7)                                                |  |           | 1,255,527  |  |       |   | 740,761     |             | 
|                                                                                                      |  |           |            |  |       |   |             |             | 
|Depository Credit Intermediation (0.26%)                                                              |  |           |            |  |       |   |             |             | 
|Doral Financial Corporation, Common Stock (3)                                                         |  |           | 1,077,795  |  |       |   | 1,030,372   |             | 
|                                                                                                      |  |           |            |  |       |   |             |             | 
|Electronic Shopping and Mail-Order Houses (0.31%)                                                     |  |           |            |  |       |   |             |             | 
|Shop Holding, LLC, Class A Units (3), (5)                                                             |  |           | 490,037    |  |       |   | 922,471     |             | 
|Shop Holding, LLC, Warrants to Purchase Class A Units (3), (5)                                        |  |           | 326,691    |  |       |   | 288,328     |             | 
|Total Electronic Shopping and Mail-Order Houses                                                       |  |           |            |  |       |   | 1,210,799   |             | 
|                                                                                                      |  |           |            |  |       |   |             |             | 
|Industrial Machinery Manufacturing (0.38%)                                                            |  |           |            |  |       |   |             |             | 
|GSI Group, Inc., Common Stock (3), (5)                                                                |  |           | 143,869    |  |       |   | 1,471,780   |             | 





54









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statement of Investments (Continued)



December 31, 2011



Showing Percentage of Total Cash and Investments
of the Partnership



|                                                                                    |  |        |           |  |       |   |             | Percent of  | 
|----------------------------------------------------------------------------------- |  | ------ | --------- |  | ----- | - | ----------- | ----------- | 
|                                                                                    |  |        |           |  | Fair  |   |             | Cash and    | 
|Investment                                                                          |  | Shares |           |  | Value |   |             | Investments | 
|                                                                                    |  |        |           |  |       |   |             |             | 
|Equity Securities (continued)                                                       |  |        |           |  |       |   |             |             | 
|Machine Shops; Turned Product; and Screw, Nut, and Bolt Manufacturing (0.00%)       |  |        |           |  |       |   |             |             | 
|Precision Holdings, LLC, Class C Membership Interests (3), (5)                      |  |        | 33        |  |       | $ | 15,704      |             | 
|                                                                                    |  |        |           |  |       |   |             |             | 
|Nonferrous Metal (except Aluminum) Production and Processing (7.72%)                |  |        |           |  |       |   |             |             | 
|International Wire Group Holdings, Inc., Common Stock (2), (5), (6)                 |  |        | 1,979,441 |  |       |   | 30,077,606  |             | 
|                                                                                    |  |        |           |  |       |   |             |             | 
|Nonmetallic Mineral Mining and Quarrying (1.35%)                                    |  |        |           |  |       |   |             |             | 
|EPMC HoldCo, LLC, Membership Units (2), (5), (6)                                    |  |        | 1,312,720 |  |       |   | 5,264,007   |             | 
|                                                                                    |  |        |           |  |       |   |             |             | 
|Other Amusement and Recreation Industries (0.03%)                                   |  |        |           |  |       |   |             |             | 
|Bally Total Fitness Holding Corporation, Common Stock (3), (5)                      |  |        | 6,058     |  |       |   | 66,032      |             | 
|Bally Total Fitness Holding Corporation, Warrants (3), (5)                          |  |        | 10,924    |  |       |   | 52,435      |             | 
|Total Other Amusement and Recreation Industries                                     |  |        |           |  |       |   | 118,467     |             | 
|                                                                                    |  |        |           |  |       |   |             |             | 
|Radio and Television Broadcasting (0.88%)                                           |  |        |           |  |       |   |             |             | 
|Encompass Digital Media Group, Inc., Common Stock (3), (5)                          |  |        | 183,824   |  |       |   | 3,437,509   |             | 
|                                                                                    |  |        |           |  |       |   |             |             | 
|Scheduled Air Transportation (1.86%)                                                |  |        |           |  |       |   |             |             | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N510UA) (2), (5), (6) |  |        | 35        |  |       |   | 467,137     |             | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N512UA) (2), (5), (6) |  |        | 35        |  |       |   | 458,665     |             | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N536UA) (2), (5), (6) |  |        | 46        |  |       |   | 686,303     |             | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N545UA) (2), (5), (6) |  |        | 40        |  |       |   | 612,589     |             | 
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N585UA) (2), (5), (6) |  |        | 35        |  |       |   | 498,602     |             | 
|United N659UA-767, LLC (N659UA) (2), (5), (6)                                       |  |        | 224       |  |       |   | 2,274,815   |             | 
|United N661UA-767, LLC (N661UA) (2), (5), (6)                                       |  |        | 217       |  |       |   | 2,205,523   |             | 
|Total Scheduled Air Transportation                                                  |  |        |           |  |       |   | 7,203,634   |             | 
|                                                                                    |  |        |           |  |       |   |             |             | 
|Semiconductor and Other Electronic Component Manufacturing (0.06%)                  |  |        |           |  |       |   |             |             | 
|AIP/IS Holdings, LLC, Membership Units (3), (5)                                     |  |        | 352       |  |       |   | 229,684     |             | 
|                                                                                    |  |        |           |  |       |   |             |             | 
|Support Activities for Mining (0.79%)                                               |  |        |           |  |       |   |             |             | 
|DeepOcean Group Holding AS, Common Stock - (Norway) (3), (5)                        |  |        | 145,824   |  |       |   | 3,093,638   |             | 
|                                                                                    |  |        |           |  |       |   |             |             | 
|Wired Telecommunications Carriers (1.39%)                                           |  |        |           |  |       |   |             |             | 
|Integra Telecom, Inc., Common Stock (3), (5)                                        |  |        | 1,274,522 |  |       |   | 5,364,708   |             | 
|Integra Telecom, Inc., Warrants (3), (5)                                            |  |        | 346,939   |  |       |   | -           |             | 
|NEF Kamchia Co-Investment Fund, LP Interest - (Cayman Islands) (3), (4), (5)        |  |        | 2,455,500 |  |       |   | 31,826      |             | 
|Total Wired Telecommunications Carriers                                             |  |        |           |  |       |   | 5,396,534   |             | 
|                                                                                    |  |        |           |  |       |   |             |             | 
|Total Equity Securities (Cost $132,663,069)                                         |  |        |           |  |       |   | 71,869,106  |             | 
|                                                                                    |  |        |           |  |       |   |             |             | 
|Total Investments (Cost $473,791,366) (8)                                           |  |        |           |  |       |   | 378,960,536 |             | 





55









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statement of Investments (Continued)



December 31, 2011



Showing Percentage of Total Cash and Investments
of the Partnership



|                                                                                                 |  |           |           |  |       |   |             | Percent of  | 
|------------------------------------------------------------------------------------------------ |  | --------- | --------- |  | ----- | - | ----------- | ----------- | 
|                                                                                                 |  | Principal |           |  | Fair  |   |             | Cash and    | 
|Investment                                                                                       |  | Amount    |           |  | Value |   |             | Investments | 
|                                                                                                 |  |           |           |  |       |   |             |             | 
|Cash and Cash Equivalents (2.78%)                                                                |  |           |           |  |       |   |             |             | 
|Wells Fargo & Company, Overnight Repurchase Agreement, 0.02%, Collateralized by Freddie Mac UNNT |  | $         | 3,343,399 |  |       | $ | 3,343,399   |             | 
|Cash Denominated in Foreign Currencies                                                           |  | CAD       | 15,078    |  |       |   | 14,764      |             | 
|Cash Denominated in Foreign Currencies                                                           |  | €         | 3,357,119 |  |       |   | 4,351,161   |             | 
|Cash Denominated in Foreign Currencies                                                           |  | £         | 35,597    |  |       |   | 55,329      |             | 
|Cash Held on Account at Various Institutions                                                     |  | $         | 3,067,025 |  |       |   | 3,067,025   |             | 
|Total Cash and Cash Equivalents                                                                  |  |           |           |  |       |   | 10,831,678  |             | 
|                                                                                                 |  |           |           |  |       |   |             |             | 
|Total Cash and Investments                                                                       |  |           |           |  |       | $ | 389,792,214 |             | 



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 foreign currency. Amortized cost and fair value converted from foreign currency to US dollars.
| | --- | ------------------------------------------------------------------------------------------------------------------------------



| | (5) | Restricted security.
| | --- | --------------------



| | (6) | Investment is not a controlling
position.
| | --- | -----------------------------------------



| | (7) | Issuer is a controlled
company.
| | --- | -------------------------------



| | (8) | Includes investments with
an aggregate market value of $1,178,213 that have been segregated to collateralize certain unfunded commitments.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------



Aggregate purchases and aggregate sales of investments, other
than government securities, totaled $177,185,947 and $216,916,444, 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 December 31, 2011 was $308,737,044, or 79.21% of total cash and investments of the Partnership.



Swaps at December 31, 2011 were as follows:



|Investment                                                                       |  | Notional  Amount |           |  | Fair Value |  
|-------------------------------------------------------------------------------- |  | ---------------- | --------- |  | ---------- | -
|                                                                                 |  |                  |           |  |            |  
|Euro/US Dollar Cross-Currency Basis Swap, Pay Euros/Receive USD, Expires 5/16/14 |  | $                | 6,040,944 |  |            | $



See accompanying notes.





56











Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statements of Operations



|                                                                                                       |  | Year Ended December 31, |            
|------------------------------------------------------------------------------------------------------ |  | ----------------------- | -----------
|                                                                                                       |  | 2012                    |            
|Investment income                                                                                      |  |                         |            
|Interest income:                                                                                       |  |                         |            
|Unaffiliated issuers                                                                                   |  | $                       | 42,139,023 
|Controlled companies                                                                                   |  |                         | 1,253,915  
|Other affiliates                                                                                       |  |                         | 5,850,394  
|Dividend income:                                                                                       |  |                         |            
|Unaffiliated issuers                                                                                   |  |                         | -          
|Other affiliates                                                                                       |  |                         | 1,811,189  
|Other income:                                                                                          |  |                         |            
|Unaffiliated issuers                                                                                   |  |                         | 289,073    
|Controlled companies                                                                                   |  |                         | 490,066    
|Other affiliates                                                                                       |  |                         | 359,099    
|Total investment income                                                                                |  |                         | 52,192,759 
|                                                                                                       |  |                         |            
|Operating expenses                                                                                     |  |                         |            
|Management and advisory fees                                                                           |  |                         | 6,907,650  
|Professional fees relating to the Conversion                                                           |  |                         | 411,523    
|Amortization of deferred debt issuance costs                                                           |  |                         | 441,495    
|Legal fees, professional fees and due diligence expenses                                               |  |                         | 789,009    
|Commitment fees                                                                                        |  |                         | 225,560    
|Director fees                                                                                          |  |                         | 132,889    
|Interest expense                                                                                       |  |                         | 190,702    
|Insurance expense                                                                                      |  |                         | 86,861     
|Custody fees                                                                                           |  |                         | 96,447     
|Other operating expenses                                                                               |  |                         | 437,490    
|Total operating expenses                                                                               |  |                         | 9,719,626  
|                                                                                                       |  |                         |            
|Net investment income                                                                                  |  |                         | 42,473,133 
|                                                                                                       |  |                         |            
|Net realized and unrealized gain (loss) on investments and foreign currency                            |  |                         |            
|Net realized gain (loss):                                                                              |  |                         |            
|Investments in unaffiliated issuers                                                                    |  |                         | (29,574,293
|Investments in non-controlled affiliates                                                               |  |                         | 13,584,105 
|Net realized gain (loss)                                                                               |  |                         | (15,990,188
|                                                                                                       |  |                         |            
|Net change in net unrealized appreciation/depreciation                                                 |  |                         | 3,205,937  
|Net realized and unrealized gain (loss)                                                                |  |                         | (12,784,251
|                                                                                                       |  |                         |            
|Dividends paid on preferred equity facility                                                            |  |                         | (1,542,932 
|Net change in accumulated dividends on preferred equity facility                                       |  |                         | (59,867    
|                                                                                                       |  |                         |            
|Net increase in net assets applicable to common limited and general partners resulting from operations |  | $                       | 28,086,083 



See accompanying notes.





| | (1) | 2011 and 2010 Statements of Operations reflect portfolios that were prior to the Conversion and had different objectives.
| | --- | -------------------------------------------------------------------------------------------------------------------------





57









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statements of Changes in Net Assets



|                                                              |  | Year Ended December 31, 2012 |            
|------------------------------------------------------------- |  | ---------------------------- | -----------
|                                                              |  |                              |            
|                                                              |  |                              |            
|                                                              |  | Total                        |            
|Net assets applicable to common limited and general partners, |  |                              |            
|beginning of year                                             |  | $                            | 237,606,302
|                                                              |  |                              |            
|Contributions from common limited partner                     |  |                              | 82,692,187 
|                                                              |  |                              |            
|Net investment income                                         |  |                              | 42,473,133 
|Net realized gain                                             |  |                              | (15,990,188
|Net change in unrealized appreciation/depreciation            |  |                              | 3,205,937  
|Dividends paid on preferred equity facility                   |  |                              | (1,542,932 
|Net change in accumulated dividends on preferred equity       |  |                              |            
|facility                                                      |  |                              | (59,867    
|Net increase in net assets applicable to common limited and   |  |                              |            
|general partners resulting from operations                    |  |                              | 28,086,083 
|                                                              |  |                              |            
|Distributions to common limited partner from:                 |  |                              |            
|Net investment income                                         |  |                              | (31,174,998
|                                                              |  |                              |            
|Net assets applicable to common limited and general partners, |  |                              |            
|end of year (including accumulated net investment income of   |  |                              |            
|$26,677,138, $26,326,623 and $350,515, respectively)          |  | $                            | 317,209,574





|                                                              |  | Year Ended December 31, 2011 |            
|------------------------------------------------------------- |  | ---------------------------- | -----------
|                                                              |  |                              |            
|                                                              |  |                              |            
|                                                              |  | Total                        |            
|Net assets applicable to common limited and general partners, |  |                              |            
|beginning of year                                             |  | $                            | 264,336,825
|                                                              |  |                              |            
|Net investment income                                         |  |                              | 45,835,335 
|Net realized gain                                             |  |                              | 18,079,789 
|Net change in unrealized appreciation/depreciation            |  |                              | (56,958,670
|Dividends paid on preferred equity facility                   |  |                              | (1,456,281 
|Net change in accumulated dividends on preferred equity       |  |                              |            
|facility                                                      |  |                              | (88,549    
|Net increase in net assets applicable to common limited and   |  |                              |            
|general partners resulting from operations                    |  |                              | 5,411,624  
|                                                              |  |                              |            
|Distributions to common limited partner from:                 |  |                              |            
|Net investment income                                         |  |                              | (32,142,147
|                                                              |  |                              |            
|Net assets applicable to common limited and general partners, |  |                              |            
|end of year (including accumulated net investment income of   |  |                              |            
|$22,653,795, $22,303,280 and $350,515, respectively)          |  | $                            | 237,606,302









|                                                                 |  | Year Ended December 31, 2010 |            
|---------------------------------------------------------------- |  | ---------------------------- | -----------
|                                                                 |  |                              |            
|                                                                 |  |                              |            
|                                                                 |  | Total                        |            
|Net assets applicable to common limited and general partners,    |  |                              |            
|beginning of year                                                |  | $                            | 233,061,800
|                                                                 |  |                              |            
|Net investment income                                            |  |                              | 39,167,979 
|Net realized gain                                                |  |                              | 18,675,609 
|Net change in unrealized appreciation/depreciation               |  |                              | 12,945,410 
|Dividends paid on preferred equity facility                      |  |                              | (1,508,341 
|Net change in accumulated dividends on preferred equity facility |  |                              | (9,532     
|Net increase in net assets applicable to common limited and      |  |                              |            
|general partners resulting from operations                       |  |                              | 69,271,125 
|                                                                 |  |                              |            
|Distributions to common limited partner from:                    |  |                              |            
|Net investment income                                            |  |                              | (37,996,100
|                                                                 |  |                              |            
|Net assets applicable to common limited and general partners,    |  |                              |            
|end of year (including accumulated net investment income of      |  |                              |            
|$10,505,437, $10,154,922 and $350,515, respectively)             |  | $                            | 264,336,825



See accompanying notes.





58









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Statements of Cash Flows





|                                                                                                                                                                              |  | Year ended December 31, |             
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------------
|                                                                                                                                                                              |  | 2012                    |             
|Operating activities                                                                                                                                                          |  |                         |             
|Net increase in net assets applicable to limited and general partners resulting from operations                                                                               |  | $                       | 28,086,083  
|Adjustments to reconcile net increase in net assets applicable to common limited and general partners resulting from operations to net cash provided by operating activities: |  |                         |             
|Net realized loss (gain)                                                                                                                                                      |  |                         | 15,990,188  
|Net change in unrealized appreciation/depreciation of investments                                                                                                             |  |                         | (3,450,486  
|Dividends paid on Series A preferred equity facility                                                                                                                          |  |                         | 1,542,932   
|Net change in accumulated dividends on Series A preferred equity facility                                                                                                     |  |                         | 59,867      
|Accretion of original issue discount                                                                                                                                          |  |                         | (1,176,644  
|Net accretion of market discount/premium                                                                                                                                      |  |                         | (2,287,656  
|Interest and dividend income paid in kind                                                                                                                                     |  |                         | (2,769,478  
|Mortization of deferred debt issuance costs                                                                                                                                   |  |                         | 441,495     
|Changes in assets and liabilities:                                                                                                                                            |  |                         |             
|Purchases of investment securities                                                                                                                                            |  |                         | (356,251,448
|Proceeds from sales, maturities and paydowns of investments                                                                                                                   |  |                         | 211,216,033 
|Decrease (increase) in accrued interest income - unaffiliated issuers                                                                                                         |  |                         | 1,466,278   
|Decrease (increase) in accrued interest income - controlled companies                                                                                                         |  |                         | (53,524     
|Decrease (increase) in accrued interest income – other affiliates                                                                                                             |  |                         | 300,741     
|Decrease (increase) in receivable for investments sold                                                                                                                        |  |                         | (3,430,145  
|Decrease (increase) in receivable from parent                                                                                                                                 |  |                         | -           
|Decrease (increase) in prepaid expenses and other assets                                                                                                                      |  |                         | 1,039,842   
|Increase (decrease) in payable for investments purchased                                                                                                                      |  |                         | 21,546,908  
|Increase (decrease) in payable to the Investment Manager                                                                                                                      |  |                         | (127,780    
|Decrease in management and advisory fees payable                                                                                                                              |  |                         | (565,599    
|Increase (decrease) in interest payable                                                                                                                                       |  |                         | 43,565      
|Increase (decrease) in accrued expenses and other liabilities                                                                                                                 |  |                         | 608,082     
|Net cash (used in) provided by operating activities                                                                                                                           |  |                         | (87,770,746 
|                                                                                                                                                                              |  |                         |             
|Financing activities                                                                                                                                                          |  |                         |             
|Proceeds from draws on credit facility                                                                                                                                        |  |                         | 184,000,000 
|Principal repayments on credit facility                                                                                                                                       |  |                         | (139,000,000
|Dividends paid on preferred equity facility                                                                                                                                   |  |                         | (1,542,932  
|Dividends paid to common limited partner                                                                                                                                      |  |                         | (31,174,998 
|Contributions from common limited partner                                                                                                                                     |  |                         | 82,692,187  
|Net cash provided by (used in) financing activities                                                                                                                           |  |                         | 94,974,257  
|                                                                                                                                                                              |  |                         |             
|Net increase in cash and cash equivalents                                                                                                                                     |  |                         | 7,203,511   
|Cash and cash equivalents at beginning of period                                                                                                                              |  |                         | 10,831,678  
|Cash and cash equivalents at end of period                                                                                                                                    |  | $                       | 18,035,189  
|                                                                                                                                                                              |  |                         |             
|Supplemental cash flow information                                                                                                                                            |  |                         |             
|Interest payments                                                                                                                                                             |  |                         | 147,137     





See accompanying notes.





59







Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Notes to Financial Statements



December 31, 2012



1. Organization and Nature of Operations



Special Value Continuation Partners, LP
(the “Partnership”), a Delaware limited partnership, commenced operations on July 31, 2006 as an externally managed,
closed-end, non-diversified management investment company registered under the Investment Company Act of 1940, as amended (the
“1940 Act”). On April 2, 2012, the Partnership elected to be treated as a business development company (“BDC”)
under the 1940 Act (the “Conversion”). The Partnership’s investment objective is to achieve high total returns
through current income and capital appreciation, with an emphasis on principal protection. The Partnership invests primarily in
the debt of middle-market companies, including senior secured loans, junior loans, mezzanine debt and bonds. Such investments may
include an equity component, and, to a lesser extent, the Partnership may make equity investments directly. The Partnership has
elected to be treated as a partnership for U.S. federal income tax purposes. TCP Capital Corp. (“TCPC” or the “Common
Limited Partner”) owns the entire common limited partner interest in the Partnership. TCPC was formed on April 2, 2012 through
the conversion of its predecessor, Special Value Continuation Fund, LLC (“SVCF”), from a limited liability company
to a corporation, leaving TCPC as the surviving entity. Prior to its conversion to TCPC, SVCF owned the entire common limited partner
interest in the Partnership. On April 3, 2012, TCPC completed an initial public offering of its new common stock. TCPC has also
elected to be treated as a business development company under the 1940 Act.



The General Partner of the Partnership
is SVOF/MM, LLC (“SVOF/MM”), which also serves as the administrator of TCPC and the Partnership. The managing member
of SVOF/MM is Tennenbaum Capital Partners, LLC, which serves as the Investment Manager to both TCPC and the Partnership. Most of
the equity interests in the General Partner are owned directly or indirectly by the Investment Manager and its employees.



Partnership management consists of the
General Partner and the Board of Directors. The General Partner directs and executes the day-to-day operations of the Partnership
subject to oversight from the Board of Directors, which performs certain functions required by the 1940 Act. The Board of Directors
has delegated investment management of the Partnership’s assets to the Investment Manager. The Board of Directors consists
of four persons, three of whom are independent. If the Partnership has preferred limited partner interests outstanding, as it currently
does, the holders of the preferred limited partner interests voting separately as a class are entitled to elect two of the Directors.
The remaining directors will be subject to election by holders of the common limited partner interests and preferred limited partner
interests voting together as a single class.



Preferred Equity



At December 31, 2012, the Partnership had
6,700 Series A preferred limited partner interests (the “Preferred Interests”) issued and outstanding with a liquidation
preference of $20,000 per preferred limited interest. The Preferred Interests 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 Preferred Interests 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 Preferred Interests or a failure by the Partnership to maintain sufficient asset coverage as required by the 1940 Act. As
of December 31, 2012, the Partnership was in full compliance with such requirements.



The Preferred Interests accrue dividends
at an annual rate equal to LIBOR plus 0.85% or, in the case of any holders of Preferred Interests that are CP Conduits (as defined
in the leveraging documents), the higher of (i) LIBOR plus 0.85% or (ii) the CP Conduit’s cost of funds rate plus 0.85%,
subject to certain limitations and adjustments.





60









Special
Value Continuation Partners, LP

(A Delaware Limited Partnership)



Notes to Financial Statements (Continued)



December 31, 2012



2. Summary of Significant Accounting
Policies



Basis of Presentation



The financial statements of the Partnership
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 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



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, as defined in Note 4, below, and the Statement
of Preferences for the Preferred Interests. 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.



All investments are valued at least quarterly
based on affirmative pricing or quotations from independent third-party sources, with the exception of investments priced directly
by the Investment Manager which together comprise, in total, less than 5% of the capitalization of the Partnership. Investments
listed on a recognized exchange or market quotation system, whether U.S. or foreign, are valued for financial reporting purposes
as of the last business day of the reporting period using the closing price on the date of valuation. Liquid investments not listed
on a recognized exchange or market quotation system are valued using prices provided 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 using affirmative valuations performed by independent valuation
services or, for investments aggregating less than 5% of the total capitalization of the Partnership, directly 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 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 Partnership’s assets.





61







Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Notes to Financial Statements (Continued)



December 31, 2012



2. Summary of Significant Accounting
Policies (continued)



Fair valuations of investments in each
asset class are determined using one or more methodologies including the market approach, income approach, or, in the case of recent
investments, the cost approach, as appropriate.  The market approach uses prices and other relevant information generated
by market transactions involving identical or comparable assets.  The income approach uses valuation techniques to convert
future amounts (for example, cash flows or earnings) to a single present value amount (discounted).  The measurement is based
on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors
that may be taken into account include, as relevant:  available current market data, including relevant and applicable market
trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information
rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings
and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies
that are public, M&A comparables, our principal market and enterprise values, among other factors.



Unobservable inputs used in the fair value
measurement of the Partnership’s Level 3 investments as of December 31, 2012 included the following:



|Asset Type     |  | Fair Value |             | Valuation Technique |                             | Unobservable Input |                           | Range (Weighted Average) | 
|-------------- |  | ---------- | ----------- | ------------------- | --------------------------- | ------------------ | ------------------------- | ------------------------ | 
|Bank Debt      |  | $          | 359,343,326 |                     | Market rate approach        |                    | Market yields             |                          | 
|               |  |            |             |                     | Market quotations           |                    | Indicative bid/ask quotes |                          | 
|               |  |            |             |                     | Market comparable companies |                    | Revenue multiples         |                          | 
|               |  |            |             |                     | Market comparable companies |                    | EBITDA multiples          |                          | 
|Corporate Debt |  | $          | 24,339,095  |                     | Market rate approach        |                    | Market yields             |                          | 
|               |  |            |             |                     | Market comparable companies |                    | EBITDA multiples          |                          | 
|Equity         |  | $          | 34,100,134  |                     | Market rate approach        |                    | Market yields             |                          | 
|               |  |            |             |                     | Market quotations           |                    | Indicative bid/ask quotes |                          | 
|               |  |            |             |                     | Market comparable companies |                    | Revenue multiples         |                          | 
|               |  |            |             |                     | Market comparable companies |                    | EBITDA multiples          |                          | 



Generally, a change in an unobservable
input may result in a change to the value of an investment as follows:



|Input             |  | Impact to Value if
        Input Increases |  | Impact to Value if
        Input Decreases
|----------------- |  | ------------------------------------------ |  | ------------------------------------------
|Market yields     |  | Decrease                                   |  | Increase                                  
|Revenue multiples |  | Increase                                   |  | Decrease                                  
|EBITDA multiples  |  | Increase                                   |  | Decrease                                  



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.





62











Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Notes to Financial Statements (Continued)



December 31, 2012



2. Summary of Significant Accounting Policies (continued)



At December 31, 2012, 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*                                                     |  |           | 45,667,016  |  |                       |   | 53,453,085 |                    | 
|3     |  | Independent third-party pricing sources that employ significant unobservable inputs |  |           | 359,343,326 |  |                       |   | 17,171,637 |                    | 
|3     |  | Investment Manager valuations with significant unobservable inputs                  |  |           | -           |  |                       |   | 7,167,458  |                    | 
|Total |  |                                                                                     |  | $         | 405,010,342 |  |                       | $ | 77,792,180 |                    | 



* For example, quoted prices in inactive
markets or quotes for comparable investments.



Changes in investments categorized as Level
3 during the year ended December 31, 2012 were as follows:



|                                                                                                                                                                      |  | Independent Third-Party Valuation |            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | -----------
|                                                                                                                                                                      |  | Bank Debt                         |            
|Beginning balance                                                                                                                                                     |  | $                                 | 159,949,811
|Net realized and unrealized losses                                                                                                                                    |  |                                   | (8,709,385 
|Acquisitions                                                                                                                                                          |  |                                   | 288,929,785
|Dispositions                                                                                                                                                          |  |                                   | (84,994,292
|Transfers out of Level 3†                                                                                                                                             |  |                                   | -          
|Transfers into Level 3††                                                                                                                                              |  |                                   | 4,167,407  
|Ending balance                                                                                                                                                        |  | $                                 | 359,343,326
|                                                                                                                                                                      |  |                                   |            
|Net change in unrealized appreciation/ depreciation during the period on investments still held at period end (included in net realized and unrealized losses, above) |  | $                                 | (5,856,277 





† Comprised of one investment
that transferred to Level 2 due to increased trading volumes.

†† Comprised of
one investment that transferred from Level 2 due to reduced trading volumes.





63









Special
Value Continuation Partners, LP

(A Delaware Limited Partnership)



Notes to Financial Statements (Continued)



December 31, 2012



2. Summary of Significant Accounting
Policies (continued)



|                                                                                                                                                                            |  | Investment Manager Valuation |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | -------
|                                                                                                                                                                            |  | Bank Debt                    |        
|Beginning balance                                                                                                                                                           |  | $                            | 51,436 
|Net realized and unrealized gains (losses)                                                                                                                                  |  |                              | -      
|Acquisitions                                                                                                                                                                |  |                              | -      
|Dispositions                                                                                                                                                                |  |                              | -      
|Transfers out of Level 3#                                                                                                                                                   |  |                              | -      
|Reclassifications within Level 3##                                                                                                                                          |  |                              | (51,436
|Ending balance                                                                                                                                                              |  | $                            | -      
|                                                                                                                                                                            |  |                              |        
|Net change in unrealized appreciation/ depreciation during the period on investments still held at period end (included in net realized and unrealized gains/losses, above) |  | $                            | -      



# Comprised of one investment
that transferred to Level 2 due to increased trading volumes.

## Comprised of claims in the
liquidation of a portfolio company that were reclassified as equity.



There were no transfers between Level 1
and 2 during the year ended December 31, 2012.



At December 31, 2011, 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                                |  | $         | -           |  |                       | $ | 5,595,765   |                    | 
|2     |  | Other observable market inputs*                                                     |  |           | 23,837,668  |  |                       |   | 86,131,333  |                    | 
|3     |  | Independent third-party pricing sources that employ significant unobservable inputs |  |           | 159,949,811 |  |                       |   | 24,061,229  |                    | 
|3     |  | Investment Manager valuations with significant unobservable inputs                  |  |           | 51,436      |  |                       |   | 7,464,188   |                    | 
|Total |  |                                                                                     |  | $         | 183,838,915 |  |                       | $ | 123,252,515 |                    | 



* For example, quoted prices in inactive
markets or quotes for comparable instruments.





64









|Special Value Continuation Partners, LP
        (A Delaware Limited Partnership)
|--------------------------------------------------------------------------------
|                                                                                
|Notes to Financial Statements (Continued)                                       
|                                                                                
|December 31, 2012                                                               



2. Summary of Significant Accounting
Policies (continued)



Changes in investments categorized as Level
3 during the year ended December 31, 2011 were as follows:



|                                                                                                                                                                            |  | Independent Third-Party Valuation |            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | -----------
|                                                                                                                                                                            |  | Bank Debt                         |            
|Beginning balance                                                                                                                                                           |  | $                                 | 113,346,599
|Net realized and unrealized gains (losses)                                                                                                                                  |  |                                   | 1,827,187  
|Acquisitions                                                                                                                                                                |  |                                   | 133,199,048
|Dispositions                                                                                                                                                                |  |                                   | (86,909,992
|Transfers into Level 3**                                                                                                                                                    |  |                                   | -          
|Transfers out of Level 3†                                                                                                                                                   |  |                                   | (13,378,400
|Reclassifications within Level 3‡                                                                                                                                           |  |                                   | 11,865,369 
|Ending balance                                                                                                                                                              |  | $                                 | 159,949,811
|                                                                                                                                                                            |  |                                   |            
|Net change in unrealized appreciation/ depreciation during the period on investments still held at period end (included in net realized and unrealized gains/losses, above) |  | $                                 | 2,661,964  



** Comprised of one investment that transferred
from Level 2 due to decreased trading volumes.

† Comprised of one investment
that transferred to Level 2 due to increased trading volumes.

‡ Comprised of one investment
with a beginning-of-period fair value of $11,865,369 that was reclassified as bank debt and one investment with a beginning-of-period
fair value of $1,086,031 that transferred to Investment Manager Valuation.



|                                                                                                                                                                            |  | Investment Manager Valuation |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | -------
|                                                                                                                                                                            |  | Bank Debt                    |        
|Beginning balance                                                                                                                                                           |  | $                            | 63,163 
|Net realized and unrealized gains (losses)                                                                                                                                  |  |                              | 4,096  
|Acquisitions                                                                                                                                                                |  |                              | -      
|Dispositions                                                                                                                                                                |  |                              | (15,823
|Reclassifications within Level 3#                                                                                                                                           |  |                              | -      
|Ending balance                                                                                                                                                              |  | $                            | 51,436 
|                                                                                                                                                                            |  |                              |        
|Net change in unrealized appreciation/ depreciation during the period on investments still held at period end (included in net realized and unrealized gains/losses, above) |  | $                            | 4,096  



# Comprised of one investment
that transferred from Independent Third Party Valuation.





65









|Special Value Continuation Partners, LP
        (A Delaware Limited Partnership)
|--------------------------------------------------------------------------------
|                                                                                
|Notes to Financial Statements (Continued)                                       
|                                                                                
|December 31, 2012                                                               



2. Summary of Significant Accounting
Policies (continued)



During the year ended December 31, 2011,
one investment with a beginning-of-period fair value of $3,477,314 transferred from Level 2 to Level 1 following commencement of
active trading on a national exchange.



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.



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.



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 Consolidated Statement of Investments. Restricted investments, including
any restricted investments in affiliates, are valued in accordance with the investment valuation policies discussed above.





66









|Special Value Continuation Partners, LP
        (A Delaware Limited Partnership)
|--------------------------------------------------------------------------------
|                                                                                
|Notes to Financial Statements (Continued)                                       
|                                                                                
|December 31, 2012                                                               



2. Summary of Significant Accounting
Policies (continued)



Foreign Investments



The Partnership may invest in instruments
traded in foreign countries and denominated in foreign currencies. At December 31, 2012, the Partnership held foreign currency
denominated investments comprising approximately 1.6% of the Partnership’s total investments. Such positions were converted
at the closing rate in effect at December 31, 2012 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.



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, forward currency and option 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.



The Partnership did not enter into any
new derivative transactions during the year ended December 31, 2012. At December 31, 2012, the Partnership held a cross currency
basis swap with a notional amount of $6,040,944. Gains and losses from derivatives during the year ended December 31, 2012 were
included in net realized and unrealized loss on investments in the Statement of Operations as follows:



|Instrument                |  | Realized |   |  | Unrealized |  
|------------------------- |  | -------- | - |  | ---------- | -
|Cross currency basis swap |  | $        | - |  |            | $



The valuations of the swap held at December
31, 2012 was determined using observable market inputs other than quoted prices in active markets for identical assets and, accordingly,
was classified as Level 2 in the GAAP valuation hierarchy.





67









|Special Value Continuation Partners, LP
        (A Delaware Limited Partnership)
|--------------------------------------------------------------------------------
|                                                                                
|Notes to Financial Statements (Continued)                                       
|                                                                                
|December 31, 2012                                                               



2. Summary of Significant Accounting Policies (continued)



Debt Issuance Costs



Costs of approximately $3.5 million were
incurred during 2006 in connection with placing the 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 material to the operations of the Partnership.



Revenue Recognition



Interest and dividend income, including
income paid in kind, is recorded on an accrual basis. Origination, structuring, closing, commitment and other upfront fees earned
with respect to capital commitments are generally amortized or accreted into interest income over the life of the respective debt
investment. Other fees, including certain amendment fees, prepayment fees and commitment fees on broken deals, are recognized as
earned. Prepayment fees and similar income received upon the early repayment of a loan or debt security are included in interest
income.



Certain of the Partnership’s debt
investments are purchased at aconsiderable 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 bonds, municipal bonds and treasury bonds be amortized using the effective-interest or
constant-yield method. GAAP also requires the Partnership to consider the collectability 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, generally at disposition. When the Partnership receives principal payments on a loan in an amount in excess
of the loan’s amortized cost, it records the excess principal payments as interest income.



Income Taxes



The Partnership’s income or loss
is reported in the partners’ income tax returns. Consequently, no income taxes are paid at the partnership level or reflected
in the Partnership’s financial statements. In accordance with ASC Topic 740 – Income Taxes, the Partnership
recognizes in its financial statements the effect of a tax position when it is determined that such position is more likely than
not, based on the technical merits, to be sustained upon examination. As of December 31, 2012, the tax returns, the qualification
of the Partnership, and the amount of allocable Partnership income or loss are subject to examination by federal and California
taxing authorities for all tax years since January 1, 2009. No such examinations are currently pending. Cost of investments (including
derivatives) of the Partnership, unrealized appreciation and unrealized depreciation for U.S federal tax purposes at December 31,
2012 were as follows:



|Unrealized appreciation     |  | $ | 27,845,827   |  
|--------------------------- |  | - | ------------ | -
|Unrealized depreciation     |  |   | (119,053,743 | )
|Net unrealized depreciation |  |   | (91,207,916  | )
|                            |  |   |              |  
|Cost                        |  | $ | 609,070,367  |  





68









|Special Value Continuation Partners, LP
        (A Delaware Limited Partnership)
|--------------------------------------------------------------------------------
|                                                                                
|Notes to Financial Statements (Continued)                                       
|                                                                                
|December 31, 2012                                                               



2. Summary of Significant Accounting Policies (continued)



New Accounting Guidance



In May 2011, the Financial Accounting Standards
Board (the “FASB”) issued Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820): Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). 
ASU 2011-04 was issued to converge guidance from the FASB and the International Accounting Standards Board on measuring fair value
and for disclosing information about fair value measurements.  The changes include a consistent definition of the term “fair
value” and enhanced disclosure requirements for investments that do not have readily determinable fair values, such as additional
quantitative information about significant unobservable inputs and a qualitative discussion about the sensitivity of the fair value
measurement to changes in the unobservable inputs.  The provisions of ASU 2011-04 were effective for the Partnership on January
1, 2012.  The Partnership’s adoption of ASU 2011-04 resulted in increased disclosures around fair value but did not
impact the measurement of fair value of the Partnership’s investments.





3. Management and Advisory Fees and
Other Expenses



Following the Conversion, the Partnership’s
management fee is calculated at an annual rate of 1.5% of total assets (excluding cash and cash equivalents) as of the beginning
of each quarter and is payable to the Investment Manager quarterly in arrears.



The Partnership will not incur any incentive
compensation until after January 1, 2013. Thereafter, the incentive compensation will equal 20% of net investment income (reduced
by preferred dividends) and realized gains (net of any realized and unrealized losses). However, incentive compensation will only
be paid to the extent the total performance of TCPC exceeds a cumulative 8% annual return since January 1, 2013. The incentive
compensation will be payable to the General Partner quarterly in arrears and will be calculated as the difference between cumulative
incentive compensation earned since January 1, 2013 and cumulative incentive compensation paid since January 1, 2013.



Prior to the Conversion, the Investment
Manager received an annual management and advisory fee, payable monthly in arrears, equal to 1.0% of committed capital, defined
as the sum of the maximum amount of the Preferred Interests, 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 Preferred
Interests when less than $1 million in liquidation preference of preferred securities remains outstanding. In addition to the management
fee, the General Partner was entitled to a performance allocation equal to 20% of all cumulative income and gain distributions,
subject to an 8% hurdle on undistributed contributed equity with a catch up for the General Partner.



The Partnership pays all respective expenses
incurred in connection with the business of 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.



4. 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 subject to certain collateral and other restrictions. The Senior Facility
matures July 31, 2014, subject to extension by the lenders at the request of the Partnership for one 12-month period. Most
of the cash and cash investments of the Partnership are included in the collateral for the Senior Facility.





69











|Special Value Continuation Partners, LP
        (A Delaware Limited Partnership)
|--------------------------------------------------------------------------------
|                                                                                
|Notes to Financial Statements (Continued)                                       
|                                                                                
|December 31, 2012                                                               



4. Senior Secured Revolving Credit Facility
(continued)



Advances under the Senior Facility bear
interest at LIBOR plus 0.44% per annum, except in the case of loans from CP Conduits, which bear interest at the higher of LIBOR
plus 0.44% or the CP Conduit’s cost of funds plus 0.44%, subject to certain limitations. The weighted-average interest rate on
outstanding borrowings at December 31, 2012 was 0.65%. 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 $46.4 million
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 December 31, 2012, the Partnership
was in full compliance with such covenants.



5. 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 Partnership to risk in the event that
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 Partnership enters into contracts that contain
a variety of indemnifications, and are engaged from time to time in various legal actions. The maximum exposure of the Partnership
under these arrangements and activities is unknown. However, the Partnership expects the risk of material loss to be remote.



The  Statement of Investments includes
certain revolving loan facilities held by the Partnership with aggregate unfunded balances of $1,187,555 at December
31, 2012.



6. Related Parties



The Common Limited Partner, the Partnership,
the Investment Manager, the General Partner and their members and affiliates may be considered related parties.  From time
to time, the Partnership advances payments to third parties on behalf of the Common Limited Partner which are reimbursable through
deductions from distributions to the Common Limited Partner.  At December 31, 2012, no such amounts were outstanding. From
time to time, the Investment Manager advances payments to third parties on behalf of the Partnership and receives reimbursement
from the Partnership.  At December 31, 2012, such amounts totaled $48,149, as reflected in the Statement of Assets and Liabilities.



7.  Common Limited Partner Equity



On April 3, 2012, in connection with an
initial public offering of its common equity, the Common Limited Partner contributed $80,692,187 in net receipts from the offering
to the Partnership, as reflected in the Statement of Changes in Net Assets.





8.  Distributions



The Partnership’s distributions are
recorded on the record date. The timing of distributions is determined by the General Partner, which has provided the Investment
Manager with certain criteria for such distributions.





70











|Special Value Continuation Partners, LP
        (A Delaware Limited Partnership)
|--------------------------------------------------------------------------------
|                                                                                
|Notes to Financial Statements (Continued)                                       
|                                                                                
|December 31, 2012                                                               



9. Financial Highlights



|                                                         |  | Year Ended December 31, |            
|-------------------------------------------------------- |  | ----------------------- | -----------
|                                                         |  | 2012                    |            
|Return on invested assets (1)                            |  |                         | 9.0        
|                                                         |  |                         |            
|Gross return to common limited partner                   |  |                         | 9.8        
|Less: General Partner profit allocation                  |  |                         | -          
|Return to common limited partner (2)                     |  |                         | 9.8        
|                                                         |  |                         |            
|Ratios to average common equity: (3)                     |  |                         |            
|Net investment income (4)                                |  |                         | 14.3       
|Expenses                                                 |  |                         | 3.3        
|Expenses and General Partner allocation                  |  |                         | 3.3        
|                                                         |  |                         |            
|Ending net assets attributable to common limited partner |  | $                       | 317,209,574
|Portfolio turnover rate                                  |  |                         | 48.3       
|Weighted-average debt outstanding                        |  | $                       | 25,374,317 
|Weighted-average interest rate on debt                   |  |                         | 0.7        



|                                              |  | December 31, |           
|--------------------------------------------- |  | ------------ | ----------
|Asset Coverage:                               |  | 2012         |           
|Series A Preferred Limited Interests:         |  |              |           
|Interests outstanding                         |  |              | 6,700     
|Involuntary liquidation value per interest    |  | $            | 20,079    
|Asset coverage per interest                   |  | $            | 50,593    
|                                              |  |              |           
|Senior Secured Revolving Credit Facility:     |  |              |           
|Debt outstanding                              |  | $            | 74,000,000
|Asset coverage per $1,000 of debt outstanding |  | $            | 7,093     



| | (1) | Return on invested assets
is a time-weighted, geometrically linked rate of return and excludes cash and cash equivalents.
| | --- | -------------------------------------------------------------------------------------------------------------------------



| | (2) | Returns
(net of dividends on the preferred equity facility, allocations to the General Partner, and Partnership expenses, including financing
costs and management fees) calculated on a monthly geometrically linked, time-weighted basis.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | (3) | These ratios include interest
expense but do not reflect the effect of dividends on the preferred equity facility.
| | --- | ------------------------------------------------------------------------------------------------------------------



| | (4) | Net of allocation to the
General Partner.
| | --- | -----------------------------------------





71









|Special Value Continuation Partners, LP
        (A Delaware Limited Partnership)
|--------------------------------------------------------------------------------
|                                                                                
|Notes to Financial Statements (Continued)                                       
|                                                                                
|December 31, 2012                                                               



10. Select Quarterly Data (Unaudited)



|                                                     |  | 2012 |           
|---------------------------------------------------- |  | ---- | ----------
|                                                     |  | Q4   |           
|                                                     |  |      |           
|Total investment income                              |  | $    | 17,181,003
|Net investment income                                |  |      | 14,222,900
|Net realized and unrealized gain (loss)              |  |      | (5,743,587
|Preferred dividends                                  |  |      | (391,402  
|Net increase in net assets resulting from operations |  | $    | 8,087,911 



|                                                     |  | 2011 (1) |           
|---------------------------------------------------- |  | -------- | ----------
|                                                     |  | Q4       |           
|                                                     |  |          |           
|Total investment income                              |  | $        | 9,103,299 
|Net investment income                                |  |          | 6,395,902 
|Net realized and unrealized loss                     |  |          | (2,980,033
|Preferred dividends                                  |  |          | (389,857  
|Net increase in net assets resulting from operations |  | $        | 3,026,012 





(1)Periods prior to the Conversion reflect portfolios
that had different investment objectives.





72







Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Schedule of Changes in Investments in Affiliates
(1)



Year Ended December 31, 2012



|Security                                                                      |  | Value, Beginning  of  Period |            |  | Acquisitions |   |            | Dispositions (2) |  |   | Value, End of Period |  
|----------------------------------------------------------------------------- |  | ---------------------------- | ---------- |  | ------------ | - | ---------- | ---------------- |  | - | -------------------- | -
|                                                                              |  |                              |            |  |              |   |            |                  |  |   |                      |  
|Anacomp, Inc., Class A Common Stock                                           |  | $                            | 740,761    |  |              | $ | -          |                  |  | $ | -                    |  
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N913DL), 8%, due 7/15/18    |  |                              | -          |  |              |   | 403,947    |                  |  |   | (37,389              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N918DL), 8%, due 7/15/18    |  |                              | -          |  |              |   | 490,003    |                  |  |   | (33,390              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N954DL), 8%, due 9/20/19    |  |                              | -          |  |              |   | 631,014    |                  |  |   | (37,814              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N955DL), 8%, due 9/20/19    |  |                              | -          |  |              |   | 645,523    |                  |  |   | (36,417              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N956DL), 8%, due 9/20/19    |  |                              | -          |  |              |   | 646,372    |                  |  |   | (37,011              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N957DL), 8%, due 9/20/19    |  |                              | -          |  |              |   | 651,170    |                  |  |   | (36,735              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N959DL), 8%, due 9/20/19    |  |                              | -          |  |              |   | 655,930    |                  |  |   | (36,462              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N960DL), 8%, due 9/20/19    |  |                              | -          |  |              |   | 675,587    |                  |  |   | (35,956              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N961DL), 8%, due 9/20/19    |  |                              | -          |  |              |   | 671,812    |                  |  |   | (36,803              | )
|Delta Air Lines, Inc., Aircraft Secured Mortgage (N976DL), 8%, due 7/15/18    |  |                              | -          |  |              |   | 512,643    |                  |  |   | (38,636              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N913DL)          |  |                              | -          |  |              |   | 145,176    |                  |  |   | (31,277              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N918DL)          |  |                              | -          |  |              |   | 162,691    |                  |  |   | (32,027              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N954DL)          |  |                              | -          |  |              |   | 202,368    |                  |  |   | (40,415              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N955DL)          |  |                              | -          |  |              |   | 204,598    |                  |  |   | (40,116              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N956DL)          |  |                              | -          |  |              |   | 205,404    |                  |  |   | (40,679              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N957DL)          |  |                              | -          |  |              |   | 206,328    |                  |  |   | (40,572              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N959DL)          |  |                              | -          |  |              |   | 207,244    |                  |  |   | (40,467              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N960DL)          |  |                              | -          |  |              |   | 211,653    |                  |  |   | (40,578              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N961DL)          |  |                              | -          |  |              |   | 211,555    |                  |  |   | (41,241              | )
|Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N976DL)          |  |                              | -          |  |              |   | 173,597    |                  |  |   | (37,271              | )
|EPMC HoldCo, LLC, Membership Units                                            |  |                              | 5,264,007  |  |              |   | -          |                  |  |   | (1,276,226           | )
|ESP Holdings, Inc., Cumulative Preferred 15%                                  |  |                              | 3,287,872  |  |              |   | -          |                  |  |   | -                    |  
|ESP Holdings, Inc., Common Stock                                              |  |                              | 7,473,887  |  |              |   | -          |                  |  |   | -                    |  
|ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes,           |  |                              |            |  |              |   |            |                  |  |   |                      |  
|6% Cash + 10% PIK, due 12/31/19                                               |  |                              | 6,240,393  |  |              |   | 1,000,494  |                  |  |   | -                    |  
|International Wire Group Holdings, Inc., Common Stock                         |  |                              | 30,077,606 |  |              |   | -          |                  |  |   | (31,940,733          | )
|International Wire Group Holdings, Inc., Senior Notes,                        |  |                              |            |  |              |   |            |                  |  |   |                      |  
|11.5% Cash or 12.25% PIK, due 4/15/15                                         |  |                              | 18,180,000 |  |              |   | -          |                  |  |   | (18,000,000          | )
|International Wire Group Holdings, Inc., Senior Secured Notes,                |  |                              |            |  |              |   |            |                  |  |   |                      |  
|8.5%, due 10/15/17                                                            |  |                              | -          |  |              |   | 15,000,000 |                  |  |   | -                    |  
|Real Mex Restaurants, Inc. Senior Secured Notes, 14%, due 1/1/13              |  |                              | 12,410,823 |  |              |   | -          |                  |  |   | (6,627,711           | )
|RM Holdco, LLC, Membership Units                                              |  |                              | -          |  |              |   | 2,010,777  |                  |  |   | -                    |  
|RM Holdco, LLC, Subordinated Convertible Term Loan, 1.12% PIK, due 3/21/18    |  |                              | -          |  |              |   | 5,106,805  |                  |  |   | -                    |  
|RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche A, 11%, due 3/19/16   |  |                              | -          |  |              |   | 3,759,156  |                  |  |   | -                    |  
|RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B,                    |  |                              |            |  |              |   |            |                  |  |   |                      |  
|12% Cash + 7% PIK, due 3/19/16                                                |  |                              | -          |  |              |   | 6,258,122  |                  |  |   | -                    |  
|RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B-1,                  |  |                              |            |  |              |   |            |                  |  |   |                      |  
|12% Cash + 7% PIK, due 3/19/16                                                |  |                              |            |  |              |   | 1,922,118  |                  |  |   | -                    |  
|United Air Lines, Inc., Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16  |  |                              | 624,066    |  |              |   | -          |                  |  |   | (66,886              | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16 |  |                              | 630,208    |  |              |   | -          |                  |  |   | (65,449              | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14  |  |                              | 414,963    |  |              |   | -          |                  |  |   | (122,068             | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15  |  |                              | 563,575    |  |              |   | -          |                  |  |   | (109,385             | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16 |  |                              | 739,958    |  |              |   | -          |                  |  |   | (76,848              | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N659UA), 12%, due 3/28/16  |  |                              | 5,014,613  |  |              |   | -          |                  |  |   | (886,810             | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N661UA), 12%, due 5/4/16   |  |                              | 5,192,014  |  |              |   | -          |                  |  |   | (860,025             | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N510UA)         |  |                              | 467,137    |  |              |   | 66,886     |                  |  |   | (35,913              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N512UA)         |  |                              | 458,665    |  |              |   | 65,449     |                  |  |   | (35,325              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N536UA)         |  |                              | 686,303    |  |              |   | 122,068    |                  |  |   | (45,201              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N545UA)         |  |                              | 612,589    |  |              |   | 109,256    |                  |  |   | (47,505              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N585UA)         |  |                              | 498,602    |  |              |   | 76,848     |                  |  |   | (46,776              | )
|United N659UA-767, LLC (N659UA)                                               |  |                              | 2,274,815  |  |              |   | 886,810    |                  |  |   | (674,712             | )
|United N661UA-767, LLC (N661UA)                                               |  |                              | 2,205,523  |  |              |   | 860,025    |                  |  |   | (663,033             | )



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 Partnership
of 5% or more of the issuers' voting securities.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Dispositions include sales,
paydowns, mortgage amortizations, and aircraft depreciation.
| | --- | ----------------------------------------------------------------------------------------





73









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Schedule of Changes in Investments in Affiliates
(1)



Year Ended December 31, 2011



|Security                                                                      |  | Value, Beginning of Period |            |  | Acquisitions |   |            | Dispositions (2) |  |   | Value, End of Period |  
|----------------------------------------------------------------------------- |  | -------------------------- | ---------- |  | ------------ | - | ---------- | ---------------- |  | - | -------------------- | -
|                                                                              |  |                            |            |  |              |   |            |                  |  |   |                      |  
|Anacomp, Inc., Class A Common Stock                                           |  | $                          | 1,086,031  |  |              | $ | -          |                  |  | $ | -                    |  
|EPMC HoldCo, LLC, Membership Units                                            |  |                            | 40,727,138 |  |              |   | -          |                  |  |   | (24,308,286          | )
|ESP Holdings, Inc., 15% PIK, Preferred Stock                                  |  |                            | 3,005,832  |  |              |   | -          |                  |  |   | -                    |  
|ESP Holdings, Inc., Common Stock                                              |  |                            | 7,565,535  |  |              |   | -          |                  |  |   | -                    |  
|ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes,           |  |                            |            |  |              |   |            |                  |  |   |                      |  
|18% PIK, due 3/31/15                                                          |  |                            | 5,321,627  |  |              |   | 887,719    |                  |  |   | -                    |  
|International Wire Group, Inc., Senior Secured Notes, 9.75%, due 4/15/15      |  |                            | 4,040,000  |  |              |   | -          |                  |  |   | (4,200,000           | )
|International Wire Group Holdings, Inc., Common Stock                         |  |                            | 43,468,524 |  |              |   | -          |                  |  |   | (14,111,830          | )
|International Wire Group Holdings, Inc., Senior Notes,                        |  |                            |            |  |              |   |            |                  |  |   |                      |  
|11.5% Cash or 12.25% PIK, due 4/15/15                                         |  |                            | -          |  |              |   | 20,000,000 |                  |  |   | (2,000,000           | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16  |  |                            | 719,200    |  |              |   | -          |                  |  |   | (54,853              | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16 |  |                            | 723,647    |  |              |   | -          |                  |  |   | (53,676              | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14  |  |                            | 558,944    |  |              |   | -          |                  |  |   | (104,129             | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15  |  |                            | 695,004    |  |              |   | -          |                  |  |   | (93,311              | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16 |  |                            | 849,983    |  |              |   | -          |                  |  |   | (63,020              | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N659UA), 12%, due 3/28/16  |  |                            | -          |  |              |   | 5,329,739  |                  |  |   | (735,499             | )
|United Air Lines, Inc., Aircraft Secured Mortgage (N661UA), 12%, due 5/4/16   |  |                            | -          |  |              |   | 5,351,577  |                  |  |   | (642,268             | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N510UA)         |  |                            | 311,102    |  |              |   | 54,853     |                  |  |   | (59,882              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N512UA)         |  |                            | 307,754    |  |              |   | 53,676     |                  |  |   | (59,735              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N536UA)         |  |                            | 375,796    |  |              |   | 104,129    |                  |  |   | (60,360              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N545UA)         |  |                            | 357,648    |  |              |   | 93,311     |                  |  |   | (68,854              | )
|United Air Lines, Inc., Equipment Trust Beneficial Interests (N585UA)         |  |                            | 338,830    |  |              |   | 63,020     |                  |  |   | (71,463              | )
|United N659UA-767, LLC (N659UA)                                               |  |                            | -          |  |              |   | 2,235,686  |                  |  |   | (674,712             | )
|United N661UA-767, LLC (N661UA)                                               |  |                            | -          |  |              |   | 2,170,785  |                  |  |   | (607,783             | )



Notes 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 Partnership
of 5% or more of the issuers' voting securities.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Dispositions include sales,
paydowns, mortgage amortizations, and aircraft depreciation.
| | --- | ----------------------------------------------------------------------------------------





74









Special Value Continuation Partners, LP

(A Delaware Limited Partnership)



Schedules of Restricted Securities of Unaffiliated
Issuers



December 31, 2012



|Investment                                                                         |  | Acquisition Date |  | Cost |           
|---------------------------------------------------------------------------------- |  | ---------------- |  | ---- | ----------
|                                                                                   |  |                  |  |      |           
|AIP/IS Holdings, LLC, Membership Units                                             |  | Var. 2009 & 2010 |  | $    | -         
|Bally Total Fitness Holding Corporation, Common Stock                              |  | 4/30/10          |  |      | 45,186,963
|Bally Total Fitness Holding Corporation, Warrants                                  |  | 4/30/10          |  |      | -         
|BPA Laboratories, Inc., Senior Secured Notes, 12.25%, due 4/1/17                   |  | 3/5/12           |  |      | 16,446,295
|Caribbean Financial Group, Senior Secured Notes, 11.5%, due 11/15/19               |  | 10/19/12         |  |      | 9,803,494 
|Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16 |  | 1/20/11          |  |      | 12,322,875
|DeepOcean Group Holding AS, Common Stock                                           |  | 5/13/11          |  |      | 3,477,627 
|Integra Telecom, Inc., Common Stock                                                |  | 11/19/09         |  |      | 8,433,884 
|Integra Telecom, Inc., Warrants                                                    |  | 11/19/09         |  |      | 19,920    
|La Paloma Generating Company, Residual Claim                                       |  | 2/2/05           |  |      | 1,574,284 
|Marsico Holdings, LLC Common Interest Units                                        |  | 9/10/12          |  |      | 172,694   
|Precision Holdings, LLC, Class C Membership Interests                              |  | Var. 2010 & 2011 |  |      | 1,396     
|Shop Holding, LLC, Class A Units                                                   |  | 6/2/11           |  |      | 462,576   
|Shop Holding, LLC, Warrants to Purchase Class A Units                              |  | 6/2/11           |  |      | -         
|SiTV, Inc., Warrants to Purchase Common Stock                                      |  | 8/3/12           |  |      | 300,322   
|STG-Fairway Holdings, LLC, Class A Units                                           |  | 12/30/10         |  |      | 1,100,348 
|The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19       |  | 9/26/11          |  |      | 6,820,215 





December 31, 2011



|Investment                                                                               |  | Acquisition Date |  | Cost |           
|---------------------------------------------------------------------------------------- |  | ---------------- |  | ---- | ----------
|                                                                                         |  |                  |  |      |           
|AIP/IS Holdings, LLC, Membership Units                                                   |  | Var. 2009 & 2010 |  | $    | -         
|Bally Total Fitness Holding Corporation, Common Stock                                    |  | 4/30/10          |  |      | 45,186,963
|Bally Total Fitness Holding Corporation, Warrants                                        |  | 4/30/10          |  |      | -         
|Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16       |  | 1/20/2011        |  |      | 12,322,875
|DeepOcean Group Holding AS, Common Stock                                                 |  | 5/13/2011        |  |      | 3,477,627 
|Encompass Digital Media Group, Inc., Common Stock                                        |  | 1/15/2010        |  |      | 883,196   
|GSI Group, Inc., Common Stock                                                            |  | 8/20/2008        |  |      | 753,225   
|Integra Telecom, Inc., Common Stock                                                      |  | 11/19/2009       |  |      | 8,433,884 
|Integra Telecom, Inc., Warrants                                                          |  | 11/19/2009       |  |      | 19,920    
|ITC^DeltaCom, Inc., Senior Secured Notes, 10.5%, due 4/1/16                              |  | 4/9/2010         |  |      | 8,753,309 
|NEF Kamchia Co-Investment Fund, LP Interest                                              |  | 7/31/2007        |  |      | 3,367,227 
|NEF Telecom Company BV, Mezzanine Term Loan, EURIBOR + 4.5% Cash + 7.5% PIK, due 8/16/17 |  | 8/29/2007        |  |      | 26,162,416
|Precision Holdings, LLC, Class C Membership Interests                                    |  | Var. 2010 & 2011 |  |      | 1,396     
|Shop Holding, LLC, Class A Units                                                         |  | 6/2/2011         |  |      | 462,576   
|Shop Holdings, LLC, Warrants to Purchase Class A Units                                   |  | 6/2/2011         |  |      | -         
|STG-Fairway Holdings, LLC, Class A Units                                                 |  | 12/30/2010       |  |      | 1,100,348 
|The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19             |  | 9/26/2011        |  |      | 7,389,583 





75









| | Item 9. | Changes in Disagreements
with Accountants on Accounting and Financial Disclosure
| | ------- | --------------------------------------------------------------------------------



None



| | Item 9A. | Controls and Procedures
| | -------- | -----------------------



| | (a) | Evaluation of Disclosure
Controls and Procedures
| | --- | ------------------------------------------------



As of December 31, 2012 (the
end of the period covered by this report), we, including our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act).
Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our
disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in
our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure
controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide
only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment
in evaluating the cost-benefit relationship of such possible controls and procedures.



| | (b) | Management’s Report
on Internal Control Over Financial Reporting
| | --- | ----------------------------------------------------------------



Management is responsible for
establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness
of internal control over financial reporting as of December 31, 2012. Internal control over financial reporting is a process designed
by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions,
and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets
of the Partnership; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only
in accordance with authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management
performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2012 based upon
the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Based on our assessment, management determined that our internal control over financial
reporting was effective as of December 31, 2012.



| | (c) | Changes in Internal
Control Over Financial Reporting
| | --- | ----------------------------------------------------



There have been no changes in
our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most
recently completed fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.



| | Item 9B. | Other Information
| | -------- | -----------------



None





76









PART III



| | Item 10. | Directors, Executive Officers and Corporate Governance
| | -------- | ------------------------------------------------------



The information required by this item is
contained in the Registrant’s definitive Proxy Statement for its 2013 Annual Stockholders Meeting to be filed with the Securities
and Exchange Commission within 120 days after December 31, 2012 and is incorporated herein by reference.



| | Item 11. | Executive Compensation
| | -------- | ----------------------



The information required by this item is
contained in the Registrant’s definitive Proxy Statement for its 2013 Annual Stockholders Meeting to be filed with the Securities
and Exchange Commission within 120 days after December 31, 2012 and is incorporated herein by reference.



| | Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
| | -------- | ----------------------------------------------------------------------------------------------



The information required by this item is
contained in the Registrant’s definitive Proxy Statement for its 2013 Annual Stockholders Meeting to be filed with the Securities
and Exchange Commission within 120 days after December 31, 2012 and is incorporated herein by reference.



| | Item 13. | Certain Relationships and Related Transactions, and Director Independence
| | -------- | -------------------------------------------------------------------------



The information required by this item is
contained in the Registrant’s definitive Proxy Statement for its 2013 Annual Stockholders Meeting to be filed with the Securities
and Exchange Commission within 120 days after December 31, 2013 and is incorporated herein by reference.



| | Item 14. | Principal Accountant Fees and Services
| | -------- | --------------------------------------



The information required by this item is
contained in the Registrant’s definitive Proxy Statement for its 2013 Annual Stockholders Meeting to be filed with the Securities
and Exchange Commission within 120 days after December 31, 2012 and is incorporated herein by reference.





77









PART IV



| | Item 15. | Exhibits and Financial Statement Schedules
| | -------- | ------------------------------------------



| | a. | Documents Filed as
Part of this Report
| | -- | --------------------------------------



The following reports and consolidated financial statements
are set forth in Item 8:



|Report of Independent Registered
    Public Accounting Firm                                     | 43
|----------------------------------------------------------------------------------------------- | --
|Statements of Assets and
    Liabilities as of December 31, 2012 and 2011                       | 44
|Statements of Investments
    as of December 31, 2012 and 2011                                  | 45
|Statements of Operations
    for the years ended December 31, 2012, 2011 and 2010               | 57
|Statements of Changes in
    Net Assets for the years ended December 31, 2012, 2011 and 2010    | 58
|Statements of Cash Flows
    for the years ended December 31, 2012, 2011 and 2010               | 59
|Notes to Financial Statements                                                                   | 60
|Schedules of Changes in Investments
    in Affiliatesas as of December 31, 2012 and 2011        | 73
|Schedules of Restricted Securities
    of Unaffiliated Issuers as of December 31, 2012 and 2011 | 75



| | b. | Exhibits
| | -- | --------



The following exhibits are filed as part of this report or hereby
incorporated by reference to exhibits previously filed with the SEC:





|Number |  | Description                                                                                                                                       
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|3.1    |  | Form of Amended and Restated Partnership Agreement of the Registrant(1)                                                                           
|4      |  | Statement of Preferences(2)                                                                                                                       
|10.1   |  | Form of New Investment Advisory Agreement(3)                                                                                                      
|10.2   |  | Form of Administration Agreement(4)                                                                                                               
|10.3   |  | Credit Agreement dated July 16, 2006(5)                                                                                                           
|10.4   |  | First Amendment to Credit Agreement dated February 28, 2011(6)                                                                                    
|10.5   |  | Custodial Agreement dated as of July 31, 2006(7)                                                                                                  
|31.1   |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934*                                    
|31.2   |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934*                                    
|32.1   |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350)*












| | * | Filed herewith.
| | - | ---------------

| | (1) | Incorporated by reference to Exhibit (k)(8) to TCP Capital Corp.’s Registration Statement under the Securities Act of
1933 (File No. 333-172669), on Form N-2, filed on May 13, 2011.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Incorporated by reference to Exhibit D to the Registrant’s Registration Statement on Form N-2 (File No. 811-21935) filed
on October 31, 2006.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Incorporated by reference to Exhibit 10.1 to Form 10-12G of the Registrant (File No. 000-54393), filed May 6, 2011.
| | --- | -------------------------------------------------------------------------------------------------------------------

| | (4) | Incorporated by reference to Exhibit 10.3 to Form 10-12G of the Registrant (File No. 000-54393), filed May 6, 2011.
| | --- | -------------------------------------------------------------------------------------------------------------------

| | (5) | Incorporated by reference to Exhibit 10.4 to Form 10-12G of the Registrant (File No. 000-54393), filed May 6, 2011.
| | --- | -------------------------------------------------------------------------------------------------------------------

| | (6) | Incorporated by reference to Exhibit 10.5 to Form 10-12G of the Registrant (File No. 000-54393), filed May 6, 2011.
| | --- | -------------------------------------------------------------------------------------------------------------------

| | (7) | Incorporated by reference to Exhibit 10.2 to Form 10-12G of the Registrant (File No. 000-54393), filed May 6, 2011.
| | --- | -------------------------------------------------------------------------------------------------------------------







78









SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.



Special Value Continuation Partners, LP



|By:                                                 |  |  |  | 
|--------------------------------------------------- |  |  |  | 
|/s/ Howard
        M. Levkowitz                     |  | 
|Howard M. Levkowitz
        Chief Executive Officer | 
|                                                    |  | 

Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the
dates indicated.



|               |  |                                                             |  |                                                                                          
|-------------- |  | ----------------------------------------------------------- |  | -----------------------------------------------------------------------------------------
|Date           |  | Signature                                                   |  | Title                                                                                    
|               |  |                                                            
|March 18, 2013 |  | /s/ Howard
        M. Levkowitz
        Howard M. Levkowitz |  | Chief Executive Officer, Chairman of the Board and Director (Principal Executive Officer)
|               |  |                                                            
|March 18, 2013 |  | /s/ Eric
        J. Draut
        Eric J. Draut             |  | Director                                                                                 
|               |  |                                                            
|March 18, 2013 |  | /s/ Franklin
        R. Johnson
        Franklin R. Johnson |  | Director                                                                                 
|               |  |                                                            
|March 18, 2013 |  | /s/ Peter
        E. Schwab
        Peter E. Schwab         |  | Director                                                                                 
|               |  |                                                            
|March 18, 2013 |  | /s/ Rajneesh
        Vig
        Rajneesh Vig               |  | President                                                                                
|               |  |                                                            
|March 18, 2013 |  | /s/ Paul
        L. Davis
        Paul L. Davis             |  | Chief Financial Officer (Principal Financial Officer)                                    





79