Portfolio Update

MERRILL LYNCH BRITISH SMALLER COMPANIES TRUST plc

All information is at 30 September 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                                          -2.0%    -6.5%    20.4%   103.2%   198.0%
                                                                                                  
Share price                                              -1.2%    -6.4%    17.9%   103.2%   233.0%
                                                                                                  
Hoare Govett Smaller Companies plus AIM (ex IC's) Index* -2.1%    -7.0%     4.4%    41.5%   100.3%
                                                                                                  

Sources:  BlackRock and Datastream.

*with effect from 1 September 2007 the Hoare Govett Smaller Companies plus AIM
(ex Investment companies) Index replaced the FTSE SmallCap Index (ex Investment
Companies) as the Company's benchmark.  The above index has been blended to
reflect this.

At month end                                                   
                                                               
Net asset value (debt at par value):              447.60p      
                                                               
Net asset value (debt at fair value):             442.20p      
                                                               
Share price:                                      378.00p      
                                                               
Discount to NAV (debt at par value):                15.5%      
                                                               
Discount to NAV (debt at fair value):               14.5%      
                                                               
Net yield:                                           1.3%      
                                                               
Total assets:                                     £241.2m      
                                                               
Gearing:                                             8.9%      
                                                               
Ordinary shares in issue:                         49,474,708   
                                                               

 

Ten Largest Sector                                                                      
Weightings                                                             % of Total Assets
                                                                                        
Support Services                                                                    16.2
                                                                                        
Software & Computer Services                                                        11.7
                                                                                        
Industrial Engineering                                                               9.2
                                                                                        
Real Estate                                                                          8.3
                                                                                        
Industrial Metals & Mining                                                           8.2
                                                                                        
General Financial                                                                    8.1
                                                                                        
Oil & Gas Producers                                                                  6.0
                                                                                        
Electronic & Electrical Equipment                                                    4.8
                                                                                        
Media                                                                                3.8
                                                                                        
Non-Life Insurance                                                                   3.6
                                                                                    ----
                                                                                        
Total                                                                               79.9
                                                                                    ----
                                                                                        

                                                                                      
Ten Largest Equity Investments (in alphabetical order)                                  
                                                                                        
Company                                                                                 
                                                                                        
Brewin Dolphin                                                                          
                                                                                        
BSS Group                                                                               
                                                                                        
Dechra Pharmaceuticals                                                                  
                                                                                        
Hill & Smith                                                                            
                                                                                        
ITE Group                                                                               
                                                                                        
Rathbone Brothers                                                                       
                                                                                        
Spirax-Sarco Engineering                                                                
                                                                                        
Ultra Electronics                                                                       
                                                                                        
Victrex                                                                                 
                                                                                        
WSP Group                                                                               
                                                                                        
   
Commenting on the markets, Mike Prentis, representing the Investment Manager
noted:

September was a difficult month for UK smallcaps. The Company's NAV fell by
2.0% on a capital only basis; the new benchmark, the Hoare Govett Smaller
Companies plus AIM (excluding investment companies) Index fell by 2.1%.

The main positive contributors to relative performance in September were our
holdings in Gooch & Housego and Consolidated Minerals. Gooch & Housego shares
performed well in September in the run up to an early October trading statement
which was expected to be good; house broker Oriel has subsequently upgraded its
current year earnings forecast by 5%. Consolidated Minerals, a producer of
manganese, nickel and chromite, which has seen a sharp pick up in the manganese
price, has received bids from three suitors which have since been increased on
several occasions.

On the negative side, the worst performing holdings were Absolute Capital and
Care UK. One of the founders of Absolute Capital resigned suddenly in August,
the other last month, and rather acrimoniously. This led to a sharp share price
fall - we sold out aggressively. Care UK suffered from delays to the second
wave of surgical contracts as Governments started to re-examine their approach;
hopefully this is just a timing issue. We still regard the Care UK management
highly; the shares have recovered strongly in early October.

Disposals, other than Absolute Capital, included the Company's holdings in PV
Crystallox, where solar subsidies may be reduced in due course, Aricom, which
owns iron deposits in Russia which could be political targets, and
International Ferrometals, which experienced some production difficulties. We
further reduced our real estate holdings, disposing of the Company's entire
Savills holding and trimming various other positions.

The only new holding was a 0.5% of total assets purchase of Dana Petroleum,
following an upbeat meeting with the CEO. Dana has strongly growing, unhedged
North Sea oil production, and an exciting exploration drilling program. We
added to some of our established, core holdings such as Ultra Electronics,
Rotork, Mouchel Parkman, BSS Group, Axon and Rathbone Brothers.

UK smallcap equities have remained weak. However, newsflow generally remains
good.  This was highlighted most recently by the excellent trading update from
Aveva, which had briefly slipped out of our top ten holdings at the end of
September, where in early October earnings were upgraded by 13%.

 

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).

24 October 2007