Portfolio Update

Merrill Lynch Br. SmallerCo Tst PLC
13 October 2006

MERRILL LYNCH BRITISH SMALLER COMPANIES TRUST plc

All information is at 30 September 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                            3.5%           4.1%            19.9%           85.2%          103.8%
Share price                                5.8%           6.6%            21.3%           98.5%          124.1%
FTSE SmallCap Index (ex IC's)              3.0%           4.7%            12.4%           45.0%           61.0%

Sources:  BlackRock Merrill Lynch Investment Managers and Datastream.
At month end
Net asset value:                                 371.69p
Share price:                                     320.50p
Discount to NAV:                                   13.8%
Net yield:                                          1.4%
Total assets:                                    £202.7m
Gearing:                                            7.9%
Ordinary shares in issue:                        50,563,523


Ten Largest Sector
Weightings                                                  % of Total Assets
Support Services                                                         17.6
Software & Computer Services                                              9.1
Real Estate                                                               8.6
Industrial Engineering                                                    8.0
Electronic & Electrical Equipment                                         6.4
Oil & Gas Producers                                                       6.1
Media                                                                     5.7
General Financial                                                         5.7
Mining                                                                    4.4
Construction & Materials                                                  3.7
                                                                         ----
Total                                                                    75.3
                                                                         ----




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




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



September was a better month for the Company. The NAV rose by 3.5% on a capital
only basis to 371.69 pence. By comparison the benchmark index rose by 3.0%.



The main positive contributors to the improved performance in September were our
holdings in Aveva, SHL, Hardman Resources, Plant Health Care, Kier Group, Redrow
and Xaar. Aveva announced a very positive trading update commenting on buoyant
markets (power generation, oil and gas, and ship building are all important) for
their software and a number of contracts coming through faster than expected.
Kier also announced strong results leading to 10% upgrades. Plant Health Care is
earlier stage but commented that business was strong and that global trials for
their Myconate product, which improves agricultural yields markedly, had gone
well, as had trials of Pre-Tect which extends the shelf life of perishable
products. Discussions are being held with potential partners. SHL and Hardman
Resources both attracted cash bids albeit at premia that are not compelling
compared to peak share prices over the last six months. Redrow shares performed
well on confident final results, and rumours of a bid. Xaar shares began to
recover following a positive presentation by management on release of their
interim results.



The largest negative impact on relative performance in September came from
Avocet Mining which released a profit warning mainly due to higher production
costs. We had met the company's management in August, so the warning was
unexpected and the share price fall substantial. Our view is that following this
fall the shares are even better value long term, although in the short term
management credibility has suffered. We view the stock as a firm hold and would
be a modest, opportunistic buyer.



Major new holdings in the month included Dignity, Care UK, Bond International
Software and Invista Real Estate. Dignity is the UK's leading funeral directors,
a success since IPO but still with a modest market share. Care UK provides care
to the elderly and disabled. Both of these companies are UK focused and have
good predictability of revenues. Bond which provides software to recruitment
companies globally, is showing strong growth having launched updates, and has a
good level of recurring revenue. Invista floated during the month and is the
real estate management arm of HBOS.



We sold our holding in Playtech following increased concerns about the US
authorities intentions to curb online gaming - this proved to be reasonable
timing as the US Senate later passed legislation designed to prevent online
payments for gaming. We took profits in holdings in Derwent Valley, Quintain and
Big Yellow, all high quality real estate companies following good share price
performances.





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).



13 October 2006


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