Morningstar Opinion. 20 Jul 2018 We feel that Mercantile is on an upward curve.

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1 Page 1 of 7 Morningstar Research Report Text as of 20/07/2018, Data as of 27/11/2018 Morningstar Benchmark FTSE 250 Ex Investment Trust Morningstar Category TM UK Mid-Cap Equity Last Closing Price GBP Last Closing NAV GBP Discount/Premium % Latest Published NAV Latest Published NAV Date 26/11/2018 Traded Currency GBX Yield 3.01 Dividend Frequency Quarterly Total Assets Mil 1,923.8 Net Assets Mil 1,674.0 Market Cap Mil 1,492.1 Net Gearing % 0 Avg Daily Shares Traded Mil (3 month) 0.51 Inception Date 08/12/ k 80k 60k 40k 20k 10k Returns Price NAV Category Index 4k 0 Discounts -5 Premium Discount -10 Average Line YTD Performance % Fund Price Fund NAV /- Category /- Benchmark Morningstar Analyst: David Holder, Senior Analyst The conduct of Morningstar's analysts is governed by Morningstar's Code of Ethics, Securities Trading and Disclosure Policy, and Morningstar Manager Research Integrity Policy. For information regarding conflicts of interest, please click Executive Summary People: Guy Anderson joined the team in 2012 and has been primary decision-maker here since late He also replaced the veteran Martin Hudson as team head. The team comprises four in total and can also draw on the extensive and wider resources within JPMorgan. Parent: J.P. Morgan has earned investors' confidence. Board: The board comprises six with a good balance of skills and experience. It has seen recent refreshment with two new members appointed in July 2018 bringing investment and distribution expertise. Process: As part of the pan-european behavioural finance team at JPMorgan, the manager blends quantitative analysis with a qualitative overlay. They follow a bottom-up stockspecific process but will also identify and pursue investment themes. Performance: Returns have improved of late, although 2016 was poor as the portfolio was overexposed to domestic earnings and so missed out on sterling's depreciation. Subsequently, relative returns have regained their lustre. Fees: The fund is very competitively priced with ongoing charges of 0.45% for financial-year 2018 with the board being proactive in putting downward pressure on fees. This results in very competitive fees when compared with peers. Role in Portfolio This trust aims to generate capital growth and a rising income from a diversified portfolio of predominantly UK midsize companies. Because of this focus and the inherent risk within mid- and small-cap investing, this fund should be considered as a diversifier or accompaniment to a broader diversified portfolio. Morningstar Opinion 20 Jul 2018 We feel that Mercantile is on an upward curve. Mercantile seeks to provide long-term capital growth from a portfolio of UK medium and smaller companies and to achieve long-term dividend growth at least in line with inflation. Recent years have seen a changing of the guard at Mercantile with veteran fund manager Martin Hudson stepping back as primary decision-maker and long-standing chairman Hamish Leslie Melville retiring from the board. Anderson joined the team in August In 2016, he was appointed team leader and as primary decision-maker in the latter part of Previously, Anderson and Hudson were each responsible for around half of the portfolio by dint of their respective sector coverage. Anderson is now the final decision-maker, while Hudson remains part of the four-man team. Having a single decision-maker makes sense to us from an accountability perspective and portfolio construction approach and is a change that looked to be in the pipeline for some time. Anderson's experience as a portfolio manager is largely limited to Mercantile. It has been noticeable that his involvement in the management of the portfolio has substantially increased since 2012, and he has been the principal liaison with the chairman and board for some time. The established process shares some commonality of philosophy with the funds run by the European Behavioural Finance team at JPMorgan, in that market participants show predictable behavioural biases, which the team looks to exploit. That's not to say they don't use quant screens; indeed, they narrow down the universe by assessing four types of financial metrics of a company: price momentum, earnings revisions, value, and quality--which replaced growth in That change was made in recognition of the fact that the model didn't screen sufficiently for quality, and in 2008 it came unstuck as many stocks looked cheap, but they got cheaper still as the financial crisis set in. The team then apply a thematic overlay to construct the portfolio. This results in a portfolio that is relatively core in that its active share versus the FTSE 250 is around 60% and which tends to optically be marginally more expensive than peers or the FTSE 250 Index in terms of price/book, P/E, price/sales, and price/cash flow, but with a better growth profile in terms of sales and cash flow. Finally, investors have benefitted from the board's focus on reducing ongoing charges by negotiating a reduced annual management fee with JPMorgan of initially 0.475% from February 2017 (from 0.5% previously) to 0.45% per year from February 2018, which substantiates the board's role in overseeing shareholder interests. The fees that investors pay here are exceptionally competitive. The changing team dynamic including clearer accountability of decision-making continues to gain traction at Mercantile, which we feel has positive consequences for portfolio construction and process implementation. We are encouraged by these developments, which are feeding through into improved investor returns. We award Mercantile a of Bronze, having previously been rated Neutral.

2 Page 2 of 7 Morningstar Research Report Text as of 20/07/2018, Data as of 27/11/2018 People Manager Martin Hudson Manager Start 01/01/1994 Manager Anthony Lynch Manager Start 31/12/2009 Avg. Manager Tenure 13.3 Years Other Funds Managed Historically, this was a collegiately managed trust, and whilst it is still a team effort, in late 2016 Guy Anderson was appointed primary decision-maker on the fund. He joined the team in August 2012 from Breeden European Capital Management, where he was a pan-european mid-cap analyst. Before this, Anderson was an investment analyst at Pendragon Capital Management Limited and, prior to that, a project manager with Oliver Wyman. From summer 2017, Anderson has been head of the UK mid- and smallcap desk at JP Morgan, which facilitates a more collaborative and cohesive use of the available resources including fellow smid-cap managers Georgina Brittain and Katen Patel. Sector coverage used to largely be split between Anderson and Martin Hudson, the previous lead manager, but now sector responsibilities are more evenly split across the team. Martin Hudson has been a pillar of stability at Mercantile, having managed the fund since 1994, and remains on the team. He joined Fleming in 1982 and started out running the Fleming Fledgling investment trust and a number of pension portfolios before taking over at Mercantile in There is an additional portfolio manager in Anthony Lynch and investment analyst Timothy Lewis. The four of them are a dedicated resource to Mercantile, although Lynch has additional responsibilities and is named on two other mandates. The four of them carry out around 300 company meetings per year. Parent Fund Advisor Domicile Website JP Morgan Asset Management (UK) Ltd UK J.P. Morgan's asset-management business is what investors might expect of one of the largest financial institutions in the world. It has a large and diverse fund lineup, vast resources, a global investment team, and an assertive distribution effort. J.P. Morgan has built its fund business partly through acquisitions, but recent asset growth has come on the heels of 2008's financial crisis, when the parent bank showed its strength over competitors. The fund house operation stands out in some ways and includes its fair share of stalwart management teams, such as the London-based fixed-income team headed by Bob Michelle, from which several global bond funds have received positive s. In addition, there are positively rated funds for Europe, the US, and emerging-markets equity. However, the firm has not achieved the same level of success across its vast array of funds, and J.P. Morgan in Europe is seeking to rationalise its sizable fund range in order to focus on its best areas. The fund division's parent company, JPMorgan Chase, serves as a double-edged sword, providing both the stability of a multinational organisation and the uncertain impact of increased regulatory and media scrutiny. Board of Directors Tender Offer Buyback Authorization No Yes The board comprises six members and is led by chairman Angus Gordon Lennox, who is a former managing director of JPMorgan Cazenove and is considered independent here as he retired from the broker in Lennox replaced Hamish Leslie Melville as chairman at the conclusion of the annual general meeting in May 2017 after some 21 years of service to the company. This board's tenures range across the spectrum, from very recent to over 11 years, with the average tenure being four years. Four of the board sit on other investment company boards. At the AGM in May 2018, long-standing members and industry heavyweights Jeremy Tigue and Dr Sandy Nairn retired and were replaced by Graham Kitchen and Heather Hopkins in July Kitchen was formerly head of global equities at Janus Henderson and prior to that head of UK Equities at Threadneedle and co-head of investments and UK fund manager at Invesco. Hopkins has a background in data and research particularly focused on retail/wealth manager distribution and platform channels. The board's credentials predominantly span industry and finance, and among them they cover a diverse range of backgrounds. Currently, all but the two most recent appointments own shares in the fund. We like to see ownership as we strongly feel that board members should have a stake in the funds on which they sit, as we believe it helps to align their interests with those of their shareholders. The board meets six times a year on a formal basis, although communication is more frequent and ad-hoc meetings are arranged as needed.

3 Page 3 of 7 Morningstar Research Report Text as of 20/07/2018, Data as of 27/11/2018 Process: Investment Approach Investment Objective: To achieve long-term capital growth from a UK portfolio of medium and smaller companies with dividend at least in line with UK inflation. Hedging Policy Tactical Use of Cash Process: Portfolio Positioning Morningstar Holdings Based Style Map Deep Val Core Val Core Core Grw High Grw Giant Large Mid Small Micro NULL No The team loosely follows the behavioural finance process at JPMorgan, which is based on the belief that persistent anomalies occur within the stock market as a result of predictable behavioural biases on the part of market participants and that these anomalies evidence themselves in both value and growth stocks. The team applies a rigorous qualitative assessment on the outcomes of the behavioural finance process, with portfolio positions the result of disciplined, bottom-up stock selection and coming from a variety of sources including primary fundamental analysis, sell-side research, and the team's quantitative process. There is a focus on keeping costs low here, and so the high levels of turnover derived from the pure behavioural finance process is pared back with turnover in the 40% region rather than 100% level. The team looks at a wide range of factors that it expects to drive the share price going forward. Its focus is firmly on valuation and catalyst, favouring stocks it strongly believes offer the potential of a substantial valuation rerating and companies where it believes the stock market's perception of their profitability is underestimated. It also looks for companies that can gain market share and grow their margins. Within the value space, it favours stocks that have been neglected by the market or have historically disappointed, where it believes an attractive valuation and the prospect of positive news flow or a turnaround in the company's fortunes will lead to an appreciation of its share price. Within the growth sphere, it favours stocks whose earnings and cash flow profiles are underestimated by the market and that have solid valuation support. The manager invests in mid- and small caps including those AIM-listed and must sell those companies entering the FTSE 100 within 18 months. The market-cap profile is broadly similar to peers despite the benchmark here being the FTSE All Share ex FTSE 100, rather than the more commonly used FTSE 250 Index. The portfolio has a discernible growth tilt with modestly elevated growth metrics such as P/B and P/E, although this is a relatively low active share portfolio and should be considered a core proposition. At yearend, the fund had overweightings to financial services and technology sectors whilst having underweightings to real estate and travel & leisure. Leading contributors in terms of overweightings included Sophos, Intermediate Capital Group, and NMC Health, whilst Dominos Pizza, Saga, and Auto Trader detracted. Subsequently, Dominos Pizza, Saga, and NMC have been sold with new positions recently added in Hunting, Rotork, and Thomas Cook. The fund also participated in the IntegraFin IPO in first-quarter World Regions Assets % Greater Europe United Kingdom Europe-Developed 0.00 Europe-Emerging 0.43 Africa/Middle East 0.00 Americas 0.03 North America 0.03 Latin America 0.00 Greater Asia 1.62 Japan 0.00 Australasia 0.00 Asia-Developed 0.54 Asia-Emerging 1.08 Not Classified 0.00 Asset Allocation Top 10 Holdings 30/09/2018 % Assets Long Short Net Cash Equity Bond Other % Assets JPM Sterling Liquidity X (dist.) m 6.125% Secured Bond Spirax-Sarco Engineering PLC m 6.125% Secured Bond Bellway PLC 2.99 Intermediate Capital Group PLC 2.61 Hiscox Ltd 2.32 Phoenix Group Holdings 2.31 Auto Trader Group PLC 2.25 Hays PLC 2.12 Sector Weightings % Equity h Cyclical 56.3 r Basic Materials 10.1 t Consumer Cyclical 19.5 y Financial Services 21.0 u Real Estate 5.8 j Sensitive 36.1 i Communication Services 0.5 o Energy 1.1 p Industrials 25.2 a Technology 9.3 k Defensive 7.6 s Consumer Defensive 6.4 d Healthcare 1.2 f Utilities 0.0

4 Page 4 of 7 Morningstar Research Report Text as of 20/07/2018, Data as of 27/11/2018 NAV Performance Analysis Data as of Trailing Returns Price Total Rtn % +/- Bmark 3 month Month Year Year Ann Year Ann Whilst annualised performance over the past 10 years is ahead of peers, more recent relative performance has demonstrated improved levels of outperformance. Over five years to the end of June 2018, the fund has returned an annualised 13.78%, some 219 basis points and 194 basis points ahead of the index and peers. Since Anderson has been primary decision-maker from the beginning of 2017, the fund has returned an annualised 20.80%, which is 788 basis points and 613 basis points ahead of the index and peers. Pleasingly, stock selection has been the predominant driver of returns. Calendar-year 2016 was a tough year for the fund as it posted a negative return and substantially lagged comparators. The fund was positioned for a remain vote in the UK referendum in June of that year. Performance bounced back strongly in subsequent years helped in part by the overweighting to basic materials. Trailing Returns NAV Total Rtn % +/- Bmark +/- Cat %Rnk In Cat 3 month Month Year Year Ann Year Ann Calendar Total Returns Fund(price) Fund(NAV) YTD -30 Discount / Premium Data as of Discount / Premium % 6 Mo 1Yr 3Yr High Average Low Z-Statistic Risk & Return Data as of Morningstar Rating Return Risk Rating 3 Year Above Avg Above Avg QQ 5 Year High Above Avg Q 10 Year Avg High Overall Above Avg High The fund's standard deviation (a statistical measure of risk) tends to be in line with or modestly below that of peers and indexes, whilst the fund's risk-adjusted returns as measured by the fund's Sharpe ratio are ahead of comparators. The fund's beta, or sensitivity to market movements, is higher than peers, which leads to higher capture ratios in both up and down markets. Tracking error has tended to be very modestly above that of peers. The fund is well diversified, The board has shareholder approval to buy back shares and does so at its discretion rather than trying to manage the discount to a specific level. Through fiscal-year 2017, 5 million shares were bought into Treasury. There are currently some million shares in Treasury or 17.8% of the 801 million outstanding shares in issue. This continued action suggests that the board is becoming increasingly focussed on addressing the persistent discount. The management of the company has also shown a desire to increase activity with potential and existing shareholders with the appointment of Heather Hopkins to the board; this is a nod to improved communication in a platform-dominated landscape. The current discount is 9.7% (July 2018), which is a little tighter than the longer-term average. with around 100 holdings (May 2018), which is a reduction on the 166 it held in December 2010, which keeps stock-specific risk low, and the top 10 holdings account for only 22% of the portfolio. Investors can expect a further reduction in the number of stocks here. There are micro-caps included, so there is the potential for liquidity risk, although this is largely assuaged by the closed nature of the structure. AIM-listed stocks are also represented, at around 18% of the portfolio. Volatility Ratios 3 Yr NAV 5 Yr NAV Standard Deviation Mean Sharpe Ratio Sortino Ratio Risk vs Index 3 Year 5 Year Alpha NAV Beta NAV R-Squared NAV Treynor Ratio NAV

5 Page 5 of 7 Morningstar Research Report Text as of 20/07/2018, Data as of 27/11/2018 Fees Management Fee % 0.44 Ongoing Charge ex Perf Fee % 0.47 With effect in February 2018, JPMorgan is entitled to an annual management fee of 0.45% of the fund's market capitalisation. There is no performance fee levied here. The resulting ongoing charges for fiscal-year 2018 were 0.45% (2017:48%). Investors here are paying a very competitive fee for active management. Gearing Total Assets Mil 1,923.8 Net Assets Mil 1,674.0 It is commonplace to see gearing being used here, although the managers will use cash to offset it if they don't have strong conviction in equity markets. The board is actively involved in setting the gearing strategy at this fund, and in addition the respective investment trust fund managers at JPMorgan also collectively regularly review the use and application of gearing. The absolute range is fixed between 10% net cash and 20% gearing. Gearing is in the form of a GBP 3.85 million 4.25% perpetual debenture and a GBP 175 million 6.125% debenture repayable in February Collateral can be held against the borrowing to offset gearing should the manager feel it appropriate. As at July 2018, the fund's net gearing was 5%. Dividends Dividend History Dividend Special Dividend Total The aim of the fund is not just capital growth but also dividend growth at least in line with inflation. The board has paid dividends quarterly since 1992 to meet this target. Since the financial crisis in 2008, this has been a more challenging target, and at times it has dipped into the revenue reserve to ensure the payments are maintained at an appropriate level. For fiscal-year 2018, the fund paid dividends per share of 53p (2017:46p) on revenues per share of 61.2p (2017:53.2p). There are sufficient reserves (54.3p) to cover the dividend at its current level for a year, giving shareholders some reassurance of that commitment being maintained. The fund's current yield is 2.68% (July 2018).

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