Portfolio Update

MERRILL LYNCH BRITISH SMALLER COMPANIES TRUST plc

All information is at 31 December 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                                          -0.6%    -7.2%    -4.0%    64.0%   176.7%
                                                                                                  
Share price                                              -4.1%  -16.5%    -15.1%    51.3%   183.0%
                                                                                                  
Hoare Govett Smaller Companies plus AIM (ex IC's) Index* -1.3%    -6.1%   -11.8%    23.2%    86.0%
                                                                                                  

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):              415.23p      
                                                               
Net asset value (debt at fair value):             409.85p      
                                                               
Share price:                                      315.50p      
                                                               
Discount to NAV (debt at par value):                24.0%      
                                                               
Discount to NAV (debt at fair value):               23.0%      
                                                               
Net yield:                                           1.5%      
                                                               
Total assets:                                     £221.6m      
                                                               
Gearing:                                             9.7%      
                                                               
Ordinary shares in issue:                      48,634,708   
                                                               

 

Ten Largest Sector                                                                      
Weightings                                                             % of Total Assets
                                                                                        
Support Services                                                                    16.2
                                                                                        
Software & Computer Services                                                        11.4
                                                                                        
Oil & Gas Producers                                                                 10.1
                                                                                        
Industrial Engineering                                                               8.6
                                                                                        
General Financial                                                                    8.3
                                                                                        
Industrial Metals & Mining                                                           7.9
                                                                                        
Real Estate                                                                          5.7
                                                                                        
Electronic & Electrical Equipment                                                    4.8
                                                                                        
Non-Life Insurance                                                                   4.7
                                                                                        
Aerospace & Defence                                                                  3.9
                                                                                    ----
                                                                                        
Total                                                                               81.6
                                                                                    ----
                                                                                        

 

                                                                                        
Ten Largest Equity Investments (in alphabetical order)                                  
                                                                                        
Company                                                                                 
                                                                                        
Aveva                                                                                   
                                                                                        
Brewin Dolphin                                                                          
                                                                                        
Dechra Pharmaceuticals                                                                  
                                                                                        
Hill & Smith                                                                            
                                                                                        
ITE Group                                                                               
                                                                                        
Kiln                                                                                    
                                                                                        
Mouchel Parkman                                                                         
                                                                                        
Rathbone Brothers                                                                       
                                                                                        
Ultra Electronics                                                                       
                                                                                        
Victrex                                                                                 
 
 

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

During December the Company's NAV fell by 0.6%. The benchmark index fell by
1.3%.

The main stock contributors to relative outperformance in December were our
holdings in Kiln, Encore Oil, Ultra Electronics and Dechra Pharmaceuticals.
Kiln received a bid approach from Tokio Marine, a company well known to it.
Encore Oil's share price was strong as the market tried to assess the value of
its gas storage interests. Encore's 50% gas storage partner is Star Energy,
which was subject to a bid from Petronas. It seems likely that Petronas would
want 100% of the gas storage interests it is looking to buy. Ultra Electronics'
trading statement showed that it continues to trade very well. It has excellent
revenue visibility covering many military and civil contracts. Cash generation
continues to be strong. It remains a highly plausible bid target.  Dechra
announced a sensible strategic acquisition which has been taken well by the
market.

In relative terms, the poorest stock contributors in December were holdings in
WSP Group and BSS Group. WSP, a leading engineering consultancy, continues to
trade well, but the market appears to be worrying that its property division
will struggle to make further progress. We see WSP as being fairly well
diversified within property and regard the shares as good value. BSS had strong
interims in late November. The market is worrying about most construction
related companies, even though BSS has only modest exposure to private new
build housing, and continues to see a high level of commercial construction
related activity. 

Disposals included holdings in Bodycote, Euromoney and Hunting. Bodycote's
shares are not expensive, but it is still a fairly cyclical company and with
worries about the US economy we decided to sell. Euromoney publishes business
information, but a significant part goes to the financial services sectors in
which we expect spending cutbacks. Hunting shares have held up reasonably well,
but our level of conviction in the stock is not high, and given the uncertain
markets we decided to realise the position.    

There were no new holdings during the month.

Our strategy has been to focus more money on our core holdings, and in
particular on stocks, themes and sectors which are defensive but still showing
good growth characteristics. In several cases we have allowed the size of a
core holding to move to more than 2.0% of the portfolio, but we do not expect
any to exceed 2.5%.


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).

10 January 2008