Nb Distressed Regulatory News (NBDD)

NB Distressed Debt Investment Fund Limited

Annual Report and Audited Financial Statements

For the year ended 31 December 2016

CAPITAL STRUCTURE

The Company's share capital consists of three different share classes: 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 some instances, different geographical remits. In addition the Company has two Class A Shares in issue. Each is considered in turn below.

Ordinary Share Class ("NBDD")

NBDD was established at the Company's launch on 10 June 2010 with a remit to invest in the global distressed market with a focus on the North American distressed market. The investment period of NBDD expired on 10 June 2013 and the portfolio is currently in the harvest period.

Voting rights: Yes

Denomination: U.S. Dollars

Hedging: Portfolio hedged to U.S. Dollars.

Authorised share capital: Unlimited

Par value: Nil

Extended Life Share Class ("NBDX")

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 has a remit to invest in the global distressed market with a focus on the North American distressed market.

The NBDX assets were placed into the harvest period following expiry of the investment period on 31 March 2015.

Voting rights: Yes

Denomination: U.S. Dollars

Hedging: Portfolio hedged to U.S. Dollars.

Authorised share capital: Unlimited

Par value: Nil

New Global Share Class ("NBDG")

NBDG was created on 4 March 2014 and has the 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 and the portfolio is currently in the harvest period.

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 rights conferred by such shares in the manner it considers, in its absolute discretion, to be in the best interests of the Company's shareholders as a whole.

Voting rights: No

Denomination: U.S. Dollars

Authorised share capital: 10,000 Class A Shares

Par value: U.S. 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.

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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 Manager seeks to identify mis-priced or otherwise overlooked securities or assets that they believe have 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 investing in stressed and distressed debt securities secured by hard asset collateral. When investing on behalf of the Company, the Investment Manager focuses on companies with significant tangible assets which they believe are likely to maintain long-term value through a restructuring. The Company avoids "asset-light" companies, as their value tends to be degraded in distressed scenarios. The Investment Manager also aims to concentrate on companies with stressed balance sheets whose low implied enterprise value multiples - often calculated off currently depressed cash flows - offer a discount to current comparable market valuations.

What is Distressed Debt?

Distressed debt is generally referred to as 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 in 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. This 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 has 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 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 strategy is six months to three years.

Typical Life Cycle of a Distressed Debt Investment

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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. Distributions to Shareholders

Income

In order to benefit from an exception to the United Kingdom 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. 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 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 dividends 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 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 that the relevant share class is liquidated.

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

\* The TER represent the Company's management fees and all other operating expenses, as required by US Generally Accepted Accounting Principles, expressed as a percent of average net assets.

*\* 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.

Financial Review

At 31 December 2016 the net assets of the Ordinary Shares amounted to $37,271,106 (2015: $54,610,406), those of the Extended Life Shares amounted to $216,628,260 (2015: $270,818,231) and those of the New Global Shares amounted to $117,035,165 (2015: $115,471,327). The NAV Total Return*** for the year was 1.72% (2015: (10.68%)) for Ordinary Shares, 3.64% (2015: (16.00%)) for Extended Life Shares and 29.67% (2015: (17.14%)) for New Global Shares. Further information on the Portfolios' performance can be found in the Investment Manager's Report.

*** NAV return on a bid value to bid value basis, assuming that all income distributions of the Company, paid by way of dividend, were reinvested, without transaction costs, into the shares of the Company at the NAV per share at the time the shares were quoted ex-dividend.

Summary of Value in Excess of Original Capital Invested

*by way of dividend

Summary of Distributions

2015

2016

*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

2016 was an eventful year as notable key events such as the U.K's decision to leave the E.U. ("Brexit") and President Trump's successful election campaign caught both investors and market commentators by surprise. The distressed debt market proved resilient against this macroeconomic backdrop as a result of improving fundamentals and a recovery in the energy and commodity sectors.

Portfolios and Company Performance

On 31 March 2017 NBDG became the last of the existing share classes to enter into its harvest period. The Investment Manager is now focused on maximising the value of the Portfolios and returning capital to shareholders. Shareholders should note that towards the end of the Portfolios' respective harvest periods, a residual amount will be retained in accordance with regulatory requirements until such time that the relevant share class is liquidated.

An inevitable consequence of the harvest periods is a gradual decline in assets of the Company. That said, I would note that the Company's corporate umbrella has an indefinite life and as such it does have the flexibility to add new share classes in the future subject to identifiable demand, market opportunities and shareholder approval.

The performance of the Portfolios is set out in more detail in the Investment Manager's Report but it is appropriate to acknowledge some high-level points here.

NBDD had returned, through capital distributions and an income distribution by way of dividend, $111.3m, or 89% of investors' original capital of $124.5m, by the end of the period. This, when added to the NAV of $37.3m, brings the ratio of total value to original capital invested to 119%. The NAV Total Return was 1.72% during the year.

NBDX had returned, through capital distributions and an income distribution by way of dividend, $148.0m, or 41% of investors' original capital of $359.4m, by the end of the year. This, when added to the NAV of $216.6m and buybacks of $5.3m brings the ratio of total value to original capital invested to 103%. The NAV Total Return was 3.64% during the year. Since the start of this year and up to the latest practicable date prior to writing the Company has continued to support a buyback programme and has repurchased 412,868 NBDX shares at a total cost of $386,890 and at a weighted average discount of 6.8%.

As at 31 December 2016, 92% of NBDG's assets were invested and 94.91% was invested as at the end of the NBDG investment period on 31 March 2017. Although NBDG is yet to return capital to investors through capital distributions, the NBDG Share Class has returned £1.0m through an income distribution by way of dividend and £7.0m through buybacks, which when added to the NAV of £94.7m, brings to 93% the ratio of total value to original capital invested of £110.8m. During the year NBDG's NAV Total Return (which is based on the underlying Pound Sterling results) was 29.67% as a result of improving market conditions and favourable foreign exchange gains. As with NBDX the Board has continued to support a buyback programme for NBDG. Since the start of this year and up to the latest practicable date prior to writing the Company has repurchased 497,000 NBDG shares at a total cost of £395,325 and at a weighted average discount of 16.0%.

Your Board believes that the Investment Manager is continuing to make good progress in restructuring the assets in the Portfolios.

TISE De-listing

As previously mentioned in my half year statement and as outlined in a Circular dated 20 July 2016, the Company de-listed from the TISE with effect from 30 August 2016. The Board took the view that there was no material commercial or regulatory benefit to the Company or its shareholders in retaining its listing on the TISE and that cost savings and other efficiencies could be achieved for the Company as a result of cancelling the listing. This action has no impact on the Company's admission to the SFS.

Annual General Meeting ("AGM") Results and Board Composition

A number of shareholders expressed concerns, through voting at last year's AGM, about the composition of the Board and Directors' independence. For the reasons outlined in the "Board Independence and Composition" section this report the Board maintains the view that both Christopher Sherwell and I are independent Directors of the Company. The Board also believes that Michael 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, Management Engagement Committee or Remuneration Committee and is not involved in any matters discussed by the Board concerning the evaluation of the performance of the Investment Manager.

In terms of composition, the Board was refreshed in 2015 and early 2016 with the addition of Sarah Evans and Stephen Vakil respectively. As the Portfolios have just entered into their harvest periods and the long-term outlook for the Company (as an umbrella structure) is unknown, the Board believes it is in the best interests of shareholders at this point in time for the Company to retain its current composition.

At last year's AGM the Board also observed notable proxy votes cast against or withheld in connection with the re-appointment of the Company's auditors, KPMG. For the reasons outlined in the "Appointment and Independence" section of the Audit Committee Report, the Board, on the advice of the Audit Committee, is satisfied with the auditor's independence. I would further note that the Company has voluntarily amended its policy on non-audit services to comply with certain provisions of the Financial Reporting Council's ("FRCs") Ethical Standards for listed entities which provides, amongst other things, that non-audit fees will be subject to a cap of 70% of the average of the audit fees in the last three consecutive financial years. This policy will be applied prospectively from the Company's year ending 31 December 2017 and therefore the threshold will be calculated on a three year look back from the financial year ending 31 December 2020.

Outlook

The Investment Manager's main task now is to maximise the value of the Portfolios as they seek to restructure positions, realise exits and return capital to shareholders. Despite uncertainties regarding future fiscal and monetary policy, global economic growth, and geopolitical issues across the world, there continues to be a viable market for restructured assets as investors search for yield and cash flow. The Investment Manager intends to take advantage of the current market conditions and will look to exit investments through merger and acquisition activity, debt refinancings, and sales of underlying assets to strategic buyers. The Board notes that at 31 March 2017 £4.9m was uninvested in NBDG and the Board is considering its options for returning this capital in the best interests of NBDG shareholders.

Finally, the Board notes that the U.K. formally served notice of its intention to withdraw from the E.U. on 29 March 2017. For the reasons outlined in the Principal Risks and Risk Management section of the Strategic Report the Board does not consider that the outcome of Brexit will have a material direct impact on the NBDD or NBDX Portfolios. NBDG is a Pound Sterling denominated, 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 U.S. Dollar assets.

I would like to thank all our longstanding shareholders, as well as those who have joined us in the past year or so, for your confidence in our Company and I look forward to updating you further in the Interim Report that will be issued at the end of the summer.

John Hallam

Chairman

10 April 2017

INVESTMENT MANAGER'S REPORT

Market Update

2016 was a volatile year for the financial markets. The rebound of energy prices from the lows in the first quarter, the surprise result of Brexit, zero and negative sovereign interest rates, and the results of the U.S. election in November contributed to a roller coaster year with many shocks to the markets. Looking to 2017, we are seeing the after effects of 2016's events as markets digest the new Trump administration policies, results of upcoming elections in key European countries, and the exit process for the U.K. from the E.U. following the triggering of Article 50 on 29 March 2017. We will be monitoring these events as we continue to generate additional value for shareholders in the remaining investments.

Ordinary Share Class (NBDD)

Summary

Markets continued their recovery heading into the year end due to stable economic data, anticipation of a pro-growth change in U.S. economic policy and the positive reaction to the Federal Reserve's decision to increase interest rates. Liquidity in our markets remains strained as investment banks continue to pull back their proprietary investing activities due to regulatory changes. NBDD's remaining investments are predominantly in illiquid securities, which had limited price movement during the year. We believe value on these assets will be realised upon exit after a liquidity event (i.e. sale, refinancing, IPO) and we are committed to returning capital to investors as we exit investments.

In 2016, NBDD received $12.1m cash from activity (e.g. distributions, dividends and principal payments) on existing investments which, along with $4.9m cash received from 2016 exits, generated cash of $17.0m that was used to fund distributions to investors. NBDD had four exits during the year, which contributed positively to NAV and generated a Total Return* of $6.1m over the life of the investments. During 2016, approximately $17.8m ($15.0m in the form of share redemptions and an income dividend of $2.8m) was distributed to investors representing 89% of original capital. NBDD distributed 33% of the 1 January 2016 NAV in 2016 and our goal is to continue to make distributions in the coming quarters. The ratio of total value (distributions and current NAV) to original capital raised is 119%.

Portfolio Update

As at 31 December 2016, 92.6% of NBDD's NAV, including restricted cash, was invested in distressed assets. NBDD ended the year with 7.4% of NAV in unrestricted cash. Including an income distribution by way of dividend of $0.0793, the NAV Total Return for NBDD was 1.72% for the full year 2016 as markets generally recovered from significant volatility at the end of 2015. NBDD ended the year with a NAV of $1.0583, compared with a beginning NAV of $1.1184. Unrealised gains in the private equity of a container/packaging company and reorganisation equity of a Texas utility were offset by losses in post reorganisation equity of two utilities and a homebuilder. At the end of the year the portfolio consisted of 23 issuers across 12 sectors.

Notable Events

· The sale of a power plant located in the northeast U.S. was finalised and NBDD received $6.9m in sales proceeds in 2016 and a final payout in 2017 of $0.4m from escrows held back on the sale. This investment was exited in February 2017.

· The Portfolio's investment in debt secured by a portfolio of aeroplanes increased by 20% after the aeroplane trust announced a sale of the portfolio to a strategic buyer. NBDD received $2.3m proceeds from the sale which was used to repay principal. One aeroplane remains for sale and we expect a sale during 2017.

· A power generation company in the U.S. emerged from bankruptcy and secured debt claims were exchanged for public equity securities. The company paid a dividend of $2.32 per share after emerging from bankruptcy in the fourth quarter. The share price at the year end was above that at which the shares were issued in the recapitalisation (adjusted for dividend).

· A power generation asset filed for Chapter 11 protection during December. We expected this development as part of a needed restructuring and it establishes a process to resolve certain perfected lien issues that could have otherwise limited recoveries.

\* Total Return includes realised and unrealised gains and losses, expenses, FX gains and losses, and all income on investments according to US Generally Accepted Accounting Principles accounting.

Significant Price Movement (approximately 1% of NBDD NAV or +/- $400,000)

Exits

During the year, we saw four exits, bringing the total number of exits since inception in NBDD to 34, which generated a net gain of $6.1m over the life of the investments. Detailed descriptions of the exits are at the end of the report.

* The annualised internal rate of return ("IRR") is computed based on the actual dates of the cash flows of the security (purchases, sales, interest, principal paydowns), 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 purchase.

Distributions

During the year, the Board of the Company resolved to return approximately $15.0m to holders of NBDD shares by way of a compulsory redemption of NBDD shares and the initial income distribution of $2.8m by way of dividend was paid to investors. To date, $111.3m, or 89% of investors' original capital, has been distributed to shareholders since the realisation phase for this share class.

Extended Life Share Class (NBDX)

Summary

Markets continued their recovery during the fourth quarter due to stable economic data, anticipation of a pro-growth change in U.S. economic policy, and the positive reaction to the Federal Reserve's decision to increase interest rates. Liquidity in our markets remains strained as investment banks continue to pull back their proprietary investing activities due to regulatory changes. Improvement in operations at a plastic container company, lodging and casino properties and a general improvement in energy prices were offset by the decline in shipping rates during the year and a chapter 11 filing of a power plant investment. Stabilised energy prices in the second half of the year supported our energy related investments. We believe value on these assets will be realised upon exit after a liquidity event (i.e. sale, refinancing, IPO) and we continue to manage the investments with a commitment to returning capital to investors as we exit investments.

NBDX received $41.8m cash from activities (e.g. distributions, dividends, and principal payments) on existing investments that have not been fully exited and $21.7m from 2016 exits to generate $63.5m cash to fund distributions to investors. NBDX had six exits during the year, which contributed to NAV and generated a Total Return of $19.9m over the life of the investments. During 2016, approximately $57.6m ($50.0m in the form of share redemptions and an income dividend of $7.6m) was distributed to investors representing 41% of original capital. NBDX distributed 22% of the 1 January 2016 NAV in 2016 and our goal is to continue to make distributions in the coming quarters. The ratio of total value (distributions, share buy-backs and current NAV) to original capital raised is 103%.

Post year end, in February 2017, the Board resolved to return $10.5m to shareholders in the form of a compulsory share redemption. This brings the total capital approved for distribution to $158.5m or 44% of original capital.

Portfolio Update

As at 31 December 2016, 92.5% of NBDX's NAV was invested in distressed assets. The Portfolio ended the period with 7.5% of NAV in unrestricted cash. Including an income distribution by way of dividend of $0.0332 paid on 20 December 2016, NBDX's NAV Total Return was 3.64% for the year. NBDX ended the year with a NAV per share of $1.0035 as compared to $1.0003 at the end of 2015. The primary drivers of NBDX's NAV increase were increases in energy related and lodging/casino investments, and principal repayments and distributions offset by declines in shipping rates generally and utility investments.

Notable Events

· The sale of a power plant located in the northeast U.S. was finalised and NBDX received $17.9m sales proceeds in 2016 and a final payout in 2017 of $1.0m from escrows held back on the sale. This investment was exited in February 2017.

· A lodging and casino investment tendered for contingent equity rights cleaning up the capital structure to better enable a liquidity event. The company then tendered for a portion of its private equity and set a value for the shares (roughly 14% above the pre-announced price in an illiquid market). NBDX received cash of $1.2m from these tenders and the remaining equity is bid at the tender price.

· The Portfolio's investment in debt secured by a portfolio of aeroplanes increased by 20% after the aeroplane trust announced a sale of the portfolio to a strategic buyer. NBDX received $4.5m proceeds from the sale which was used to repay principal. One aeroplane remains for sale and we expect a sale during 2017.

· A shipping investment sought to raise debt financing and additional equity from existing equity holders and NBDX participated to protect against dilution of its equity position at what we believed to be an attractive valuation.

· NBDX owns private equity in a non-ferrous metals/minerals company that announced a sale to a strategic buyer during the year. The sale price reflects a 28% premium to the price at the time of the announcement.

· A power generation company in the U.S. emerged from bankruptcy and secured debt claims were exchanged for public equity securities. The company paid a dividend of $2.32 per share after emerging from bankruptcy in the fourth quarter. The share price at year-end was above the issued level at which the shares were issued in recapitalisation (adjusted for dividend).

· A power generations asset filed for Chapter 11 protection during December. We expected this development as part of a needed restructuring and it establishes a process to resolve certain perfected lien issues that could have otherwise had limited recoveries.

· An investment in an aeroplane leasing joint venture distributed proceeds of $1.7m from prepayment of an installment sales contract on three aeroplanes leaving one aeroplane unsold at year end. The remaining aeroplane was sold and proceeds were received in the first quarter of 2017.

Significant Price Movement (approximately 1% NBDX NAV or +/- $2,000,000)

Exits

During the year, we exited six investments, exits 36-41 since inception, which generated $19.9m Total Return over the life of the investments. Detailed descriptions of the investments are at the end of the report.

Distributions

During 2016, the Board of the Company resolved to return approximately $50.0m to holders of NBDX shares by way of a compulsory partial redemption of NBDX shares. The Board also resolved to pay an income distribution by way of dividend of $7.6m to NBDX shareholders. Over the period from inception to 31 December 2016 NBDX has returned, through capital distributions and an income distribution by way of dividend, $148.0m or 41% of investors' original capital.

In February 2017, the Board approved a $10.5m capital distribution. This brings the total amount approved for distribution to $158.5m or 44% of original capital. The distribution was paid on 9 March 2017.

New Global Share Class (NBDG)

Summary

Markets continued their recovery during the year due to stable economic data, anticipation of a pro-growth change in U.S. economic policy and the positive reaction to Federal Reserve's decision to increase interest rates. Liquidity in our markets remains strained as investment banks continue to pull back their proprietary investing activities due to regulatory changes. Up until the end of the first quarter of 2017 we continued to evaluate and bid on what we believed to be attractive investment opportunities in the real estate, lodging and casinos, shipping, international infrastructure and energy sectors. 94.91% of the Portfolio was invested as at 31 March 2017 leaving £4.9m of uninvested capital. As outlined in the Chairman's Statement the Board is considering its options for returning this capital in the best interests of NBDG shareholders.

During the year, we were focused on bringing the Portfolio to full deployment. NBDG invested in three new issuers during the year, deploying £10.8m in an Australian wind farm investment, a U.S. lodging and casino property and a U.S. power plant. NBDG also made additional investments in existing names totaling £7.4m in a liquidation investment of a marine services company, a western U.S. land bank, a dry bulk shipping company and a non-ferrous metal/mineral company during the year. This brings total funds invested during the year to £18.2m.

Offsetting the purchases were exits generating £5.6m cash described below, and partial sales, distributions, and principal repayments on existing loans totaling £10.5m. The net cash deployed during 2016 was £2.0m.

Portfolio Update

The Board announced and paid the first income distribution by way of a dividend to shareholders on 20 December 2016 of £1.0m (1.02p per share). Including the aforementioned dividend, NBDG's NAV Total Return was 29.67% for the full year 2016. NBDG ended the year with a NAV per share of 94.17p, compared to 73.41p at the end of 2015 as a result of improving market conditions, specific events within the Portfolio and foreign exchange gains. NBDG continues to benefit from the decline of Pound Sterling against the U.S. Dollar as a result of the U.K's decision to leave the E.U. As described in the prospectus, NBDG generally does not hedge currency exposure and the continued FX market volatility contributed £12.3m positively to the value of certain investments during 2016. FX volatility leading up to and immediately following the Brexit vote was significant and a substantial portion of the increase in NAV was due to changes in FX rates during the year. To some extent, these FX gains offset FX losses previously reflected in the NAV.

As at 31 December 2016, 92% of NBDG's NAV was invested in distressed assets with unrestricted cash and net accruals of 8% of NAV available for new investments. NBDG has investments in 28 issuers across 11 industries. The largest concentrations were in lodging & casinos, shipping, oil & gas, utilities, and building & development.

Notable Events

· A lodging and casino investment tendered for contingent equity rights cleaning up the capital structure to better enable a liquidity event. The company then tendered for a portion of its private equity and set a value for the shares (roughly 14% above the pre-announced price in an illiquid market). NBDG received cash of £2.6m on these tenders and the remaining equity appreciated 70% during the year.

· A shipping investment sought to raise debt financing and additional equity from existing equity holders and NBDG participated to protect against dilution of its equity position at what we believe to be attractive valuations.

· The sale of a power plant located in the northeast U.S. was executed and NBDG received £5.0m sale proceeds and a final payout in 2017 of £0.3m from escrows held back on the sale. This investment was exited in February 2017.

· NBDG owns private equity in a non-ferrous metals/minerals company that announced a sale to a strategic buyer during the year. The sales price reflects a 28% premium to the current price at the time of the announcement. NBDG was able to purchase additional shares during the year at a discount to the expected sales price.

· A power generation company in the U.S. emerged from bankruptcy and secured debt claims were exchanged for public equity securities. The company paid a dividend of $2.32 per share after emerging from bankruptcy in the fourth quarter. The share price at year end was above that at which the shares were issued in the recapitalisation (adjusted for dividend).

· A power generations asset filed for Chapter 11 protection during December. We expected this development as part of a needed restructuring and it establishes a process to resolve certain perfected lien issues that could have otherwise had limited recoveries.

Significant Price Movement (approximately 1% NBDG NAV or +/- £1,000,000)

Exits

In 2016 we saw two exits in NBDG, our 7th and 8th since inception. These two exits generated a Total Return of £0.8m over the life of the investment. Detailed descriptions of the investments are provided at the end of this report. 

Distributions

During the year, the Board of the Company declared an income distribution by way of dividend of £1.0m to holders of NBDD shares.

SUMMARY OF EXITS ACROSS ALL PORTFOLIOS IN 2016

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

NBDD - Four exits during the year

NBDX - Six exits during the year

NBDG - Two exits during the year

Exit A (Exit 31 for NBDD and Exit 36 for NBDX) - REIT

NBDD and NBDX invested $21.0m in a REIT that was formed to buy foreclosed homes and build a portfolio of single family rental homes in areas particularly affected by the U.S. housing downturn. We expected to earn a return through a combination of dividends, home price appreciation from a housing recovery and a consolidation of the industry into a new institutionalised real estate asset class. The company completed an IPO in July 2013. While we believed in the long term viability of the company and inherent value in the assets, we did not see a short or medium term catalyst to demonstrate the underlying values in the assets and we decided to sell the shares. We sold our position for $22.7m. Total Return from this investment was $1.7m, generating an IRR of 3% and ROR of 8%.

Exit B (Exit 37 for NBDX) - Financial Intermediary

The company is a monoline insurance company that was in the process of liquidating its assets. NBDX purchased 121,099 shares in October 2013 at $14 per share. We purchased the shares at a substantial discount to shareholders' surplus which we expected to be returned to holders via dividends and share buybacks. As expected we received dividends of $5 per share and $7 per share in December 2014 and November 2015, respectively. In September 2015 the company received an unsolicited offer from a strategic buyer. We subsequently assisted the company in evaluating the offer and in running a competitive sales process that resulted in a final sales price in excess of the original offer. Total Return from this investment was $5.0m, which resulted in an IRR of 81% and a ROR of 292% on the investment.

Exit C (Exit 7 for NBDG) - Surface Transportation

NBDG purchased $3.7m face value of a term loan A at 94.25% of par and $6.1m face value of a term loan B at 36.25% of par secured by a concession agreement to a parking garage in a Midwestern city in the United States. Prior to our purchase, the borrower had defaulted on its payments on the loan and the lenders had taken control of the concession. Our investment thesis was that our cost represented a significant discount relative to the concession value. Ultimately, proceeds from the sale of the concession allowed for a full payment of the term loan A and the term loan B at 50% of par. Total Return from this investment was £1.2m, generating an IRR of 21% and ROR of 34%.

Exit D (Exit 32 for NBDD and Exit 38 for NBDX) - Building & Development

NBDD and NBDX invested $11.10m in multiple tranches of the secured bank debt of a homebuilding company that had filed for Chapter 11 bankruptcy protection. NBDD and NBDX received cash and equity upon execution of the company's plan of reorganisation. The two funds also participated in the exit financing for the homebuilder which was ultimately repaid at par. The homebuilder was ultimately sold to a public homebuilding company and received a distribution from the sale. Total Return on the investment was $1.7m generating an IRR of 5% and ROR of 15%.

Exit E (Exit 33 for NBDD and Exit 39 for NBDX) - Financial Intermediary

In 2010, NBDD and NBDX purchased $34.1m of private shares in 14 side pocket investments of a large private equity fund from a large hedge fund of funds investor that had redemptions and needed liquidity to meet them. The investments included European commercial real estate properties, an Indian real estate company, a European PVC manufacturer, and an aeroplane leasing company. Each of the 14 investments was exited at different dates by the private equity fund through sales and refinancing of the underlying properties and companies with a final wind-down at year-end 2016. The Total Return on this investment was $19.8m, with initial cash invested of $34.1m and total cash received over the life of the investments of $53.9m (1.6x on initial investment). IRR on the investment was 12% over 72 months and ROR was 58%. 

Exit F (Exit 40 for NBDX and Exit 8 for NBDG) - Surface Transportation

In 2014, NBDX and NBDG purchased senior bank debt secured by a concession to operate a toll road linking Brisbane's central business district with its airport. In 2013, the operator had been forced into an insolvency process when restructuring negotiations fell apart amidst poor traffic numbers. NBDX and NBDG purchased the bank debt (at different times and prices) when a sale of the concession failed to materialise and caused certain original bank debt holders to exit. NBDX and NBDG sold the majority of the position to reduce exposure after another debt holder amassed a position that would allow them to block a sale of the concession. The concession was ultimately sold in early 2016 to a strategic buyer who owned other Australian toll roads. Sale proceeds were unfortunately less than expected and, combined with a weak Australian dollar for NBDX, the Total Return on the investment was break-even with an IRR of 0%. The investment was held for 28 months. The Total Return for NBDG was (£0.4m), IRR was (11%) and ROR was (7%).

Exit G (Exit 34 for NBDD and Exit 41 for NBDX) - Financial Intermediary

Over a period from 2010 to 2013, NBDD and NBDX invested $21.9m to purchase defaulted bonds issued by a U.S. financial company. The company was the largest thrift failure in U.S. history and was seised by the Federal Deposit Insurance Corporation ("FDIC") in 2008. Shortly after we acquired our position, the FDIC arranged for a sale of the bank's assets to another major financial institution. Proceeds from the sale are being administered by the FDIC and will be used to repay in part creditors of the company. Creditors also received recoveries from a settlement of various legal claims stemming from the company's failure and the subsequent sale. NBDX originally purchased the defaulted bonds because we expected favourable settlement and litigation outcomes relative to the market value of the bonds at the time of purchase. We ultimately sold the defaulted bonds during the fourth quarter because a recent settlement suggested limited upside to the current market price. Due to different investment periods, NBDD and NBDX had different acquisition costs and dates in this security causing different returns. NBDD Total Return was ($0.4m) with IRR of (4%) and ROR of (7%). NBDX Total Return was ($1.8m) with an IRR of (6%) and ROR of (11%).

Neuberger Berman Investment Advisers LLC Neuberger Berman Europe Limited

10 April 2017 10 April 2017

pORTFOLIO INFORMATION

Ordinary Share Class Portfolio (NBDD)

Top 10 Holdings at 31 December 2016

Sector Breakdown1,2

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Country Breakdown2

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Extended Share Class Portfolio (NBDX)

Top 10 Holdings at 31 December 2016

Sector Breakdown1,2

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Country Breakdown2

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New Global Share Class Portfolio (NBDG)

Top 10 Holdings at 31 December 2016

Sector Breakdown1,2

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Country Breakdown2

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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 for identifying, assessing and managing 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 U.S. Dollar denominated and any non-U.S. exposure is hedged back to the U.S. 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, 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 U.S. Dollar assets.

Investment Activity and Performance

Principal Risks Specific to Harvest Periods

Level of Discount or Premium

Market Price Risk

Fair Valuation of Illiquid Assets

Accounting, Legal and Regulatory

Operational

Going Concern

The Company's principal activities are set out in the Business Model section. The financial position of the Company is set below in these Financial Statements. In addition, Note 7 to the Financial Statements includes the Company's objectives, policies and processes for managing its capital, its financial risk management objectives 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 foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the Financial Statements and declare 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".

Viability Statement

In accordance with provision C.2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council in September 2014 (the "Code"), the Directors have assessed the prospects of the Company over the three year period to 31 December 2019. Taking into account the Company's status as an investment entity, its investment objectives, and the time period over which its assets are likely to be realised, the Directors consider that three years is an appropriate period to assess the viability of the Company. In particular the Directors noted that NBDG has recently entered into its harvest period with an approximate duration of three years. The Directors further noted that the mid to long-term 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.

The three year review considers the Company's cash flow, cash distributions and other key financial ratios over the period. The three year review also makes certain assumptions about the normal level of expenditure likely to occur as well as making assumptions about the timing of asset realisations during the harvest periods.

In its assessment of the viability of the Company, the Directors have carried out a robust assessment of the Company's principal risks and uncertainties including the risks specific to the Portfolios' harvest periods. The Directors have also considered the Company's income and expenditure projections and the expected cash flows arising from Portfolio realisations, noting that future capital distributions to shareholders may be restricted if the interest and dividend income generated in the Portfolios is not sufficient to meet operational expenses. As part of this review, the Directors carried out a series of stress test 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.

Based on the Company's processes for monitoring operating costs, the Investment Manager's compliance with the investment objective, asset allocation, the portfolio risk profile, liquidity risk and financial controls, 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 three year period to 31 December 2019.

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 peer group 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 the Company's peer group. The Company publishes a NAV per share on a daily basis through the official newswire of the London Stock Exchange. In the year to 31 December 2016 the Company's Ordinary Shares traded between a premium of 2.43% and a discount of 9.79% with an average discount of 6.32%. The Company's Extended Life Shares traded between a discount of 2.72% and 15.52% with an average discount of 5.95%. The Company's New Global Shares traded between a discount of 7.90% and 22.62% with an average discount of 13.79%;

· Ongoing Charges - In the year to 31 December 2016, the Company's Ongoing Charges were 2.05%. This figure is based on an annual expense figure for the year of $8,003,355. This figure, which has been prepared in accordance with AIC guidance, represent 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 2016. The Ongoing Charges by share class are disclosed in the Financial Highligts section.

• Total Expense Ratio ("TER") - In the year to 31 December 2016, the Company's TER was 2.30%. This figure is based on an annual expense figure for the year of $8,980,776. 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 2016. The TERs by share class are disclosed in the Financial Highligts section.

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 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. 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 3 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. Bancorp Fund Services (Guernsey) Limited ("U.S. Bancorp") and Quintillion Limited, a wholly-owned subsidiary of U.S. Bancorp. Under the terms of the agreement, Sub-Administration services are delegated to Quintillion Limited (the "Sub-Administrator"). US Bank National Association (the "Custodian") was appointed custodian to the Company effective 1 March 2015. See Note 3 for details of fee entitlement.

Company Secretarial and Registrar Arrangements

During 2016, company secretarial services were provided by C.L. Secretaries Limited (the "Company Secretary"), a wholly-owned subsidiary of Carey Commercial Limited. Registrar services are provided by Capita Registrars (Guernsey) Limited.

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 3.

For and on behalf of the Board

John Hallam Sarah Evans

Chairman Director

10 April 2017 10 April 2017

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 BH Global Limited, Real Estate Credit Investment Limited and a number of other financial services companies, some of which are listed on the LSE. Mr Hallam served for many years as a member and latterly chairman of the GFSC, from which he retired in 2006.

Sarah Evans (Chairman of the Audit Committee and Remuneration Committee)

Sarah Evans is a graduate of Oxford University and is a Chartered Accountant. In 1982 she joined the Group Finance department of Kleinwort Benson plc where she was responsible for all financial and regulatory reporting for the group. In 1990 Ms Evans created her own consultancy specialising in securitisation, advising banks and building societies wishing to securitise their assets. In 1994 she joined Barclays Bank plc as a director of UK Treasury. During her time at Barclays she became the Finance Director of Barclays Mercantile. In 2005 Ms Evans moved to Guernsey and since 2006 she has sat on the boards of several listed and unlisted investment funds as a non-executive director. She also sits on the board of the Association of Investment Companies.

Christopher Sherwell

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 a M.Phil. from the University of Oxford in 1973. Mr Sherwell has been a director of NB Private Equity Partners Limited ("NBPE"), which is a publicly listed investment company managed by NB Alternative Advisers, LLC, a Neuberger Berman Group entity based in Dallas, whereas the Company is managed by Neuberger Berman Investment Advisers LLC based in Chicago. It is intended that Mr Sherwell will step down as a director of NBPE as part of proposals being put forward for approval by NBPE's shareholders on 24 April 2017.

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.

Stephen Vakil (Chairman of the Management Engagement 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.

DIRECTORS' REPORT

The Directors present their report and Financial Statements of the Company and their report for the year ended 31 December 2016.

Share Capital

Current Share Capital

The number of shares in issue at 31 December 2016 was as follows:

Class A Shares 2

Ordinary Shares 35,218,587

Extended Life Shares 215,873,854

New Global Shares 110,785,785*

*of which 10,632,000 are held in treasury

On 9 February 2017 the Company announced a capital return by way of a compulsory partial redemption of 10,427,294 Extended Life Shares which took place on 22 February 2017. Following the buybacks of the New Global Shares and Extended Life Shares between 3 January 2017 and 7 April 2017 and the redemption on 22 February 2017, the shares in issue as at the latest practicable date prior to publication of this report were as follows:

Class A Shares 2

Ordinary Shares 35,218,587

Extended Life Shares 205,033,692

New Global Shares 110,735,785**

**of which 10,657,000 are held in treasury

Share Buybacks

At the Annual General Meetings ("AGMs") of the Company held on 4 June 2015 and 24 August 2016, 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 4 June 2015 and 24 August 2016 respectively). The latest authority will expire at the AGM to be held on 6 June 2017. 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 2,969,679 Extended Life Shares were repurchased for cancellation for gross consideration of $2,771,595. In addition, 6,145,000 New Global Shares were repurchased by the Company for gross consideration of £4,137,565 and are held in treasury.

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

It is intended that the Company will in due course cancel the NBDG Shares held in treasury.

Distributions

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. 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 in the Business Model section.

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

· Income distributions 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 31 March 2017, 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 2016 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%. Notifications received by the Company below 5% are included here for completeness only. Class A shares do not hold voting rights.

Since the year end at the date of this report, four notifications were received by the Company:

*most recent TR-1 notification is detailed above

Directorship Disclosures in Public Companies Listed or Traded on E.U. Recognised Stock Exchange (as at 31 December 2016)

Certain of the Directors maintain additional directorships in companies that are not listed or traded on any E.U. recognised stock exchange. Details may be obtained from the Company Secretary.

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 themselves 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.

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 Principal's 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 2016 (2015 - none), nor does it have responsibility for any other emissions producing sources.

Gender Metrics

There are five Board members, one of whom is a woman. More information on the Board's consideration of diversity is given in the Corporate Governance Report.

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 in the Directors section. 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 Sarah Evans

Chairman Director

10 April 2017 10 April 2017

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, applicable to Guernsey companies. However, the Board has chosen to comply with the AIC Code.

On 1 January 2012, the GFSC's "Finance Sector Code of Corporate Governance" came into effect. 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 AIC Code, by reference to the AIC Corporate Governance Guide for Investment Companies (the "AIC Guide"). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Code as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company.

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 better 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 2016 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

· 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

Board Independence and Composition

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

John Hallam, Sarah Evans, 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.

Mr Sherwell sits on the Board of NB Private Equity Partners Limited ("NBPE") managed by NB Alternative Advisers LLC, a Neuberger Berman Group entity based in Dallas, whereas the Company is managed by Neuberger Berman Investment Advisers LLC based in Chicago. Further, on 28 March 2017, NBPE announced a series of proposals for approval by shareholders at a general meeting to be held on 24 April 2017. As part of these proposals it is intended that Mr Sherwell will step down from the NBPE board and an announcement to that effect will be released in due course.

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 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.

Sarah Evans and John Hallam are both non-executive Directors of Real Estate Credit Investment Limited.

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;

· organises 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 2017 AGM. The length of service of each Director is shown in the Directors' Remuneration Report. Any Director may resign in writing to the Board at any time.

Mr Vakil was appointed as a non-executive Director of the Board on 5 February 2016. The Board believe that this appointment strengthens the Board and is part of the Company's succession planning.

The Board led the formal, rigorous and transparent procedure for the appointment of Mr Vakil. Candidates were identified and selected on merit against objective criteria and with due regard to the benefits of diversity on the Board, including gender. The Board undertook a wide recruitment drive which included interviewing candidates from Guernsey, the U.K. and the U.S. Lists of potential candidates were obtained from a variety of sources, including candidates known to the Board, its advisers and the Investment Manager and the Board agreed shortlists. Interviews were held with potential candidates. The skills, experience and time availability of each candidate was considered by the Board. Shortlisted candidates were invited to meet the Chairman and the Investment Manager and feedback was provided to the Board prior to selection. The decisions to appoint Mr Vakil was based on merit of both skills and experience and was considered fair and non-discriminatory. Neither an external search consultancy nor open advertising was used in relation to this appointment as the Board believed it received sufficient advice and recommendations from its advisers.

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 and Christopher Sherwell were re-elected as Directors and Sarah Evans and Stephen Vakil were elected (being their first AGM since appointment) at the AGM on 24 August 2016. The names and biographies of the Directors holding office at the date of this report is listed in the Directors section.

Tenure of Non-Executive Directors

The Board has adopted a policy on tenure that is considered appropriate for an investment company. 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's tenure and succession policy seeks to ensure that the Board is well balanced and will be refreshed from time to time by the appointment of new directors with the skills and experience necessary to replace those lost by directors' retirements. The Board has sought to appoint Directors with past and current experience of various areas relevant to the Company's business.

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 AGM to be held on 6 June 2017.

As outlined on the Chairman's Statement, 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 for the time being in order benefit from the Directors' technical knowledge and experience of managing the Company's affairs as the assets continue to wind down. The Remuneration Committee confirmed to the Board that the contributions made by the Directors offering themselves for re-election at the AGM on 6 June 2017 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 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 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, nationality or any other criterion of representation on the Board. At 31 December 2016 the Board had a 20% female representation. 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 enhance 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 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 2016, except Michael Holmberg, an employee of the Neuberger Berman Group of which the Investment Manager is a part.

The Directors' Remuneration Report 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 2016, by means of an internal questionnaire completed by Sarah Evans, John Hallam, Christopher Sherwell and Stephen Vakil. 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 2016 evaluations concluded the following:

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

· that Mr Hallam, Mrs Evans, Mr Sherwell and Mr Vakil are considered independent;

· all Directors should be proposed for re-appointment at the 2017 AGM; and

· the Board is considered to have an appropriate mix of skills, experience and gender.

The Board intends to conduct another internal board evaluation in November 2017, and will continue to review its procedures, its effectiveness and development in the year ahead.

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. He confirmed that all directors actively kept up to date with industry developments and issues.

When Mr Vakil 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 Vakil spent time with representatives of the Company Secretary and the Investment Manager in order to learn more about their processes and procedures.

In June 2016 all Directors visited the AIFM's offices in Chicago to review and discuss the investment process in depth. The Directors also met representatives of the KPMG audit and tax teams based in Chicago.

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 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 and the Investment Manager, and shareholders are welcome to contact the Directors at any time via the Company Secretary.

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 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 would be made and further disclosures will be made in the Annual Report. The brokers and the Investment Manager will seek feedback from investors. In addition to this the brokers 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 24 August 2016 the Company received notable votes against or withheld on the following resolutions:

Shortly after the AGM, the Board, in conjunction with the Company's brokers, sought feedback from shareholders and shareholder voting guideline agencies to understand better the principal reasons for the notable votes against or withheld. Following these discussions the Board had concluded that the notable votes against or withheld were cast primarily on grounds of non-independence.

John Hallam resigned as a director of Neuberger Berman Private Equity Partners Limited in 2015 and no longer has any connections to the company and as such the Board considers that he continues to be independent.

For the reasons outlined in the "Board Independence and Composition" section of this Corporate Governance Report the Board maintains the view that Christopher Sherwell is an independent Director of the Company. The Board also 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, Management Engagement Committee or Remuneration Committee and is not involved in any matters discussed by the Board concerning the evaluation of the performance of the Investment Manager.

For the reasons outlined in the "Appointment and Independence" section of the Audit Committee Report, the Board, on the advice of the Audit Committee, is satisfied with the auditor's independence.

The Annual and Interim Reports and a quarterly fact sheet 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 on the LSE 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.

2017 AGM

The 2017 AGM will be held in Guernsey on 6 June 2017. The notice for the AGM sets out the ordinary and special resolutions to be proposed at the meeting. Separate resolutions are proposed for each substantive issue.

It is the intention of the Board that the Notice of AGM is issued to shareholders so as to provide at least twenty working days' notice of the meeting. 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 at the end of this report. At other times the Company Secretary responds to letters from shareholders on a range of issues.

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.

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 2016 financial year

In addition to these meetings, 10 ad-hoc Board meetings were held during the year for various matters, primarily of an administration nature including, but not limited to, distributions. The 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 Inside Information Committee with defined terms of reference and duties. Further details of these committees can be found in their reports. The terms of reference for each committee can be found on the Company's website at www.nbddif.com.

An Inside Information Committee was established in light of the introduction of the E.U. Market Abuse Regulations and the requirement to identify and manage the disclosure of inside information.

The Board feels that due to the size and structure of the Company, establishing a Nomination Committee was 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 Sarah Evans

Chairman Director

10 April 2017 10 April 2017

AUDIT COMMITTEE REPORT

Membership

Sarah Evans - Chairman (Independent non-executive Director)

Christopher Sherwell (Independent non-executive Director)

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

Stephen Vakil (Independent non-executive Director)

* The Board believes it is appropriate for the Company Chairman to be a member of the Audit Committee as he is an independent non-executive Director.

Key Objectives

The provision of 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. Only members and the Secretary of the Audit Committee have the right to attend Audit Committee meetings. However, other Directors and representatives of the Investment Manager and Administrator will be invited to attend Audit Committee 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 the Audit Committee to meet the auditors without the Investment Manager or other service providers being present.

Main Activities During the Year

The Audit Committee assists 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 Audit 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 the activities of the Audit Committee and matters of particular relevance to the Board in the conduct of their work.

The Audit Committee met with representatives of the KPMG audit and tax teams based in Chicago during a due diligence visit in 2016.

At its three meetings during the year, the Audit 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 Interim and 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.

Significant Issues

In relation to the Annual Report and Financial Statements for the year ended 31 December 2016, the significant issue considered by the Audit Committee was the valuation of the Company's investments.

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

The Audit 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. The members of the Audit Committee had meetings with KPMG, where the audit findings were reported. 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 is responsible overall 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 reviewed and updated regularly and is formally reviewed at each quarterly Board meeting. The Board receives, each quarter from the Investment Manager, a formal report 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 Audit Committee was satisfied that this function provided significant control to help mitigate the risks to the Company.

In addition, the Audit Committee receives and reviews Internal Controls reports from independent sources of the Administrator, Sub-Administrator, Registrar, Custodian and Investment Manager on an annual basis.

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 in the Strategic Report.

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 2016 and to the date of approval of this Annual Report and that no issues 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 principal risks. For the 2016 financial year the significant risk identified was in relation to the valuation of investments. This risk is tracked through the year and the Audit Committee has challenged the work done by the auditors to test management's assumptions and estimates around these areas. The Audit 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 Audit Committee has sought feedback from the Investment Manager, the Administrator and Sub-administrator on the effectiveness of the audit process. For the 2016 financial year the Audit 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 good.

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 A. Dempsey, took over the role as lead audit engagement partner in 2014 following the departure of Robert A. Hutchinson who had been the lead audit engagement partner for 4 years.

KPMG has been the Company's external auditor since its stock exchange listing in 2010 (6 years). The Company has not formally tendered the audit since then. The Audit Committee will put the Company's audit out to tender at least every ten years 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 intends to comply with the FRC's Ethical Standard for E.U. Public Interest Entities ("PIEs") relating to audit tenders.

The Audit Committee approved the fees for audit services for 2016 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.

The Audit Committee is satisfied that KPMG is independent.

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 March 2017 in order to voluntarily adopt the provisions of FRC's Ethical Standard for E.U. PIEs relating to non audit services. 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.

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 auditors 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 Auditors (including the provision of non-audit services) is available on its website at www.nbddif.com.

Auditor's Remuneration

Appointment and Independence

Having given careful consideration to the matter, the Audit Committee is satisfied with the auditor's independence and the effectiveness of the audit conducted by KPMG. The Audit Committee noted that for the year ended 31 December 2016 non-audit fees exceeded audit fees. In light of the growing focus on non-audit fees the Audit 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 Audit Committee does not consider that tax compliance and tax consultancy services present a conflict as the services provided were all assessed as permissible prior to the commencement of the work and do not impact the audit work performed by the audit team. The Audit Committee is cognisant that fees relating to tax compliance and tax consultancy are typically higher for the Company when compared against other investment companies due to the types of investments and various jurisdictions in which the Company operates. For example, a portion of the consulting work relates to responses to federal and state notices and assistance with federal and state audits. Other consulting is also generally routine in nature - researching tax consequences associated with various investments/restructuring for the Investment Manager to take into consideration in making investment decisions. Where there are larger restructurings KPMG has often advised alongside a law firm so advice is being provided by multiple parties. Further, the fees that do relate to consulting are more research orientated rather than tax positions subject to interpretation that could impact an audit.

As noted above, the Committee has voluntarily adopted certain provisions of the FRC's Ethical Standard for E.U. PIEs which requires that 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. This policy is applied prospectively from the Company's year ended 31 December 2017 and therefore the threshold will be calculated on a three year look back from the financial year ended 31 December 2020.

Management retains responsibility for preparing and approving all tax calculations and tax returns, the output from the services 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 from 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 2017, 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 2017 AGM.

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

Audit Committee Evaluation

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

Sarah Evans

On behalf of the Audit Committee

10 April 2017

MANAGEMENT ENGAGEMENT COMMITTEE ("MEC") REPORT

Membership

Stephen Vakil - Chairman (Independent non-executive Director)

Christopher Sherwell (Independent non-executive Director)

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

Sarah Evans (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;

· 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 MEC 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 MEC met three times during the year and reviewed performance and value of the Company's service providers and the Investment Manager. The MEC 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 17 November 2016, including the Investment Manager. The MEC reviewed the Terms of Reference for the MEC 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 is reviewed annually as part of the MEC's annual review.

As a result of the 2016 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 MEC

10 April 2017

INSIDE INFORMATION COMMITTEE REPORT

Membership

Sarah Evans (Independent non-executive Director)

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

Michael Holmberg (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

· Indentify 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

Under the Terms of Reference the Inside Information Committee is only required to meet when there is a requirement to identify and delay the disclosure of inside information. There were no delays to the disclosure of information during the year.

John Hallam

On behalf of the Inside Information Committee

10 April 2017

REMUNERATION COMMITTEE REPORT

Membership

Sarah Evans - Chairman (Independent non-executive Director)

Christopher Sherwell (Independent non-executive Director)

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

Stephen Vakil (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 was established on 17 November 2016 and met once during the year and reviewed the Director's remuneration and results of the 2016 Board evaluation. The terms of reference of the Remuneration Committee were adopted.

A detailed "Directors' Remuneration" report to shareholders from the Remuneration Committee on behalf of the Board is detailed below.

Sarah Evans

On behalf of the Remuneration Committee

10 April 2017

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 6 June 2017.

Directors' Fees

The Company paid the following fees to the Directors for the year ended 31 December 2016:

\* Talmai Morgan resigned as a Director on 8 February 2016

**Mr Vakil was appointed as a Director on 5 February 2016

The Company paid the following fees to the Directors for the year ended 31 December 2015:

No other remuneration was paid or payable by the Company during the year to any of the Directors, other than travel expenses of $36,328 (2015: $4,547). The travel costs in 2016 include a due diligence visit by all Directors to the Investment Manager's offices in Chicago.

Changes to the Board

Mr Vakil was appointed on 5 February 2016 and Mr Morgan resigned on 8 February 2016.

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 will review the fees paid to the boards of similar investment companies. No Director is to be 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 comparison 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. The Board recognises that its remuneration policy may need to be reviewed in the near future to reflect the changing status of the Company as the existing Portfolios realise their assets and liquidate.

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.

All of the independent non-executive Directors were re-elected at the first AGM after their appointment and are subject to annual re-election. The names and biographies of the Directors holding offices at the date of this report are listed in the Directors section.

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 31 March 2017 are shown in the table below:

*Includes holdings of connected persons.

Advisors to the Remuneration Committee

The Remuneration Committee has not sought the advice or services by any outside person in respect of its consideration of the Directors' remuneration.

Sarah Evans

On behalf of the Remuneration Committee

10 April 2017

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 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; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

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. The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors of the Company have elected to prepare Financial Statements for the Company for the year ended 31 December 2016 as the parent of the Group in accordance with Section 244(5) of the Law. They are not required to prepare individual accounts for NB Distressed Debt Investment Fund Limited in accordance with Section 243 of the Law for the financial year.

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 as required by DTR 4.1.12R are in compliance with the requirements set out in the Law; and

· The Annual Report includes a fair review of the information required by DTR 4.1.8R and DTR 4.1.11R, which provides an indication of important events that have occurred since the end of the financial year and the likely future development of the Company and a description of principal risks and uncertainties during the year.

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 Sarah Evans

Chairman Director

10 April 2017 10 April 2017

INDEPENDENT AUDITOR'S REPORT

We have audited the Group financial statements (the "financial statements") of NB Distressed Debt Investment Fund Limited (the "Company") and its subsidiaries (together the "Group") for the year ended 31 December 2016 which comprise the consolidated statement of assets and liabilities including the consolidated condensed schedule of investments, the consolidated statement of operations, the consolidated statement of changes in net assets, the consolidated statement of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and U.S. generally accepted accounting principles.

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.

Respective responsibilities of the directors and auditor

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require compliance with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:

· give a true and fair view of the state of the Group's affairs as at 31 December 2016 and its result for the year then ended;

· are in conformity with U.S. generally accepted accounting principles; and

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

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.

Dermot A. Dempsey

For and on behalf of KPMG Channel Islands Limited

Chartered Accountants and Recognised Auditors, Guernsey

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

At 31 December 2016 and 31 December 2015

(Expressed in U.S. Dollars except where stated otherwise)