Bloom U S Income & Growth Fund : 2021 Interim Report - English

BLOOM U.S. INCOME & GROWTH FUND

INTERIM REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2021

FORWARD-LOOKING STATEMENTS

BUA.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.

MANAGEMENT REPORT OF FUND PERFORMANCE

This interim management report of fund performance for Bloom U.S. Income & Growth 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., Suite 1710, 150 York Street, Toronto, Ontario, M5H 3S5, or by visiting our website at www.bloomfunds.ca or 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.

All figures are stated in Canadian dollars unless otherwise noted.

BLOOM U.S. INCOME & GROWTH FUND - INTERIM REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2021

MANAGEMENT DISCUSSION OF FUND PERFORMANCE

THE FUND

Bloom U.S. Income & Growth 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 Class A units of the Fund trade on the Toronto Stock Exchange ("TSX") under the symbol BUA.UN and are designed for investors who wish to make their investments in Canadian dollars. The Class U units of the Fund are designed for investors who wish to make their investments in U.S. dollars and are not listed on the Toronto Stock Exchange, but may be converted to Class A units on a monthly basis. The units of the Fund are RRSP, DPSP, RRIF, RESP, RDSP and TFSA eligible. The Fund has a distribution reinvestment plan ("DRIP") allowing Class A unitholders to automatically reinvest their monthly distributions in additional Class A units of the Fund.

RECENT DEVELOPMENTS

COVID-19 pandemic

The ongoing effects of the global pandemic caused by the COVID 19 novel coronavirus continue to negatively impact companies worldwide. Successful vaccination initiatives in some regions contrast with vaccine hesitancy and vaccine undersupply in others, and uncertainty around the spread and effects of new virus variants continues. The pandemic continues to have the potential to have an adverse effect on global stock markets for an indeterminate length of time. This could affect the valuation of the Fund's investment portfolio and consequently the net asset value and net asset value per unit of the Fund. The negative effects on the Fund of this coronavirus and any other epidemics and pandemics that may arise in the future could be complex and cannot necessarily be foreseen at the present time. The Manager continues to monitor events as they unfold and has successfully implemented an enhanced business continuity plan to ensure the seamless operation of the Manager in its roles as manager and portfolio advisor of the Fund during a period of pandemic related lockdown and continued work-from-home. This plan has facilitated uninterrupted work and communication from home as well as the Manager's interaction with the Fund's various service providers.

Hedging of foreign currency

The Fund was established to enable Canadian investors to participate in the U.S. securities market. Investors were provided with the option of Class A or Class U units in order to allow the investor to choose the investment vehicle that matched their approach to currency fluctuation risk. Class A units were, and through their listing on the TSX, are, the option for investors who do not wish to be exposed to the effect of currency fluctuations. Accordingly, the Class A units are denominated in Canadian dollars and substantially all of the U.S. dollar denominated net asset value attributable to the Class A units is hedged in accordance with the Fund's declaration of trust through the use of foreign currency forward contracts (hedges). Class U units were the option for investors who wanted to invest in U.S. dollars without the hedging of currency fluctuations. Class U units are accordingly denominated in U.S. dollars.

The Fund's portfolio and its income are denominated in U.S. dollars, whereas the Class A units of the Fund are priced in Canadian dollars. The Fund hedges the Class A units' currency risk by entering into foreign currency forward contracts to sell U.S. dollars and buy Canadian dollars at a set rate at a set future date.

Under these contracts, the Fund agrees to pay a fixed U.S. dollar amount in return for a fixed Canadian dollar amount at a fixed future date. The objective is to shelter the Class A unitholders of the Fund from potential fluctuations in the Canadian dollar value of U.S. currency denominated investments due to changes in the value of the Canadian dollar. This means that the Class A unitholders are substantially protected from capital losses when the Canadian dollar strengthens, but conversely do not fully participate in the capital gains available when the Canadian dollar weakens.

For instance, in the six months ended June 30, 2021 the Canadian dollar strengthened against the U.S. dollar by 2.8% and consequently hedging resulted in net realized gains for the period on foreign currency forward contracts of $0.2 million. These gains have been included in income and substantially offset the corresponding decrease in the Canadian dollar value of the U.S. denominated assets of Class A due to the strengthening of the Canadian dollar during the period. The decrease in value of U.S. denominated assets of Class A due to the strengthening of the Canadian dollar is netted off income as net change in unrealized appreciation or depreciation on non-derivative investments and net realized loss on sale of non- derivative investments.

For the period since inception on March 21, 2013 the Canadian dollar weakened against the U.S. dollar by 17.2% and consequently hedging resulted in net realized losses since inception on foreign currency forward contracts of $7.2 million. These losses have been netted off income and substantially offset the corresponding increase in the Canadian dollar value of the U.S. dollar denominated assets of Class A due to the weakening of the Canadian dollar. The increase in value of

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BLOOM U.S. INCOME & GROWTH FUND - INTERIM REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2021

U.S. denominated assets of Class A due to the weakening of the Canadian dollar is included in income as net change in unrealized appreciation or depreciation on non-derivative investments and net realized gain on sale of non-derivative investments.

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 four TSX listed closed end funds.

INVESTMENT MANAGER'S REPORT

JULY 1, 2021

The U.S. Economy

What a difference a year makes! Q1 GDP growth, the latest figure available, came in slightly below consensus but nonetheless propelled 6.4% higher on an annualized basis, a marked increase from the 4.3% reported in Q4. The economy is now at a 0.4% higher level than a year ago but is still just shy of 1% lower than late 2019 figures. With increased reopenings in the second quarter it is expected that the economy should more than fully recover any losses. What is most impressive about these figures is that the economy remained partly closed during this period.

The strong Q1 represents the benefits from easing pandemic restrictions, a rapid rollout of vaccinations and the release of pent-up demand fueled by significant levels of household saving. Personal income increased 59% annualized in the first quarter and households spent 10.7% more, mainly on durable and non-durable goods. We expect to see a significant increase in the consumption of services in Q2 as they were significantly impacted by distancing measures which are now largely removed.

Nominal GDP in Q1 increased 10.7% annualized as prices accelerated which signifies the largest increase (aside from Q3 2020) in nearly four decades. With the economy further gaining momentum coupled with increased easing of restrictions in Q2 we expect GDP to increase considerably. Growth expectations for Q2 are in the 10% annualized range.

The latest housing starts reported in May indicate that after tremendous growth in home construction last year, momentum is being tempered due to supply issues (labour and materials) and increased building material costs - until recently lumber prices were up substantially year over year. Despite this a 3.6% increase in May still leads us to believe that housing demand remains strong.

Sales of existing homes continue the recent trend of declining from what appears to have been a 14.5 year peak reached in late 2020 as home buyers are shying away from surging prices amidst a lack of supply. Sales of single family homes declined in May for the fifth straight month. Condominium sales steadied after a couple of monthly gains as more units came to the market and are still near record lows from a historical perspective. Long term demand remains but is being negatively impacted by tremendous price growth, an increase, albeit off very low levels, in mortgage rates, and lack of supply. We expect an increase in supply to have a positive impact on future sales going forward.

While there are signs of a slow but steady recovery in the job market, job creation remained weaker than expected in May. Sectors most affected by social distancing such as leisure and hospitality experienced an accelerated pace of hiring in a context of economic reopening. Long term unemployment continued to decline in May, however, this should be interpreted with a certain level of caution. The significant drop in the participation rate is positively impacting the unemployment rate to some extent. If participation levels remained at pre-pandemic levels then the unemployment rate would have been much higher. Accordingly, the labour market still has a ways to go in terms of recovery.

Supply of work seems to be the main issue with a mismatch in skill sets, lack of childcare alternatives and continued government subsidies all exacerbating this issue. To combat this issue employers may be forced to raise wages to lure workers back into the job market. We expect the tight labor market to slacken somewhat through the fall with more widespread reopenings and an eventual elimination of the government's enhanced unemployment insurance benefits.

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BLOOM U.S. INCOME & GROWTH FUND - INTERIM REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2021

Retail sales are now significantly above pre-pandemic levels. Consumers took a breather in May but the decline in sales was felt pretty much across all sectors due to the stimulus' payments overhang from significant spending earlier in the year. As mobility increased and more people started to travel and return to the office, sectors such as gas stations experienced increases. As the economy more fully opens, we expect consumers' spending to shift towards services which could lead to a certain degree of stagnation in retail sales.

U.S. Investment Markets

Concerns over the Delta variant and short term peak 10-year yields were positive for the technology sector in the latter part of Q2. The S&P 500 Total Return Index posted an increase of 15.3% for the six months. The best performing sectors for the first six months of the year were Energy, Financials and Real Estate while the worst performing sectors were Utilities, Consumer Staples and Consumer Discretionary.

The Fed continues to maintain an overall accommodative stance with no changes to the fed funds target range, the pace of asset purchase or to forward guidance. The Fed maintains its position that inflation is largely transitory and that economic and employment growth have been driven by the strong progress made on vaccinations and also from the strong policy support. It appears that the Fed is setting the stage to commence tapering towards the end of the year with two expected rate hikes in 2023 after ending quantitative easing next year. Never having been in a pandemic before it is difficult for the Fed to know with certainty that inflation is transitory; however, squashing inflation too early in what appears to be an economic recovery would have negative implications for the broader economy.

The U.S. dollar ended the quarter 1.4% weaker than it began against its Canadian counterpart. In the last twelve months the Greenback has depreciated 9.1% against the Loonie.

Fund Performance

In the first six months of the year, the Fund significantly outperformed the S&P 500 Total Return Index with a return of 25.2%. Positions in Tronox Holdings plc, Fly Leasing Ltd. and Eli Lilly & Co. were the greatest contributors to performance. The strongest performing sectors for the Fund were Industrials, Materials and Real Estate.

The most recent measure of Active Share for Bloom U.S. Income & Growth Fund was a very high 98%. Active Share is a measure of the percentage of stock holdings in a manager's portfolio that differs from the benchmark index. We believe 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 manager's with performance that closely follows the benchmark.

Outlook

Several companies reduced, eliminated or temporarily suspended dividends at the onset of the pandemic. We expect these companies to be re-evaluating their dividend policies towards the end of this year and into next year as the economy and market conditions in general are expected to continue to improve. Our strategy of active investment management and our longer term approach to investing has significantly benefitted the Fund in the past year. Despite challenging markets for many dividend paying stocks in the early days of the pandemic we did not waiver from our investment style. We continue to believe that longer term dividend paying stocks will outperform, making a solid and relatively low risk investment today that will benefit the Fund in the longer term.

RESULTS OF OPERATIONS

Distributions

During the six months ended June 30, 2021 distributions totaled $0.18 per Class A unit and US$0.18 per Class U unit. The 2021 distribution reflects a monthly rate per unit of $0.03 per Class A unit and US$0.03 per Class U unit. Since inception on March 21, 2013, the Fund has paid total cash and reinvested distributions of $4.84774 per Class A unit and US$4.84774 per Class U unit.

Allocation of income, expenses, gains and losses between classes of the Fund

The income, expenses, gains and losses of the Fund are generally allocated between Class A and Class U on the basis of the Classes' relative net asset values. However there are certain transactions which are class specific and are allocated to a particular class. These include certain expenses of Class A relating to its distribution reinvestment plan (DRIP), certain expenses of Class U relating to the Class U conversion privilege, fees charged by the Canadian Depository for Securities which are specific to each of the classes, and the unrealized and realized gains and losses on the foreign currency forward contracts which relate to the hedging of the US dollar denominated net asset value attributable to the Class A units, and which are allocated to Class A.

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BLOOM U.S. INCOME & GROWTH FUND - INTERIM REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2021

Increase in Net Assets from Operations

The Fund's net income from investments was $1.9 million ($1.65 per Class A unit and $1.90 per Class U unit) for the six months ended June 30, 2021, arising from average portfolio investments during the period of $7.3 million. Net investment income was comprised primarily of net change in unrealized appreciation on investments for the period of positive $1.6 million, net realized gain on foreign currency forward contracts of $0.2 million, and $0.1 million in dividend and distribution income.

Expenses were $0.2 million ($0.13 per Class A unit and $0.27 per Class U unit) for the six months ended June 30, 2021, the major components being management fees of $51,531 and other administrative expenses of $48,992.

Net Asset Value

The net asset value per unit of Class A units of the Fund was $7.44 at June 30, 2021, up by 22.1% from $6.09 at December 31, 2020. The net asset value per unit of Class U units of the Fund was US$7.48 at June 30, 2021, up by 21.2% from US$6.17 at December 31, 2020.

The aggregate net asset value of the Fund increased from $6.9 million at December 31, 2020 to $8.5 million as at June 30, 2021, primarily due to net income from investments of $1.9 million offset by distributions to unitholders of $0.2 million.

Liquidity

To provide liquidity for unitholders, Class A units of the Fund are listed on the TSX under the symbol BUA.UN. Class U units are not listed on the TSX but are convertible to Class A units on a monthly basis.

Investment Portfolio

The Fund has established a portfolio invested in U.S. equities and income trusts, each of which was selected to achieve the investment objectives of the Fund.

During the six months ended June 30, 2021 the percentage of the portfolio (equities and cash) invested in the Materials sector has increased from 11.3% to 15.8% primarily due to the increase in value of Fly Leasing Limited ADRs. The proceeds from the sale of Tronox Holdings plc shares was offset by losses on the settlement of foreign currency forward contracts, reducing the cash position from 9.8% of the portfolio to 8.3%.

The Fund had net unrealized appreciation of $1.8 million on its portfolio as at June 30, 2021, with unrealized appreciation of $0.7 million in the Real Estate sector, $0.6 million in the Health Care sector and $0.3 million in the Materials sector.

The Fund had net realized gains on sales of investments of $39,427 during the six months ended June 30, 2021 from the sale of part of the Fund's holding in Tronox Holdings plc.

Portfolio Sectors

Information Technology				Value	% of
Health Care		Sector	(thousands)	Total
	Real Estate	Real Estate	$	2,063	24.1%
Cash		Industrials		1,567	18.3%
		Materials		1,346	15.8%
Consumer Discretionary		Financials		911	10.7%
		Consumer Discretionary		784	9.2%
Financials	Industrials	Cash		713	8.3%
		Health Care		711	8.3%
Materials		Information Technology		452	5.3%
		Total	$	8,547	100.0%

RELATED PARTY TRANSACTIONS

Related party transactions consist of administrative and investment management services provided by the Manager pursuant to the Fund's Declaration of Trust, and Fund expenses paid by the Manager and recharged to the Fund.

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