Shareholders in the China Heartland Fund (the Fund), which is traded on the Bermuda Stock Exchange, will be asked to make a decision whether to reconstruct or liquidate the Fund following the suspension of trading of shares in the Fund in May last year.

A statement released by the Fund directors this week said: "Having regard to the fact that dealing in shares in the Fund remains suspended, the directors of the Fund believe it is an appropriate time to update shareholders on the directors' proposals for the reconstruction of the Fund.

"Such a reconstruction is subject to the approval of the regulators in China which, while proceeding positively continues to take time and the final outcome remains uncertain."

The Fund was established in 1997 as a closed-ended fund with a principal investment objective of providing long-term investment gains through direct or indirect investment in companies operating or located in China.

In particular, the Fund was established to give its shareholders indirect exposure to the Chinese "A" share market which is closed to international investors.

The Fund obtained exposure to the "A" share market through the Investment Services and Returns Agreement entered into by the Fund, the China Heartland Fund (Mauritius) Ltd, China Securities Corporation (CSC) and Martin Currie Investment Management Ltd. (Martin Currie).

According to the agreement, service charges are payable by either CSC or the Fund in respect of investment services, and the amount of such charges matched to the performance of a notional portfolio of "A" shares managed by Martin Currie.

In May 2001, it became apparent that due to changes in the interpretation and application of the foreign exchange policy in China that CSC might no longer be in a position to gain approval from the State Administration of Foreign Exchange ("SAFE"), (the exchange control authority in China), to convert Renminbi to US dollars to meet the outstanding service charge payments owed by CSC to the Fund under the terms of the agreement.

The directors said: "Regarding this uncertainty and pending resolution of this issue, the directors resolved that, in the interests of all shareholders in the Fund, it was prudent to advise the Bermuda Stock Exchange on 28 May, 2001, that the Fund had temporarily suspended the calculation of the Net Asset Value of the Fund. Accordingly, issues and redemptions of shares and dealings on the Bermuda Stock Exchange were suspended and no transfers of Shares have been registered since then."