NBLS.L Regulatory News (NBLS)

NB GLOBAL FLOATING RATE INCOME FUND LIMITED

2018 Annual Report

Audited CONSOLIDATED Financial Statements

for the Year Ended 31 December 2018

COMPANY OVERVIEW | Features

Features

NB Global Floating Rate Income Fund Limited (the "Company")

The Company is a closed-ended investment company incorporated and registered in Guernsey on 10 March 2011 with registered number 53155. The Company is governed under the provisions of the Companies (Guernsey) Law, 2008 as amended (the "Law"), and the Registered Collective Investment Scheme Rules 2018 issued by the Guernsey Financial Services Commission. It is a non-cellular company limited by shares and has been declared by the Guernsey Financial Services Commission to be a registered closed-ended collective investment scheme. On 20 April 2011, the Company was admitted to the Official List of the U.K. Listing Authority with a premium listing trading on the Main Market of the London Stock Exchange ("LSE"). The Company was admitted to the FTSE 250 in March 2012.

Alternative Investment Fund Manager ("AIFM") and Manager

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

Capital Structure

As at 31 December 2018, the Company's share capital comprised 805,289,944 Sterling Ordinary Shares ("NBLS") of no par value (of which 75,000,000 were held in treasury) and 59,271,977 U.S. Dollar Ordinary Shares ("NBLU") of no par value (of which 1,342,627 were held in treasury).

For the purposes of efficient portfolio management, the Company has established a wholly-owned Luxembourg incorporated subsidiary, NB Global Floating Rate Income Fund (Lux) 1 S.à.r.l., which in turn holds a wholly-owned subsidiary, NB Global Floating Rate Income Fund (Lux) 2 S.à.r.l. Part of the portfolio of the Company is held through NB Global Floating Rate Income Fund (Lux) 2 S.à.r.l.

Non-Mainstream Pooled Investments

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

The Company's shares are excluded from the FCA's restrictions, which apply to non-mainstream pooled investment products.

Dividends

Paid quarterly in respect of each calendar quarter. The Company's dividend policy is detailed below.

Rolling 12 month dividend yield (based on the previous four quarterly dividends paid and share price as at 31 December 2018):

· Sterling Ordinary Shares: 4.53%

· U.S. Dollar Ordinary Shares: 4.43%

COMPANY OVERVIEW | Business Model 

Principal Activities and Structure

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

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

INVESTMENT STRUCTURE OF THE COMPANY

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

Investment Objective

The Company's investment objective is to provide its shareholders with regular dividends, at levels that are sustainable, whilst preserving the capital value of its investment portfolio, utilising the investment skills of the Investment Manager.

Investment Policy

To pursue its investment objective, the Company invests mainly in senior secured floating rate loans issued in U.S. Dollars, Pound Sterling or Euros by primarily North American and European Union corporations, partnerships and other business issuers. These loans are at the time of investment often non-investment grade. The Company considers debt instruments to be non-investment grade if, at the time of investment, they are rated below the four highest categories (Aaa, Aa, A and Baa) by at least two independent credit ratings agencies or, if unrated, are deemed by the Investment Manager to be of comparable quality.

The coupon received when investing in floating rate loans varies with, and is periodically adjusted to reflect changes in, a generally recognised base interest rate such as LIBOR. The Company generally seeks to focus on loans of issuers that the Investment Manager believes have the ability to generate cash flow through a full business cycle, maintain adequate liquidity, possess an enterprise value in excess of senior debt and have access to both debt and equity capital.

The Company may also make investments in senior bonds on an opportunistic basis if the Investment Manager believes that such investments are attractively valued, up to a maximum in aggregate of 20% of the Net Asset Value ("NAV") at the time of investment, provided that no more than 10% of NAV may be invested in unsecured bonds at the time of investment.

Diversification

The Investment Manager seeks to manage risk through in-depth credit research utilising proprietary analytic processes, diversifying across industries, companies and investment size and adjusting sector weightings based on economic and market analysis.

The Company's portfolio is intended to contain at least 100 investments across a minimum of 20 industries, with a focus on those industries regarded as defensive. Defensive industries are those the Investment Manager believes are less affected by changes in economic conditions and likely to demonstrate the strongest capital preservation.

Typically, at the time such investment is made, no industry will represent more than 15% of NAV and no single investment will represent more than 5% of NAV. The Board considers that it is not appropriate to make available a full portfolio listing to shareholders as the information is considered commercially sensitive, however the company makes available, on a monthly basis, a list of the issuers in the portfolio. As at 31 December 2018, the portfolio contained 260 issuers.

What Are Senior Secured Floating Rate Loans?

Senior secured floating rate loans, also known as floating rate secured loans or leveraged loans, are debt obligations originated and arranged by banks or other financial entities (also known as an arranger) on behalf of corporations, partnerships and other business issuers to finance activities such as mergers and acquisitions, leveraged buyouts, recapitalisations, refinancings, capital expenditure or for other general corporate purposes.

These will typically be syndicated to a pool of lenders that collaborate to provide financing for the borrower. Once the bank loan is issued, lenders have the option to hold their portion for the life of the loan or to sell it to other investors in the secondary market.

The senior secured floating rate loans that the Company invests in are generally non-investment grade, that is rated at or below Ba1 by Moody's Investors Service or at or below BB+ by Standard & Poor's or an equivalent rating by a third party rating agency.

The senior secured floating rate loans that comprise the portfolio typically hold the most senior position in the capital structure of the borrower and are secured with specific collateral, giving lenders a claim on the assets that are senior to the claims of unsecured creditors, subordinated debt holders and stockholders of the borrower. The security package typically incorporates a first priority over all of the borrower's assets including receivables, inventory, bank accounts, property, plant and equipment. In the event of a default or bankruptcy, the holders of the loans should be in a better position to maximise recovery of their debt than other creditors due to their position in the capital structure.

The below chart shows the typical capital structure of a borrower:

SAMPLE CAPITAL STRUCTURE

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Senior secured floating rate loans earn a variable rate of interest that includes a stated 'spread' (also known as the margin or coupon), which reflects issuer risk, over a widely accepted base rate such as LIBOR. The floating rate on senior secured floating rate loans typically resets every 30 to 90 days in line with the prevailing rate of LIBOR and, because such loans reset on a regular basis, the yield is described as ''floating''.

The Investment Manager's experience is that LIBOR floors are a common feature of almost all new loan issues in the U.S. LIBOR floors guarantee a minimum level of LIBOR to investors irrespective of the prevailing interest rate.

If LIBOR exceeds the floor then such loans pay the prevailing LIBOR as well as the credit spread. The return is generated by LIBOR or the LIBOR floor, the spread over LIBOR paid by the borrower due to the terms of the underlying loan and the discount. The discount occurs because new issues are commonly priced, in the Investment Managers' experience, at a discount to the par value of the loan.

INDICATIVE BREAKDOWN OF SENIOR SECURED LOAN RETURNS

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1 New issues are typically sold at a discount to par.

Investment Process

The Investment Manager focuses on experience-based, in-depth credit and industry analyses, disciplined portfolio construction and ongoing portfolio monitoring. The below diagram provides a high level overview of the Investment Manager's investment process.

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The credit ratings noted above are those of Standard & Poor's. Ratings of BB+ and below are considered non-investment grade (junk bonds). Credit ratings are subject to change at any time. This material is intended as a broad overview of the portfolio managers' style; philosophy and investment process and is subject to change without notice. The portfolio managers' views may differ from those of other portfolio managers as well as the views of Neuberger Berman.

Investment Discipline

The Investment Manager's investment discipline seeks to ensure, through its "credit best practices" checklist that it thoroughly understands the investment thesis for each investment and any underlying assumptions:

Top-Down Analysis

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Bottom-Up Analysis

 Issuer: Key Considerations 

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Investment Philosophy and Selection Process

Investment Philosophy

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Selection Process

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

Hedging

As the Company's shares are denominated in Pound Sterling (Sterling Ordinary Shares) and U.S. Dollars (U.S. Dollar Ordinary Shares) and investments are denominated in U.S. Dollars, Euro or Pound Sterling, holders of any class of shares are subject to foreign currency fluctuations between the currency in which such shares are denominated and the currency of the investments made by the Company. Consequently, the Investment Manager seeks to engage in currency hedging between the U.S. Dollar and any other currency in which the assets of the Company or a class of shares is denominated, subject to suitable hedging contracts such as forward currency exchange contracts being available in a timely manner and on terms acceptable to the Investment Manager, at their sole and absolute discretion.

A consequence of currency hedging is that the interest rate differential between the hedged share class currency (GBP) and the base currency (USD) (the "carry") is included in the return of the hedged share class. The objective of the foreign exchange hedge on Ordinary Sterling share class investors is to give a long exposure to GBP LIBOR and a short exposure to USD LIBOR. As a result, the interest rate differential has a marginal impact on dividend distributions for the holders of the Ordinary Sterling share class shares. The costs of the interest rate differential will be borne by the NBLS NAV, and any narrowing of the USD / GBP LIBOR differential will reduce the size of this cost. The interest rate differential is a cost/benefit for all currency hedging arrangements and is not unique to the Company.

Gearing and Derivatives

The Company does not normally employ gearing or derivatives for investment purposes. The Company may, from time to time, use borrowings for share buybacks and short-term liquidity purposes. The Directors will restrict borrowing to an amount not exceeding 20% of the NAV at the time of drawdown. Derivatives are used for foreign exchange hedging purposes and the U.S. Dollar exposure for Sterling shareholders is explained in Note 2 of the financial statements.

Redemption Offer

As set out in the Company's Articles of Incorporation (the "Articles"), under redemption offer, if, as at 31 December in any calendar year, the shares of a particular class have, on average over the last three calendar months of the relevant calendar year, traded on the LSE at a discount in excess of 5% to the NAV per share of that class, the Directors will, subject to any legal or regulatory requirements, implement a redemption offer pursuant to which each holder of shares of the relevant class shall be offered the opportunity to redeem up to 50% of their shares of such class. This provision was not triggered at 31 December 2018.

STRATEGIC REVIEW | Financial Highlights

Financial Highlights

Key Figures

1 In the year ended 31 December 2018, the Company re-purchased 220.56m Sterling Ordinary Shares at a total U.S. Dollar equivalent cost of $269.13m and 2.06m U.S. Dollar Ordinary Shares at a total cost of $1.94m.

2 Rolling 12 month dividend yield based on the four quarterly dividends declared in respect of the year and share price as at 31 December 2018.

3 The total return is the NAV return per share plus dividends declared in respect of the year.

4 Management fees and all other operating expenses expressed as a percent of average net assets during the year.

Financial Review

At 31 December 2018, the Net Assets of the Company amounted to $911,886,137 (2017: $1,308,070,928). The NAV attributable to the U.S. Dollar Ordinary Shares amounted to $54,847,645 (2017: $42,776,584) and the NAV per U.S. Dollar Ordinary Share was $0.9468 (2017: $0.9896). The NAV attributable to the Sterling Ordinary Shares amounted to £672,925,952 ($857,038,492) (2017: £935,349,728 ($1,265,294,344)) and the NAV per Sterling Ordinary Share was £0.9215 (2017: Ordinary Shares: £0.9702).

STRATEGIC REVIEW | Chairman's Statement

Chairman's Statement 

Dear Shareholder,

It is with pleasure that I present to you the Annual Report of NB Global Floating Rate Income Fund Limited for the year ended 31 December 2018, my first as Chairman.

Performance

The Board is satisfied with the recent performance of the Company's portfolio which has benefitted from the more defensive positioning taken by the Investment Manager. During the year the Company's NAV total return (NAV return plus dividends paid) was (0.88%) and (0.15%) for the Sterling Ordinary Shares and U.S. Dollar Ordinary Shares, respectively. During the same period the Company's share price total return was (6.34%) per Sterling Ordinary Share and (2.86%) per U.S. Dollar Ordinary Share. The Company's Net Asset Value ("NAV") per share remained relatively stable over the first nine months of 2018. The fourth quarter 2018 experienced risk-off sentiment across capital markets. The reduction in NAV during the fourth quarter was driven more by technical factors rather than any diminution in underlying credit quality. The dividend per share continued to increase throughout 2018 and the Company's dividend yield was 4.53% and 4.43% per Sterling Share and U.S. Dollar Share respectively (calculated as the last four quarterly dividends expressed as a percentage of the share price as at 31 December 2018). The Company continues to meet its broad objective of providing regular and sustained dividends which were consistent with increases in U.S. Libor during 2018.

As at 31 December 2018, the Portfolio's current yield was 5.76%, and the yield to maturity was 6.64%, figures which are both broadly in line with the relevant benchmark, the S&P / LSTA Leveraged Loan Index (the "Index").

Despite concerns from some quarters about conditions in credit markets, the market saw $435.9bn of leveraged loans issued during the year. However, towards the end of the year, loan prices eased, new issuance all but ceased due to overall market volatility and credit spreads widened somewhat as late cycle credit concerns started to assert themselves. The pace of interest rate increases, particularly outside the U.S., was slower than expected, which meant that the cost of hedging returns into Sterling has not fallen as much as we had expected.

Given these headwinds, the Board remains satisfied with the performance of the Company as well as the more conservative, risk averse approach to portfolio management taken by the Investment Manager.

Dividends

As at 31 December 2018, the annualised dividend based on the previous four quarterly dividends paid was 4.02 pence per share for the Sterling Ordinary Shares and 4.13 cents per share for the U.S. Dollar Ordinary Shares up from 3.35 pence and 3.41 cents per share, respectively as at 31 December 2017. Your Board believes that the dividend yield, 4.61% (USD Class) and 4.60% (GBP Class) as at 25 March 2019, on the stock at the current share price is attractive on a risk-adjusted basis given the current low interest rate environment and taking account of the prudent investment approach taken by the Investment Manager.

Portfolio Construction

The portfolio remains fully invested, with a strong U.S. bias. As at 31 December 2018, 82.5% of the portfolio was invested in U.S. Dollar denominated assets, with 15.4% invested in Euro denominated assets and 2.1% in Sterling denominated assets (all excluding cash). The shift towards a higher portion of Euro denominated loans reflects the Investment Manager's view that the Eurozone remains at an earlier stage of the credit cycle, and that assets in this market are attractive on a relative value basis.

These allocations reflect the investment opportunities available in the respective markets with the United States, as measured by the S&P/LSTA Leveraged Loan Index, being $1.1 trillion as at the end of 2018 versus €180 billion for the European market (S&P European Leveraged Loan Index). These geographical allocation levels have been relatively constant over the last 12 months, reflecting both the market sizes and relative value available in the different geographies.

During 2018, the Investment Manager kept the portfolio's bond allocation well below the 20% of NAV permitted, closing December 2018 at 8.8%. The majority of the allocations were floating rate securities and only 4.9% of the portfolio was fixed rate as the Investment Manager remained focused on keeping duration low and limiting potential areas of volatility. Additionally, allocations to higher rated assets continued with BB loans accounting for 35.93% of the NAV at the end of December 2018, down from 49.84% at the end of 2017.

The Company's Sterling Ordinary Share class hedges all U.S. Dollar and Euro exposure back to Sterling.

Discount Management

During the year, the Company's discount ranged between 6.62% and 1.25% per Sterling Ordinary Share and 6.02% and 0.8% per U.S. Dollar Ordinary Share. At times during the year, the Board sought to address imbalances between supply and demand in the Company's shares by proactively repurchasing shares. In the 12 months to 31 December 2018, the Company repurchased 220,555,413 Sterling Ordinary Shares at a total cost of £203.2m and 2,061,305 U.S. Dollar Ordinary Shares at a total cost of $1.94m representing 27.39% and 3.48% of the issued share capital at 31 December 2018, respectively. The weighted average discount of the buyback was 3.74% for the Sterling Ordinary Shares and 3.53% for the U.S. Dollar Ordinary Shares with a respective accretion to NAV of 0.88% and 0.17%.

On 20 December 2018, we sought shareholder approval to renew the authority for the Company to make market purchases of its own Shares, which was duly granted. The Board will seek to renew this authority at the 2019 AGM to give us the flexibility to continue to buy back shares to help satisfy demand for market liquidity whilst increasing NAV per share, as part of our discount control mechanism and we will continue to remain vigilant in our approach to discount and premium management on behalf of shareholders. 

Continuation Vote

In accordance with the Company's Articles of Incorporation (the "Articles"), at the Annual General Meeting held on 13 June 2018 the Company proposed a resolution to consider the Company's continuation as a closed-ended investment company. I am pleased to report that shareholders voted overwhelmingly in favour of the Company's continuation at this meeting. The next continuation vote will be proposed at the 2019 AGM, and annually thereafter.

Board Composition and Succession Planning

During the year, the Board continued to develop its succession plan which was discussed in the 2017 Annual Report. In September, I was appointed Chairman following the retirement of William Frewen. On 1 January 2019, David Staples, who was appointed to the Board in June 2018, took over from Richard Battey as Chairman of the Audit and Risk Committee. We consider that the recent board changes will maintain diversity of tenure and responsibilities. We will continue to assess independence and replenish the Board over the coming years. Further detail on the Board's succession plan and diversity policy can be found in the Corporate Governance Report below and the Report of the Remuneration and Nomination Committee below.

Outlook

Your Board is pleased that dividends per share have increased during 2018. We believe the Company continues to offer a risk-adjusted return which compares favourably to other corporate credit vehicles and is pleased with the Investment Manager's performance to date in executing its strategy.

We believe that the outlook for 2019 remains relatively attractive for short duration asset classes such as senior secured floating rate loans. The Investment Manager believes that default rates will stay below historical levels and credit quality is expected to remain favourable with the exception of some identifiable areas, such as within the retail sector.

The Investment Manager will continue to keep you updated on the Company's progress by way of the monthly fact sheets and quarterly updates. The Investment Manager's defensive positioning, the attractive yield combined with good liquidity in the shares and your Board's ongoing support to maintain a tight discount or premium to NAV continue to make the Company a sound investment proposition.

Finally, it is our belief that a disorderly Brexit situation would not impact our operations in any material manner. Further, we do not believe there is an impact of disorderly Brexit on our portfolio given that only 2.05% of the portfolio has a GBP Sterling exposure with 96.26% of the portfolio having no UK exposure.

Thank you for your continued support.

Rupert Dorey

Chairman

28 March 2019

STRATEGIC REVIEW | Investment Manager's Report 

Investment Manager's Report

Market Environment

Market conditions have been impacted by ongoing trade tensions, corporate margin pressures, weak investor demand and more latterly sharply falling oil prices. Third quarter U.S. GDP growth of 3.4% was below the 4.2% expansion in the second quarter. Market fundamentals have remained stable, as leverage continues to decline and interest coverage remains strong. The vast majority of issuers are growing EBITDA, generating free cash flow, and paying down debt. These positive trends more than offset the more aggressive metrics coming out of the new issue market during the first nine months of the year. During the fourth quarter risk-off sentiment prevailed across capital markets as year-end approached, leading to withdrawals of $14 billion from retail loan funds across the market. This was a reversal from the previous nine months and resulted in an outflow of $3.1 billion in the U.S. for full year 2018. The pressure on the secondary market dropped the share of performing loans priced at par or higher to less than 1%, from 36% in October and 75% in early 2018. Despite the significant levels of retail fund withdrawals, market liquidity was deeper than in historic risk-off periods, with experienced market participants taking advantage of the ensuing price dislocation. We see this as encouraging evidence that the leveraged loan market has become more sophisticated in recent years, as it has grown in scale. Larger, more liquid loans, which tend to be higher quality, were negatively affected by retail outflow activity. The largest loans, measured by the LSTA100 Index, returned (4.41%) in the quarter versus the broader LSTA Index which returned (3.45%).

In the U.S., demand for loans was robust, with over $128 billion of new collateralized loan obligation ("CLO") creation more than offsetting the modest $3.1 billion of outflows from retail funds. These figures do not take into account demand from pensions, endowments and other institutional investors in separate account format. For comparison, 2017 saw $118 billion of CLO creation and $14.1 billion of inflows from retail funds. Although down 13% from 2017, institutional loan issuance was strong at $436 billion. The mix of issuance was materially different in the most recent period as Mergers & Acquisitions ("M&A")/Leveraged Buyout ("LBO") activity increased while refinancing activity decreased. The increase in M&A/LBO activity led to growth in the loan market, which ended the year at $1.12 trillion versus $959 billion one year ago. The average bid ended the year at a healthy 93.84 while the trailing 12-month U.S. default rate was 1.63%, well below its long-term average of approximately 3%.

In Europe, the S&P European Leveraged Loan Index ("ELLI") returned 1.41% for 2018 (all figures exclude currency impact) and the average bid closed the year at 97.3, down from 99.4 at the end of 2017. Demand for loans continued to be strong and CLO issuance totalled €27.3 billion for the year, a new post crisis high for the European market. The par amount outstanding of the ELLI ended the year at €181 billion, an increase from €139bn one year ago. By principal amount, the trailing 12 month default was 0.11% at the end of December, down from 1.11% at the end of 2017.

We have identified three main areas of market weakness that became more prominent in 2018: (i) a pick-up in lower rated issuance, (ii) an increase in deals with smaller junior cushions and (iii) weaker loan documentation. We view this weakness to be primarily concentrated in new deals issued in 2018, and therefore representing a relatively small portion of the overall loan market, which is now $1.12 trillion in size. Seasoned loan issuers have demonstrated solid financial performance and improved credit metrics and these issuers have relatively conservative credit agreements. We have been focused on investing in these existing issuers and have largely avoided the new issue market in 2018, approving only 10% of Single B rated issuance.

We believe that loans continue to offer an attractive yield with limited duration risk:

Asset Class Yield Comparison

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1 Data is as at December 31, 2018. Source: Bloomberg Barclays POINT, ICE Bank of America Merrill Lynch. Benchmarks used were the S&P/LSTA Leveraged Loan Index, S&P European Leveraged Loan Index, ICE BofAML US High Yield Index (H0A0), ICE BofAML European Currency High Yield Index (HP00) EUR Hedged, Bloomberg Barclays US Treasury Bellwethers Composite Index, Bloomberg Barclays US Credit Index, Bloomberg Barclays European Credit Index, and ICE BofAML 0-5 Year BB-B US High Yield Constrained Index (H4CD), Bloomberg Barclays German Treasury Index, Bloomberg Barclays UK Gilts Index. Volatility based off weekly observations.

2 Excluding currency fluctuations.

Portfolio Management

During 2018, the portfolio remained significantly weighted towards U.S. Dollar issuance, which accounted for 82.5% of the portfolio at the end of the year. The bond allocation was well within the 20% of NAV permitted, at 8.8%, as we remained focused on keeping duration low and limiting potential areas of volatility. We continued to allocate to better rated assets and our share of BBB/BB credits ended the year at 39.5%.

Since June 2018, the portfolio showed a lower volatility profile than its benchmark. Despite this, it outperformed the index in June/July 2018 and performed in line from August 2018 to the end of the year. We continue to evidence that in times of increased volatility (e.g. August 2015 to October 2016), our portfolio is significantly less volatile than the index, but delivers a very similar return to the index over a long period.

Volatility versus Return

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Outlook

We believe fundaments and valuations, coupled with attractive income characteristics, provide investors with an attractive return potential under a slowing economic landscape. While economic growth is expected to slow, we believe the probability of a near term recession is low. Volatility is likely to persist, however we believe valuations for non-investment grade credit compensate investors for modest default risk. Operating performance of underlying issuers has been stable; revenue and EBITDA growth have improved as leverage has plateaued, and refinancing activity has significantly reduced the amount of loans maturing in the near term. The market's performance continues to be susceptible to a variety of factors, however, including uncertainty around government disruptions, including aggressive rhetoric, trade policy, and the overall regulatory environment. Though retail flows were a headwind in the fourth quarter, recent spread widening and higher loan yields may entice investors back into the market. Despite market expectations for more measured Fed rate policy, the current income profile of the loan asset class is attractive relative to other fixed income asset classes. We maintain our overall focus on quality positioning while allocating to select B and CCC securities where we see attractive relative value. We believe the portfolio is positioned to provide downside protection as market volatility continues, while taking advantage of future opportunities within lower quality securities.

Neuberger Berman Investment Advisers LLC Neuberger Berman Europe Limited

28 March 2019 28 March 2019

STRATEGIC REVIEW | Portfolio Information

Portfolio Information

Top 10 Issuers as at 31 December 2018 (excluding cash)

Top 10 S&P Sector Breakdown

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Key Statistics as at 31 December 2018

1 The Company's Current Gross Portfolio Yield is a market-value weighted average of the current yields of the holdings in the portfolio, calculated as the coupon (base rate plus spread) divided by current price. The calculation does not take into account any fees, fund expenses or sales charges paid, which would reduce the results. The Current Gross Portfolio Yield for the Company will fluctuate from month to month. The Current Gross Portfolio Yield should be regarded as an estimate of the Company's rate of investment income and it will not equal the realised distribution rate for each share class.

STRATEGIC REVIEW | Strategic Report

Strategic Report

Principal Risks and Risk Management

The Board is responsible for the Company's system of internal financial and operating controls and for reviewing its effectiveness. The Board has satisfied that by using the Company's risk matrix as its core element in establishing the Company's system, internal financial and reporting controls while monitoring the investment limits and restrictions set out in the Company's investment objective and policy. The Board has carried out a robust assessment of the Company's emerging and principal risks and uncertainties facing the Company including those that would threaten its business model, future performance, solvency or liquidity. The principal risks, which have been identified, and the steps taken by the Board to mitigate these areas are as follows:

Macroeconomic Conditions

Credit Risk

Liquidity Risk

Fund Performance

Level of Discount or Premium

Operational Risk

Heat Map of Principal Risks

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Principal Risks' Expected Direction of Change

Going Concern

The Directors also considered it appropriate to prepare the Financial Statements on the going concern basis, as explained in the basis of preparation paragraph in Note 2 to the Financial Statements. In making this statement, the Directors have considered the levels of working capital available to the Company, the closed-ended nature of the Company and the tradable and liquid nature of the investment portfolio held. The Directors have made the assumption that the annual continuation vote to be held in May 2019 will be passed and that the Redemption Offer for the year ended 31 December 2019 will not be triggered.

Viability Statement

The Directors have assessed the prospects of the Company over the three year period to 31 December 2021 in accordance with provision C.2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council in April 2016 (the "Code"). The Board conducted this review for a period of 3 years, a period that was selected for the following reasons: 

· The nature of the loan investments held by the Company have an average maturity of approximately three years which allows the investment cash flows, recycling of investments, and expenditure commitments of the Company to be reasonably forecast over this timeframe.

· The impacts on the Company of other factors can be reasonably assessed within this timeframe. Beyond a three year timeframe, the impact of external forces, such as changes to legislation, market forces or other unknown factors, becomes less able to be predicted or assessed in analysing the viability of the company.

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 and considers whether financing facilities will be required. Furthermore, the three year review period to 31 December 2021 makes assumptions that the Company's annual continuation vote will be passed, and that the annual Redemption Offer will not be triggered. The Directors note that the annual Redemption Offer will be triggered if, in the last three months of any calendar year, the Company's Ordinary Shares trade at an average discount to NAV in excess of 5%.

In their assessment of the viability of the Company, the Directors have carried out a robust assessment of the Company's emerging and principal risks detailed above and in particular the impact of a significant fall in the value of the Company's investment portfolio. The Directors have performed a quantitative and qualitative analysis that included the Company's income and expenditure projections and the fact that the Company's investments include readily realisable securities which can be expected to be sold to meet funding requirements if necessary. As part of this review, the Directors reviewed a series of stress test scenarios carried out by the Investment Manager 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, and assuming stressed market conditions 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 2021.

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 - The Board reviews at each board meeting the performance of the portfolio as well as the NAV, income and share price of the Company;

· Discount/premium to NAV - At each quarterly Board meeting, the Board monitors the level of the Company's discount or premium to NAV and reviews the average discount/premium for the Company's peer group. The Company publishes a NAV per share for both share classes on a daily basis through the official newswire of the LSE. This figure is calculated in accordance with the AIC's guide which includes current financial year revenue, the same basis as that calculated for the Financial Statements;

· The Directors examine the revenue forecast quarterly and consider the yield of the portfolio and the amount available for distribution; and

· The Board considers the peer group performance of other comparable income funds at each quarterly Board meeting.

Management Arrangements

Investment Management Arrangements

On 17 July 2014, the Company and the Investment Manager 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 below for details of fee entitlement.

On 31 December 2017, an amendment to the IMA was approved. Under the amendment, the responsibility for the manufacture of the Company's Key Information Document was delegated to the AIFM and other changes were made relating to MiFID II, anti-money laundering, bribery, cyber security and data protection.

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

Administration and Custody Agreement

Effective 1 March 2015, the Company entered into an Administration and Sub-Administration Agreement with U.S. Bank Global Fund Services (Guernsey) Limited (formerly known as U.S. Bancorp Fund Services (Guernsey) Limited and U.S. Bank Global Fund Services (Ireland) Limited (formerly known as Quintillion Limited), a wholly-owned subsidiary of U.S. Bank Global Fund Services (Guernsey) Limited. Under the terms of the agreement, Sub-Administration services are delegated to U.S. Bank Global Fund Services (Ireland) Limited (the "Sub-Administrator"). U.S. Bank National Association (the "Custodian") was appointed custodian to the Company effective 1 March 2015. On 4 June 2018, the Company entered into an Amendment to the Administration and Sub-Administration Agreement in respect of the requirements of relevant data protection regulations.

See Note 3 below for details of fee entitlement.

Company Secretarial and Registrar Arrangements

Company secretarial services are provided by Carey Commercial Limited. Effective 22 April 2019, company secretarial services will be provided by Praxis Fund Services Limited. Registrar services are provided by Link Market Services (Guernsey) Limited.

See Note 3 below for details of fee entitlement.

GOVERNANCE | Directors

Directors

Rupert Dorey (Chairman)

Rupert Dorey is a resident of Guernsey and has 35 years of experience in financial markets. Mr Dorey was at Credit Suisse First Boston Limited for 17 years from 1988 to 2005 where he specialised in credit related products, including derivative instruments where his expertise was principally in the areas of debt distribution, origination and trading, covering all types of debt from investment grade to high yield and distressed debt. He held a number of senior positions at Credit Suisse First Boston Limited, including establishing Credit Suisse First Boston Limited's high yield debt distribution business in Europe, fixed income credit product coordinator for European offices and head of UK Credit and Rates Sales. Since 2005 he has been acting in a Non-Executive Directorship capacity for a number of Hedge Funds, Private Equity & Infrastructure Funds, for both listed and unlisted vehicles. Rupert is a former President of the Guernsey Chamber of Commerce and is a member of the Institute of Directors.

Richard Battey (Senior Independent Director)

Richard Battey is a resident of Guernsey and is a non-executive Director of Better Capital PCC Limited, Pershing Square Holdings Limited and Princess Private Equity Holding Limited. He is a Fellow of the Institute of Chartered Accountants in England and Wales having qualified with Baker Sutton & Co. in London in 1977. Richard has been a non-executive Director of a number of investment companies and funds since leaving CanArgo Energy Corporation in 2006 where he was Chief Financial Officer. Prior to that role, he spent 27 years with the Schroder Group. Richard was a Director of Schroders (C.I.) Limited in Guernsey from April 1994 to December 2004 where he served as Finance Director and Chief Operating Officer. He was a Director of a number of the Schroder Group's Guernsey companies covering banking, investment management, trusts, insurance and private equity administration, retiring from his last Schroder Directorship in December 2008.

Sandra Platts (Chairman of the Management Engagement Committee and the Remuneration and Nomination Committee)

Sandra Platts is a resident of Guernsey and is a non-executive Director of Investec Bank (C.I.) Limited, UK Commercial Property REIT Ltd and Starwood European Finance Partners Limited. Sandra was Managing Director of Kleinwort Benson in Guernsey and Chief Operating Officer for Kleinwort Benson Private Banking Group (UK and Channel Islands). She also held Directorships of the Kleinwort Benson Trust Company and Operating Boards, retiring from Kleinwort Benson boards in 2010. Sandra holds a Master's in Business Administration and The Certificate in Company Direction from the Institute of Directors.

David Staples (Chairman of the Audit and Risk Committee)

Mr Staples, a resident of Guernsey, is a fellow of the Institute of Chartered Accountants in England and Wales and an associate of the Chartered Institute of Taxation. He also holds the Institute of Directors' Diploma in Company Direction.

Mr Staples was a partner for thirteen years with PricewaterhouseCoopers ("PwC") and led the tax practice in the South East of England, advising several large family and owner-managed businesses. He was also a member of the management board of the firm's London and South East Middle Markets Tax Practice. Since leaving PwC in 2003, Mr Staples has served on the boards of several listed companies as a non-executive director. He is currently a director of one other listed company, Ruffer Investment Company Limited. His other appointments include directorships of the general partners of five global private equity funds advised by Apax Partners.

GOVERNANCE | Directors' Report 

Directors' Report

Share Capital

The share capital of the Company consists of: (a) an unlimited number of shares which upon issue the Directors may classify as U.S. Dollar Shares, Sterling Shares or Euro Shares or as shares of such other classes as the Directors may determine; (b) an unlimited number of B Shares which upon issue the Directors may classify as B Shares of such classes denominated in such currencies as the Directors may determine; (c) an unlimited number of C Shares which upon issue the Directors may classify as C Shares of such classes denominated in such currencies as the Directors may determine.

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

Sterling Ordinary Shares 805,289,9441

U.S. Dollar Ordinary Shares 59,271,9772

1 of which 75,000,000 were held in treasury

2 of which 1,342,627 were held in treasury

The number of shares in issue at 31 December 2017 was as follows:

Sterling Ordinary Shares 1,039,088,6273

U.S. Dollar Ordinary Shares 44,570,4194

3 of which 75,000,000 were held in treasury

4 of which 1,342,627 were held in treasury

The number of shares in issue as at 25 March 2019, being the latest practicable date prior to publication of this report, was as follows:

Sterling Ordinary Shares 732,628,5895

U.S. Dollar Ordinary Shares 59,110,0006

5 of which 75,000,000 are held in treasury

6 of which 1,342,627 are held in treasury

Share Repurchases

The Directors operate an active discount control mechanism using share buy backs. At the Annual General Meeting ("AGM") of the Company held on 13 June 2018, the Directors were granted the general authority to purchase in the market up to 6,687,027 U.S. Dollar Shares and 138,863,699 Sterling Shares. This authority was renewed at the Extraordinary General Meeting ("EGM") held on 20 December 2018 in order to provide further flexibility to continue to buy back shares to help satisfy demand for liquidity whilst increasing NAV per share and as part of the Company's discount control mechanisms. At the EGM the Directors were granted general authority to purchase in the market up to 9,060,021 U.S. Dollar Shares and 115,266,503 Sterling Shares.

This authority will expire at the AGM to be held on 7 May 2019. Pursuant to this authority, and subject to the Law and the discretion of the Directors, the Company may purchase Ordinary Shares of a particular class in the market on an ongoing basis with a view to addressing any imbalance between the supply of and demand for Ordinary Shares of such class, thereby increasing the NAV per Ordinary Share of that class and assisting in managing the discount to NAV per Ordinary Share of that class in relation to the price at which the Ordinary Shares of such class may be trading. The Directors intend to seek annual renewal of this authority from shareholders.

Click on, or paste the following link into your web browser, to view page 13 of the associated PDF document.

http://www.rns-pdf.londonstockexchange.com/rns/4017U_1-2019-3-28.pdf

Source: U.S. Bank Global Fund Services (Guernsey) Limited and Bloomberg. Data is as at 31 December 2018

To support the share price, the Board has proactively repurchased over 500 million Sterling Ordinary shares and over 7 million U.S. Dollar Ordinary shares to date.

During the year to 31 December 2018, the Company repurchased and cancelled 220,555,413 Sterling Ordinary Shares and 2,061,305 U.S. Dollar Ordinary Shares representing 27.39% of the Sterling Ordinary Shares in issue and 3.48% of the U.S. Dollar Ordinary Shares in issue, at 31 December 2018 with a respective accretion to NAV of 0.88% and 0.17%.

Since the year end and up to the 25 March 2019, being the latest practicable date prior to publication of this report, the Company has repurchased 71,100,000 Sterling Ordinary Shares and 2,190,000 U.S. Dollar Ordinary Shares for cancellation. 

Share Conversions

The Company offers a monthly conversion facility pursuant to which shareholders may elect to convert some or all of their shares of a class into shares of any other class. During the year to 31 December 2018, shareholders elected to convert 13,243,270 Sterling Ordinary Shares into U.S. Dollar Ordinary Shares and 16,762,863 U.S. Dollar Ordinary Shares into Sterling Ordinary Shares. Since the year end and up to 25 March 2019, being the latest practicable date prior to publication of this report, shareholders have elected to convert 1,883,831 Sterling Ordinary Shares into U.S. Dollar Ordinary Shares and 406,444 U.S. Dollar Ordinary Shares into Sterling Ordinary Shares.

Dividends

The Company seeks to pay dividends to shareholders equal to the cash income it receives less its running costs paid in that year, subject to the solvency test prescribed by the Law. Dividends are declared with respect to each calendar quarter and are paid in the currency of the class of shares in respect of which the dividend was declared.

The Articles also permit the Directors, in their absolute discretion, to offer a scrip dividend alternative to shareholders when a cash dividend is declared from time to time. In the event a scrip dividend is offered, an electing Shareholder is issued new, fully paid up shares (or shares sold from treasury) pursuant to the scrip dividend alternative, calculated by reference to the higher of (i) the prevailing average mid-market quotation of the shares on the Daily Official List of the LSE over the last five trading days; or (ii) the NAV per share, at the relevant time. The scrip dividend alternative is available only to those shareholders to whom shares might lawfully be marketed by the Company. The Directors' intention is not to offer a scrip dividend at any time that the shares trade at a material discount to the NAV per Share. On 21 December 2015, due to the prevailing discount at that time, the Board decided to replace the scrip dividend alternative with a Dividend Re-Investment Plan ("DRIP"), whereby shareholders have the option to re-invest their cash dividend in the Company's shares on an efficient basis.

The below table sets out the quarterly dividends paid by the Company that were declared in respect of 2018:

The below chart sets out the quarterly dividends per share paid by the Company since inception:

Dividends Per Share (weighted average of NBLS and NBLU)

Click on, or paste the following link into your web browser, to view page 14 of the associated PDF document.

http://www.rns-pdf.londonstockexchange.com/rns/4017U_1-2019-3-28.pdf

Source prior to March 2015: BNP Paribas Securities Services S.C.A., Guernsey Branch. The first dividend covered a five-month period.

Source post March 2015: U.S. Bank Global Fund Services (Guernsey) Limited.

Substantial Share Interests

Based upon information deemed reliable as provided by the Company's registrar, as at 25 March 2019, the following shareholders owned 5% or more of the issued shares of the Company.

1 Certain shareholdings within the U.S. Dollar Ordinary Share Class are greater than 5% of the U.S. Dollar Ordinary share in issue but do not have 5% in aggregate of the Company's issued share capital

Notifications of Shareholdings

In the year to 31 December 2018 the Company was 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.

Since the year end, one TR-1 notification was received by the Company.

Directorship Disclosures in Public Companies Listed on a Stock Exchange 

Life of the Company

The Company does not have a fixed life. However, as required under Article 51 of the Articles, the Directors are required to propose an Ordinary Resolution that the Company continues its business as a closed-ended investment company (a "continuation resolution"). The first continuation resolution, which fell due on or before the third anniversary of admission, was passed on 19 March 2014. The second continuation resolution fell on 5 April 2017, being before the sixth anniversary of admission and was also duly passed. From 2018, the continuation resolution, as required by the Articles, will be proposed annually at the annual general meeting, and was duly passed in June 2018, and will next be proposed at the AGM on 7 May 2019.

If a continuation resolution is not passed, the Directors are required to put proposals to shareholders for the restructuring or reorganisation of the Company. There is a material uncertainty as to the outcome of this continuation resolution that may cast significant doubt on the Company's ability to continue as a going concern. The Directors have made the assumption that the continuation resolution proposed at the AGM in May 2019 will be passed. The Directors are satisfied that at the time of approving the Financial Statements no other material uncertainties exist that may cast a significant doubt concerning the Company's ability to continue for the 12 months after approval of the Financial Statements.

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.

Criminal Facilitation of Tax Evasion Policy

The Board of the Company has a zero tolerance commitment to preventing persons associated with it from engaging in criminal facilitation of tax evasion. The Board has satisfied itself in relation to its key service providers that they have reasonable provisions

in place to prevent the criminal facilitation of tax evasion by their own associated persons and will not work with service providers who do not demonstrate the same zero tolerance commitment to preventing persons associated with it from engaging in criminal facilitation of tax evasion.

General Data Protection Regulation

The Company takes privacy and security of your information seriously and will only use such personal information as set out in the Company's privacy notice which can be found on the Company's website at:

https://www.nbgfrif.com/pdf/privacy_policy.pdf

Employees and Socially Responsible Investment

The Company has a management contract with the Investment Manager. The Company 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 and its own direct environmental impact is minimal. The Company's main activities are carried out by Neuberger Berman, which is a signatory to the Principles of Responsible Investment and has an ongoing commitment to strengthening and refining its environmental, social and governance (ESG) approach.

The Investment Manager incorporates an ESG assessment into its internal credit ratings for non-investment grade credit. Its approach is to consider the valuation implications of ESG risks and opportunities alongside traditional factors in the investment process and to focus on companies or themes which are judged to be 'better' according to environmental, social and governance characteristics. Further details of Neuberger Berman's Principles for Responsible Investment is given on its website at www.nb.com/pages/public/en-gb/principles-for-responsible-investment.aspx.

Global Greenhouse Gas Emissions

The Company has no significant greenhouse gas emissions to report from its operations for the year to 31 December 2018 (2017 - none), nor does it have responsibility for any other emissions producing sources. During 2018, the Board's travel which included a visit to the AIFM in Chicago, incurred approximately 6.46 tonnes of CO2 (2017: 0.36 tonnes of CO2).

Gender Metrics

The Board consists of three men and one woman. More information on the Board's consideration of diversity is given in the Corporate Governance Report below. 

The Modern Slavery Act 2015 ("MSA")

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

Disclosure of Information to the Auditor

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

· to the best of his or her knowledge and belief, there is no information relevant to the preparation of their report of which the auditor is 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 auditor is aware of that information.

For and on behalf of the Board

Rupert Dorey

Chairman

28 March 2019

GOVERNANCE | Corporate Governance Report

Corporate Governance Report

Applicable Corporate Governance Codes

The Board of the Company has considered the principles and recommendations of the AIC Code of Corporate Governance (the "AIC Code"), by reference to the AIC Corporate Governance Guide for Investment Companies (the "AIC Guide"), both published in February 2013 and last amended in July 2016. 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 Company notes that the AIC published an updated code in February 2019, which came into effect for financial periods beginning on or after 1 January 2019 and notes that the AIC Guide has been withdrawn.

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

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

Corporate Governance Statement

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

For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers the following provisions 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, 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

· internal audit function

The Directors believe that this Annual Report and Consolidated Financial Statements ("Annual Report") 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 DTR by virtue of the information included in the Corporate Governance section of the Annual Report together with information contained in the Strategic Review and the Directors' Report.

Our Governance Framework

The Board, chaired by Rupert Dorey who is responsible for its leadership and for ensuring its effectiveness in all aspects of its role, currently consists of four non-executive Directors. The biographical details of the Directors holding office at the date of this report are listed above, and demonstrate a breadth of investment, accounting and professional experience. Richard Battey is the appointed Senior Independent Director. However, the Board considers that all the Directors have different qualities and areas of expertise on which they may lead where issues arise and to whom concerns can be conveyed. The balance and independence of the Board is kept under review by the Remuneration and Nomination Committee, details of which can be found below.

Board Independence and Composition

The Chairman and all Directors are considered independent of the Company's Investment Manager, the Company Secretary, the Administrator and Sub-Administrator. The Directors consider that there are no factors, as set out in the AIC Code, which compromise the Directors' independence and that they all contribute to the affairs of the Company in an adequate manner. The Board reviews the independence of all Directors annually. Rupert Dorey was deemed to be independent by the Board prior to his appointment as Chairman of the Company.

Directors' Appointment

No Director has a service contract with the Company. Directors have agreed letters of appointment with the Company, copies of which are available for review by shareholders at the Registered Office and will be available at the 2019 AGM. Richard Battey and Sandra Platts have served since incorporation of the Company. Rupert Dorey has served since 1 March 2015 and David Staples has served since 14 June 2018. Directors may resign at any time by giving one month's written notice to the Board.

In accordance with the AIC Code, as a FTSE 250 company, all Directors are subject to re-election annually by shareholders. The Remuneration and Nomination Committee reviewed the independence, contributions and performance of each Director together with results of the 2018 internal Board Evaluation, and have determined that it is in the best interests of the Company that each Director should stand for re-election.

Tenure of Non-Executive Directors

The Board has adopted a policy on tenure that it considers 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 by the appointment of new Directors with the skills and experience necessary to replace those lost by Directors' retirements or as identified to assist in the formulation and delivery of the strategy of the Company. The Board seeks to encompass 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.

The dates of appointment of all Directors are provided in the Directors' Remuneration Report and a summary of shareholder elections is provided below.

Note: David Staples was appointed to the Board by the Directors directly after the June 2018 AGM.

Succession

The Board acknowledges that some market participants believe that the Directors should not be considered independent after 9 years of service. The Board have looked to balance the tenure of the Directors on the Board and during 2018 continued to realise its succession plan to replenish the key positions on the Board, being the Chairman of the Company and Chairman of the Audit and Risk Committee. This process has ensured a smooth transfer of knowledge and ensured diversity in length of tenure on the Board. Given the nature of the Company, being an externally managed investment company with no employees and no executives, the Board believes it is not in the best interests of the Company to increase the board size but will continue to refresh the Board over the coming years, ensure an orderly succession and maintain diversity in tenure.

Re-election of Directors

Each of the Directors will submit themselves for election/re-election at the AGM to be held on 7 May 2019. The Remuneration and Nomination Committee confirmed to the Board that the contributions made by the Directors offering themselves for re-election at the 2019 AGM continue to be effective and that the shareholders should support their re-election.

Board Diversity

The Board considers that its members have a balance of skills and experience which are relevant to the Company. The Board supports the recommendations of the Davies Report and notes the recommendations of the Parker Review into ethnic diversity and the Hampton-Alexander Review on gender balance in FTSE leadership. The Board believes in the value and importance of diversity in the boardroom and during 2020 the Board has agreed to meet a target of at least 33% female representation on the Board. At the date of this Report, the Board, comprising four directors, has 25% female representation. The Board continues to encourage diversity and recognises that directors with diverse skills sets, capabilities and experience gained from different backgrounds appropriate to the company enhance the Board.

Board Responsibilities

The Board meets at least four times each year and deals with the important aspects of the Company's affairs including the setting and monitoring of investment strategy, and the review of investment performance. The Investment Manager takes decisions as to the purchase and sale of individual investments, in line with the investment policy and strategy set by the Board. The Investment Manager together with the Company Secretary, Administrator and Sub-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 Directors to question on any matters of concern or seek clarification on certain issues. Matters specifically reserved for decision by the 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.nbgfrif.com.

Conflict of Interests

Directors are required to disclose all actual and potential conflicts of interest to the Board as they arise for consideration 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 seek prior approval from the Board in advance of any proposed external appointments.

None of the Directors had a material interest in any contract, which is significant to the Company's business. The Directors' Remuneration Report below provides information on the remuneration and interests of the Directors. Above details Directors' appointments on other listed companies.

Performance Evaluation

The performance of the Board, its committees and the Directors was reviewed by the Remuneration and Nomination Committee in November 2018 by means of an internal questionnaire. The Company Secretary collated the resuts of the questionnaires and the consolidated results were reviewed by and discussed by the Remuneration and Nomination Committee, whose Chairman reported to the Board. No material areas of concern were raised.

As a result of the 2018 Board performance evaluation, the Board has agreed:

· That all Directors are considered independent;

· Richard Battey, Rupert Dorey and Sandra Platts should be proposed for re-election at the 2019 AGM;

· David Staples should be proposed for election at the 2019 AGM; and

· The Board composition was diverse and appropriate in regards to skills, number, experience and gender.

The Remuneration and Nomination Committee (excluding Rupert Dorey) led by the Chairman of the Remuneration and Nomination Committee determined that as Rupert had only recently taken up the post of Chairman at the time of the evaluation, that a review of the Chairman would not take place in 2018. It was agreed that the Chairman had settled into his role and was well-regarded by the other Board members. All Directors are members of the Remuneration and Nomination Committee and as such it is not considered necessary for the SID to lead the discussions, as all Directors participate.

The Board 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 put to the Board as they arise along with changes to best practice from, amongst others, the Investment Manager, Company Secretary and the Auditor. 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 to continually refresh their skills and knowledge and keep up with changes within the investment company industry for which each Director maintains a log, provided to the Company Secretary on a semi-annual basis as a record of his/her continued professional development. The Chairman reviewed the training and development needs of each Director during the annual Board evaluation process and is satisfied that all Directors actively keep up to date with industry developments and issues.

When new Directors are appointed to the Board, they will be provided with all relevant information regarding the Company and their duties and responsibilities as Directors. In addition, a new Director will also spend time with representatives of the Investment Manager, and other service providers as may be appropriate, in order to learn more about their processes and procedures. This process was followed in the case of David Staples who was appointed during the year.

The Chairman met with each of the directors individually as recommended by the new AIC Code. The range of those discussions was diverse and included topics such as director development, succession, board dynamics, business risks, strategy, regulation, investors, capital markets, and competition. Each of the meetings was informal and unstructured and permitted a free flow of topical discussion relevant to the Company.

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 has been adopted to enable them to do so, which is managed by the Company Secretary.

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 under a Directors' and Officers' liability insurance policy.

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

The Board has delegated various duties to external parties including the management of the investment portfolio, 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.

Shareholder Engagement

The Board believes that the maintenance of good relations with shareholders is important for the long-term prospects of the Company. Since admission, the Board has sought engagement with shareholders. Where appropriate the Chairman, and other Directors are available for discussion about governance and strategy with shareholders and the Chairman ensures communication of shareholders' views to the Board. The Board receives feedback on the views of shareholders from its Corporate Brokers and the Investment Manager, and shareholders are welcome to contact the Chairman, Senior Independent Director or any other Director at any time via the Company Secretary.

During the year the Company continued its quarterly investor update calls, which can be accessed via conference call or WebEx, details are published via an RIS. The update calls are also made available on the Company's website at www.nbgfrif.com. Furthermore, the Board welcomes the opportunity to meet with investors on a one-to-one basis, upon request. The Chairman has had discussions with a number of investors on a one-to-one basis during the year.

The Chairman of the Remuneration and Nomination Committee will consult with shareholders should it be proposed to increase the current aggregate limit of annual Directors' fees as set out in the Company's Articles.

The Board believes that the AGM provides an appropriate forum for shareholders to communicate with the Board, and encourages participation. All Directors will attend the 2019 AGM. There is an opportunity for individual shareholders to question the Chairman of the Board, the Senior Independent Director, and the Chairman of each of the Audit and Risk Committee, the Management Engagement Committee and the Remuneration and Nomination Committee at the AGM.

The Annual Reports, Key Information Documents, monthly fact sheets and monthly holdings 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 London Stock Exchange of the NAV of the Company's Ordinary Shares. The Board is informed of relevant promotional documents issued by the Investment Manager. All documents issued by the Company can be viewed on the website, www.nbgfrif.com.

2019 AGM

The 2019 AGM will be held in Guernsey on 7 May 2019. 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 be 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 registered office address given below.

Voting on all resolutions at the AGM is 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 website and announced via a RIS Service. Where a significant number of votes have been lodged against a proposed resolution (being greater than 20%), the Board intends to identify those shareholders and further understand their views to address their concerns. The Board notes that any resolution which receives a high percentage of votes against it will be included in the Investment Association's Public Register. The Public Register is an aggregated list of publicly available information regarding meetings of companies in the FTSE All-Share who have received significant shareholder opposition to proposed resolutions or have withdrawn a resolution prior to the shareholder vote.

Board Meetings

The Board meets at least quarterly. Certain matters are considered at all quarterly board meetings including the performance of the investments, NAV and share price 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, and where applicable, reports are received from the Board committees.

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

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

1 William Frewen resigned as a Director of the Company on 30 September 2018.

2 David Staples was appointed as a Director of the Company on 14 June 2018.

Board Committees

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

The Board has not established an Inside Information Committee as a quorum of the Board will review and determine any inside information and any delay to the disclosure thereof to meet the requirements of the EU Market Abuse Regulations.

For and on behalf of the Board

Rupert Dorey

Chairman

28 March 2019

GOVERNANCE | Audit and Risk Committee Report

Audit and Risk Committee Report

Membership

David Staples - Chairman1 (Independent non-executive Director)

Richard Battey1 (Independent non-executive Director)

Sandra Platts (Independent non-executive Director)

Rupert Dorey2 (Company Chairman and independent non-executive Director)

William Frewen3 (Company Chairman and independent non-executive Director)

1 Richard Battey stepped down as Chairman of the Audit and Risk Committee ("the Committee") effective 31 December 2018 and David Staples was appointed the Chairman of the Audit and Risk Committee on 1 January 2019.

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

3 William Frewen resigned as a Director of the Company on 30 September 2018.

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 financial and operating controls and business risks.

Responsibilities

· Reviewing the Company's financial results announcements, Annual and Half-Yearly 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, judgements, estimates, and practices;

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

· Overseeing the relationship with the external auditor;

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

· Reporting to the Board on the effectiveness of the Company's risk management framework; and

· Compiling a report on its activities to be included in the Company's Annual Report.

The Committee members have a wide range of financial and commercial expertise necessary to fulfil its duties. The Chairman of the Committee is a Fellow of the Institute of Chartered Accountants in England and Wales and an associate of the Chartered Institute of Taxation, and has recent and relevant financial experience, as required by the AIC Code. Therefore the Board has designated him as its financial expert on the Committee.

Committee Meetings

The Committee meets at least three times a year. Only members of the Committee and its Secretary have the right to attend the meetings. However, representatives of the Investment Manager, Administrator and Sub-Administrator are invited to attend the meetings on a regular basis and other non-members may be invited to attend all or part of a meeting as and when appropriate and necessary. The Company's external auditor, PricewaterhouseCoopers CI LLP ("PwC") is invited to each meeting. The Chairman of the Committee also met separately with PwC without the Investment Manager being present.

Main Activities during the Year 

The Committee assisted the Board in carrying out its responsibilities in relation to financial reporting requirements, risk management and the assessment of internal financial and operating controls. It also managed the Company's relationship with the external auditor.

The Committee reported to the Board at each scheduled quarterly board meeting on the activity of the Committee and matters of particular relevance to the Board in the conduct of their work. The Committee reviewed the effectiveness of the Company's risk management framework in relation to the investment policy; assessed the risks involved in the Company's business and how they were controlled and monitored by the Investment Manager; monitored and reviewed the effectiveness of the risk management function of the Investment Manager, Administrator and the Sub-Administrator; reviewed the risks associated with the valuation of investments; reviewed the Company's procedures concerning prevention and detection of fraud and the Company's arrangements for financial regulatory compliance.

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

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

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

Financial Reporting

The primary role of the Committee in relation to financial reporting is to review with the Investment Manager, Company Secretary, Administrator, Sub-Administrator and PwC the appropriateness of the Half-Year 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 and estimates have been applied or where there has been discussion with the external auditor;

· The review of the Viability Statement included in the Strategic Report;

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

· Any correspondence from regulators in relation to the quality of the Company's financial reporting.

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

Significant Issues

In relation to this Annual Report the following significant issue was considered by the Committee:

Internal Controls and Risk Management

The 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 Committee is responsible to the Board for the Company's system of internal financial and operating controls and for reviewing its effectiveness. However, the 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 Committee receives reports from the Investment Manager on the Company's risk evaluation process and reviews changes to significant risks identified. The Committee has undertaken a full review of the Company's business risks, which have been analysed and recorded in a risk report, which is reviewed and updated regularly. The Board receives each quarter from the Investment Manager a formal report which details the steps taken to monitor 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 Board's assessment of the Company's principal risks and uncertainties is set out above.

External Audit

The effectiveness of the external audit process is dependent on appropriate audit risk identification at the start of the audit cycle. The Committee received a detailed audit plan from PwC identifying their assessment of the significant audit risks. For the 2018 financial year the significant audit risks identified were in relation to the risk of management override of controls and the valuation of investments. The Committee challenged the work performed by the auditor to test these significant risks. The Committee assessed the effectiveness of the audit process in addressing these matters through the reporting received from PwC at both the half-year and year end. In addition, the Committee sought feedback from the Investment Manager, Company Secretary, the Administrator and Sub-Administrator on the effectiveness of the audit process. For the 2018 financial year, the Committee was satisfied that there had been appropriate focus and challenge on the significant and other areas of audit risk and assessed the quality of the audit process to be good.

During the year, the Committee performed its annual review of the independence, effectiveness and objectivity of the external auditor. The Committee concluded that the effectiveness of the external auditor and the audit process were satisfactory and recommended to the Board that it proposes at the 2019 AGM the reappointment of PwC as external auditor for the 2019 financial year and to authorise the Directors to determine their remuneration. The auditor, PwC, has indicated willingness to continue in office.

Appointment and Independence

The Committee considers the reappointment of PwC, including the rotation of the audit partner, and assesses their independence on an annual basis. PwC is required under applicable Ethical Standards to rotate the audit partner responsible for the audit every five years. John Roche had overseen the audit of the Company for the five financial years to 31 December 2017 and therefore Evelyn Brady took over as audit partner for the year ended 31 December 2018. The Company is incorporated in Guernsey, and therefore despite being listed on the Main Market of the London Stock Exchange and being in the FTSE350 Index, it is not required to comply with The Statutory Audit Services for Larger Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 (the "Order") which came into force in the UK on 1 January 2015. The Committee does however keep these developments under review when determining policy on audit tendering and therefore the Company will seek to comply with the provisions of the Order.

The Company is guided by the EU Audit Regulations and EU Audit Directive to put the external audit out to tender at least every ten years. As 2018 is the eighth annual audit completed by PwC, the Committee and the Board are presently minded that it will complete such a tender process in respect of the audit of the financial statements for the year ended 31 December 2021. There are no contractual obligations restricting the Committee's choice of external auditor and we do not indemnify our external auditor.

In its assessment of the independence of the external auditor, the Committee received confirmation that there were no relationships between the Company and PwC which may have compromised PwC's independence and that PwC had completed all relevant checks to be able to confirm this.

The Committee approved the fees for audit services for 2018 after a review of the level and nature of work to be performed, and after being satisfied by PwC that the fees were appropriate for the scope of the work required.

Non Audit Services

To safeguard the objectivity and independence of the external auditor, the Committee has a formal policy governing the engagement of the external auditor to provide non-audit services. No material changes were made to this policy during the year. The external auditor and the Committee have agreed that all non-audit services require the pre-approval of the Committee prior to the commencement of any work.

PwC was remunerated £119,000 for audit and assurance related services rendered in 2018. Of this amount, £92,200 was in relation to the year-end audit and £26,800 was in relation to the procedures performed in respect to the half-year review. No non-audit services were undertaken by PwC for the Company during the year.

Committee Evaluation

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

David Staples

On behalf of the Audit and Risk Committee

28 March 2019

GOVERNANCE | Management Engagement Committee Report

Management Engagement Committee ("MEC") Report

Membership

Sandra Platts - Chairman (Independent non-executive Director)

Richard Battey (Independent non-executive Director)

Rupert Dorey (Company Chairman and independent non-executive Director)

David Staples1 (Independent non-executive Director)

William Frewen2 (Company Chairman and independent non-executive Director)

1 David Staples was appointed as a Director and member of the MEC on 14 June 2018.

2 William Frewen resigned as a Director and Chairman of the Company on 30 September 2018.

Key Objectives

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

Responsibilities

· To annually review 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 Management Agreement ("IMA"); and

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

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

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

- To consider requiring the Investment Manager to provide attribution and volatility analyses and considering whether these should be published;

- Review the level and method of remuneration and the notice period, using peer group comparisons.

MEC Meetings

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

Main Activities during the Year

The MEC met five times during the year and reviewed the performance, relationships and contractual terms of all service providers as at 14 November 2018 including the Investment Manager. The MEC reviewed the terms of reference for the MEC and recommended to the Board that revised Terms of Reference be adopted. The current Terms of Reference are available on the Company's website www.nbgfrif.com. Furthermore, the MEC reviewed the approaches to cyber security by its service providers.

The MEC wrote to all key service providers and sought confirmation that they have reasonable provisions in place to prevent the criminal facilitation of tax evasion by their own associated persons. The MEC was satisfied that all service providers had adequate policies, training and procedures in place to mitigate the risk of criminal facilitation of tax evasion.

On 4 June 2018, on the recommendation of the MEC, the Company entered into an Amendment to the Administration and Sub-Administration Agreement between the Company, U.S. Bank Global Fund Services (Guernsey) Limited and U.S. Bank Global Fund Services (Ireland) Limited to incorporate changes in respect of the how the Administrator and Sub-Administrator process personal data on behalf of the Company in accordance with the General Data Protection Regulation introduced on 25 May 2018 and the Data Protection (Bailiwick of Guernsey) Law, 2017, as amended.

In addition, on 6 September 2018, the Company entered into an Amendment to the Company Secretarial Agreement with Carey Commercial Limited; and on 5 December 2018, the Company entered into an Amendment to the Registrar's Agreement with Link Asset Services to incorporate changes in respect of how personal data is processed on behalf of the Company in accordance with the relevant data protection regulations.

On 14 August 2018, the Chairman of the MEC, with a representative of the Investment Manager visited U.S. Bank Global Fund Services (Guernsey) Limited to undertake an on-site review of the Administration services, their provisions for data protection and cyber risk, policies and internal controls.

On 2 October 2018, the Chairman of the MEC with assistance from the Investment Manager undertook a review of the Company Secretary at their offices to review their provisions for data protection and cyber risk, policies and internal controls. Following this review, the MEC carried out a tender process for the company secretarial services provided to the Company.

With 2018 marking three years since the last visit, the Board undertook a due diligence visit to the Investment Manager's offices in Chicago in November 2018 to meet a number of personnel and review the investment selection and diligence processes. The Board also undertook a due diligence visit to the Investment Manager's offices in London in May 2018.

Continued Appointment of the Investment Manager and other Service Providers

The Board reviews investment performance at each Board meeting and a formal review of all service providers is conducted annually by the MEC.

The MEC carried out a tender process of the company secretarial services and made a recommendation to the Board that Praxis Fund Services Limited be appointed the Company Secretary in place of Carey Commercial Limited with effect from 22 April 2019.

On 1 January 2019, Numis Securities were appointed as sole corporate broker and financial adviser on the recommendation of the MEC.

As a result of the 2018 annual review it is the opinion of the Directors that the continued appointment of the Investment Manager and the other current service providers on the terms agreed is in the interest of the Company's shareholders as a whole. The Board considers that the Investment Manager has extensive investment management resources and wide experience in managing investments and is satisfied with the quality and competitiveness of the fee arrangements of the Investment Manager and the Company's other service providers.

Sandra Platts

On behalf of the Management Engagement Committee

28 March 2019

GOVERNANCE | Remuneration and Nomination Committee Report

Remuneration and Nomination Committee ("RNC") Report

Membership

Sandra Platts - Chairman (Independent non-executive Director)

Richard Battey (Independent non-executive Director)

Rupert Dorey (Company Chairman and independent non-executive Director)

David Staples1 (Independent non-executive Director)

William Frewen2 (Company Chairman and independent non-executive Director)

1 David Staples was appointed as a Director and member of the MEC on 14 June 2018.

2 William Frewen resigned as a Director of the Company on 30 September 2018.

Key Objectives

To ensure the Board comprises individuals with the necessary skills, knowledge and experience such that it is effective in discharging its responsibilities and oversight of all matters relating to corporate governance, and to review the on-going appropriateness and relevance of the remuneration policy.

Responsibilities

· Determine the remuneration of the Directors;

· Prepare an annual report on Directors' remuneration;

· Considers the need to appoint external remuneration consultants;

· Regularly review and make recommendations in relation to the structure, size and composition of the Board including the diversity and balance of skills, knowledge and experience, and the independence of the non-executive Directors;

· Oversees the performance evaluation of the Board, its committees and individual Directors (see above);

· Reviews the tenure of each of the non-executive Directors;

· Leads the process for identifying and making recommendations to the Board regarding candidates for appointment as Directors, giving full consideration to succession planning and the leadership needs of the Company;

· Makes recommendations to the Board on the composition of the Board's committees; and

· Is responsible for the oversight of all matters relating to corporate governance, bringing any issues to the attention of the Board.

RNC Meetings

Only members of the RNC and the Secretary have the right to attend RNC meetings. However, representatives of the Investment Manager, Administrator and Sub-Administrator are invited by the RNC to attend meetings as and when appropriate. In the event of matters arising concerning either an individual's membership of the Board or their remuneration, they would absent themselves from the meeting as required and another independent non-executive Director would take the chair if this applied to the RNC Chairman.

Main Activities during the Year

The RNC met twice during the year and considered succession planning and replenishment of the Board and reviewed Directors' remuneration. The RNC also reviewed the results of the internal board evaluation and considered that the results provided confirmed the continued appropriateness of the balance of skills, experience, independence and knowledge of the Company.

Following the decision by William Frewen to retire from the Board, the RNC gave consideration to the position of Chairman and recommended to the Board that Rupert Dorey be appointed as William Frewen's successor. Having considered the skills and knowledge of the Board of a whole, the RNC determined that the Board would also benefit from the addition of a Director with accounting knowledge which could be considered as recent in accordance with the AIC Code. The RNC was keen to appoint a further female director and following an extensive search the RNC Chairman together with Chairman interviewed four candidates, of whom three were female, from a long list which comprised a diverse selection of candidates, the majority of whom were female. From those candidates second interviews were conducted with the short-listed candidates and subsequent to discussion amongst the RNC, it was proposed to the Board that David Staples be appointed as a Director and, after a period of induction, that he should become the Audit and Risk Committee Chairman in line with the Board's succession plan. The RNC unanimously agreed to recommend to the Board to appoint a male director in this instance based on his specialist experience, sector knowledge relevant to the Company's activities, skill set applicable to the position of Audit and Risk Committee Chairman, the belief that he was the most suitable candidate for the position and whose appointment was in the best interests of the Company. Making the appointment primarily based on gender, the RNC and Board believed would not have been in the best interests of the Company.

The terms of reference for the RNC were reviewed and the Board adopted revised terms of reference for the RNC. The revised terms of reference are available on the Company's website at www.nbgfrif.com.The Board's diversity policy was agreed in March 2012. The Board supports the recommendations of the Davies Report and Hampton-Alexander Review, notes the recommendations of the Parker Review and believes in and values the importance of diversity, including gender, to the effective functioning of the Board. At 31 December 2018, the Board had 25% 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. The RNC will continue to recommend the appointment of female directors as appropriate but not to the exclusion of all other considerations such as the specialist skill set relevant to the Company's investment activities and merit.

In recognition of the Directors' desire to support greater gender diversity, the Board volunteered to take on a female "apprentice director", in October 2018 as part of her board training process. The candidate shadows the Board and fully observes in all Board activities for a period of one year, but has no voting rights and no legal responsibilities. The Directors feel strongly that they have a duty to foster the skills of the next generation of board directors, and are pleased to play their part in achieving greater gender representation.

The RNC reviewed the fees paid to the Board of Directors of similar investment companies and proposed to the Board to increase the fees paid to all Directors to reflect the increases in time commitment and activity of the Company in recognition of its commitment to corporate governance matters as detailed above. In line with the Company's remuneration policy, fees will continue to be reviewed to ensure that they remain appropriate reflecting the time commitment and responsibilities of the role.

Further, the RNC considered the remuneration policy and agreed that it remained appropriately positioned. A detailed "Directors' Remuneration Report" to shareholders from the RNC on behalf of the Board, is contained below.

Sandra Platts

On behalf of the Remuneration and Nomination Committee

28 March 2019

GOVERNANCE | Directors' Remuneration Report

Directors' Remuneration Report

Annual Statement

This report meets the relevant requirements of the Listing Rules of the FCA and the AIC Code and describes how the Board has applied the principles relating to Directors' remuneration. An ordinary resolution to receive and approve this report will be proposed at the AGM on 7 May 2019.

Directors' Fees

The Company paid the following fees to the Directors for the year ended 31 December 2018 and 31 December 2017:

1 William Frewen resigned as a Director of the Company on 30 September 2018.

2 David Staples was appointed a Director of the Company on 14 June 2018.

No other remuneration or compensation was paid or is payable by the Company during the year to any of the Directors, other than reimbursed travel expenses of $25,581 (31 December 2017: $6,184) largely in respect of the Board's due diligence visit to the AIFM in Chicago in November 2018.

Directors' fees for the Luxembourg Subsidiaries are included within the subsidiaries' Administration fees. None of the Company's Directors are directors of the Luxembourg subsidiaries.

Please refer to Note 3 for more details on Directors' remuneration.

Changes to the Board

There were two changes to the Board during the year. Rupert Dorey was appointed Chairman as of 30 September 2018, replacing William Frewen who no longer served as Chairman or Director from that date. David Staples was appointed as a Director on 14 June 2018 and was appointed the Chairman of the Audit and Risk Committee on 1 January 2019, replacing Richard Battey who remains a Director of the Company and Senior Independent Director.

Remuneration Policy

The determination of the Directors' fees is a matter dealt with by the RNC and the Board. The RNC considers the remuneration policy annually to ensure that it remains appropriately positioned and takes into account any expected changes in time commitments. Directors will review the fees paid to the boards of directors of similar investment companies. No Director is to be involved in decisions relating to individual aspects of his or her own remuneration, however the Board as a whole sets the level of directors' fees.

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

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

Directors are authorised to claim reasonable expenses from the Company in relation to the performance of their duties.

The Company's policy is that the fees payable to the Directors should reflect the time commitment required by the Board on the Company's affairs and the level of responsibility borne by the Directors and should be sufficient to enable high calibre candidates to be recruited and be comparable to those paid by similar companies. It is not considered appropriate that the Directors' remuneration should be performance related, and none of the Directors are eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits in respect of their services as non-executive Directors of the Company. During the year ended 2018, the policy was for the Chairman of the Board and Chairman of the other Committees to be paid a higher fee than the other Directors in recognition of their more onerous roles and more time spent. The Board may amend the level of remuneration paid within the limits of the Company's Articles.

The Company's Articles limit the aggregate fees payable to the Board of Directors to a total of £500,000 per annum. The Chairman of the RNC may consult with principal shareholders of the Company should it be proposed to exceed the aggregate limit.

Directors' Fees Policy

Statement by the Chairman of the RNC

In accordance with the Directors' remuneration policy, the Directors' fees were reviewed by the RNC during its meeting in November 2018, and compared the fees with those for directors in companies of similar scale and complexity. In consideration of the increased responsibility and time commitment reflecting the Board's commitment to corporate governance matters the Board approved an increase effective 1 January 2019 as follows*:

*the last change to fees occurred in 2014

No Director was involved in deciding his or her own remuneration. The level of the directors' fees will continue to be reviewed annually by the RNC.

Service Contracts and Policy on Payment for Loss of Office

Directors are appointed with the expectation that they will stand for annual re-election. Richard Battey and Sandra Platts have served since incorporation of the Company. Rupert Dorey was appointed on 1 March 2015 and David Staples was appointed on 14 June 2018. Directors may resign at any time by giving one month's notice in writing to the Board. 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.

In accordance with the AIC Code Rupert Dorey, Richard Battey and Sandra Platts will offer themselves for re-election by shareholders and David Staples will offer him for election at the AGM to be held on 7 May 2019. The names and biographies of the Directors holding office at the date of this report are listed above. All of the Directors are subject to annual re-election.

Dates of Directors' Letters of Appointment

Richard Battey and Sandra Platts were appointed as Directors on 10 March 2011 and Rupert Dorey was appointed a Director on 1 March 2015. Each Director was re-elected at the AGM held on 13 June 2018. David Staples was subsequently appointed on 14 June 2018.

Directors' Interests

The Company has not set any requirements or guidelines for Directors concerning ownership of shares in the Company. The beneficial interests of the Directors and their connected persons (where applicable) in the Company's shares are shown in the table below:

Advisors to the RNC

The RNC has not sought the paid advice or professional services by any outside person in respect of its consideration of the Directors' remuneration during 2018. The RNC sought input from the Manager and its Brokers during its deliberations of the remuneration policy.

Statement of Voting at AGM

At the last AGM, votes on the remuneration report were cast as follows:

Sandra Platts

On behalf of the Remuneration and Nomination Committee

28 March 2019

GOVERNANCE | Directors' Responsibility Statement

Directors' Responsibility Statement

The Directors are responsible for preparing the Financial Statements for each financial year, which give a true and fair view, in accordance with applicable Guernsey Law and accounting principles generally accepted in the United States ("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 consolidated financial statements for the Company for the year ended 31 December 2018 as the parent of the Group in accordance with Section 244(5) of the Law. They are not required to prepare individual financial statements for NB Global Floating Rate Income 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 auditor is unaware. 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 auditor is 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 loss of the Company, and the undertakings included in the consolidation taken as a whole as required by DTR 4.1.12R and 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 and a description of principal risks and uncertainties which face the Company.

The maintenance and integrity of the Company's website is the responsibility of the Directors; the work carried out by the auditor does not involve consideration of these matters and, accordingly, the auditor accepts no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.

Legislation in Guernsey governing the preparation and dissemination of consolidated financial statements may differ from legislation in other jurisdictions.

By order of the Board

Rupert Dorey

Chairman

28 March 2019

GOVERNANCE | Independent Auditor's Report

INDEPEnDENT Auditor's Report to the members of nb gLOBAL FLOATING RATE INCOME FUND Limited

Report on the audit of the consolidated financial statements

Our opinion

In our opinion, the financial statements give a true and fair view of the consolidated financial position of NB Global Floating Rate Income Fund Limited (the "Company") and its subsidiaries (together "the Group") as at 31 December 2018, and of their consolidated financial performance and their consolidated cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America and have been properly prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008.

● the consolidated statement of assets and liabilities as at 31 December 2018;

● the consolidated condensed schedule of investments as at 31 December 2018;

● the consolidated statement of operations for the year then ended;

● the consolidated statement of changes in net assets for the year then ended;

● the consolidated statement of cash flows for the year then ended; and

● the notes to the consolidated financial statements, which include a summary of significant accounting policies.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Overview

Materiality

· Overall Group materiality was $13.7 million which represents 1.5% of Group Net Assets.

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Audit scope

· The Company is incorporated and based in Guernsey. Its two subsidiaries, NB Global Floating Rate Income Fund (Lux) 1 S.à.r.l and NB Global Floating Rate Income Fund (Lux) 2 S.à.r.l. are incorporated in Luxembourg.

· The consolidated financial statements are a consolidation of the Company and both of the underlying subsidiaries. As the Group auditor, we performed an audit of the consolidated financial statements and are responsible for the Group audit opinion.

· We conducted our audit of the consolidated financial statements from information provided by U.S. Bank Global Fund Services (Ireland) Limited (the "Sub-Administrator") to whom U.S. Bank Global Fund Services (Guernsey) Limited (the "Designated Manager and Administrator") has, with the consent of the directors, delegated the provision of certain administrative functions. The Group engages Neuberger Berman Europe Limited (the "Manager") and Neuberger Berman Investment Advisers LLC (the "Alternative Investment Fund Manager"), collectively (the "Investment Manager") to manage its assets.

· Scoping was performed at the Group level, irrespective of whether the underlying transactions took place within the Company or within either of the subsidiaries. Our testing was performed on a consolidated basis using thresholds which are determined with reference to the overall Group performance materiality and the risks of material misstatement identified.

· The transactions relating to the Company and the subsidiaries are maintained by the Sub-Administrator on a single consolidated general ledger and therefore we were not required to engage with component auditors from another PwC global network firm operating under our instructions.

· We conducted our audit work both in Guernsey and on site at the Sub-Administrator in Dublin and we tailored the scope of our audit taking into account the types of investments within the Group and the involvement of the third parties referred to above, together with their accounting processes and controls.

Key audit matters

· Valuation of Investments

· Material uncertainty related to going concern

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the directors made subjective judgments; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.

Based on our professional judgment, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the consolidated financial statements as a whole.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $684,000, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

In addition to the matter described in the material uncertainty related to going concern section, we have determined

the matter described below to be the key audit matter to be communicated in our report.

The directors are responsible for the other information. The other information comprises all the information included in the 2018 Annual Report but does not include the consolidated financial statements and our auditor's report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with accounting principles generally accepted in the United States of America, the requirements of Guernsey law and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

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

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

● Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

● Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern. For example, the terms on which the United Kingdom may withdraw from the European Union are not clear, and it is difficult to evaluate all of the potential implications on the Group and the wider economy. 

● Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

● Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Under The Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:

● we have not received all the information and explanations we require for our audit;

● proper accounting records have not been kept; or

● the consolidated financial statements are not in agreement with the accounting records.

We have no exceptions to report arising from this responsibility.

Aside from the impact of the matters disclosed in the material uncertainty related to going concern section, we have nothing to report in respect of the following matters which we have reviewed:

● the directors' statement that they have carried out a robust assessment of the principal risks facing the Group and the directors' statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors' process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit; and

● the part of the Corporate Governance Statement relating to the parent Company's compliance with the ten further provisions of the UK Corporate Governance Code specified for our review.

This report, including the opinion, has been prepared for and only for the members as a body in accordance with Section 262 of The Companies (Guernsey) Law, 2008 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Evelyn Brady

For and on behalf of PricewaterhouseCoopers CI LLP

Chartered Accountants and Recognised Auditor

Guernsey, Channel Islands

28 March 2019

FINANCIAL STATEMENTS | Consolidated Statement of Assets and Liabilities

Consolidated Statement of Assets and Liabilities

The Consolidated Financial Statements were approved and authorised for issue by the Board of Directors on 28 March 2019, and signed on its behalf by:

The accompanying notes form an integral part of the Consolidated Financial Statements

FINANCIAL STATEMENTS | Consolidated Condensed Schedule of Investments

Consolidated Condensed Schedule of Investments

The accompanying notes form an integral part of the Consolidated Financial Statements

The accompanying notes form an integral part of the Consolidated Financial Statements

The accompanying notes form an integral part of the Consolidated Financial Statements

As at 31 December 2018, issuers with the following investments comprised of greater than 1% of NAV (Excluding cash):

The accompanying notes form an integral part of the Consolidated Financial Statements

As at 31 December 2017, issuers with the following investments comprised of greater than 1% of NAV (Excluding cash):

The accompanying notes form an integral part of the Consolidated Financial Statements

As at 31 December 2018, the below were the largest 50 investments based on the NAV: