Bloom Select Income Fund : 2023 Interim Report

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BLOOM SELECT INCOME FUND

INTERIM REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2023

FORWARD-LOOKING STATEMENTS

BLB.UN

Some of the statements contained herein including, without limitation, financial and business prospects and financial outlook may be forward-looking statements which reflect management's expectations regarding future plans and intentions, growth, results of operations, performance and business prospects and opportunities. Words such as "may," "will," "should," "could," "anticipate," "believe," "expect," "intend," "plan," "potential," "continue" and similar expressions have been used to identify these forward-looking statements. These statements reflect management's current beliefs and are based on information currently available to management. Forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual results to differ materially from the results discussed in the forward- looking statements including, but not limited to, changes in general economic and market conditions and other risk factors. Although the forward-looking statements contained herein are based on what management believes to be reasonable assumptions, we cannot assure that actual results will be consistent with these forward-looking statements. Investors should not place undue reliance on forward-looking statements. These forward-looking statements are made as of the date hereof, unless otherwise indicated, and we assume no obligation to update or revise them to reflect new events or circumstances.

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MANAGEMENT REPORT OF FUND PERFORMANCE

This interim management report of fund performance for Bloom Select Income Fund (the "Fund") contains financial information but does not contain the interim or audited annual financial statements of the Fund. The interim financial statements follow this report. You may obtain a copy of any of the Fund's annual or interim reports, at no cost, by calling 1- 855-BLOOM18(1-855-256-6618) or by sending a request to Unitholder Information, Bloom Investment Counsel, Inc., Yonge Eglinton Centre, Suite 1710, 2300 Yonge Street, Toronto, Ontario, M4P 1E4, or by visiting our website at www.bloomfunds.caor SEDAR at www.sedar.com. Unitholders may also contact us using one of these methods to request a copy of the Fund's proxy voting policies and procedures, proxy voting disclosure record, Independent Review Committee's report, or quarterly portfolio disclosure.

In accordance with investment fund industry practice, all figures presented in this management report of fund performance, unless otherwise noted, are based on the Fund's calculation of its net asset value, which is in accordance with the terms of the Fund's declaration of trust and annual information form, and is based on closing market prices of investments. Figures presented in the financial statements and the Financial Highlights section of this management report of fund performance are based on net assets calculated using International Financial Reporting Standards which require the use of a price between the last bid and ask prices for investment valuation, which may differ from the closing market price.

BLOOM SELECT INCOME FUND - INTERIM REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2023

MANAGEMENT DISCUSSION OF FUND PERFORMANCE

THE FUND

Bloom Select Income Fund is a closed-end investment trust managed by Bloom Investment Counsel, Inc. ("Bloom" or the "Manager"). Bloom provides administrative services to the Fund and actively manages the Fund's portfolio. The units of the Fund trade on the Toronto Stock Exchange ("TSX") under the symbol BLB.UN. The units of the Fund are RRSP, DPSP, RRIF, RESP, RDSP and TFSA eligible. This Fund has a distribution reinvestment plan ("DRIP") allowing unitholders to automatically reinvest their monthly distributions in additional units of the Fund.

RECENT DEVELOPMENTS

Inflation, Interest Rates and Recession Concerns

Canadian investment markets continue to display concerns about rising inflation and the possibility of a recession. After several rate hikes in 2022 and early 2023, the Bank of Canada's policy rate plateaued for a few months but was raised again in June 2023, with the potential for further increases. The Fund's focus on low volatility, dividend paying Canadian equities places it in a position to respond to an inflationary environment, given that dividends often keep pace with inflation and many dividend paying companies are able to raise prices to respond to increasing costs. These matters are further discussed in the Investment Manager's Report below.

Russian Invasion of Ukraine

In February 2022, Russian forces invaded Ukraine, resulting in an armed conflict and economic sanctions on Russia. Price volatility, trading restrictions, including the potential for extended halting of Russian market trading, and general default risk has impacted Russian securities. Disruption of Russian and Ukrainian exports, most notably energy and grain, has contributed to global energy and food price increases. The conflict may continue to contribute to an increase in short-term market volatility, with European markets being most at risk. It is uncertain how long the conflict, economic sanctions and market instability will continue and whether they will escalate further. The Manager is actively monitoring the situation.

INVESTMENT MANAGER

For over 35 years, the Manager has been managing segregated investment portfolios for wealthy individuals, foundations, corporations, institutions and trusts. In addition to its conventional investment management business, the Manager currently manages specialty high-income equity portfolios, comprised of dividend paying common equity securities, income trusts and real estate investment trusts, for three TSX listed closed end funds.

INVESTMENT MANAGER'S REPORT

JULY 4, 2023

Canadian Economy

The year commenced with the Bank of Canada (BoC) increasing policy interest rates by 0.25% to 4.5%. With Canadian inflation remaining persistent during the period the BoC was forced to increase interest rates once again by another quarter point at its most recent meeting in June. Signals from the BoC indicate that its hawkish stance has not ended which is in line with other central banks. While the Fed maintained its current interest rate, all indications point to a resumption in hikes in the near term. The Bank of England (BoE), on the other hand, together with a few other central banks, recently hiked their interest rates. The BoE hiked by 50 basis points to 5% surprising the market which had been pricing in a 25-basis point hike. The BoC will need to maintain its restrictive rate policy for some time to fully combat underlying pressures from inflation as the Canadian economy overall has proved to be more resilient than predicted.

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BLOOM SELECT INCOME FUND - INTERIM REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2023

Despite increased interest rates which translates into a tighter lending market, the Canadian economy appears to be driving on unaffected by any discussion of a recession. That being said, an economy can only be resilient for so long when faced with stubbornly high inflation (see next paragraph) and a tight labor market. Accordingly, we are of the belief that we will see a mild slowdown in the back half of this year given our expectation for at least one more rate hike by the BoC this year.

The Consumer Price Index (CPI) increased 0.4% in May, which was in line with consensus. This represents a 3.4% increase year-over-year which is a full percentage point lower than in April and is the lowest level since July 2021. Despite global commodity price weakness, food inflation remains strong with the expectation that there is likely some softening ahead. Prices increased in five of the eight categories surveyed with transportation, clothing and footwear and household operations being the only categories to experience a decline. Core inflation in May was softer than expected up around 0.2% month- over-month cutting the year-over-year rate closer to 3.8%. Despite the improvement, inflation remains sticky holding in the 3.5% to 4% range for the past 9 months which remains above the BoC's target of 2%. This remains a serious issue for the BoC as it waits for core inflation to demonstrate signs of a more permanent slowdown.

Canadian consumers continue to be in spending mode driving Q1 real GDP to grow 3.1%. This was higher than estimates for 2.5% growth. Consumer spending as a share of GDP reached an all-time high at 56.7%. Despite higher mortgage rates, most mortgage holders have not yet felt the impact from these rate increases due to their fixed rates with refinancings expected to hit consumers in two to three years when monthly payments could rise by 20-40%. Notably, the personal savings rate in Q1 dropped to 2.9% marking the lowest level since the start of the pandemic likely because of an increase in spending and a decline in government subsidies. In April, Canadian real GDP was flat with the flash estimate for May at 0.4% indicating that the economy gained some momentum going into the summer. Estimates for Q2 and for the full year are for annualized growth of around 1.5% with the Canadian economy yet to see a single month of GDP decline this year.

Canadian retail sales rose 1.1% in April, the latest figure available. This figure was stronger than estimates which were in the range of 0.2%. Spending volumes rose slightly with an increase in prices driving the strong retail sales figure. Except for furniture, home furnishings, electronics and appliance retailers, all remaining sectors posted increases in April. Gains in retail sales were felt across the country with eight of the ten provinces posting increases with Nova Scotia, New Brunswick and Ontario experiencing the highest growth. It is expected that momentum in retail sales will be tempered by persistent high inflation and a continuation of monetary tightening.

For the first time in nine months, Canadian employment fell in May largely driven by a decline in youth employment. The lower employment levels together with an increase in the labor force increased the unemployment rate to 5.2%. The goods sector was the strongest in May led by an increase in manufacturing employment. The services sectors were weak with the largest declines coming from business/building support, professional services, and wholesale/retail. Self-employment experienced the largest drop since April 2020 and the fourth largest in the past decade. Regionally, Ontario accounted for most of the national employment decline. Job losses were also experienced in most parts of the Maritimes, with the rest of the country experiencing modest gains. However, the variance in the jobless rate across the country has never been tighter on a 12-month average basis. As a result, wages have narrowed province-to-province providing less impetus for Canadians to migrate between provinces for work. With continued high levels of immigration to Canada it is expected that labour supply will increase providing relief to a tight labor market.

For the first time since the housing correction commenced last year, new home prices rose slightly in May. Existing home sales increased 5.1% on a seasonally adjusted basis from April to May, marking the fourth consecutive monthly increase. The level of activity has increased and is now in line with levels seen in the three years prior to the pandemic. Sales growth is apparent across the country with the largest increases seen in P.E.I. which posted growth of 22.3% followed by Saskatchewan with a 9.2% increase. Despite a 6.8% increase in May, on a seasonally adjusted basis, new listings remain more than 13% lower than a year ago and are around 16% lower than the three-yearpre-pandemic average. If the BoC continues to increase rates well above the 5% level it is expected that there will be a resumption in the correction of home prices.

Canadian Investment Markets

The Canadian stock market remains challenging with no clear overarching theme driving it upwards or downwards, making it even more important to invest with a long-term active investment management approach. Economic data and in particular interest rate movement continues to add volatility to the market. Companies which announce accretive acquisitions that will

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BLOOM SELECT INCOME FUND - INTERIM REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2023

benefit their long-term growth would normally be rewarded by the market; however, if they have taken on any additional debt, the market is penalizing them. As such, valuations overall do not appear rich. So far this year earnings releases overall have either been in line with expectations or slightly ahead despite inflationary pressures. Given that there can be a lag in some industries as to when the impact from inflation is felt, we remain cautious; however, on the flip side, we are now seeing the positive impact on earnings from some companies being able to pass on an increase in prices to their customers.

Towards the end of the period the Canadian market was fixated on not only whether the BoC would increase interest rates but also whether the Fed would announce a rate hike or would hold rates as it did. Indeed, with the two central banks reacting differently at their June meetings the rate hike trajectory continues to be highlighted in the market. This, combined with a focus on China's recovery given a series of recent indicators pointing to an economic slowdown and the continuous discussion surrounding Artificial Intelligence stocks, has resulted in a Canadian stock market without a clear footing. Commodities continue to struggle despite a resolution of the U.S. debt ceiling and may continue to do so until there is more clarity around whether developed economies manage to have a soft landing. Of course, fears of a hard landing remain which could have a negative effect on global oil demand.

While the S&P 500 Index is often regarded as the global stock market benchmark, it should be noted that this index is currently dominated by 10 stocks which are largely technology stocks. This has resulted in equities appearing to be expensive as these ten stocks are roughly 50% more expensive than their long-term average. A rotation out of these names (which will likely occur should we experience a soft landing, as expected) should be beneficial for the smaller capitalization stocks compared to these mega capitalization stocks.

Historically, Canadian equities have traded at a discount to their U.S. peers and the present time is no exception. When compared to their discounted valuation, Canadian stocks remain inexpensive, trading at around one multiple point discount to their long-term average on a Price-to-Earnings basis. This is true not only for forward looking estimates but also when looking at trailing earnings.

For the first six months of the year, the S&P/TSX Composite Index increased 4.0% with the S&P/TSX Composite High Dividend Index increasing 0.5%. So far this year, Canada has lagged its U.S. counterpart as the Canadian market is particularly missing what has worked so far this year in the U.S. - large cap technology and communication stocks. On a sector-by-sector basis, the S&P/TSX Composite Index has outperformed in six of the ten major groups so its underperformance relative to the U.S. is mainly an index composition issue. However, unlike the U.S. where performance recently has been essentially driven by the technology and telecom services sectors which are each up approximately 40% year-to-date, the Canadian market does not have the same concentration and breadth.

The top performing Canadian sectors year-to-date were Information Technology (a relatively small sector) +47.5%, Consumer Discretionary +11.3% and Industrials +8.7% and the worst performing sector was Energy (-2.3%). Interest rate stabilization benefited the top three performing sectors but also negatively impacted the Energy sector. After having a challenging year in 2022, the Information Technology sector has experienced strong growth year-to-date. The sector directly benefited from the tremendous global attention on Artificial Intelligence, more attractive valuations due to a disastrous performance last year, and a stabilization in interest rates which tends to benefit growth stocks. The Consumer Discretionary stocks benefited from continued strength in consumer spending.

It is apparent that bond markets are of the opinion that many central banks will continue to increase rates in the months ahead, driving yields higher across the yield curve to levels reminiscent of the regional banking crisis in the first quarter. The current yield curve inversion is the deepest and longest it has been in four decades. With a further hike by the BoC expected in July there are no near-term catalysts leading the market to believe that there will be a material steepening in the short- term. Mid-term bonds provided a 1.8% return, while short-term bonds returned 0.3% year-to-date.90-Day Treasury Bills returned 2.1% for the same period.

Weakness in the Canadian dollar began to seriously take effect last August at which time it was clear that the Fed would need to hike more than the BoC. With the Fed recently pausing its rate hikes a rebound of sorts has occurred for the Canadian dollar against the Greenback. From a low in early March of $1.3827, by the end of June it had appreciated to $1.3240. For the

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BLOOM SELECT INCOME FUND - INTERIM REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2023

full year-to-date the Loonie has appreciated only 2.2%. This, however, is better than over the last twelve months when our dollar declined in value by 2.7%.

Fund Performance

Keeping in mind that the Fund is mandated as a low beta Fund, for the first six months of the year, the Fund performed in line with the S&P/TSX Composite High Dividend Index. For the first half of the year, positions in Noranda Income Fund, Premium Brands Holdings Corporation and Aecon Group Inc. were the greatest contributors to performance. The strongest performing sectors for the Fund were Consumer Staples, Materials and Financials.

The most recent measure of Active Share for Bloom Select Income Fund was a very high 81.3%. Active Share is a measure of the percentage of stock holdings in a manager's portfolio that differs from the benchmark index. Bloom believes this high Active Share gives the Fund a greater ability to take advantage of upside opportunities or protect against downside risk very distinctly in comparison to the great number of less active managers with performance that closely follows the benchmark.

Outlook

With limited direction in North American markets, excluding technology stocks, it has been a challenging market. There have been several positive announcements amongst our investments including the divestiture of some non-core assets to fortify balance sheets, accretive acquisitions which are expected to further benefit long-term growth and generally positive earnings releases, with some companies increasing their dividends. This last point is especially important. In the current uncertain economic environment with limited confidence in the direction of monetary policy, dividends remain an increasingly important component of a stock's return.

While the rise in interest rates has begun to make bonds an attractive investment, note that dividends are taxed at more advantageous rates. Further, the after-tax yield on the S&P/TSX Composite Index remains approximately 50% better than a 10-year Canadian government bond further justifying the increased risk associated with equities. Furthermore, as we have historically witnessed and has been the case with the most recent earnings releases, dividend-paying equities have the ability to increase their dividends - unlike bonds which maintain a static rate.

Canadian dividend-paying stocks remain attractively valued with compelling yields supported by stable underlying businesses. We maintain our defensive investment stance and take comfort, especially in the current stock market environment, in our long-term investment approach. We continue to use cash (money market investments and short-term treasury bills) as a tactical asset allocation tool and we remain pragmatic yet opportunistic in putting this cash to use as we look for new investment opportunities at the appropriate time.

RESULTS OF OPERATIONS

Distributions

During the six months ended June 30, 2023 distributions totaled $0.25 per unit. The 2023 distribution reflects a monthly rate per unit of $0.041666, in accordance with the targeted distribution rate of 5% per annum on the subscription price of $10 per unit as disclosed in the Fund's Prospectus. Since inception on April 20, 2012 the Fund has paid total cash and reinvested distributions of $5.598602 per unit.

Increase in Net Assets from Operations

The Fund's net investment income was $0.2 million ($0.19 per unit) for the six months ended June 30, 2023, arising from average portfolio investments during the period of $9.6 million. The income was comprised primarily of $0.9 million net change in unrealized appreciation/depreciation and $0.2 million in dividend and distribution income during the period offset by $0.8 million in realized loss on sale of investments.

Expenses were $0.2 million ($0.14 per unit) for the period, the major components being management fees of $73,558 and other administrative expenses of $43,102.

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