Portfolio Update

MERRILL LYNCH BRITISH SMALLER COMPANIES TRUST plc

All information is at 30 June 2007 and unaudited.

Performance at month end is calculated on a capital only basis

                                             One      Three         One       Three        Five   
                                          Month     Months         Year       Years       Years   
                                                                                                  
Net asset value                           -1.7%        3.3%       34.1%      108.3%      141.4%   
                                                                                                  
Share price                               -2.8%        2.1%       34.3%      122.0%      156.5%   
                                                                                                  
FTSE SmallCap Index (ex IC's)             -4.9%       -1.4%       17.5%       48.7%       67.6%   
                                                                                                  

Sources:  BlackRock and Datastream.

At month end                                     
                                                 
Net asset value:                   478.86p       
                                                 
Share price:                       404.00p       
                                                 
Discount to NAV:                     15.6%       
                                                 
Net yield:                            1.2%       
                                                 
Total assets:                      £264.4m       
                                                 
Gearing:                             10.4%       
                                                 
Ordinary shares in issue:          49,993,523    
                                                 

 

Ten Largest Sector                                                                      
Weightings                                                             % of Total Assets
                                                                                        
Support Services                                                                    14.5
                                                                                        
Real Estate                                                                         11.7
                                                                                        
Software & Computer Services                                                        11.0
                                                                                        
General Financial                                                                    8.5
                                                                                        
Mining & Industrial Metals                                                           7.1
                                                                                        
Industrial Engineering                                                               6.8
                                                                                        
Oil & Gas Producers                                                                  5.3
                                                                                        
Electronic & Electrical Equipment                                                    5.3
                                                                                        
Media                                                                                4.0
                                                                                        
Health Care Equipment & Services                                                     3.3
                                                                                    ----
                                                                                        
Total                                                                               77.5
                                                                                    ----
                                                                                        

 

                                                                                        
Ten Largest Equity Investments (in alphabetical order)                                  
                                                                                        
Company                                                                                 
                                                                                        
Aveva Group                                                                             
                                                                                        
Brewin Dolphin                                                                          
                                                                                        
BSS Group                                                                               
                                                                                        
Dechra Pharmaceuticals                                                                  
                                                                                        
Domino Printing                                                                         
                                                                                        
ITE Group                                                                               
                                                                                        
Rathbone Brothers                                                                       
                                                                                        
Spirax-Sarco                                                                            
                                                                                        
Victrex                                                                                 
                                                                                        
WSP Group                                                                               
                                                                                        
                                                                                        
                                                                                        

 

Commenting on the markets, Mike Prentis, representing the Investment Manager
noted:

 

The Company's NAV fell by 1.7% in June, although this was rather better than
the benchmark which fell by 4.9%.

 

The main positive contributors to relative performance in June were our
holdings in Civica, International Ferro Metals, Avocet Mining and Alternative
Networks. Civica announced it had received an approach from private equity, and
the shares, which are lowly rated, bounced. We regard fair value as being some
way above the current price. International Ferro Metals provided a positive
trading update and has subsequently placed new shares to help fund the more
than doubling of the capacity of the existing plant. Avocet sold their loss making gold
mine in Tajikistan and now has attractively profitable production, a cash rich
balance sheet and some interesting exploration upside. Alternative Networks
announced strong interim results.

 

The Company's relative performance was also helped by not having holdings in
Eurotunnel and Carter & Carter, both significant benchmark constituents during
the month. Eurotunnel shares surged in May, but have subsequently fallen back
so that over May and June combined they have had negligible impact on relative
performance. We did hold Carter & Carter shares, but sold them in May; they had
a profit warning in June.

 

On the negative side, the Company's performance was hindered by having an
overweight position in real estate stocks; this cost us 55 basis points in
relative performance in June. Holdings in CLS and Shaftesbury performed poorly.
We like these companies, but have reduced sector weightings slightly to
recognise the negative sentiment towards the sector as interest rates continue
to rise.

 

New holdings during the month included two IPOs, PV Crystalox and EAG. PV
Crystalox is a long established, highly profitable business that makes wafers
used in solar panels. This company gives us some modest additional exposure to
profitable new energy. EAG is a leading materials science company, providing
microanalytical materials testing services with expertise in areas such as
surface analysis, trace elemental analysis and failure analysis.

 

Disposals included holdings in Gyrus, a good company but heavily exposed to the
US dollar, and Caretech, where we took profits after a good run.    

 

 

Latest information is available by typing www.blackrock.co.uk/its on the
internet, "BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800" on Topic 3 (ICV
terminal).

 

12 July 2007