China HeartLand Fund Issues Statement

"Having regard to the fact that dealing in shares in the Fund (the "Shares") 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 the PRC which, while proceeding positively continues to take time and the final outcome remains uncertain.

Background

The Fund was originally established in 1997 as a closed-ended fund with a principal investment objective of providing long term capital appreciation through direct or indirect investment in companies operating or located in the PRC. 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 (the "Agreement") entered into by the Fund, the China Heartland Fund (Mauritius) Ltd, China Securities Corporation ("CSC") and Martin Currie Investment Management Ltd. ("Martin Currie"). Pursuant to the Agreement, service charges are payable under the Agreement 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 the PRC 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 the PRC), to convert Renminbi to U.S. dollars to meet the outstanding service charge payments owed by CSC to the Fund under the terms of the Agreement (the "Outstanding Service Charge"). Having regard to 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.

The accrued Outstanding Service Charge amounts to approximately U.S. $2.98 million as at 21 January 2002.

Determination of Options Available to the Fund following Suspension

Following the suspension of dealing in the Shares, the Directors have actively sought to obtain an approval from SAFE for payment of the accrued Outstanding Service Charge but to date despite continuing pressure, the Fund has not been able to obtain such approval.

Accordingly, the Directors and Martin Currie have been actively reviewing options available to the Fund including all legal means of redress and have been in continuing dialogue with CSC and the regulators in the PRC, SAFE and the China Securities Regulatory Commission ("CSRC") in order to establish suitable proposals to present to Shareholders which meet the current policy requirements of the regulatory framework in the PRC and which would enable the Fund to continue to pursue its investment objectives and policies in relation to exposure to the A share market in the PRC (the "Reconstruction Proposal") or in the alternative, a liquidation proposal (the "Liquidation Proposal").

The Reconstruction Proposal

The proposed Reconstruction Proposal would involve:

(a) a realisation of the liquid assets of the Company (excluding the Fund's deposit held in a "B" share account with Citibank NA in New York in the name of CSC under the terms of the Agreement which is currently approximately U.S. $8.35 million (the "Fund Deposit")) and return of substantially all of the proceeds of realisation to Shareholders in cash;

(b) a reconstruction of the Agreement into a swap arrangement to enable continued exposure to the A share market in the PRC with a cash realisation of value under the swap only at such time as foreign investors are permitted to hold A shares. The amount which would be subject to the swap arrangement would be the Fund Deposit (which will be transferred to a new bank account in the Fund's name), the accrued Outstanding Service Charge and such other amount raised under a placing (see below);

(c) converting the Fund to a closed-ended company, and a placing of new and existing Shares in the Fund to both existing Shareholders and new investors who wish to maintain an exposure to the A shares under the new structure (the "Placing"); and

(d) a facility for those Shareholders who do not wish to continue to participate in the Fund under the new structure to sell their remaining Shares in the Fund under the Placing for cash to the extent that there is sufficient demand.

The success of the Reconstruction Proposal depends on:

I. the ability of the Fund to negotiate satisfactory arrangements for the swap with CSC (which has been agreed in principle) and regulatory approvals (see below);

II. Shareholders' approval; and

III. the Placing raising a sufficient amount to carry on the Fund as a commercially viable entity.

In order to ensure that the swap arrangements under the Reconstruction Proposal meet the current policy requirements of the regulatory framework in the PRC, the Directors, Martin Currie and CSC have been actively seeking support for the swap arrangements from CSRC and SAFE. The Directors have been advised that CSRC has indicated a favourable response in writing to the swap proposals and that whilst SAFE has yet to respond formally, preliminary indications are encouraging. However a reorganisation of SAFE is currently in progress, and no assurance can be given that SAFE will provide a favourable response in respect of the swap arrangements or will do so in the near future.

The Liquidation Proposal

The Liquidation Proposal involves realising all liquid assets (including the Fund Deposit) of the Company and returning the proceeds in cash to Shareholders less an amount determined by the Directors on the advice of the Fund's auditors as sufficient to maintain the Fund in existence until such time as the Fund can secure payment of the accrued Outstanding Service Charge, and the Fund is finally liquidated.

Current Value of the Fund

As at 21 January 2002, the amount of the accrued Outstanding Service Charge is U.S. $2.98 million and the Net Asset Value of the Fund (excluding the accrued Outstanding Service Charge but including the Fund Deposit) is U.S. $33.65 million.

Shareholder Views

In the light of the existing position of the Fund, the Directors have requested Martin Currie to seek the views of Shareholders as to whether they wish the Directors to continue to pursue the Reconstruction Proposal and within what timescale or the Liquidation Proposal.

Contacts: Julian Livingston on +44 131 479 4643 or email julianl@martincurrie.com

[Chris Ruffle on chris.ruffle@uk.uumail.com]"