Portfolio Update

MERRILL LYNCH BRITISH SMALLER COMPANIES TRUST plc

All information is at 31 July 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                           -0.3%        0.2%       35.3%      117.5%      175.1%   
                                                                                                  
Share price                               -1.7%       -2.1%       32.6%      119.6%      187.7%   
                                                                                                  
FTSE SmallCap Index (ex IC's)             -1.8%       -5.0%       16.0%       52.3%       84.0%   
                                                                                                  

Sources:  BlackRock and Datastream.

At month end                                                                           
                                                                                       
Net asset value (debt at par value):                              477.37p              
                                                                                       
Net asset value (debt at fair value):                             471.73p              
                                                                                       
Share price:                                                      397.00p              
                                                                                       
Discount to NAV (debt at par value):                                16.8%              
                                                                                       
Discount to NAV (debt at fair value):                               15.8%              
                                                                                       
Net yield:                                                           1.2%              
                                                                                       
Total assets:                                                     £259.8m              
                                                                                       
Gearing:                                                            10.0%              
                                                                                       
Ordinary shares in issue:                                         49,474,708           
                                                                                       
During the period the Company bought back 518,815 shares to be held in                
treasury.                                                                              
                                                                                       

Ten Largest Sector                                                                      
Weightings                                                             % of Total Assets
                                                                                        
Support Services                                                                    15.6
                                                                                        
Software & Computer Services                                                        10.9
                                                                                        
Real Estate                                                                         10.4
                                                                                        
General Financial                                                                    8.7
                                                                                        
Industrial Metals & Mining                                                           7.3
                                                                                        
Industrial Engineering                                                               7.3
                                                                                        
Oil & Gas Producers                                                                  5.3
                                                                                        
Electronic & Electrical Equipment                                                    5.3
                                                                                        
Media                                                                                3.8
                                                                                        
Non-life Insurance                                                                   3.5
                                                                                    ----
                                                                                        
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                                                                            
                                                                                        
Victrex                                                                                 
                                                                                        
WSP Group                                                                               
                                                                                        

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

During the month, the Company's NAV fell by 0.3% and the benchmark index fell
by 1.8%.

The main positive contributors to relative performance in July were our
holdings in Absolute Capital Management, BSS Group and Rotork. Absolute
Capital, which manages a variety of absolute return funds, produced very strong
interim results which led to its house broker increasing its current year
earnings forecast by 31%. BSS announced a positive statement at their AGM
re-iterating their confidence that they will see further growth throughout the
current year. Rotork produced excellent first half results at the top end of
expectations. It continues to benefit from strong demand for its actuators from
the Far East as capital spending remains strong in the oil and gas, power
generation and water industries. Profit before tax increased by 19%, but would
have increased by 29% on a constant currency basis, highlighting the impact a
weak dollar is having on it and other dollar earners.

On the negative side, performance was again hindered by being overweight in
real estate stocks; this cost us 61 basis points in relative performance in
July. Holdings in Grainger and Wichford performed poorly. Both of these
companies trade at large discounts to net tangible assets and we believe they
have been oversold; Grainger management clearly share this view and have been
buying back shares.

New holdings during the month included Ricardo and Jarvis, both bought after
company visits. Ricardo is winning more business with Far Eastern car
manufacturers and is clearly upbeat about prospects. Jarvis is a rare recovery
stock addition to the portfolio. Now more focused on plant hire for the rail
sector, and track renewal, we were impressed by the team which has implemented
the turnaround over the last two years, and by their confidence about short and
medium term activity levels and prospects.

The Company also purchased 518,815 of its own shares during the month. These
are being held in Treasury.

Disposals included holdings in AG Barr, a well managed company but one which is
quite exposed to the weather and relatively fully valued; Marylebone Warwick
Balfour, a fairly recent purchase which has strongly outperformed the real
estate sector; and Abcam which indicated it has received a bid approach - whilst
an offer may emerge, given the difficulty of putting together partly debt
financed deals at present, and Abcam's already relatively high valuation, any
further bid premium is unlikely to be large.

Markets have been highly volatile in recent weeks, largely on the back of
worries about the sub-prime market in the US and the possible spillover effects
on the US and global economy. Our benchmark index peaked in early June and has
since fallen by about 7% in early August. Despite this, the Company's holdings
are trading well, in some cases leading to further substantial upgrades, as
highlighted with Absolute Capital above. Our approach has been to use the
opportunity to pick up small amounts of good quality stocks we know well, and
preferably have met with recently, where they have been sold down
indiscriminately. We are, in the main, sticking to the themes we like in the
portfolio favouring, particularly, companies with good revenue visibility. We
remain cautious about consumer related stocks and those with significant US$
revenue exposure, unless organic sales growth is exceptionally strong, as is
the case with Rotork, for example.      


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).

15 August 2007