Portfolio Update

Merrill Lynch Br. SmallerCo Tst PLC
15 September 2006


MERRILL LYNCH BRITISH SMALLER COMPANIES TRUST plc

All information is at 31 August 2006 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                            1.8%           0.8%            19.5%           74.8%           55.0%
Share price                                1.2%           2.2%            21.4%           78.2%           59.1%
FTSE SmallCap Index (ex IC's)              2.2%           0.2%             9.5%           37.6%           24.4%

Sources:  Merrill Lynch Investment Managers and Datastream.

At month end
Net asset value:                                 359.16p
Share price:                                     303.00p
Discount to NAV:                                   15.6%
Net yield:                                          1.5%
Total assets:                                    £196.4m
Gearing:                                            8.1%
Ordinary shares in issue:                        50,563,523


Ten Largest Sector
Weightings                                                                                             % of Total Assets
Support Services                                                                                                    15.9
Real Estate                                                                                                          8.8
Software & Computer Services                                                                                         8.2
Industrial Engineering                                                                                               8.0
Oil & Gas Producers                                                                                                  6.5
Electronic & Electrical Equipment                                                                                    6.1
Media                                                                                                                5.9
General Financial                                                                                                    5.2
Mining                                                                                                               4.5
Construction & Materials                                                                                             3.8
                                                                                                                    ----
Total                                                                                                               72.9
                                                                                                                    ----




Ten Largest Equity Investments (in alphabetical order)
Company
Aveva Group
Brewin Dolphin
BSS Group
Dechra Pharmaceuticals
Headlam Group
Mouchel Parkman
Rathbone Brothers
Renishaw
Spirax-Sarco Engineering
WSP Group



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

August was a quiet month. The Company's NAV rose by 1.8% on a capital only basis
to 359.16 pence. The benchmark index rose by 2.2%.

The main positive contributors to performance in August were the Company's
holdings in Gyrus, MTL Instruments and Rotork. Gyrus shares were strong, ahead
of interims out in early September. MTL Instruments shares were strong for
similar reasons. Rotork produced its interims early and results were excellent
with earnings per share up 39%, driven by strong demand for its electric valve
actuators especially from the oil and gas sector. Some analysts upgraded current
year forecasts by over 10%.

The largest negative impact on relative performance in August came from London
Clubs, a stock we do not own, which was bid for by Harrah's Entertainment. Poor
performers amongst holdings during the month were Avocet Mining, Hambledon
Mining, Xaar and Brewin Dolphin. Avocet shares remain more than 30% below May
highs. The company is producing in excess of 200,000 ounces of gold per annum,
and comes out as one of the cheapest gold producers on an enterprise value to
annual production basis. Whilst the costs of production from its largest mine
are high, we took encouragement from a meeting with the company's CEO during the
month and believe production costs per ounce are starting to fall. Overall, we
believe Avocet shares offer very good value. Hambledon is due to commence
producing gold in the first half of 2007, and is fully funded to do so with a
large resource.  Xaar share prices have continued to be weak; we will be meeting
management again shortly. Brewin Dolphin shares were also weak on lack of
newsflow and a perception that trading will be poorer because stockmarkets have
been flat and markets thin in recent months. We believe Brewin Dolphin continues
to trade well and expect a short trading statement later this month to confirm
this. Meanwhile their shares are about 20% below their March high, good value,
and well placed for a recovery especially if markets strengthen later this year
as we expect.

The only new holding in the month was Abbot Group, a former holding. Abbot is an
oilfield services company focused on drilling. Its owned drilling rigs are
gradually coming off medium term contracts agreed at low historic prices and
being rehired at much higher prices. These are achievable given the current lack
of rig availability in the oil and gas market and the high level of exploration
and development drilling taking place. 0.5% of portfolio assets were invested in
Abbot. We also added to our holding in O Twelve Estates, taking it to 1.0% of
portfolio assets. The company was formed to buy real estate which should benefit
from the siting of the Olympics in East London in 2012. We have a high regard
for the team who are acquiring and managing these assets, and visited some of
the recent purchases earlier this week.

Disposals included our holdings in Management Consulting, T Clarke and Blacks
Leisure. Management Consulting announced the purchase of a large consulting
business in France. Many companies talk to us of the problems of operating in
France and it encouraged us to sell what otherwise is an inexpensive stock.
Whilst we rate the current management teams at both T Clarke and Blacks Leisure
highly, each delivered trading news during the month which was below our
expectations.



Latest information is available by typing www.mlim.co.uk/its on the internet,
'MLIMINDEX' on Reuters, 'MLIM' on Bloomberg or '8800' on Topic 3 (ICV terminal).



15 September 2006


                      This information is provided by RNS
            The company news service from the London Stock Exchange