MINT Income Fund : Semi-Annual Report 2022

2022 SEMI-ANNUAL REPORT

MINT

INCOME

FUND

MIDDLEFIELD CORPORATE PROFILE

The Middlefield Group was established in 1979 and is a Specialty Investment Manager which creates investment products designed to balance risk and return to meet the demanding requirements of Financial Advisors and their clients. These financial products include Exchange-Traded Funds, Mutual Funds, Private and Public Resource Funds, Split Share Corporations, Venture Capital Assets, TSX Publicly Traded Funds and Real Estate Investment Funds and Partnerships.

Middlefield's investment team comprises portfolio managers, analysts and traders. While all of our investment products are designed and managed by Middlefield professionals, some involve strategic partnerships with other "best-in-class" firms that bring unique value to our product offerings. In 2014, we entered into an exclusive arrangement with SSR, LLC, based in Stamford, Connecticut. They provide specialized research into sectors of the economy such as Healthcare and Innovation Technology. SSR is an independent investment firm whose analysts have been highly ranked and are recognized as leaders in their respective fields. Their fundamental company level research is often non-consensus and provides guidance on overall portfolio construction and security selection.

Looking ahead, Middlefield remains committed to managing and developing new and unique investment products to assist Financial Advisors in helping clients achieve their investment objectives.

A NOTE ON FORWARD LOOKING STATEMENTS

TABLE OF CONTENTS

Corporate Profile

1. 2022 Review and Outlook

1. Interim Management Report of Fund Performance

10 Interim Financial Report

15 Notes to Financial Statements Middlefield Funds Family

This document may contain forward looking statements, including statements regarding: the Fund, its strategies, goals and objectives; prospects; future performance or condition; possible future actions to be taken by the Fund; and the performance of investments, securities, issuers or industries in which the Fund may from time to time invest. Forward looking statements include statements that are predictive in nature, that depend upon or refer to future results, events, circumstances, expectations and performance, or that include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates" or negative versions thereof and other similar wording. Forward looking statements are not historical facts, but reflect the Fund's current beliefs as of the date of this document regarding future results, events, circumstances, expectations or performance and are inherently subject to, among other things, risks, uncertainties and assumptions about the Fund and economic factors. Forward looking statements are not guarantees of future performance, and actual results, events, circumstances, expectations or performance could differ materially from those expressed or implied in any forward looking statements contained in this document. Factors which could cause actual results, events, circumstances, expectations or performance to differ materially from those expressed or implied in forward looking statements include, but are not limited to: general economic, political, market and business factors and conditions; commodity price fluctuations; interest and foreign exchange rate fluctuations; global equity and capital markets; the financial condition of each issuer in which the Fund invests; the effects of competition in the industries or geographic areas in which the Fund may invest; statutory and regulatory developments; unexpected judicial or regulatory proceedings; and catastrophic events. Readers are cautioned that the foregoing list of factors is not exhaustive and to avoid placing undue reliance on forward looking statements due to the inherent uncertainty of such statements. The Fund does not undertake, and specifically disclaims, any obligation to update or revise any forward looking statements, whether as a result of new information, future developments, or otherwise.

2022 MID-YEAR REVIEW AND OUTLOOK

Market conditions were extremely challenging for equity investors during the first half of 2022 (H1). Both the MSCI World and the S&P 500 finished the period in a bear market, down more than 20%, making it the worst start to a year since 1970. The Canadian stock market outperformed most global indices with the S&P/TSX Composite generating a total return of -9.9%.

Market volatility was driven by persistent inflation, which has reached multi-decade highs in most countries throughout the world. One of the biggest contributors to inflation has been the sudden increase in global demand. After nearly two years of pandemic- related lockdowns and restrictions, consumers started spending again. This made it challenging for providers of goods and services to ramp up capacity fast enough to meet demand and placed additional strain on global supply chains. Russia's unexpected invasion of Ukraine in late February further exacerbated inflationary forces. The attack spurred a swift response from the global community in the form of unprecedented economic sanctions in an effort to isolate Russia from the global economy. This effectively removed Russian supplies of a number of critical commodities from global markets, including oil, wheat, base metals and fertilizers. WTI crude oil and NYMEX natural gas prices both increased by nearly 50% in H1.

In response to higher-than-expected inflation, global central banks quickly pivoted to hawkish monetary policies which have led to a rapid increase in interest rates and bond yields. Both the US Federal Reserve and the Bank of Canada raised short-term borrowing rates three times in H1 by a total of 1.5% and 1.25%, respectively. US 10-year Treasury Yields rose from 1.5% at the start of the year to over 3% at the end of June while Canadian 10-Year Bond yields went from 1.4% to 3.2%. The impacts of these moves have been pervasive, including a 9.4% increase in the DXY US Dollar Index and a -14% return in Investment-Grade Credit.

Increasing interest rates have had an outsized impact on growth stocks. The Russell 1000 Value index returned -13%, significantly outperforming the Russell 1000 Growth index return of -28%. The Nasdaq Composite returned -29%, marking its worst H1 return since its inception in 1971. Defensive sectors such as utilities, consumer staples and healthcare significantly outperformed the broader market while communication services, information technology and consumer discretionary lagged. Energy, which returned 31.6%, was the only sector in the S&P 500 to post a positive return. While the market environment continues to be challenging for technology stocks, we remain highly optimistic on the long-term potential of the sector and view the current setup as attractive for patient investors. We are confident in the durability of various investment themes such as online advertising and e-commerce which are supported by structural changes in spending patterns. We are also bullish on enterprise software though we are choosing our exposures carefully. Our tech exposures are anchored by high quality industry leaders with sustainable competitive advantages.

Canadian equities performed well in H1 on a relative basis. The energy sector generated a total return of 26.3% and was the biggest positive contributor to performance. Generating unprecedented levels of cash flow, Canadian energy companies have been returning substantial amounts of excess cash to shareholders in the form of dividends and share buybacks. Utilities were the only other sector in the TSX to generate a positive return, adding 1.3%. Although the global economic outlook is uncertain, we believe Canadian equities are uniquely positioned to continue outperforming as it is a net exporter of oil and electricity.

Mint Income Fund (TSX:MID.UN) generated a total return of 2.0% in H1. The Fund invests in an actively managed portfolio primarily comprised of North American equity income securities. As at June 30th, approximately 25% of the fund's investments were allocated to the Canadian energy sector. The Fund's positive year-to-date performance builds upon its longstanding track record of generating attractive risk-adjusted returns for unit holders. Since the Fund's inception in 1997, the Fund has generated an annualized total return of 8.4%, outperforming the S&P/TSX Composite's annualized total return of 7.1% over the same period.

The S&P 500 healthcare sector generated a total return of -8.3%, outperforming the S&P 500 by 11.7% and finishing as the fourth best performing sector in the index. Defensive sub-industries such as pharmaceuticals and managed care led to the upside while more cyclical industries such as medical equipment & life science tools lagged significantly. Biopharma companies sell needs-based products which benefit from inelastic demand, and are therefore more insulated from market downturns. Middlefield Healthcare Dividend ETF (TSX:MHCD) and Middlefield Health & Wellness ETF (TSX:HWF) returned -9.3% and -10.6% in H1, respectively - in line with their benchmark, the MSCI World Healthcare Index, which returned -10.1%.

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MIDDLEFIELD TSX-LISTED FUNDS |

The Middlefield Family of exchange-listed funds is currently comprised of 17 funds, 16 of which trade on the Toronto Stock Exchange and one of which is based in Jersey, Channel Islands and trades on the London Stock Exchange. The fund mandates differ by asset mix including both Canadian and International equity securities.

The Canadian real estate sector generated a total return of -21.7% in H1. US REITs performed marginally better, finishing H1 with a total return of -20.1%. After the recent pullback, Canadian REITs are trading at more than a 20% discount to their net asset values on average

• trough valuations that compare to the depths of 2008 and 2020. While we are mindful of the macro economic challenges facing the sector today, we believe REITs are oversold and we encourage investors to opportunistically add exposure. Middlefield manages several real estate funds as well as diversified equity income strategies anchored by real estate securities. Middlefield Real Estate Dividend ETF (TSX:MREL) generated a total return of -21.4% during H1, in line with the S&P/TSX Composite real estate sector return of -21.7%. In February 2022, Middlefield Can-Global REIT Income Fund merged into MREL, adding to the fund's scale and liquidity.

We continue to believe that infrastructure will remain a highly sought-after and defensive asset class. Companies in this space provide highly visible, long-term cash flows and have business models that are inherently resilient against inflation. We are finding great risk / reward opportunities in the renewables space, following a period of sustained underperformance during the recent commodity bull market. With energy security top of mind, we expect that renewable additions will continue to accelerate as countries further distance themselves from Russia and aim to become more self-sufficient. International Clean Power Fund (TSX:CLP.UN) provides exposure to secular trends in renewables and clean power technologies. Its portfolio is comprised of primarily dividend-paying securities of global issuers typically difficult to access by Canadian retail investors. The Fund generated a total return of -15.1% in H1.

Enbridge (ENB) has long been bullish on the outlook for natural gas, starting with its acquisition of Spectra back in 2016. The outlook is more positive today now that the Russia/Ukraine conflict has placed a greater emphasis on energy security as part of the energy transition equation. ENB is well positioned to capitalize on the natural gas renaissance from expansion projects on the US Gulf Coast as well as its gas pipelines in British Columbia to support new West Coast LNG opportunities (Woodfibre LNG, Cedar LNG). This LNG buildout will benefit ENB as its footprint expands in both regions. Class A shares of E Split Corp. (TSX:ENS) generated a total return of 19.7% in H1. This compares to the 13.5% total return generated by Enbridge Inc., the Fund's sole underlying asset. E-Split's positive year-to-date performance demonstrates the significant capital gain potential embedded in the Corporation's split share structure. In addition, E-Split shares provide robust levels of income to investors. The Class A shares pay monthly distributions of $0.13 and the Corporation's Preferred Shares pay quarterly distributions of $0.13125.

Outlook

We believe we are in a cyclical bear market which is a function of rising rates and inflation combined with lower profit expectations. Given the impacts that inflation and higher interest rates will have on demand, we expect a mild slowdown in economic activity this year. Much of this is already being priced in to markets today, reflected in the S&P 500 forward earnings multiple declining from 21x to below 16x. As a result, we believe downside in broad market indices should be limited from current levels and are seeing an increasingly attractive setup for equities in the latter part of the year.

Although it may not show up in near-term inflation reports given the lagging nature of data, we believe we are at peak inflation and should start to get some data points that are incrementally less hawkish throughout H2. Sell-side earnings estimates have started to come down and we do expect a deceleration in growth over the coming quarters; however, household and corporate balance sheets remain strong which backstops our view of only a mild slowdown. Against this backdrop, we are focused on companies with high margins, strong balance sheets and stable dividends.

Dean Orrico	Robert F. Lauzon
President and CEO	Managing Director and Chief Investment Officer
Middlefield Capital Corporation	Middlefield Capital Corporation

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