Portfolio Update

MERRILL LYNCH BRITISH SMALLER COMPANIES TRUST plc

All information is at 31 August 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                           -4.3%        6.2%       27.2%      111.8%      160.4%   
                                                                                                  
Share price                               -3.7%       -7.9%       26.2%      117.9%      174.2%   
                                                                                                  
FTSE SmallCap Index (ex IC's)             -3.2%       -9.6%        9.8%       48.9%       80.4%   
                                                                                                  

Sources:  BlackRock and Datastream.

At month end                                                   
                                                               
Net asset value (debt at par value):              456.92p      
                                                               
Net asset value (debt at fair value):             451.23p      
                                                               
Share price:                                      382.50p      
                                                               
Discount to NAV (debt at par value):                16.3%      
                                                               
Discount to NAV (debt at fair value):               15.2%      
                                                               
Net yield:                                           1.2%      
                                                               
Total assets:                                     £248.2m      
                                                               
Gearing:                                             9.8%      
                                                               
Ordinary shares in issue:                         49,474,708   
                                                               

 

Ten Largest Sector                                                                      
Weightings                                                             % of Total Assets
                                                                                        
Support Services                                                                    16.4
                                                                                        
Software & Computer Services                                                        10.8
                                                                                        
Real Estate                                                                         10.4
                                                                                        
General Financial                                                                    8.8
                                                                                        
Industrial Engineering                                                               8.1
                                                                                        
Industrial Metals & Mining                                                           7.3
                                                                                        
Oil & Gas Producers                                                                  5.4
                                                                                        
Electronic & Electrical Equipment                                                    5.1
                                                                                        
Construction & Materials                                                             4.0
                                                                                        
Media                                                                                3.6
                                                                                    ----
                                                                                        
Total                                                                               78.1
                                                                                    ----
                                                                                        

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

August was a poor month in both absolute and relative terms. The Company's NAV
fell by 4.3% on a capital only basis; the FTSE SmallCap Index excluding
investment companies fell by 3.2%.

The main positive contributors to relative performance in August were our
holdings in Keller and Mouchel Parkman. Keller produced excellent interim
results reflecting strong demand from the construction sector for their ground
engineering skills. It also indicated that its full-year results will
significantly exceed last year's very strong results. This led house broker DKB
to upgrade current year earnings by 23% and next year's by 36%. The shares
moved up 12% during the month, implying a fairly significant de-rating. Mouchel
Parkman shares had been weak performers for several months, but a pre-close
trading update confirmed trading is in line with market expectations; the
shares recovered some of their previous losses ending up 10% on the month.

On the negative side, our worst performing holdings were Civica and Absolute
Capital Management. Civica announced that talks with a possible private equity
bidder had been terminated, although it also confirmed that trading is in line
with current expectations. The shares fell 23% during the month and now trade
on about 10 times current year earnings. Absolute Capital Management, which in
July produced very strong interim results leading to an earnings upgrade of
31%, announced the resignation of its Executive Chairman, who had been the main
contact with institutions. The shares lost all of the gains of the previous
month. The company has since announced good August results for most of its
funds, quite an accomplishment given the market volatility. We hope to meet the
new management soon.

Disposals included our holdings in Melrose Resources, where there was a
downgrade to oil and gas reserves and we were concerned by the fairly high
level of debt; Songbird Estates, which is also heavily indebted and may fare
less well if property yields expand a little; and Hansard Global, where we were
a little disappointed by new business figures.

There were no new portfolio holdings of significance, but we added to holdings
in Galliford Try, Keller and Kier Group, all on weakness and in anticipation of
good results, which all three companies have since delivered.

Markets have remained highly volatile. Our approach has not changed. We have,
for instance, met with the management of four of our largest ten holdings in
the first week of September. All delivered good results, were positive about
their markets and upbeat about their own prospects. Not all recent smallcap
newsflow has been good, but we have not held the companies subject to the worst
downgrades. Market sentiment towards smaller companies may be weak in the short
term, but we believe the market will not ignore good long term growth stories
for too long. Overall, we feel the Company should remain fully invested and
geared in anticipation of better times during the next six months.  


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).


17 September 2007