Nb Distressed Regulatory News (NBDD)

NB DISTRESSED DEBT INVESTMENT FUND LIMITED

2018 Annual Report

AUDITED FINANCIAL STATEMENTS

For the year ended 31 December 2018

Features

NB Distressed Debt Investment Fund Limited (the "Company")

The Company is a closed-ended investment company incorporated and registered in Guernsey on 20 April 2010 with registration number 51774. The Company is governed under the provisions of the Companies (Guernsey) Law, 2008 (as amended) (the "Law"), and the Registered Collective Investment Scheme Rules 2018 issued by the Guernsey Financial Services Commission ("GFSC"). It is a non-cellular company limited by shares and has been declared by the GFSC to be a registered closed-ended collective investment scheme. The Company trades on the Specialist Fund Segment ("SFS") of the London Stock Exchange ("LSE").

The Company is a member of the Association of Investment Companies (the "AIC") and is classified within the Debt Category.

Alternative Investment Fund Manager ("AIFM") and Manager

Investment management services are provided to the Company by Neuberger Berman Investment Advisers LLC (the "AIFM") and Neuberger Berman Europe Limited (the "Manager"), collectively the "Investment Manager". The AIFM is responsible for risk management and discretionary management of the Company's Portfolio and the Manager provides, amongst other things, certain administrative services to the Company.

Share Capital

At 31 December 2018 the Company's share capital comprised the following1:

Ordinary Share Class ("NBDD")

23,395,578 Ordinary Shares, none of which were held in treasury.

Extended Life Share Class ("NBDX")

154,104,598 Extended Life Shares, none of which were held in treasury.

New Global Share Class ("NBDG")

82,770,361 New Global Shares, none of which were held in treasury.

For the purposes of efficient portfolio management, the Company has established a number of wholly-owned subsidiaries domiciled in the US, the Cayman Islands and Luxembourg. All references to the Company in this document refer to the Company together with its wholly-owned subsidiaries.

1 In addition the Company has two Class A Shares in issue. Further information is provided in the Capital Structure section of this report below.

Non-Mainstream Pooled Investments

The Company currently conducts its affairs so that the shares issued by the Company can be recommended by Independent Financial Advisers to ordinary retail investors in accordance with the Financial Conduct Authority's ("FCA") rules in relation to non-mainstream pooled investment ("NMPI") products and intends to continue to do so for the foreseeable future.

The Company's shares are excluded from the FCA's restrictions which apply to NMPI products.

Company Numbers

Ordinary Shares

LSE ISIN code: GG00BG5NC876

Bloomberg code: NBDD:LN

Extended Life Shares

LSE ISIN code: GG00BG0QZP96

Bloomberg code: NBDX:LN

New Global Shares

LSE ISIN code: GG00BG0QZQ04

Bloomberg code: NBDG:LN

Legal Entity Identifier

YRFO7WKOU3V511VFX790

Website

www.nbddif.com

Capital Structure 

The Company's share capital consists of three different share classes, all of which are in the harvest period: the Ordinary Share Class; the Extended Life Share Class; and the New Global Share Class. These share classes each have different capital return profiles and, in one instance a different geographical remit. In addition the Company has two Class A Shares in issue. While the Company's share classes are all now in harvest, returning capital to shareholders, the Company's corporate umbrella itself has an indefinite life to allow for flexibility for the Company to add new share classes if demand, market opportunities and shareholder approval supported such a move, although the Company has no current plans to create new share classes. Each share class is considered in turn below.

Ordinary Share Class

NBDD was established at the Company's launch on 10 June 2010 with a remit to invest in the global distressed debt market with a focus on North America. The investment period of NBDD expired on 10 June 2013.

Voting rights: Yes

Denomination: US Dollars

Hedging: Portfolio hedged to US Dollars

Authorised share capital: Unlimited

Par value: Nil

Extended Life Share Class

A vote was held at a class meeting of NBDD shareholders on 8 April 2013 where the majority of shareholders voted in favour of a proposed extension.

Following this meeting and with the NBDD shareholders' approval of the extension, on 9 April 2013 a new Class, NBDX, was created and the NBDX Shares were issued to 72% of initial NBDD investors who elected to convert their NBDD Shares to NBDX Shares. NBDX had a remit to invest in the global distressed debt market with a focus on North America. The investment period of NBDX expired on 31 March 2015.

Voting rights: Yes

Denomination: US Dollars

Hedging: Portfolio hedged to US Dollars

Authorised share capital: Unlimited

Par value: Nil

New Global Share Class

NBDG was created on 4 March 2014 and had a remit to invest in the global distressed market with a focus on Europe and North America. The investment period of NBDG expired on 31 March 2017.

Voting rights: Yes

Denomination: Pound Sterling

Hedging: Unhedged portfolio

Authorised share capital: Unlimited

Par value: Nil

Class A Shares

The Class A Shares are held by a trustee pursuant to a purpose trust established under Guernsey law. Under the terms of the Trust Deed, the Trustee holds the Class A Shares for the purpose of exercising the right to receive notice of general meetings of the Company but the Trustee shall only have the right to attend and vote at general meetings of the Company when there are no other Shares of the Company in issue.

Voting rights: No

Denomination: US Dollars

Authorised share capital: 10,000 Class A Shares

Par value: US Dollar $1

Business Model

Principal Activities and Structure

The principal activity of the Company is to carry out business as an investment company. The Directors do not envisage any changes in this activity for the foreseeable future.

The chart below sets out the ownership, organisational and investment structure of the Company.

INVESTMENT STRUCTURE OF THE COMPANY

[For Investment Structure of the Company, click on, or paste the following link into your web browser, to view page 1 in the associated PDF document]

http://www.rns-pdf.londonstockexchange.com/rns/2507U_1-2019-3-27.pdf

1 Further information on the Company's capital structure can be found above.

2 Further information on the Company's investment management arrangements can be found below

Investment Objective

The Company's primary objective is to provide investors with attractive risk-adjusted returns through long-biased, opportunistic exposure to stressed, distressed and special situation credit-related investments while seeking to limit downside risk by, amongst other things, focusing on senior and senior secured debt with both collateral and structural protection.

Investment Policy

The investment period of each share class has expired. During the investment period, the Investment Manager sought, in accordance with the Investment Policy, to identify mis-priced or otherwise overlooked securities or assets that had the potential to produce attractive absolute returns while seeking to limit downside risk through collateral and structured protection where possible.

The Ordinary Shares, Extended Life Shares and New Global Shares (collectively the "Portfolios") are biased toward stressed and distressed debt securities secured by hard asset collateral in accordance with the Investment Policy. When investing on behalf of the Company, the Investment Manager focused on companies with significant tangible assets which were judged likely to maintain long-term value through a restructuring. The Investment Manager avoided "asset-light" companies, as their values tend to depreciate in distressed scenarios and also aimed to concentrate on companies with stressed balance sheets whose low implied enterprise value multiples, often calculated using currently depressed cash flows, offered a discount to comparable market valuations.

What is Distressed Debt?

Distressed debt generally refers to the financial obligations of a company that is either already in default, under bankruptcy protection, or in distress and heading toward default. Distressed debt often trades at a significant discount to its par value and may present investors with compelling opportunities to profit if there is a recovery in the business. Typically, when a company experiences financial distress or files for bankruptcy protection, the original debt holders often sell their debt securities or claims to a new set of investors at a discount. These investors often try to influence the process by which the issuer restructures its obligations or implements a plan to turn around its operations. These investors may also inject new capital into a distressed company in the form of debt or equity in order to prevent the company from going into liquidation or to aid the company in carrying out a restructuring plan. Investors in distressed debt typically must not only assess the issuer's ability to improve its operations but also whether the restructuring process is likely to result in a meaningful recovery to the investors' class of claims.

Distressed debt can be performing or non-performing. Performing debt is defined as debt that maintains its contractual obligations relating to interest and/or principal payments and can be debt that has yet to default or even debt that is under bankruptcy protection. Non-performing debt is defined as debt that does not continue to meet its financial obligations.

There are a number of different strategies related to investing in distressed debt. These strategies differ mainly in the types of securities that investors purchase, the life of a fund and its investment period, and a fund's expected returns. Four strategic categories include: (i) senior/senior secured debt strategies; (ii) control/private equity strategies; (iii) junior debt strategies; and (iv) capital structure arbitrage strategies. During the investment periods of the Portfolios, the Investment Manager focused on implementing a senior/senior secured debt strategy in which it invested primarily in secured debt with strong collateral value and structural protection. The Investment Manager has also invested in control positions and non-control positions with the objective of acquiring a blocking position on behalf of the Portfolios.

Investing in secured debt at the top of the capital structure is, in the opinion of the Investment Manager, towards the more conservative end of the distressed debt strategy risk spectrum due to the support from the value of the underlying collateral. Additionally, secured debt holders often have the ability to foreclose on the assets securing their claim and to drive the restructuring process. The typical holding period for investments in this type of strategy is at least six months and can be more than three years.

Typical Life Cycle of a Distressed Debt Investment

[For Typical Life Cycle of a Distressed Debt Investment, click on, or paste the following link into your web browser, to view page 2 in the associated PDF document]

http://www.rns-pdf.londonstockexchange.com/rns/2507U_1-2019-3-27.pdf

Further information on the Company's investment process can be found in the Company's most recent prospectuses which are available on the Company's website at www.nbddif.com under the "Investor Information" tab.

1 Negotiations can take place within bankruptcy or creditors can negotiate with the company to agree on a pre-packaged bankruptcy whereby the plan of reorganisation is negotiated before the company files for bankruptcy protection (this has become more common).

Distributions to Shareholders

Income

In order to benefit from an exception to the United Kingdom ("UK") offshore fund rules, all income from the Company's Portfolio (after deduction of reasonable expenses) must be paid to investors. To meet this requirement the Company will pay out by way of dividend, in respect of each share class, all net income received on investments of the Company attributable to such share class, as appropriate.

It is not anticipated that income from the Portfolios will be material and therefore any income distributions by way of dividend will be on an ad-hoc basis. However, the Company monitors the need to distribute such income annually (less allowable expenses under the NMPI rules) in order to continue to be excluded from the FCA's restrictions which apply to non-mainstream investment products. The exact amount of such income distribution by way of dividend in respect of any class of shares will be variable depending on the amounts of income received by the Company attributable to such share class and will only be paid in accordance with applicable law at the relevant time, including the Companies (Guernsey) Law, 2008 (as amended) (the "Law") and, in particular, will be subject to the Company passing the solvency test contained in the Law at the relevant time. The amount of income distributions by way of dividend paid in respect of one class of shares may be different from that of another class.

Capital

Following the expiry of the Portfolios' investment periods, the capital proceeds attributable to the corresponding share class as determined by the Directors and in accordance with the articles of incorporation (the "Articles"), will, at such times and in such amounts as the Directors shall in their absolute discretion determine, be distributed to shareholders of that class pro rata to their respective holdings of the relevant shares.

Any capital return will only be made by the Company in accordance with the Articles of the Company and applicable law at the relevant time, including the Law (and, in particular, will be subject to the Company passing the solvency test contained in the Law at the relevant time).

Towards the end of the Portfolios' respective harvest periods, a residual amount will be retained in accordance with regulatory requirements until such time as the relevant share class may be liquidated or its assets otherwise disposed of at the discretion of the Board.

Gearing

The Company will not employ leverage or gearing for investment purposes. The Company may, from time to time, use borrowings for share buybacks and short-term liquidity purposes, including bridging purposes, prior to the sale of investments. Save for such bridging borrowings the Directors will restrict borrowing, with respect to each share class, to an amount not exceeding 10 percent of the NAV of the share class at the time of drawdown.

The Company does not currently have any borrowings. Derivatives may be used for the purposes of efficient portfolio management and to hedge risk within the Portfolios. In addition from time to time the Company may also invest in such derivatives for investment purposes.

Financial Highlights

1 Stated in US Dollars, the £ price as at 31 December 2018 and 31 December 2017 converted to US Dollars using respective year end exchange rates.

2 The TERs represent the Company's management fees and all other operating expenses, as required by US Generally Accepted Accounting Principles ("US GAAP"), expressed as a percentage of average net assets.

3 The Ongoing Charges represent the Company's management fees and all other operating expenses, excluding finance costs payable, expressed as a percentage of average net assets and calculated in accordance with guidance issued by the AIC.

Summary of Value in Excess of Original Capital Invested

1 By way of dividend

A detailed breakdown of the Company's distributions is provided on the Company's website at www.nbddif.com under "Investor Information", "Capital Activity".

Chairman's Statement

Dear Shareholder,

In 2018 the distressed debt market remained resilient against a turbulent political and economic environment in the United States, UK and Continental Europe. Despite this macroeconomic backdrop and the public market downturn in the fourth quarter, the broad credit environment held up, led by recovery in the energy and commodity sectors. With each share class now in its harvest period, we seek to balance the pace of exits and the value achieved for shareholders as we continue to return capital to our investors.

Company Performance

By the end of 2018, the Company had returned a total of $124.8m or 100.24% of NBDD investors' original capital of $124.5m, $215.3m or 59.9% of NBDX investors' original capital of $359.4m and £18.2m or 16.4% of NBDG investors' original capital of £110.8m. Additionally, $8.2m was spent on buying back NBDX shares and £8.6m was spent on buying back NBDG shares in a manner accretive to net asset value ("NAV"). The Board continually reviews the most appropriate means to return capital to shareholders to maximise the benefit to shareholders.

I would remind shareholders that towards the end of the respective harvest periods, we are compelled for regulatory reasons to retain 10% of the total return in respect of each class of shares until all assets in the relevant portfolio can be liquidated and returned to shareholders. This final return of capital would be in the form of a compulsory redemption of the outstanding shares of that class.

Securing the balance between the pace of exits and the value for shareholders is an active exercise. In many instances, assets will need intense management to realise their full potential. To ensure shareholders' net returns remain managed, the Board continues to monitor all costs to ensure that they are appropriate. We are conscious that shareholders may be concerned about the impact of costs on a reducing portfolio during the harvest period.

The investment manager's current expectation is that we will distribute 100% of NBDD's 31 December 2018 NAV in 2019 and NBDX/NBDG will be fully distributed in 2020. Upheaval in financial markets and global trade uncertainty during the year affected the timing of some investments, pushing some estimated exits to 2020. We continue to focus on restructuring and monetising our investments, balancing timely realisations with maximising proceeds to our investors. Changes to timing are expected and will continue to be updated in the quarterly factsheets.

Annual General Meeting ("AGM") Results

The Board will put its income distribution policy to a shareholder vote by way of a separate resolution at the 2019 AGM. This revised approach is in response to the 2018 AGM, where a significant number of votes were lodged against Resolution 1. That resolution related to receipt and consideration of the Company's Annual Report. We understand that some shareholders were concerned that the Company's income distribution policy was not put to a shareholder vote by way of a separate resolution at the AGM. The income distribution policy is set out above. Such distributions occur on an ad-hoc basis and are not expected to be material. We nevertheless hope this resolution will address any concerns at the 2019 AGM, further details of which will be posted to all shareholders.

Board Composition, Independence and Diversity

On 12 April 2018, Christopher Legge was appointed to the Board as a non-executive director. On 17 April 2018 (immediately after the signing of the Annual Report and Financial Statements) he was appointed as Chairman of the Audit Committee and was appointed as a member of the Remuneration, Inside Information and Management Engagement Committees. During the recruitment process for Christopher Legge, the Board considered the balance of diverse business skills and experience required for the role, particularly considering the requirements of the role of Chairman of the Audit Committee.

As previously communicated, I temporarily re-joined the Audit Committee on 18 January 2018. Following an orderly hand-over to Christopher Legge, I stepped down from that Committee on 21 November 2018.

The Board believes it is currently in the best interests of shareholders for the Company to retain its existing composition, because each of the share classes continues to return capital to investors and the long-term outlook for the Company (as an umbrella structure) is unknown. We recognise that best market practice is that directors should not automatically be considered independent after nine years of service. However, as we explain in more detail below, we have no current plans to refresh the Board save for appointing directors as needed to replace a key vacant position should it arise. We shall keep this approach under review in the light of the Company's likely timeframe for harvesting returns in each share class, the skills and experience of the current board members, and ongoing costs.

While we currently have no female members on the Board, we maintain our strong belief in the value of diversity in the boardroom and recognise its importance. We will continue to assess the Board's composition, considering the needs of the Company and the benefits to shareholders. We welcome shareholder engagement and discussion on board composition and diversity, as with all aspects of our governance.

Outlook

Now that the three share classes have completed their respective investment periods, the Investment Manager's main objective is to maximise the value of the remaining underlying investments and return capital to shareholders. In that context, I am pleased to report that one of our significant private equity investments owned across all classes was sold in February 2019 resulting in the receipt of cash substantially equal to the current fair market value of that asset. It represents approximately 30% of the year-end NBDD NAV, 12% for NBDX and 9% for NBDG. On 18 March 2019 we announced a capital distribution of $8.0m for the holders of NBDD shares, $20.0m for the NBDX shareholders and £6.5m for the NBDG shareholders. We also reported a further, albeit smaller, realisation in the year end factsheet and the distribution of those proceeds will occur on the receipt of the funds, which is anticipated in the second quarter. This was also at an amount substantially equal to the current fair value of the asset at that time.

I would like to thank all our shareholders, many of whom are longstanding investors, for their ongoing confidence in our Company. I look forward to updating you further in the Interim Report that will be issued at the end of the summer as the Investment Manager continues to make progress in restructuring and realising the assets in the Portfolios.

John Hallam

Chairman

27 March 2019

2018 PERFORMANCE REVIEW | Investment Manager's Report

Investment Manager's Report

Ordinary Share Class

Summary

The NAV per share, adjusted for the impact of distributions during the year, decreased by 11.7% for the year ended 2018, principally driven by unrealised losses in two equity investments detailed below which were partly offset by unrealised gains in two equity investments and general FX hedging gains. During the harvest period, a larger percentage of NBDD's investments are in reorganised equities, including public equities, which were affected by the market volatility at the end of the year.

NBDD had three exits and two partial realisations in the year. The exits, described in more detail below, had a total return of $3.1m. The total return for the 2018 partial realisations, described in more detail below, was $6.2m as at 31 December 2018.

Portfolio Update

NBDD ended the year with a NAV per share of $0.9778 compared to $1.1096 at end of 2017. At 31 December 2018, 89% of NBDD's NAV was invested in distressed assets (including cash held in subsidiary accounts, receivables and net payables) with 8% held in cash net of payables (see table below).

The portfolio consists of 14 issuers across 10 sectors. The largest sector concentrations were in lodging & casinos, surface transportation, utilities and building and development.

Notable events below describe activity in the investments during 2018:

· Lodging & Casino investment -- During the fourth quarter, we executed a purchase and sale agreement with one buyer. In 2018, we increased the carrying value of this investment by 4% ($0.3m) at year-end to reflect the progress towards the transaction. The sale was executed in February 2019. Estimated cash proceeds to NBDD are approximately $6.9m (30% of 31 December 2018 NAV).

Significant Price Movement during 2018 (approximately 1% of NBDD NAV or $230,000)

Exits

During the year, we saw three exits, which generated a total return of $3.1m. This brings the total number of exits since inception in NBDD to 42, with total return of $41.0m. Detailed descriptions of the exits are at the end of this report.

Partial Realisations

There were two investments designated as partial realisations during 2018. The partial realisations generated a total return of $6.2m as of 31 December 2018. Detailed descriptions of the partial realisations are at the end of this report.

Distributions

Capital distributions of $3.7m were paid to investors by way of share redemptions during 2018. This brings total distributions (capital and an income distribution by way of dividend) paid and approved to date to $124.8m, or 100% of investors' original capital, since the realisation phase for this share class began. The ratio of total value (capital distributions, income distribution by way of dividend and current NAV) to original capital was 119%.

Extended Life Share Class

Summary

The NAV per share, adjusted for the impact of distributions during the year, decreased by 5.9% for the year ended 2018, primarily driven by decreases in three equity investments offset by increases in an equity investment and FX hedging gains detailed below. During the harvest period, a larger percentage of the fund's investments is in reorganised equities, including public equities, which were affected by the market volatility at the end of the year.

NBDX had five exits and three partial realisations in the year. The exits, described in more detail below, had a total return of $8.9m. The total return for the 2018 partial realisations, described in more detail below, was $23.5m as at 31 December 2018.

Portfolio Update

NBDX ended the year with a NAV per share of $0.9635 compared to $1.0387 at end of 2017. At 31 December 2018, 96% of NBDX's NAV was invested in distressed assets (including cash held in subsidiary accounts, receivables and net payables) with 3% held in cash (see table below). At 31 December 2018, the NBDX portfolio consisted of 28 issuers across 13 sectors. The largest sector concentrations were in lodging & casinos, shipping, auto components and surface transport.

Notable events below describe activity in the investments during 2018:

· Lodging & Casino investment - During the fourth quarter, we executed a sale and purchase agreement with one buyer for the land. In 2018, we increased the carrying value of this investment by 4% ($0.7m) at year-end to reflect the progress towards the transaction. The sale was executed in February 2019. Estimated cash proceeds to NBDX are approximately $17.9m (12% of 31 December 2018 NAV).

Significant Price Movements during 2018 (approximately 1% of NBDX NAV or $1,500,000)

Exits

During the year, we saw five exits for NBDX, which generated a total return of $8.9m. This brings the total number of exits since inception in NBDX to 52 with total return of $113.0m. Detailed descriptions of the exits are at the end of this report.

Partial Realisations

The partial realisations generated a net gain of $23.5m over the life of the fund. Detailed descriptions of the partial realisations are at the end of this report.

Distributions

During 2018 capital distributions of $19.2m were paid to investors by way of share redemptions and $2.1m by an income distribution by way of dividend. This brings total distributions (capital and an income distribution by way of dividend) paid and approved to date to $215.3m, or 60% of investors' original capital, since the realisation phase for this share class began. The ratio of total value (capital distributions, income distribution by way of dividend, buybacks and current NAV) to original capital was 104%.

Share Buybacks

During the year ended 31 December 2018, NBDX purchased 1.2m of its own shares under the buyback programme at a cost of $1.1m and weighted average discount of (6.12%). The shares have been cancelled.

New Global Share Class

 Summary

The NAV per share, adjusted for the impact of distributions during the year, increased by 1% for the year ended 2018 principally driven by unrealised gains in three equity investments offset by unrealised losses in two equity investments detailed below. During the harvest period, a larger percentage of the fund's investments have been in reorganised equities, including public equities, which were affected by the market volatility towards the end of the year.

NBDG had four exits and one new partial realisation during 2018. The exits, described in more detail below, had a total return of £4.2m. The total return for the 2018 partial realisations, described in more detail below, was £2.5m as at 31 December 2018.

Portfolio Update

NBDG ended 2018 with a NAV per share of £0.9206 compared to £0.9210 at the end of 2017. At 31 December 2018, 97% of NBDG's NAV was invested in distressed assets (including cash held in subsidiary accounts, receivables and net payables) with 2% held in cash (see table below). At year-end, the portfolio consisted of 21 issuers across 9 sectors. The largest sector concentrations were in lodging & casinos, shipping, auto components and commercial mortgage.

Notable events involving NBDG's investments during 2018 are below:

· Lodging & Casino investment - During the fourth quarter, we executed a purchase and sale agreement with one buyer for the land. In 2018, we increased the carrying value of this investment by 4% (£0.4m) at year-end to reflect the progress towards the transaction. The sale was executed in February 2019. Estimated cash proceeds to NBDG are approximately $9.1m (9% of 31 December 2018 NAV).

Significant Price Movements during 2018 (approximately 1% of NBDG NAV or £760,000)

Exits

During the year, we saw four exits, which generated a total return of £4.2m. This brought the total number of exits since inception to 16 with a total return of £10.0m. Detailed descriptions of the 2018 exits are at the end of this report.

Partial Realisations

NBDG had one partial realisation in 2018 from a lodging & casino investment, which is repaying principal and interest throughout the year. The total return as of 31 December 2018 was £2.5m. A detailed description of the 2018 partial realisation is at the end of this report.

Distributions

During 2018 capital distributions of £15.5m were paid to investors by way of share redemptions and £0.6m by an income distribution by way of dividend. This brings total distributions (capital and an income distribution by way of dividend) paid and approved to date to £18.2m, or 16% of investors' original capital, since the realisation phase for this share class began. The ratio of total value (capital distributions, income distribution by way of dividend, buybacks and current NAV) to original capital was 93%.

Share Buybacks

During the year ended 31 December 2018, NBDG purchased 165,000 shares under the buyback programme at a cost of £186,121 and weighted average discount of (11.38%). The shares have been cancelled. Full details are set out in Note 5.

Summary of Exits across all Share Classes

The total exits during the year can be summarised as follows:

· NBDD - Three exits

· NBDX - Five exits

· NBDG - Four exits

The annualised internal rate of return ("IRR") is computed based on the actual dates of the cash flows of the security (purchases, sales, interest and principal pay downs), calculated in the base currency of each portfolio. The Rate of Return ("ROR") represents the change in value of the security (capital appreciation, depreciation and income) as a percentage of the purchase amount. The purchase amount can include multiple purchases.

Exit A (Exit 40 for NBDD and Exit 48 for NBDX)

NBDD and NBDX purchased senior notes at a price of 62% of face value secured by a portfolio of nine aircraft leased to various operators. Eight of the nine aircraft were sold during 2016 with proceeds used to repay the notes. The remaining aircraft was sold in early 2018 and the notes were repaid with the proceeds and cancelled. Cash invested was $4.7m and cash received from coupon and principal repayments was $8.7m. The total return on the investment was $4.0m over 56 months. The IRR was 22% and ROR was 83% over the hold period of 56 months.

Exit B (Exit 49 for NBDX and Exit 13 for NBDG)

NBDX and NBDG purchased subordinated bonds in an oil and natural gas exploration and production company headquartered in Plano, Texas. The company's principal focus is on developing and producing from low decline assets in the Gulf Coast and the Rocky Mountains. The company uses enhanced oil recovery technology to extend resource life and production capacity. NBDX and NBDG purchased subordinated bonds at a discount to par value. We believed the company would either refinance the bonds at par before maturity or holders would be converted to equity at an attractive valuation in a restructuring scenario. Despite commodity price volatility and various distressed exchange offers, the company avoided a debt to equity restructuring. As commodity prices recovered the bond price approached our base case exit value and we exited the position during the year.

Exit C (Exit 41 for NBDD, 50 for NBDX and 14 for NBDG)

All of the Portfolios purchased secured bank debt issued by an Australian wind farm company at a discount to par. The company is the largest owner of wind farms in Australia and when NBDD and NBDX purchased the bank debt in 2011, it also owned wind farms in Europe and USA. The credit agreement included a cash flow sweep that captured free cash flow to the lenders to the detriment of the equity holders. The company sold the European and US assets and repaid the bank debt with the sales proceeds. The company retained the Australian assets. NBDG purchased the bank debt in 2016 after the European and US wind farms had been sold. With profitability improving, the company was able to refinance the credit agreement and the remaining bank debt was repaid at par in the second quarter of 2018. Currency changes affected the return. Foreign Exchange ("FX") risk was partially hedged over the life of the loan.

Exit D (Exit 15 for NBDG)

NBDG purchased 2nd lien notes in an industrial chemical manufacturer in anticipation of a chapter 11 bankruptcy. We expected the 2nd lien notes to be the fulcrum security and 2nd lien lenders would be converted to post-reorg equity, which occurred in 2014. During the restructuring NBDG participated in two rights offerings at a discount to plan value, and due to a successful operational restructuring and a cyclical recovery in the company's end markets, the stock price climbed above our upside case and we exited the investment during the fourth quarter.

Exit E (Exit 51 for NBDX and Exit 16 for NBDG)

NBDX and NBDG purchased €11.4m of a senior secured bank loan at a deep discount to par value, secured by a portfolio of nine hotels located throughout Spain. The hotels were located in attractive markets and included over 1,650 rooms. The borrower defaulted on the loan and the Company entered Spanish insolvency in 2015. While in the insolvency process, the lenders, including the Company, received a bid at a slight discount to par value for the entire loan issue by a strategic buyer in May 2018. The IRR and ROR below are calculated on fund currency. Based on trade currency (Euro), IRR was 8.9% and ROR was 43.5% for the NBDG share class and 4.6% and 20.7% respectively for the NBDX share class. FX risk was partially hedged over the life of the loan.

Exit F (Exit 42 for NBDD and Exit 52 for NBDX)

NBDD and NBDX invested $10.0m to purchase a senior construction loan secured by 168 condominium units and related parking spaces located south of Downtown Chicago, Illinois. The lender group executed a deed-in-lieu with the borrower and took possession of the underlying collateral. The group engaged a nationally recognised real estate firm to act as asset manager and broker for the remaining units, invested $1.1m additional capital to complete the units and common areas, and rebranded the property. The remaining units were sold with proceeds being used to return capital and profits to the owners. The IRR was 11% and ROR was 39%.

Summary of Partial Realisations across all Share Classes

All partial realisations currently in the portfolio are reported as at 31 December 2018 and it should be noted that their IRR and ROR are likely to be different at the time of the final exit. These were the following partial realisations:

· NBDD - Two

· NBDX - Three

· NBDG - One

Partial Realisation A:  

See exit F on above.

Partial Realisation B: NBDD and NBDX

50%

ROR AS AT 31 DECEMBER 2018

26%

IRR AS AT 31 DECEMBER 2018

NBDD and NBDX invested $7.1m to purchase first lien secured bank debt with attached private equity of an international packaging company. The debt was repaid in full shortly after the purchase with the receipt of $5.8m and the fund retained the equity, receiving dividends of $1.7m during the holding period. During the second quarter the company's sale to a complementary packaging company was announced. NBDX and NBDD elected to receive sale proceeds in cash and newly created shares in the acquirer for a combined value of $4.0m. In the third quarter, the funds received $1.5m cash as part of the sale proceeds from the disposal completed at the end of Q2 2017 and $1.0m for partial redemption of new shares received in the acquirer. The company's operating performance declined due to raw material price increases. The current value of the private equity position is $0.7m generating a total return of $3.6m as of 31 December 2018. IRR was 26% and ROR was 50% with a holding period of 73 months at 31 December 2018.

Partial Realisation C: NBDD and NBDX

204%

ROR AS AT 31 DECEMBER 2018

54%

IRR AS AT 31 DECEMBER 2018

NBDD and NBDX invested $9.2m in preferred equity certificates ("PECs") and private equity of a European packaging company. The PECs were retired in full in 2015 and the company paid dividends on the equity during the holding period. Cash received to date is $23.2m. In the second quarter, the company announced it was purchasing another complementary packaging company (Partial Realisation B, above) and completing a recapitalisation to refinance existing debt, provide cash for the acquisition and pay a dividend to shareholders. The company's operating performance declined due to raw material price increases. The current value of the private equity position is $4.7m, generating a total return of $18.7m as at 31 December 2018. IRR was 54% and ROR was 204% with a holding period of 76 months at 31 December 2018.

Partial Realisation D: NBDX

32%

ROR AS AT 31 DECEMBER 2018

10%

IRR AS AT 31 DECEMBER 2018

NBDX purchased a 32.5% interest in a holding company formed with a partner to purchase a senior construction loan that was secured by 107 residential condominiums and a 140,000 square feet mixed-use retail space in Greenwood Village, Colorado. The lenders successfully petitioned the court to install a nationally recognised real estate company to act as receiver, refurbish and complete the remaining condominiums for sale, rebrand and lead marketing of the residential units, and lead leasing efforts for the retail space. All of the condominiums and retail space were sold as at 30 June 2017. Certain reserves remain relating to warranties and other miscellaneous potential claims. Cash invested in the project is $23.1m and repayments on the loan to date are $29.8m over 66 months. The current value of the remaining investment is $0.7m. To date, the total return is $7.4m. Once certain reserves expire and any potential claims are resolved, we expect to exit this investment in full. The IRR was 10% and ROR was 32% as at 31 December 2018.

Partial Realisation E: NBDG

57%

ROR AS AT 31 DECEMBER 2018

18%

IRR AS AT 31 DECEMBER 2018

NBDG invested in a bank debt secured by a large tribal hotel and casino property located in New England. NBDG purchased its position for £4.5m and has received cash of £5.9m to date. The current value of the bank debt position is £1.1m, generating a total return of £2.5m as at 31 December 2018. IRR was 18% and ROR was 57% with a holding period of 59 months at 31 December 2018. 

Neuberger Berman Investment Advisers LLC Neuberger Berman Europe Limited

27 March 2019 27 March 2019

Portfolio Information

Ordinary Share Class

Top 10 Holdings at 31 December 2018

[For Sector and Country breakdown, click on, or paste the following link into your web browser, to view page 3 in the associated PDF document]

http://www.rns-pdf.londonstockexchange.com/rns/2507U_1-2019-3-27.pdf

Extended Life Share Class

Top 10 Holdings at 31 December 2018

[For Sector and Country breakdown, click on, or paste the following link into your web browser, to view page 4 in the associated PDF document]

http://www.rns-pdf.londonstockexchange.com/rns/2507U_1-2019-3-27.pdf

New Global Share Class

Top 10 Holdings at 31 December 2018

[For Sector and Country breakdown, click on, or paste the following link into your web browser, to view page 5 in the associated PDF document]

http://www.rns-pdf.londonstockexchange.com/rns/2507U_1-2019-3-27.pdf

Strategic Report

Principal Risks and Risk Management

The Board has overall accountability for ensuring that risk is effectively managed within the Company and on behalf of the Board, the Audit Committee has undertaken an exercise to identify, assess and manage the risks within the Company. The Company's principal risks are outlined below together with the commentary on how they are managed and/or mitigated.

Shareholders are reminded that the NBDD and NBDX Portfolios are US Dollar denominated and any non-US exposure is hedged back to the US Dollar. Therefore the Board does not consider that the outcome of Brexit will have a material direct impact on these Portfolios.

NBDG is a Pound Sterling denominated but unhedged share class with a broader geographic remit than the other two share classes. Whilst the full impact of Brexit is unknown your Board does expect continued volatility in the currency markets which in turn will translate into volatility in the value of NBDG's non-Sterling assets.

Investment Activity and Performance

Principal Risks Associated with Harvest Periods

Level of Premium or Discount

Fair Valuation of Illiquid Assets

Going Concern

The Company's principal activities are set out above. The financial position of the Company is set out below. In addition, Note 4 to the Financial Statements includes the Company's objectives, policies and processes for managing its capital, its financial risk management and its exposures to credit risk and liquidity risk.

The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the twelve months from the date these accounts are signed and the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the Financial Statements and confirm that they have been prepared in accordance with Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks, published by the FRC.

The going concern statement required by the 2016 AIC Code of Corporate Governance (the "AIC Code") is set out in the "Directors' Responsibilities Statement" below.

Viability Statement

In accordance with provision C2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council in April 2016 (the "Code"), the Directors have assessed the future prospects of the Company. In making their assessment the Directors have taken into account the Company's status as an investment entity, its investment objectives, the principal risks it faces, its current position and the time period over which its assets are likely to be realised.

In their assessment of the viability of the Company over the forthcoming two years, the Directors have carried out a robust assessment of the principal risks and uncertainties the Company faces, as detailed above. These principal risks include the timing of asset realisations during the Portfolios' harvest periods, the Company's income and expenditure projections, and the expected cash flows arising in particular from capital distributions to shareholders. The Directors noted that such distributions may be restricted if the interest and dividend income generated in the Portfolios is not sufficient to meet operational expenses.

As part of their review, the Directors carried out a series of stress tests under different scenarios which assumed a significant fall in income and asset levels and a corresponding increase in expenses, and were satisfied with the results of this analysis.

The Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the remaining life of each of its three share classes, which the Directors consider to be the two year period to 31 December 2020. However the Directors noted that the prospects for the Company, which has an indefinite life, are subject to change should the Company add new share classes to its structure before the existing Portfolios' assets are fully realised.

Performance Measurement and Key Performance Indicators

In order to measure the success of the Company in meeting its objectives and to evaluate the performance of the Investment Manager, the Directors take into account the following performance indicators:

• Returns and NAV - At each meeting the Board reviews and compares against other debt-orientated investment companies and various indices the performance of the Portfolios as well as the NAV, income and share price of each share class. To assist in this review the Board considers formal reports from both the Investment Manager and brokers which assess the performance of the asset class and look at trading activity. The Investment Manager also provides an in-depth analysis of the holdings within the Portfolios;

· Discount/premium to NAV - At each Board meeting, the Board monitors the level of the Company's discount or premium to NAV per share class and reviews the average discount/premium for other debt-orientated investment companies. The Company publishes a NAV per share on a daily basis through the official newswire of the London Stock Exchange. The Company's Extended Life Shares traded between a discount of 4.9% and 11.7% with an average discount of 6.1%. The Company's New Global Shares traded between a discount of 10.3% and 12.3% with an average discount of 11.4%.

· Ongoing Charges - In the year to 31 December 2018, the Company's Ongoing Charges were 2.05%. This figure is based on an annual expense figure for the year of $6,471,697. This figure, which has been prepared in accordance with AIC guidance, and may therefore differ from that disclosed in the Key Information Document, represents the Company's management fees and all other operating expenses, excluding finance costs payable, expressed as a percentage of average net assets. No performance fees were payable as at 31 December 2018. The Ongoing Charges by share class are disclosed above.

• Total Expense Ratio ("TER") - In the year to 31 December 2018, the Company's TER was 2.23%. This figure is based on an annual expense figure for the year of $7,011,227. This figure which has been prepared in accordance with the US Generally Accepted Accounting Principles ("US GAAP") methodology and represents the annual percentage reduction in shareholder returns as a result of recurring operational expenses including any performance fee. No performance fees were payable as at 31 December 2018. The TERs by share class are disclosed above.

Management Arrangements

Investment Management Agreement

On 17 July 2014, the Company, the Manager and the AIFM made certain classificatory amendments to their contractual arrangements for the purposes of compliance with the European Commission's Directive on Alternative Investment Fund Managers (the "AIFM Directive"). The Sub-Investment Management Agreement was terminated on 17 July 2014 and Neuberger Berman Investment Advisers LLC, which was the Sub-Investment Manager, was appointed as the AIFM per the amended and restated Investment Management Agreement ("IMA") dated 17 July 2014. The IMA was further amended and restated on 31 December 2017. Under this agreement, the AIFM is responsible for risk management and day-to-day discretionary management of the Company's Portfolios (including un-invested cash). The risk management and discretionary portfolio management functions are performed independently of each other within the AIFM structure. The AIFM is not required to, and generally will not, submit individual investment decisions for approval by the Board. The Manager, Neuberger Berman Europe Limited, was appointed under the same IMA to provide, amongst other things, certain administrative services to the Company. Please refer to Note 6 below for details of fee entitlement.

The IMA can be terminated either by the Company on one hand or the Investment Manager on the other, but in certain circumstances, the Company would be required to pay compensation to the Investment Manager of six months' management charges. No compensation is payable if notice of termination of more than six months is given.

Administration and Custody Agreement

Effective 1 March 2015, the Company entered into an Administration and Sub-Administration Agreement with U.S. Bank Global Fund Services (Guernsey) Limited ("USBG") (formerly known as U.S. Bancorp Fund Services (Guernsey) Limited) and U.S. Bank Global Fund Services (Ireland) Limited ("USBI") (formerly known as Quintillion Limited) a wholly-owned subsidiary of USBG Under the terms of the agreement, Sub-Administration services are delegated to USBI (the "Sub-Administrator"). US Bank National Association (the "Custodian") was appointed custodian to the Company effective 1 March 2015. See Note 6 below for details of fee entitlement.

On 1 June 2018 the Company entered into an Amendment to the Administration and Sub-Administration agreement to reflect the requirements of the General Data Protection Regulation (EU) 2016/679 ("GDPR") and the Data Protection (Bailiwick of Guernsey) Law, 2017, as amended from time to time.

Company Secretarial and Registrar Arrangements

Effective 20 June 2017, company secretarial services were provided by Carey Commercial Limited. Registrar services are provided by Link Market Services (Guernsey) Limited.

See Note 6 below for details of fee entitlement.

Related Party Transactions

The contracts with the Investment Manager and Directors are the only related party transactions currently in place. Other than fees payable in the ordinary course of business there have been no material transactions with these related parties which have affected the financial position or performance of the Company in the financial year.

For information on performance fees and Directors' fees please refer to Note 6 below.

For and on behalf of the Board.

John Hallam Christopher Legge

Chairman Director

27 March 2019 27 March 2019

Directors

John Hallam (Chairman)

John Hallam is a fellow of the Institute of Chartered Accountants in England and Wales and qualified as an accountant in 1971. Previously, Mr Hallam was a partner at PricewaterhouseCoopers and retired in 1999 after 27 years with the firm in Guernsey and in other countries. He is a director of Real Estate Credit Investment Limited and a number of other financial services companies, some of which are listed on recognised exchanges. Mr Hallam served for many years as a member and latterly chairman of the GFSC, from which he retired in 2006.

Michael J. Holmberg

Michael J. Holmberg, Managing Director of Neuberger Berman, joined the NB Group in 2009. Mr Holmberg is the head of distressed portfolio management. Prior to joining NB Group, Mr Holmberg founded Newberry Capital Management LLC in 2006 and before that he founded and managed Ritchie Capital Management's Special Credit Opportunities Group. He was also a managing director at Strategic Value Partners and Moore Strategic Value Partners. He began investing in distressed and credit oriented strategies as a portfolio manager at Continental Bank/Bank of America, where he established the bank's global proprietary capital account. Mr Holmberg received a BA in economics from Kenyon College and an MBA from the University of Chicago.

Christopher Legge (Chairman of the Audit Committee)

Chris Legge is a Guernsey resident and worked for Ernst & Young in Guernsey from 1983 to 2003. Having joined the firm as an audit manager in 1983, he was appointed a partner in 1986 and managing partner in 1998. From 1990 to 1998, he was head of Audit and Accountancy and was responsible for the audits of a number of banking, insurance, investment fund, property fund and other financial services clients. He also had responsibility for the firm's training, quality control and compliance functions. He was appointed managing partner for the Channel Islands region in 2000 and merged the business with Ernst & Young LLP in the United Kingdom. He retired from Ernst & Young in 2003. Chris currently holds a number of non-executive directorships in the financial services sector including several Guernsey investment companies which are listed in the UK and where he also chairs the Audit Committee. He is an FCA and holds a BA (Hons) in Economics from the University of Manchester.

Christopher Sherwell (Senior Independent Director)

Christopher Sherwell is a non-executive director of a number of investment-related companies. Mr Sherwell was managing director of Schroders (C.I.) Limited from April 2000 to January 2004. He remained a non-executive director of Schroders (C.I.) Limited until he stepped down at the end of December 2008. Before joining Schroders in 1993, he worked as Far East regional strategist with Smith New Court Securities in London and then in Hong Kong. Mr Sherwell was previously a journalist, working for the Financial Times. Mr Sherwell received a B.Sc. (Gen) from the University of London in 1968, an M.A. from the University of Oxford in 1971 and an M. Phil. from the University of Oxford in 1973.

Stephen Vakil (Chairman of the Management Engagement Committee and Chairman of the Remuneration Committee)

After graduating with a BSc in economics from Bath University in 1983, Stephen Vakil joined L Messel & Co and moved to Chase Manhattan in 1987 to focus on private client portfolio management. In 1989, he left to join Foster & Braithwaite where he established the research function and subsequently became a director. Following Foster & Braithwaite's merger with Quilter Goodison to form Quilter & Co in 1996, Mr Vakil was given responsibility for the London investment teams, the research department and marketing function. He was made a managing director in 2001. Having played a key role in a number of corporate transactions, Mr Vakil left Quilter Cheviot in 2013. He is an Associate of the Society of Investment Professionals. 

Sarah Evans stepped down with effect from 18 January 2018 due to health reasons.

Directors' Report

The Directors present their report and Financial Statements of the Company and their report for the year ended 31 December 2018.

Share Capital

The number of shares in issue at 31 December 2018 was as follows:

Class A Shares 2

Ordinary Shares 23,395,578

Extended Life Shares 154,104,598

New Global Shares 82,770,361

Share Buybacks

At the Annual General Meeting ("AGM") of the Company held on 19 June 2018, the Directors were granted the general authority to purchase in the market up to 14.99% of the Ordinary Shares, 14.99% of the Extended Life Shares and 14.99% of the New Global Shares in issue (as at 19 June 2018). The latest authority will expire at the AGM to be held on 25 June 2019. Pursuant to this authority, and subject to the Law and the discretion of the Directors, the Company may purchase shares of any of its classes in the market on an ongoing basis with a view to addressing any imbalance between the supply of and demand for such shares, thereby increasing the NAV per share of the shares and assisting in controlling the share price discount to NAV per share.

During the year 1,220,000 Extended Life Shares and 165,000 New Global Shares were repurchased by the Company for immediate cancellation for gross consideration of $1,146,809 and £186,121 respectively. There were no buybacks of the Company's Ordinary Shares in 2018.

The Directors intend to seek annual renewal of this authority from Shareholders.

Distributions

The Company will, from time to time, pay out income distributions by way of dividend in respect of each share class in accordance with the Company's dividend policy as set out below. In addition, any capital proceeds attributable to a share class (as determined by the Directors in accordance with the Articles), will, at such times and in such amounts as the Directors shall in their absolute discretion determine, be distributed to shareholders of that class pro rata to their respective holdings of the relevant shares. Further information on the Company's income and capital distribution policies can be found above.

Dividend Policy

As set out in the Company's Prospectus, the Company will pay out an income distribution by way of dividend, in respect of each class of shares, all net income received on investments of the Company attributable to such class of shares. It is not anticipated that income from the portfolio will be material and therefore any dividends may be on an ad-hoc basis. It is a requirement of an exception to the United Kingdom offshore fund rules that all income from the Company's Portfolio (after deduction of reasonable expenses) is to be paid to investors. This policy should ensure that this requirement will be met. The exact amount of such dividend in respect of any class of Shares will be variable depending on the amounts of income received by the Company attributable to such class of Shares and will only be made available in accordance with applicable law at the relevant time, including the Law (and, in particular, will be subject to the Company passing the solvency test contained in the Law at the relevant time). Furthermore, the amount of dividends paid in respect of one class of shares may be different from that of another class. This policy will be put to a shareholder vote by way of separate resolution at the 2019 AGM.

Distributions made during the year

Set out below are details of the distributions made during the year.

Income distribution by way of dividend

Capital distributions by way of a compulsory partial redemption

Substantial Share Interests

Based upon information deemed to be reliable as provided by the Company's registrar, as at 22 March 2019, the following shareholders owned 5% or more of the issued shares of the Company.

Note: shareholdings may be greater than 5% in the share class but may not be 5% in aggregate of the Company's issued share capital.

Notifications of Shareholdings

In the year to 31 December 2018 the Company has been notified in accordance with Chapter 5 of the DTR (which covers the acquisition and disposal of major shareholdings and voting rights), of the following voting rights as a shareholder of the Company. When more than one notification has been received from any shareholder, only the latest notification is shown. For non-UK issuers, the thresholds prescribed under DTR 5.1.2 for notification of holdings commence at 5%. Class A shares do not hold voting rights.

Since the year end at the date of this report, one notification was received by the Company:

 1 most recent TR-1 notification received during the relevant year is listed above

Directorship Disclosures in Public Companies (as at 31 December 2018)

Anti-Bribery and Corruption Policy

The Board of the Company has a zero tolerance approach to instances of bribery and corruption. Accordingly it expressly prohibits any Director or associated persons, when acting on behalf of the Company, from accepting, soliciting, paying, offering or promising to pay or authorise any payment, public or private, in the United Kingdom or abroad to secure any improper benefit for them or for the Company. The Investment Manager has also adopted a zero tolerance approach to instances of bribery and corruption.

The Board insists on strict observance with these same standards by its service providers in their activities for the Company and continues to refine its process in this regard. The Company's policy is available on its website at www.nbddif.com/corporate_governance.html

Criminal Facilitation of Tax Evasion Policy

The Board of the Company has a zero tolerance commitment to preventing persons associated with it from engaging in criminal facilitation of tax evasion. The Board has satisfied itself in relation to its key service providers that they have reasonable provisions in place to prevent the criminal facilitation of tax evasion by their own associated persons and will not work with service providers who do not demonstrate the same zero tolerance commitment to preventing persons associated with it from engaging in criminal facilitation of tax evasion. The Company's policy is available on its website at www.nbddif.com/corporate_governance.html.

General Data Protection Regulation

The Company takes privacy and security of your information seriously and will only use such personal information as set out in the Company's privacy notice which can be found on the Company's website at: https://www.nbddif.com/pdf/NB_Privacy_Notice_2019.pdf 

Employees and Socially Responsible Investment

The Company has a management contract with the Investment Manager. It has no employees and all of its Directors are non-executive, with day-to-day activities being carried out by third parties. There are therefore no disclosures to be made in respect of employees. The Company's main activities are carried out by Neuberger Berman, which is a signatory of the Principles of Responsible Investment and has an ongoing commitment to strengthening and refining its environmental, social and governance approach. An overview of Neuberger Berman's Principles for Responsible Investment is detailed on its website at www.nb.com/pages/public/en-gb/principles-for-responsible-investment.aspx.

Global Greenhouse Gas Emissions

The Company has no significant greenhouse gas emissions to report from its operations for the year to 31 December 2018 (2017 - none), nor does it have responsibility for any other emissions producing sources.

Gender Metrics

The current Board members are male. More information on the Board's consideration of diversity is given in the Corporate Governance Report below.

The Modern Slavery Act 2015 ("MSA")

The MSA requires companies to prepare a slavery and human trafficking statement for each financial year of the organisation. As the Company has no employees and does not supply goods or services, the MSA does not directly apply to it. The MSA requirements more appropriately relate to the Investment Manager which is a signatory of the Principles of Responsible Investment (please see "Employees and Socially Responsible Investment" above) which include social factors such as working conditions, including slavery and child labour. 

Disclosure of Information to Auditors

The Directors who were members of the Board at the time of approving this report are listed above. Each of those Directors confirms that:

· to the best of his or her knowledge and belief, there is no information relevant to the preparation of their report of which the auditors are unaware; and

· he or she has taken all steps a director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company's auditors are aware of that information.

For and on behalf of the Board.

John Hallam Christopher Legge

Chairman Director

27 March 2019 27 March 2019

Corporate Governance Report

Applicable Corporate Governance Codes

As the Company is listed on the SFS it is only required to follow the GFSC code of corporate governance (the "Code"), applicable to Guernsey companies. However, the Board has chosen to follow the AIC Code of Corporate Governance published in February 2013 and amended in July 2016 (the "AIC Code"). The AIC Code, as explained by the 2016 AIC Corporate Governance Guide for Investment Companies (the "AIC Guide"), addresses all the principles set out in the Code as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company. The Company notes that the AIC has published an updated code on 5 February 2019, to reflect the revised principle and provisions in the 2018 UK Corporate Governance Code published by the FRC in July 2018. The 2019 AIC Code (the "2019 Code") came into effect for accounting periods beginning on or after 1 January 2019 and the AIC Guide has been withdrawn. The Board will report against the 2019 Code for the year ending 31 December 2019.

On 1 January 2012, the GFSC's "Finance Sector Code of Corporate Governance" came into effect and was amended in February 2016. The GFSC has stated in its Code that companies which report against the UK Corporate Governance Code (the "UK Code") or the AIC Code are deemed to meet their Code, and need take no further action.

The Board of the Company has considered the principles and recommendations of the 2016 AIC Code, by reference to the AIC Corporate Governance Guide for Investment Companies (the "AIC Guide").

The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Code), will provide more relevant information to shareholders. Copies of the AIC Code and the AIC Guide can be found at www.theaic.co.uk.

Corporate Governance Statement

Throughout the year ended 31 December 2018 the Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Code, except where explanations have been provided.

For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers that certain provisions of the UK Code are not relevant to the position of the Company, being an externally managed investment company. In particular all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result the Company has no executive directors, direct employees or internal operations. The Company has therefore not reported further in respect of the following provisions:

· the role of the chief executive;

· executive directors' remuneration; and

· the need for an internal audit function.

The Directors believe that this Annual Report and Financial Statements, presents a fair, balanced and understandable assessment of the Company's position and prospects, and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

The Company complies with the corporate governance statement requirements pursuant to the FCA's DTRs by virtue of the information included in the Corporate Governance section of the Annual Report together with information contained in the Strategic Review and the Directors' Report.

Our Governance Framework

The Board members of NB Distressed Debt Investment Fund Limited

John Hallam (Chairman) - independent non-executive Director

Sarah Evans (stepped down on 18 January 2018), Christopher Legge (appointed on 12 April 2018), Christopher Sherwell and Stephen Vakil - independent non-executive Directors

Michael Holmberg - non-executive Director

Responsibilities:

Overall conduct of the Company's business and setting the Company's strategy.

More details are provided below.

Board Independence and Composition

The biographical details of the Directors holding office at the date of this report are listed above and demonstrate a breadth of investment, accounting and professional experience.

John Hallam, Christopher Legge, Christopher Sherwell and Stephen Vakil are considered independent from the Investment Manager. Michael Holmberg is deemed not independent as he is employed by a Neuberger Berman group company.

The Board believes that Mr Holmberg brings a significant amount of experience and expertise to the Board; however as a non-independent Director, Mr Holmberg does not sit on the Audit Committee, Remuneration Committee or the Management Engagement Committee and is not involved in any matters discussed by the Board concerning the evaluation of the performance of the Investment Manager.

The Directors review their independence annually.

The Company Secretary through its representative acts as Secretary to the Board and Committees and in doing so it:

· assists the Chairman in ensuring that all Directors have full and timely access to all relevant documentation;

· will organise induction of new Directors; and

· is responsible for ensuring that the correct Board procedures are followed and advises the Board on corporate governance matters.

Directors' Appointment

No Director has a service contract with the Company. Directors have agreed letters of appointment with the Company, copies of which are available for review by shareholders at the Registered Office and will be available at the 2019 AGM. The length of service of each Director is shown in the Directors' Remuneration Report below. Any Director may resign in writing to the Board at any time.

Mr Legge was appointed a non-executive Director of the Board on 12 April 2018. The Board believes that this appointment strengthens the Board and that he has the necessary skills and experience to fill the vacant position left by Sarah Evans.

The Board has formal, rigorous and transparent procedures for the appointment of additional directors. Candidates are identified and selected on merit against objective criteria and with due regard to the benefits of diversity on the Board, including gender. The Board undertakes a broad search which includes obtaining lists of potential candidates from a variety of sources leading to agreed short-lists. Interviews are then held with potential candidates. The skills, experience and time availability of each candidate is considered by the Board with due regard to the skills and experience necessary to replace those lost by retirements or otherwise considered desirable to strengthen the Board. Short-listed candidates are invited to meet the Chairman and the Investment Manager and feedback is provided to the Board prior to selection. In this instance the Board affirms that the decision to appoint Christopher Legge was based on merit, skills and experience and was considered fair and non-discriminatory.

In accordance with the AIC Code and the Company's Articles, all Directors offered themselves for re-election at the first AGM of the Company; the Company subsequently adopted a policy of requiring all Directors to stand for annual re-election. John Hallam, Michael Holmberg, Stephen Vakil and Christopher Sherwell were re-elected as Directors and Christopher Legge was elected as Director (being his first AGM since appointment) at the AGM on 19 June 2018. The names and biographies of the Directors holding office at the date of this report are listed above.

Tenure of Non-Executive Directors

The Board has adopted a policy on tenure that is considered appropriate for an investment company. Mr Hallam and Mr Sherwell will each have served as a director of the Company for nine years in April 2019. The Board does not believe that length of service, by itself, leads to a closer relationship with the Investment Manager or necessarily affects a Director's independence. The Board has sought to appoint Directors with past and current experience of various areas relevant to the Company's business. The Board agreed to adopt an amended tenure and succession policy in February 2018 which is reflective of the Board's belief that it is not in the best interests of shareholders to replenish the Board at the current time when the long-term outlook of the umbrella of the Company is unknown, save for the appointment of directors to fill a vacant position with due regard to the skills and experience necessary to replace those lost by Directors' retirements.

Directors are expected to devote such time as is necessary to enable them to discharge their duties. Other business relationships, including those that conflict or may potentially conflict with the interests of the Company, are taken into account when appointing Board members and are monitored on a regular basis.

Re-election of Directors

All of the Directors have outlined their intention to submit themselves for re-election at the next AGM to be held on 25 June 2019.

The Board recognises that the Portfolios are now in their harvest periods and, as such, it believes that it is in the best interests of shareholders and the Company to maintain the current Board composition in respect of the long standing directors for the time being in order to benefit from the Directors' technical knowledge and experience of managing the Company's affairs as the assets continue to wind down. The Board confirmed that the contributions made by the Directors offering themselves for re-election at the AGM on 25 June 2019 continue to be effective and that the Company should support their re-election.

The dates of appointment of all Directors are provided in the Directors' Remuneration Committee Report.

Board Diversity

The Board considers that its members have a balance of skills and experience which are relevant to the Company. The Board notes the Davies Report, Hampton-Alexander Review and the Parker Review, and believes in the value and importance of diversity in the boardroom but it does not consider it is appropriate or in the interests of the Company and its shareholders to set prescriptive targets for gender, ethnicity, nationality or any other criterion of representation on the Board. At 31 December 2018, the Board members were male. Whilst due regard to gender, ethnicity and nationality was given during the selection process to appoint Christopher Legge, it was the Board's belief that it was necessary, first and foremost, to focus on the skills and experience necessary to fill the vacant position left by Sarah Evans. The Board continues to focus on encouraging diversity of business skills and experience, recognising that directors with diverse skills sets, capabilities and experience gained from different backgrounds enhances the Board.

Board Responsibilities

The Board reviews all aspects of the Company's affairs including the setting and monitoring of investment strategy and the review of investment performance. With the Portfolios now in their harvest periods, the Investment Manager takes decisions as to the sale of individual investments, in line with the investment policy and strategy set by the Board. The Investment Manager together with the Company Secretary and Administrator also ensures that all Directors receive, in a timely manner, all relevant management, regulatory and financial information relating to the Company and its portfolio of investments. Representatives of the Investment Manager attend each Board meeting, enabling the Directors to question any matters of concern or seek clarification on certain issues. Matters specifically reserved for decision by the full Board have been defined and a procedure adopted for Directors in the furtherance of their duties to take independent professional advice at the expense of the Company. This is available on the Company's website www.nbddif.com.

Conflict of Interests

Directors are required to disclose all actual and potential conflicts of interest to the Board as they arise and the Board may impose restrictions or refuse to authorise conflicts if deemed appropriate. The Directors have undertaken to notify the Company Secretary as soon as they become aware of any new potential conflicts of interest that would need to be approved by the Board. Only Directors who have no material interest in the matter being considered will be able to participate in the Board approval process.

It has also been agreed that the Directors will advise the Chairman and the Company Secretary in advance of any proposed external appointment.

None of the Directors had a material interest in any contract, which is significant to the Company's business during the year ended 31 December 2018, except Michael Holmberg, an employee of the Neuberger Berman Group of which the Investment Manager is a part.

The Directors' Remuneration Report below provides information on the remuneration and interests of the Directors.

Performance Evaluation

The performance of the Board, its Committees and the Directors, including the Chairman, was reviewed by the Board in November 2018, by means of an internal questionnaire. The Company Secretary collated the results of the questionnaires and the consolidated results were reviewed and discussed by the Board and by the Remuneration Committee. The Chairman reviewed each individual Director's contribution.

The 2018 evaluation concluded that:

· the performance of the Board, its committees, the Chairman and each of the Directors continues to be effective;

· Mr Hallam, Mr Legge, Mr Sherwell and Mr Vakil are unanimously considered independent;

· all Directors should be proposed for re-appointment at the 2019 AGM; and

· the Board was considered to have an appropriate mix of skills and experience.

The Board intends to conduct another internal board evaluation in November 2019, and will continue to review its procedures, its effectiveness and development in the year ahead.

The Directors noted that all three share classes were currently in harvest phase and agreed that, due to the position of the Company, it was not beneficial or necessary to incur the costs of an externally facilitated external evaluation. The Directors agreed that if the Company's life were extended, further consideration would be given to an externally facilitated evaluation and therefore agreed to keep this position under review.

Induction/Information and Professional Development

Directors are provided, on a regular basis, with key information on the Company's policies, regulatory requirements and its internal controls. Regulatory and legislative changes affecting Directors' responsibilities are advised to the Board as they arise along with changes to best practice by, amongst others, the Company Secretary and the auditors. Advisers to the Company also prepare reports for the Board from time to time on relevant topics and issues. In addition, Directors attend relevant seminars and events to allow them continually to refresh their skills and knowledge and keep up with changes within the investment company industry. The Chairman reviewed the training and development needs of each Director during the annual Board evaluation process. The Chairman confirmed that all directors actively kept up to date with industry developments and issues.

When Mr Legge was appointed to the Board, he was provided with all relevant information regarding the Company and his duties and responsibilities as a Director. In addition, Mr Legge spent time with representatives of the Investment Manager and Company Secretary in order to learn more about their processes and procedures.

Independent Advice

The Board recognises that there may be occasions when one or more of the Directors feels it is necessary to take independent legal advice at the Company's expense. A procedure is set out in the Directors letters of appointment to enable them to do so.

Indemnities

To the extent permitted by the Law, the Company's Articles provide an indemnity for the Directors against any liability except such (if any) as they shall incur by or through their own breach of trust, breach of duty or negligence. Each Director has an Instrument of Indemnity with the Company.

During the year, the Company has maintained insurance cover for its Directors and Officers under a Directors' and Officers' liability insurance policy.

Relationship with the Investment Manager, Company Secretary, Administrator and Sub-Administrator

All of the Company's management and administration functions are delegated to external parties including the management of the investment Portfolios, the custodial services (including the safeguarding of assets), the registration services and the day-to-day company secretarial, administration and accounting services. Each of these contracts was entered into after full and proper consideration by the Board of the quality and cost of services offered, including the control systems in operation in so far as they relate to the affairs of the Company. The Management Engagement Committee is responsible for the oversight of service providers.

The Board receives and considers reports regularly from the Investment Manager and ad hoc reports and information are supplied to the Board as required. With the Portfolios now in their harvest periods, the Investment Manager takes decisions as to the sale of individual investments. The Investment Manager, Company Secretary, Administrator and Sub-Administrator also ensure that all Directors receive, in a timely manner, all relevant management, regulatory and financial information. Representatives of the Investment Manager, Administrator and Sub-Administrator attend each Board meeting enabling the Directors to probe further into matters of concern.

The Directors have access to the advice and service of the corporate Company Secretary through its appointed representative who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. The Board, the Investment Manager, Company Secretary, the Administrator and Sub-Administrator operate in a supportive, co-operative and open environment.

Shareholder Engagement

The Board believes that the maintenance of good relations with shareholders is important for the long term prospects of the Company. It has, since admission, sought engagement with investors. Where appropriate, the Chairman, and other Directors are available for discussion about governance and strategy with major shareholders and the Chairman ensures communication of shareholders' views to the Board. The Board receives feedback on the views of shareholders from its Corporate Broker ("Broker") and the Investment Manager, and shareholders are welcome to contact the Directors at any time via the Company Secretary by email at: NB.Distressed@wearecarey.com.

The Directors believe that the AGM provides an appropriate forum for shareholders to communicate with the Board and encourages participation. There is an opportunity for individual shareholders to question the Chairman of the Board, the Audit Committee, Management Engagement Committee, Remuneration Committee and Inside Information Committee at the AGM. The Board also welcomes the opportunity to meet with investors on a one-to-one basis, upon request.

The Board assesses the results of AGMs and will consider whether there is a significant number of votes not lodged in favour of a resolution. Where the Board considers that a significant number of votes have not been lodged in favour of a resolution, an immediate announcement will be made and further disclosures will be made in the next Annual Report. The Broker and the Investment Manager will seek feedback from investors. In addition to this the Broker and the Investment Manager will provide the Board with feedback that has been received from investors about the performance of the Company and the Investment Manager.

At the AGM held on 19 June 2018 the Company received notable votes against or withheld on the following resolutions:

The Company received a significant number of votes against Resolution 1 (22.8% of votes against, 77.2% of votes for) at the AGM in relation to the receipt and consideration of the Company's Annual Report. The Board understands that the recommendation to vote against the specific Resolution came from Pensions & Investments Research Consultants ("PIRC") and was due to the Company's income distribution policy not being put to a shareholder vote by way of a separate resolution at the 2018 AGM.

The Board engaged with shareholders in order to understand their views in relation to the specific resolution. Following these discussions with respect to future AGMs, the Board intends to put its income distribution policy as detailed above to a shareholder vote by way of a separate resolution which it hopes will address any shareholder concerns.

The Annual Reports, Key Information Documents and quarterly fact sheets are available to provide shareholders with a clear understanding of the Company's activities and its results. This information is supplemented by the daily calculation and publication via a Regulatory Information Service of the net asset value of the Company's Ordinary Shares, Extended Life Shares and New Global Shares. All documents issued by the Company can be viewed on the Company's website at www.nbddif.com.

2019 AGM

The 2019 AGM will be held in Guernsey on 25 June 2019. The notice for the AGM will set out the ordinary and special resolutions to be proposed at the meeting. Separate resolutions are proposed for each substantive issue. Shareholders wishing to lodge questions in advance of the meeting and specifically related to the resolutions proposed are invited to do so by writing to the Company Secretary at the address given below.

Voting on all resolutions at the AGM will be on a poll. The proxy votes cast, including details of votes withheld are disclosed to those in attendance at the meeting and the results are published on the Company's website and announced via a Regulatory Information Service. Where a significant number of votes have been lodged against a proposed resolution (being greater than 20%), in accordance with the AIC Code published in February 2019, the Board intends to identify those shareholders and further understand their views to address the concerns of the Company's shareholders.

Board Meetings

The Board meets at least four times a year. Certain matters are considered at all Board meetings including Portfolio composition and asset realisation strategy, capital repayments and income distributions by way of dividend, NAV and share price performance and associated matters such as asset allocation, risks, strategy, marketing and investor relations, peer group information and industry issues. Consideration is also given to administration and corporate governance matters, where applicable reports are received from Board committees.

Directors unable to attend a board meeting are provided with the board papers and can discuss issues arising in an informal meeting with the Chairman or another non-executive Director.

Attendance at scheduled meetings of the Board and its committees in the 2018 financial year

* Mr Legge joined the Board on 12 April 2018.

In addition to these meetings, 8 ad-hoc board and board committee meetings were held during the year for various matters, primarily of an administrative nature including, but not limited to, distributions. These meetings were attended by those Directors available at the time.

Board Committees

The Board has established an Audit Committee, Management Engagement Committee, Remuneration Committee and an Inside Information Committee with defined terms of reference and duties. Further details of these committees can be found in their reports below. The terms of reference for each committee can be found on the Company's website at www.nbddif.com.

The Board feels that due to the size and structure of the Company, establishing a Nomination Committee is unnecessary and that the Board as a whole will consider matters relating to appointment of Directors.

For and on behalf of the Board.

John Hallam Christopher Legge

Chairman Director

27 March 2019 27 March 2019

Audit Committee Report

Membership

Christopher Legge - Chairman (Independent non-executive Director)

Christopher Sherwell (Senior Independent non-executive Director)

John Hallam1 (Chairman of the Company and Independent non-executive Director)

Stephen Vakil (Independent non-executive Director)

1 Mr Hallam had stepped down from the Audit Committee on 31 December 2017 but in light of Mrs Evans' resignation as a Director the Board considered that Mr Hallam should re-join the Audit Committee effective 18 January 2018 for an Interim period until the new Audit Committee Chairman, Mr Legge, was established in post. Mr Hallam stepped down as a member of the Audit Committee with effect from 21 November 2018.

Key Objectives

The Committee aims to ensure effective governance over the appropriateness of the Company's financial reporting including the adequacy of related disclosures, the performance of the external auditor, and the management of the Company's systems of internal controls and business risks.

Responsibilities

· reviewing the Company's financial results announcements and Financial Statements and monitoring compliance with relevant statutory and listing requirements;

· reporting to the Board on the appropriateness of the Company's accounting policies and practices including critical accounting policies and practices;

· advising the Board on whether the Audit Committee believes the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy;

· overseeing the relationship with the external auditor;

· considering the financial and other implications of the independence of the auditors arising from any non-audit services to be provided by the auditor;

· reviewing the effectiveness of the Company's risk management framework, taking into account the reports on the internal controls of the Company's service providers;

· considering the nature and extent of the significant risks the Company faces in achieving its strategic objectives; and

· compiling a report on the Audit Committee's activities to be included in the Company's Annual Report.

Audit Committee Meetings

The Audit Committee meets at least three times a year with only its members and the Committee Secretary having the right to attend. However, other Directors and representatives of the Investment Manager and Administrator will be invited to attend such meetings on a regular basis and other non-members may be invited to attend all or part of the meeting as and when appropriate and necessary. The Company's external auditor, KPMG Channel Islands Limited ("KPMG"), is also invited on a regular basis.

The Audit Committee determines, in conjunction with KPMG, whether it is necessary for it to meet the auditors without the Investment Manager or other service providers being present.

Main Activities during the year

The Audit Committee assisted the Board in carrying out its responsibilities in relation to financial reporting requirements, risk management and the assessment of internal controls. It also manages the Company's relationship with the external auditor. Meetings of the Committee generally take place prior to a Company Board meeting. The Audit Committee reports to the Board as part of a separate agenda item on its activities and matters of particular relevance to Board members in the conduct of their work.

The Board requested that the Audit Committee advise them on whether it believes the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy and the Audit Committee confirmed this to be the case.

The Audit Committee's terms of reference were updated during the year and can be found on the Company's website www.nbddif.com.

At its four meetings during the year, the Committee focused on:

Financial Reporting

The primary role of the Audit Committee in relation to financial reporting is to review with the Investment Manager, Administrator and the external auditor the appropriateness of the Annual Financial Statements concentrating on, amongst other matters:

· the quality and acceptability of accounting policies and practices;

· the clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements;

· material areas in which significant judgements have been applied or there has been discussion with the external auditor;

· the viability of the Company, taking into account the principal risks it faces;

· whether the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and

· any correspondence from regulators in relation to financial reporting.

To aid its review, the Audit Committee considered reports from the Investment Manager, Administrator, Sub-Administrator, Company Secretary and also reports from the external auditor on the outcomes of their half-year review and annual audit.

The members of the Audit Committee had meetings with KPMG, where their findings in respect of both the Interim Review and the Annual Audit were reported.

Significant Issues

In relation to the Annual Report and Financial Statements for the year ended 31 December 2018, the significant issue considered by the Audit Committee was the valuation of the Company's investments.

The Committee received a report from the Investment Manager on the valuation of the Portfolios and on the assumptions used in valuing the Portfolios. It analysed the investment Portfolios of the Company in terms of investment mix, fair value hierarchy and valuation and held detailed discussions with the Investment Manager regarding the methodology and procedures used in valuing the Portfolios.

The Committee discussed in depth with KPMG their approach to testing the appropriateness and robustness of the valuation methodology applied by the Investment Manager to the Company's Portfolios. KPMG did not report any significant differences between the valuations used by the Company and the results of the work performed during their testing process. Based on their above review and analysis the Audit Committee confirmed that it is satisfied with the valuation of the investments.

Internal Controls and Risk Management

The Audit Committee has established a process for identifying, evaluating and managing any major risks faced by the Company. The process is subject to regular review by the Board and accords with the AIC Code.

The Audit Committee has overall responsibility for the Company's system of internal financial and operating controls and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate risks of failure to achieve the Company's business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Board has undertaken a full review of the Company's business risks, which have been analysed and recorded in a risk matrix, which is updated regularly and is formally reviewed at each quarterly Board meeting. The Board receives, each quarter, a formal report from the Investment Manager which details the steps taken to monitor and manage the areas of risk including those that are not directly the responsibility of the Investment Manager and which reports the details of any known internal control failures.

The Company itself does not have an internal audit function, but instead relies on the internal audit functions and departments of the Investment Manager. The Committee was satisfied that this function provided significant control to help mitigate the risks to the Company.

In addition, the Audit Committee annually receives and reviews Internal Controls reports from independent sources, in respect of the Administrator, Sub-Administrator, Registrar, Custodian and Investment Manager.

The Investment Manager has established an internal control framework to provide reasonable but not absolute assurance on the effectiveness of the internal controls operated on behalf of its clients. The effectiveness of the internal controls is assessed by the Investment Manager's compliance and risk department on an ongoing basis.

The Board's assessment of the Company's principal risks is set out above.

By means of the procedures set out above, the Audit Committee confirms that it has reviewed the effectiveness of the Company's system of internal controls for the year ended 31 December 2018 and to the date of approval of this Annual Report and that no concerns have been noted.

External Audit

The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. The Audit Committee received a detailed audit plan from KPMG, identifying their assessment of these significant risks. For the 2018 financial year the significant risk identified was in relation to the valuation of investments. This risk is tracked through the year and the Committee has considered the work done by the auditors to challenge management's assumptions and estimates around these areas. The Committee has assessed the effectiveness of the audit process in addressing these matters through the reports received from KPMG at both the half-year and year end. In addition, the Committee has sought feedback from the Investment Manager, the Administrator and Sub-administrator on the effectiveness of the audit process. For the 2018 financial year the Committee is satisfied that there had been appropriate focus and challenge on the primary areas of audit risk and assessed the quality of the audit process to be appropriate.

The Audit Committee considers the re-appointment of the external auditor, including the rotation of the audit partner, and assesses their independence on an annual basis. The external auditor is required to rotate the audit partner responsible for the Company audit every five years. The Company's current audit partner, Dermot Dempsey, took over the role as lead audit engagement partner in 2014 and hence is due to step down in 2019 and will be replaced by Barry Ryan.

KPMG has been the Company's external auditor since its stock exchange listing in 2010 (8 years). The Company has not formally tendered the audit since then. The Audit Committee will consider putting the Company's audit out to tender at least every ten years, with the first tender process to be considered in 2020, subject to the expected remaining life of the Company at that time, and the maximum duration of a continuous audit engagement will be twenty years.

In its assessment of the independence of the auditor, the Audit Committee receives details of any relationships between the Company and KPMG that may have a bearing on their independence and receives confirmation from them that they are independent of the Company.

The Audit Committee approved the fees for audit services for 2018 after a review of the level and nature of work to be performed. The Board was satisfied that the fees were appropriate for the scope of the work required.

Non-Audit Services

To safeguard the objectivity and independence of the external auditor from becoming compromised, the Audit Committee has a policy governing the engagement of the external auditor to provide non-audit services. The Committee made amendments to this policy in April 2017 in order to voluntarily adopt certain provisions of the FRC's Revised Ethical Standard 2016 relating to non-audit services as it applies to E.U. public interest entities. The Audit Committee has pre-approved the categories of non-audit services that may be performed by the Company's external auditors. The Audit Committee must be advised by the commissioning entity/person, and by the audit firm, of all assignments undertaken by the external auditors that fall within the pre-approved categories as soon as practicable.

Fees for non-audit services provided by the statutory audit firm, other than those required by law or regulation, are subject to a cap of 70% of the average of the audit fees in the last three years. In line with the FRC Revised Ethical Standard 2016 this policy is applied prospectively from the Company's year ended 31 December 2018 and therefore the threshold will be calculated on a three year look back from the financial year ended 31 December 2020.

All other non-audit services require prior approval by the Audit Committee. In respect of each calendar year the Audit Committee monitors the provision of non-audit services by receiving at least half yearly a list of the non-audit services provided (and expected to be provided) by the external auditor in that calendar year, and the feesinvolved, so that the Audit Committee can consider the impact on auditors' objectivity. The Audit Committee's policy on the Independence of External Auditor (including the provision of non-audit services) is available on its website at www.nbddif.com.

Auditor's Remuneration

Appointment and Independence

The Committee noted that for the year ended 31 December 2018 non-audit fees did not exceed audit fees.

In light of the growing focus on non-audit fees the Committee has enhanced its scrutiny to ensure that it is comfortable, on an ongoing basis that the nature of the non-audit work commissioned does not impinge on audit independence. The Committee did not consider that tax compliance and tax consultancy services presented a conflict as the services provided were all assessed as permissible prior to the commencement of the work and did not impact the audit work performed by the audit team.

The Investment Manager has responsibility for preparing and approving all tax calculations and tax returns. The output is not relied upon by the audit team and the performance of these services is led by a tax partner who is independent of the audit team. Those tax services are subject to separate terms of engagement to that of the audit engagement.

The Audit Committee has therefore recommended to the Board that KPMG be reappointed as external auditor for the year ending 31 December 2019, and to authorise the Directors to determine their remuneration. Accordingly a resolution proposing the reappointment of KPMG as the Company's auditor will be put to the shareholders at the 2019 AGM.

There are no contractual obligations restricting the Committee's choice of external auditor and the Company does not indemnify the external auditor.

The Committee's activities formed part of the Board evaluation performed in the year. Details of this process can be found under "Performance evaluation" above.

Christopher Legge

On behalf of the Audit Committee

27 March 2019

Management Engagement Committee Report

Membership

Stephen Vakil - Chairman  (Independent non-executive Director)

John Hallam (Chairman of the Company and Independent non-executive Director)

Christopher Legge (Independent non-executive Director)

Christopher Sherwell  (Senior Independent non-executive Director)

Key Objectives

To review performance of all service providers (including the Investment Manager).

Responsibilities

· To review annually the performance, relationships and contractual terms of all service providers (including the Investment Manager);

· Review and make recommendations on any proposed amendment to the Investment Manager Agreement ("IMA");

· To review the performance of, and contractual arrangements with the Investment Manager including:

- Monitor and evaluate the Investment Manager's performance and, if necessary, provide appropriate guidance;

- To consider whether an independent appraisal of the Investment Manager's services should be made;

- To review the level and method of remuneration and notice period, using peer group comparisons (where available); and

- To ensure that the Investment Manager has a sound system of risk management and internal controls and that these are maintained to safeguard shareholders' investment and the Company's assets.

Committee Meetings

Only members of the Management Engagement Committee and the Secretary have the right to attend Committee meetings. However, representatives of the Investment Manager and Administrator may be invited by the Committee to attend meetings as and when appropriate.

Main Activities during the year

The Management Engagement Committee met once during the year and reviewed performance, standard and value for money of the Company's service providers and the Investment Manager. The Management Engagement Committee reviewed the contractual terms, disaster recovery and business continuity arrangements, information security arrangements, details of anti-bribery and corruption policies and the level of professional indemnity insurance of all service providers as at 21 November 2018, including the Investment Manager.

Under the recommendation of the Management Engagement Committee, the existing agreements with U.S. Bank Global Fund Services (Guernsey) Limited, U.S. Bank Global Fund Services (Ireland) Limited, Link, Carey Commercial Limited and Stifel Nicolaus Europe Limited have been amended to reflect the requirements of the relevant data protection legislation. The Management Engagement Committee reviewed the Terms of Reference for the Committee and considered that they remained appropriate.

Continued Appointment of the Investment Manager and Other Service Providers

The Board reviews investment performance at each Board meeting and the performance of the Company's service providers are reviewed annually as part of the Management Engagement Committee's annual review. On 23 October 2018, the Chairman of the Management Engagement Committee visited the offices of the Company Secretary to undertake an onsite review of the services provided to the Company in particular anti-bribery, cyber security, business continuity and disaster recovery.

As a result of the 2018 annual review it is the opinion of the Directors that the continued appointment of the current service providers, including the Investment Manager, on the terms agreed is in the best interests of the Company's shareholders as a whole. The Investment Manager has extensive investment management resources and wide experience in managing investment companies.

Stephen Vakil

On behalf of the Management Engagement Committee

27 March 2019

Inside Information Committee Report

Membership

John Hallam (Chairman of the Company and Independent non-executive Director)

Michael Holmberg (non-executive Director)

Christopher Legge (Independent non-executive Director)

Christopher Sherwell (Independent non-executive Director)

Stephen Vakil (Independent non-executive Director)

Key Objectives

To identify inside information and monitor the disclosure and control of inside information.

Responsibilities

· Identify inside information as it arises;

· Review and prepare project insider lists as required; and

· Consider the need to announce or to delay the announcement of inside information.

Committee Meetings

Only members of the Inside Information Committee and the Secretary have the right to attend Inside Information Committee meetings. However, representatives of the Investment Manager and Administrator may be invited by the Inside Information Committee to attend meetings as and when appropriate.

Main Activities During the year

The Inside Information Committee did not meet during the year.

The first meeting of the Inside Information Committee was held on 26 February 2019 and the Inside Information Committee reviewed its Terms of Reference, the Company's policies and procedures for inside information and personal dealing. The Inside Information Committee's terms of reference were updated on 26 February 2019 and agreed that the policies and procedures remained relevant and accurate.

There were no delays to the disclosure of information during the year.

John Hallam

On behalf of the Inside Information Committee

27 March 2019

Remuneration Committee Report

Membership

Stephen Vakil - Chairman (Independent non-executive Director)

John Hallam (Chairman of the Company and Independent non-executive Director)

Christopher Legge (Independent non-executive Director)

Christopher Sherwell (Senior Independent non-executive Director)

Key Objectives

To review the ongoing appropriateness and relevance of the Company's remuneration policy.

Responsibilities

· Determine the remuneration of the Directors;

· Prepare an annual report on Directors' remuneration;

· Consider the need to appoint external remuneration consultants; and

· Oversee the performance evaluation of the Board; its committees and individual directors.

Committee Meetings

Only members of the Remuneration Committee and the Secretary have the right to attend Remuneration Committee meetings. However, representatives of the Investment Manager and Administrator may be invited by the Remuneration Committee to attend meetings as and when appropriate.

Main Activities During the year

The Remuneration Committee met once during the year and reviewed the Director's remuneration. The Remuneration Committee's terms of reference were updated during the year and can be found on the Company's website www.nbddif.com.

The Remuneration Committee considered the Directors' Remuneration and agreed that the current policy remained appropriate.

A detailed Directors' Remuneration report to shareholders from the Remuneration Committee is contained below.

Stephen Vakil

On behalf of the Remuneration Committee

27 March 2019

Directors' Remuneration Report

Annual Statement

The following report describes how the Board has applied the principles relating to Directors' remuneration. An ordinary resolution to ratify this report will be proposed at the AGM to be held on 25 June 2019.

Directors' Fees

The Company paid the following fees to the Directors for the year ended 31 December 2018:

1 Sarah Evans stepped down as a Director on 18 January 2018.

2 Christopher Legge was appointed as a Director on 12 April 2018 and was appointed as Chairman of the Audit Committee on 17 April 2018.

3 Christopher Sherwell served as Interim Chairman of the Audit Committee between 18 January 2018 and 17 April 2018.

The Company paid the following fees to the Directors for the year ended 31 December 2017:

No other remuneration was paid or payable by the Company during the year to any of the Directors, other than travel expenses of $3,501 (2017: $3,637).

Remuneration Policy

The determination of the Directors' fees is a matter dealt with by the Board. The Board considers the remuneration policy annually to ensure that it remains appropriately positioned. The Board reviewed the fees paid to the boards of similar investment companies. No Director is involved in decisions relating to his or her own remuneration.

No Director has a service contract with the Company and Director's appointments may be terminated at any time with no compensation payable at termination.

The Company's policy is for the Directors to be remunerated in the form of fees, payable quarterly in arrears. No Director has any entitlement to a pension and the Company has not awarded any share options or long-term performance incentives to any of the Directors. No element of the Directors' remuneration is performance related.

Directors are authorised to claim reasonable expenses from the Company in relation to the performance of their duties. The Company's policy is that the fees payable to the Directors should reflect the time spent by the Board on the Company's affairs and the responsibilities borne by the Directors and should be sufficient to enable high calibre candidates to be recruited. The policy is for the Chairman of the Board and Chairman of the Audit Committee to be paid a higher fee than the other Directors in recognition of their more onerous roles and additional time spent performing their duties. The Board may amend the level of remuneration paid within the limits of the Company's Articles. In 2017, Board recognised that its remuneration policy needed to be reviewed to reflect the changing status of the Company as the existing Portfolios are realised as follows:

Directors' Fees Policy

Service Contracts and Policy on Payment of Loss of Office

The Directors' appointments are not subject to any duration or limitation. Any Director may resign in writing at any time. Directors' appointments are reviewed during the annual Board evaluation. No Director has a service contract with the Company. Directors have agreed letters of appointment with the Company.

As detailed above, all of the independent non-executive Directors are re-elected at the first AGM after their appointment and are then subject to annual re-election. The names and biographies of the Directors holding offices at the date of this report are listed above.

Copies of the Directors' letters of appointment are available for inspection by shareholders at the Company's Registered Office, and will be available at the AGM. The dates of their letter of appointments are shown below.

Dates of Directors' Letters of Appointment

Directors' Interests

The Company has not set any requirements or guidelines for Directors to own shares in the Company. The beneficial interests of the Directors and their connected persons in the Company's shares at 22 March 2019 are shown in the table below:

Advisors to the Remuneration Committee

The Remuneration Committee has not sought the paid advice or professional services by any outside person in respect of its consideration of the Directors' remuneration. The Remuneration Committee sought input from NBEL and the Brokers during its deliberations of the remuneration policy.

Stephen Vakil

On behalf of the Remuneration Committee

27 March 2019

Directors' Responsibilities Statement

The Directors are responsible for preparing the Directors' Report and financial statements for each financial year which give a true and fair view, in accordance with applicable Guernsey law and US Generally Accepted Accounting Principles ("US GAAP"), of the state of affairs of the Company and of the profit or loss for the year. In preparing those financial statements, the Directors are required to:

· select suitable accounting policies and apply them consistently;· make judgements and estimates that are reasonable and prudent;· state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial

statements;· assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and· use the going concern basis of accounting unless liquidation is imminent.

The Directors confirm that they have complied with the above requirements in preparing the Financial Statements.

The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the Financial Statements comply with the Law. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent an detect fraud and other irregularities.

The Directors of the Company have elected to prepare consolidated Financial Statements for the Company for the year ended 31 December 2018 as the parent of the Group in accordance with Section 244(5) of the Law.

So far as the Directors are aware, there is no relevant audit information of which the Company's auditors are unaware, and each Director has taken all the steps that he or she ought to have taken as a Director in order to make himself or herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

The Directors confirm to the best of their knowledge that:

· The Financial Statements, which have been prepared in conformity with US GAAP, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company, and the undertakings included in the consolidation taken as a whole; and

· The Annual Report includes a fair review of the development and performance of the business and the position of the issuer, together with the description of the principal risks and uncertainties they face.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included in the Company's website and for the preparation and dissemination of financial statements. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from regulation in other jurisdictions.

 By order of the Board

John Hallam Christopher Legge

Chairman Director

27 March 2019 27 March 2019

Independent Auditor's Report to the Members of NB Distressed Debt Investment Fund Limited

Our opinion is unmodified

We have audited the consolidated financial statements (the "Financial Statements") of NB Distressed Debt Investment Fund Limited (the "Company") and its subsidiaries (together, the "Group"), which comprise the Consolidated Statement of Assets and Liabilities including the Consolidated Condensed Schedule of Investments as at 31 December 2018, the Consolidated Statements of Operations, Changes in Net Assets and Cash Flows for the year then ended and notes, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying Financial Statements:

- give a true and fair view of the financial position of the Group as at 31 December 2018, and of the Group's financial performance and the Group's cash flows for the year then ended;

- are prepared in conformity with U.S. generally accepted accounting principles ("US GAAP"); and

- comply with the Companies (Guernsey) Law, 2008.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company and Group in accordance with, UK ethical requirements including FRC Ethical Standards as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.

Key Audit Matters: our assessment of the risks of material misstatement

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the Financial Statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matter, unchanged from 2017, was as follows:

Valuation of Investments at fair value ("Investments")

$256,655,356 (2017: $314,800,289)

Refer to the Audit Committee Report above, the Consolidated Condensed Schedule of Investments below, Note 2 Summary of Accounting Policies below and Note 2(f) Fair Value of Financial Instruments below.

The risk Our response

Our application of materiality and an overview of the scope of our audit

Materiality for the Financial Statements as a whole was set at $5,375,000, determined with reference to a benchmark of Group Net Assets of $268,401,489, of which it approximately represents 2% (2017: 2%).

We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding $268,000, in addition to other identified misstatements that warranted reporting on qualitative grounds.

Our audit of the Group was undertaken to the materiality level specified above, which has informed our identification of significant risks of material misstatement and the associated audit procedures performed in those areas as detailed above.

The Group team performed the audit of the Group as if it was a single aggregated set of financial information. The audit was performed using the materiality level set out above and covered 100% of total Group net decrease in net assets resulting from operations and total Group assets and liabilities.

We have nothing to report on going concern

We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least twelve months from the date of approval of the Financial Statements. We have nothing to report in these respects.

We have nothing to report on the other Information in the Annual Report

The Directors are responsible for the other information presented in the Annual Report together with the Financial Statements. Our opinion on the Financial Statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our Financial Statements audit work, the information therein is materially misstated or inconsistent with the Financial Statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.

We have nothing to report on other matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

· the Company has not kept proper accounting records; or

· the Financial Statements are not in agreement with the accounting records; or

· we have not received all the information and explanations, which to the best of our knowledge and belief are necessary for the purpose of our audit.

Respective responsibilities

Directors' responsibilities

As explained more fully in their statement set out above, the Directors are responsible for: the preparation of the Financial Statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error; assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless liquidation is imminent.

Auditor's responsibilities

Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Statements.

A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities.

The purpose of this report and restrictions on its use by persons other than the Company's members as a body

This report is made solely to the Company's members, as a body, in accordance with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

Dermot Dempsey

For and on behalf of KPMG Channel Islands Limited

Chartered Accountants and Recognised Auditors

Glategny Court

St Peter Port

Guernsey GY1 1WR

Channel Islands

27 March 2019