PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES

EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|

The Italy Fund Inc.
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(Name of Registrant as Specified in Its Charter)

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|X| No fee required.

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(3) ___ Per unit price or other underlying value of transaction computed
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|_| ___ Fee paid previously with preliminary materials.

|_| ___ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by the registration
statement number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:
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THE ITALY FUND INC.
125 Broad Street
New York, New York 10004

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 14, 2001
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To the Shareholders of The Italy Fund Inc.:

Notice is hereby given that the Annual Meeting of Shareholders of THE
ITALY FUND INC. (the "Fund") will be held at the offices of Willkie Farr &
Gallagher on the 38th floor, Conference Room C at 787 Seventh Avenue, New York,
New York, on November 14, 2001 at 1:30 p.m. (New York time) for the following
purposes:

1. To elect one director, to hold office for the term indicated and
until his successor shall have been elected and qualified;

2. To consider a non-binding shareholder recommendation that the Board
of Directors take steps to convert the Fund to an open-end
structure;

3. To transact such other business as may properly come before the
meeting or any adjournments thereof.

Proposals 1 and 2 are discussed in greater detail in the attached Proxy
Statement. The Board of Directors has fixed the close of business on September
17, 2001 as the record date for the determination of shareholders entitled to
notice of, and to vote at, the meeting and any adjournments thereof.

By Order of the Board of Directors

Christina T. Sydor
Secretary

New York, New York
October 12, 2001

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IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING IN PERSON OR BY
PROXY; IF YOU DO NOT EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY/VOTING INSTRUCTION CARD IN THE ACCOMPANYING
ENVELOPE PROVIDED FOR YOUR CONVENIENCE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.
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INSTRUCTIONS FOR SIGNING PROXY CARDS

The following general rules for signing proxy cards may be of assistance
to you and avoid the time and expense to the Fund involved in validating your
vote if you fail to sign your proxy card properly.

1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.

2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the registration.

3. All Other Accounts: The capacity of the individual signing the proxy
should be indicated unless it is reflected in the form of
registration. For example:

Registration Valid Signature
------------ ---------------
Corporate Accounts

(1) ABC Corp. ............................ ABC Corp.
(2) ABC Corp. ............................ John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer ............ John Doe
(4) ABC Corp. Profit Sharing Plan ........ John Doe, Trustee

Trust Accounts

(1) ABC Trust ............................ Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78 ..................... Jane B. Doe

Custodian or Estate Accounts
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA ...... John B. Smith
(2) Estate of John B. Smith .............. John B. Smith, Jr., Executor

THE ITALY FUND INC.
125 Broad Street
New York, New York 10004

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PROXY STATEMENT

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FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 14, 2001

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INTRODUCTION

This proxy statement is furnished in connection with the solicitation by
the Board of Directors (the "Board") of The Italy Fund Inc. (the "Fund") of
proxies to be voted at the Annual Meeting of Shareholders (the "Meeting") of the
Fund to be held at the offices of Willkie Farr & Gallagher on the 38th floor,
Conference Room C at 787 Seventh Avenue, New York, New York, on November 14,
2001 at 1:30 p.m. (New York time), and at any adjournments thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.

The cost of soliciting proxies will be borne by the Fund. Proxy
solicitations will be made primarily by mail. In addition, certain officers,
directors and employees of the Fund; Smith Barney Fund Management LLC ("SBFM" or
the "Manager"), the Fund's investment manager; Salomon Smith Barney Inc.
("Salomon Smith Barney"), an affiliate of SBFM; and/or PFPC Global Fund
Services, the Fund's transfer agent, may solicit proxies in person, or by
telephone or telegraph. Such representatives and employees will not receive
additional compensation for solicitation activities. If the Fund records votes
by telephone, it will use procedures designed to authenticate shareholders'
identities, to allow shareholders to authorize the voting of their shares in
accordance with their instructions, and to confirm that their instructions have
been properly recorded. Proxies voted by telephone may be revoked at any time
before they are voted in the same manner that proxies voted by mail may be
revoked. The Fund will also reimburse brokerage firms and others for their
expenses in forwarding solicitation materials to the beneficial owners of
shares. Salomon Smith Barney and SBFM are located at 125 Broad Street, New York,
New York 10004; PFPC Global Fund Services is located at P.O. Box 9699,
Providence, RI 02940-9699.

The Annual Report of the Fund, including audited financial statements for
the fiscal year ended January 31, 2001, has previously been furnished to all
shareholders of the Fund. This proxy statement and form of proxy are first being
mailed to shareholders on or about October 12, 2001. The Fund will provide,
without charge, additional copies of the annual report to any shareholder upon
request by calling the

Fund at 1-800-331-1710. For more information about the proxy material, please
call 1-800-223-2064 between 9:00 a.m. and 5:00 p.m.

All properly executed proxies received prior to the Meeting will be voted
at the Meeting in accordance with the instructions marked thereon or otherwise
as provided therein. Unless instructions to the contrary are marked, shares
represented by the proxies will be voted "FOR" Proposal 1 and "ABSTAIN" for
Proposal 2. For purposes of determining the presence of a quorum for transacting
business at the Meeting, abstentions and broker "non-votes" (i.e. proxies from
brokers or nominees indicating that such persons have not received instructions
from the beneficial owner or other persons entitled to vote shares on a
particular matter with respect to which the brokers or nominees do not have
discretionary power) will be treated as shares that are present but which have
not been voted. For this reason, abstentions and broker "non-votes" will have no
impact on the requisite approval of the Proposals. Proposal 1 requires for
approval the affirmative vote of a plurality of the votes cast at the Meeting
with a quorum present, in person or by proxy by the shareholders of the Fund
voting on the matter. Proposal 2 is a non-binding recommendation by a
shareholder that the Board of Directors take steps to convert the Fund to an
open-end structure. The Board of Directors voted not to take a position "For" or
"Against" the shareholder's proposal at its Meeting on August 22, 2001 (see
discussion below). Any proxy may be revoked at any time prior to the exercise
thereof by submitting another proxy bearing a later date or by giving written
notice to the Secretary of the Fund at the Fund's address indicated above or by
voting in person at the Meeting.

The Board knows of no business other than that specifically mentioned in
the Notice of Meeting which will be presented for consideration at the Meeting.
If any other matters are properly presented, it is the intention of the persons
named in the enclosed proxy card to vote in accordance with their best judgment.

The Board of Directors of the Fund has fixed the close of business on
September 17, 2001 as the record date (the "Record Date") for determination of
shareholders of the Fund entitled to notice of, and to vote at, the Meeting or
any adjournment. Shareholders of the Fund on that date will be entitled to one
vote on each matter for each share held and a fractional vote with respect to
fractional shares with no cumulative voting rights. At the close of business on
September 17, 2001, the Fund had outstanding 5,069,019 shares of Common Stock,
par value $0.01 per share, the only authorized class of stock, of which
4,930,455 (or 97.3%) were held in accounts of, but not beneficially owned by
Cede & Co., as nominee of The Depository Trust Company.

Owners of More Than Five Percent of the Outstanding Shares of the Fund

The following table shows, as of September 17, 2001, the beneficial owners
of more than 5% of the outstanding shares of the Fund. This information is based
on reports (Schedules 13 D and G) filed with the Securities and Exchange
Commission ("SEC") by each of the firms listed in the table below as well as
information as to beneficial ownership reported to the Fund on behalf of the
holder.

Amount
and Nature
Name and Address of of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
-------------- ------------------- ------------- --------
Common Stock Mira, L.P. 722,028 14.2%
One Chase Manhattan
Plaza, 42nd Floor
New York, New York 10005

Common Stock Lazard Freres & Co. LLC 603,000 11.9%
30 Rockefeller Plaza
New York, New York 10020

As of the Record Date, to the knowledge of the Fund, no shares of
securities issued by Salomon Smith Barney's ultimate parent corporation,
Citigroup Inc. ("Citigroup"), were held by Board members who are not "interested
persons" of the Fund (as that term is used in the Investment Company Act of
1940, as amended (the "1940 Act")).

In the event that a quorum is not present at the Meeting or if a quorum is
present, but sufficient votes in favor of the proposals set forth in the Notice
of Meeting and this Proxy Statement are not received by the time scheduled for
the Meeting, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies with respect to any
such proposals. In determining whether to adjourn the Meeting, the following
factors may be considered: the nature of the proposals that are the subject of
the Meeting, the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require the affirmative vote of a majority of the
shares present at the Meeting in person or by proxy. If a quorum is present, the
persons named as proxies will vote in favor of such adjournment those shares
which they are entitled to vote and which have voted in favor of such proposals.

PROPOSAL NO. 1
ELECTION OF DIRECTOR

The Board of Directors of the Fund is currently classified into three
classes. The director currently serving in Class III has a term expiring at the
Meeting; the Class III director currently serving on the Board has been
nominated by the Board of Directors for re-election at the Meeting to serve
until the year 2004 Annual Meeting of Shareholders or until his successor has
been duly elected and qualified.

The Board of Directors of the Fund knows of no reason why the Class III
nominee listed below will be unable to serve, but in the event of any such
unavailability, the proxies received will be voted for such substitute nominee
as the Board of Directors may recommend.

Certain information concerning the nominee is set forth below. Except as
indicated, each individual has held the office shown or other offices in the
same company for the last five years. Each Director affiliated with the Manager
and considered an "interested person" as defined in the 1940 Act is indicated by
an asterisk(*).

Person Nominated for Election as Director

Number of Shares
Principal Occupations and % Beneficially
During Past Five Years, owned+ as of
Name Other Directorships, and Age September 17, 2001
--------------------------- ---------------------------------- ------------------

* Heath B. McLendon Managing Director of Salomon Smith 22,705
Director since 1986 (III) Barney; Chairman or Co-Chairman of (less than 1%)
seventy-seven investment companies
affiliated with Citigroup. President and
Director of SBFM and Travelers Invest-
ment Adviser, Inc. ("TIA"); formerly
Chairman of the Board of Smith
Barney Strategy Advisers Inc.; 68

The remainder of the Board constitutes Class I and Class II directors (as
indicated by the Number I or II), none of whom will stand for election at the
Meeting, as their terms will expire in 2002 and 2003, respectively.

Directors Continuing in Office

Number of Shares
Principal Occupations and % Beneficially
During Past Five Years, owned+ as of
Name Other Directorships, and Age September 17, 2001
------------------------ -------------------------------------------------- ------------------

Dr. Paul Hardin Professor of Law and Chancellor Emeritus 1,334.457
Director since 1986 (I) at the University of North Carolina at Chapel (less than 1%)
Hill; Director of twenty investment companies
affiliated with Citigroup; formerly, Director of
The Summit Bancorporation; Chancellor of the
University of North Carolina at Chapel Hill; 70

George M. Pavia Senior Partner, Pavia & Harcourt,
Director since 1991 (I) Attorneys; Director of nine investment --
companies affiliated with Citigroup; 73

Phillip Goldstein Self-employed investment adviser and President 171,055
Director since 2000 (II) of Kimball and Winthrop, Inc., an investment
advisory firm. Since 1992, Mr. Goldstein has
managed investments for a limited number of
clients and has served as the portfolio manager
and President of the general partner of
Opportunity Partners, a private investment
partnership. Director of The Mexico Equity and
Income Fund since 2000, Dresdner RCM Global
Strategic Income Fund since 2000 and Brantley
Capital Corporation since 2001. Formerly a
director of Clemente Strategic Value Fund (1998 to
2000); 56

Glenn Goodstein Since 1992, Mr. Goodstein has managed 38,000
Director since 2000 (II) investments for a limited number of (less than 1%)
clients. Between 1988 and 1996,
Mr. Goodstein held several executive
positions with Automatic Data Processing;
Director of Dresdner RCM Global Strategic Income
Fund since 2000; 38

--------------
233,094.457*

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+ For this purpose, "beneficial ownership" is defined under Section 13(d) of
the 1934 Act. The information as to beneficial ownership is based upon
information furnished to the Fund by the Directors.

* Total number of shares owned by the officers and directors as a group which
represents 4.6% of the outstanding shares.

Beneficial Ownership Report

Section 16(a) of the Exchange Act requires the Fund's officers and
directors, and persons who beneficially own more than ten percent of a
registered class of the Fund's Common Stock, to file reports of ownership with
the SEC, the New York Stock Exchange, Inc. and the Fund. Based solely upon its
review of the copies of such forms received by it and written representations
from certain of such persons, the Fund believes that during its fiscal year
ended January 31, 2001, all filing requirements applicable to such persons were
satisfied.

Report of the Audit Committee

The Audit Committee reports that it: (i) reviewed and discussed the Fund's
audited financial statements with management; (ii) discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61; and (iii) received written confirmation from KPMG
LLP("KPMG") that it is independent and disclosures regarding such independence
as required by Independence Standards Board Standard No. 1, and discussed with
the auditors the auditors' independence. Based on the review and discussions
referred to in items (i) through (iii) above, and subject to the limitations on
the responsibilities and role of the Audit Committee set forth in the Charter,
the Audit Committee recommended to the Board that the audited financial
statements be included in the Fund's annual report for the Fund's fiscal year
ended January 31, 2001. The membership of the Audit Committee is comprised of
all of the independent directors.

Current Officers

The names of the principal officers of the Fund, with the exception of Mr.
McLendon, are listed in the table below together with certain additional
information. Mr. McLendon was first elected Chairman of the Board and Investment
Officer in 1986. Each officer of the Fund holds such office until a successor
has been elected by the Board of Directors.

Principal Occupations and Other
Position Affiliations During the
Name (year first elected) Past Five Years, and Age
------------------- ------------------------- --------------------------------------

Mario D'Urso President (1986) Private investor; formerly, Senator
of the Republic of Italy; Under
Secretary of State of the Ministry of
Commerce with the Exterior for the
Republic of Italy; 60

Lewis E. Daidone Senior Vice President and Managing Director of Salomon Smith
Treasurer (1994) Barney; Chief Financial Officer of
each of the Smith Barney Mutual Funds;
Director and Senior Vice President of
SBFM and TIA; 43

Rein van der Does Vice President and Managing Director of Salomon Smith
Investment Officer (1996) Barney; 61.

Christina T. Sydor Secretary (1994) Managing Director of Salomon Smith
Barney; General Counsel and Secretary
of SBFM and TIA; 50.

The principal business address of Messrs. McLendon, van der Does, Daidone
and Ms. Sydor is 125 Broad Street, New York, New York 10004. The principal
business address of Mr. d'Urso is 4/A Viale di Grazioli, Rome, Italy.

No officer, director or employee of the Fund's investment adviser and
administrator receives any compensation from the Fund for serving as an officer
or director of the Fund. The Fund pays each director who is not a director,
officer or employee of the Fund's investment adviser and administrator a fee of
$7,500 per year plus $750 per in-person meeting and $100 per telephonic meeting.

All directors are reimbursed for actual out-of-pocket expenses relating to
their attendance at meetings. These aggregate expenses (including reimbursement
for travel and out-of-pocket expenses) paid by the Fund to such directors and
members of the Advisory Board (disbanded during the first quarter of 2001)
during the calendar year ended December 31, 2000 amounted to $2,199.

Disclosure of Auditor Fees

Audit Fees. Audit fees billed to the Fund by KPMG in connection with the
Fund's annual audit for the year ended January 31, 2001 totaled $37,900.

Financial Information Systems Design and Implementation. KPMG was not
engaged by the Fund, its investment adviser, or any entity controlling,
controlled by, or under common control with the investment adviser that provides
services to the Fund, to provide financial information systems design or
implementation services.

All other Fees. The aggregate fees billed to the Fund for non-audit
services by KPMG and paid by the Fund, its investment adviser, or any entity
controlling, controlled by, or under common control with the investment adviser
that provides services to the Fund totaled approximately $2,000 (tax services).

The following table shows the compensation paid by the Fund to each
director during the Fund's last fiscal year ended January 31, 2001 and by the
Fund complex for the calendar year ended December 31, 2000:

COMPENSATION TABLE

Compensation
from Fund Total
Aggregate Pension or and Fund Number of
Compensation Retirement Complex Funds for
from Fund* Benefits Accrued Paid to Directors Which Director
Fiscal Year as part of Calendar Year Serves within
Name of Person** Ended 1/31/01 Fund Expenses Ended 12/31/00 Fund Complex
-------------- ------------- ---------------- ----------------- --------------

Glenn Goodstein $ 7,975 0 $ 6,100 1
Phillip Goldstein 7,975 0 6,100 1
Dr. Paul Hardin 11,350 0 93,150 20
Heath B. McLendon*** 0 0 0 77
George M. Pavia 11,350 0 18,350 9

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* During the calendar year they attain age 80, Fund directors are required
to change to emeritus status. Directors Emeritus are entitled to serve in
emeritus status for a maximum of 10 years during which time they are paid
50% of the annual retainer fee and meeting fees otherwise applicable to
Fund directors, together with reasonable out-of-pocket expenses for each
meeting attended. During the Fund's last fiscal year aggregate
compensation paid by the Fund to directors achieving emeritus status
totaled $10,127.

** Mr. Paolo M. Cucchi and Mr. Mario D'Urso, former directors, received
$3,375 each, for serving a partial year.

*** Designates an "interested director."

Committees of The Board of Directors

The Fund has no Compensation or Nominating Committee of the Board, or any
committee performing similar functions. The Fund has an Audit Committee
comprised of those directors who are not "interested persons" of the Fund as
defined in the 1940 Act ("Independent Directors") and a Pricing Committee of the
Board comprised of the Chairman of the Board and one independent director. The
Audit Committee is responsible for recommending the selection of the Fund's
independent accountants and reviewing all audit as well as nonaudit accounting
services performed for the Fund as set forth in the Audit Committee's charter,
which is attached hereto as Appendix A. During the fiscal year ended January 31,
2001, six meetings of the Board of Directors of the Fund were held, four of
which were regular meetings; in addition two Audit Committee meetings were held.
In the last fiscal year no director attended less than 75% of these meetings.

Required Vote

Election of the listed nominee for director requires the affirmative vote
of a plurality of the votes cast at the Meeting in person or by proxy.

THE BOARD OF DIRECTORS, INCLUDING ALL OF THE INDEPENDENT DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE ELECTION OF THE NOMINEE TO THE
BOARD.

PROPOSAL NO. 2: SHAREHOLDER PROPOSAL

Statement of Receipt of Shareholder Proposal

The Fund has received the following proposal and supporting statement from
Walter S. Baer, who advised the Fund that, at the time he submitted his proposal
to the Fund, he owned shares of the Fund with a market value of at least $2,000
continuously for the preceding year. The Fund will provide the address of Mr.
Baer to any person who so requests such information orally or in writing,
promptly upon receipt of any oral or written request therefor, to Christina T.
Sydor, Secretary, The Italy Fund Inc., 125 Broad Street, New York, NY 10004. The
Board of Directors and the Fund accept no responsibility for the accuracy of
either the proposal or Mr. Baer's supporting statement.

Resolved: The stockholders of The Italy Fund ("Fund") again urge the Board
of Directors to take the steps necessary to convert the Fund to an open-end
fund.

Supporting Statement: The Fund's Board of Directors deserve our thanks for
their efforts to enhance shareholder value through two recent tender offers and
an ongoing share repurchase program. However, the Board of Directors has not yet
implemented the shareholder measure passed at last year's annual meeting to
convert our Fund to an open-end fund.

Last year's proposal to open-end our Fund was supported by more than 65
percent of the shareholders voting. Subsequently, in September 2000, more than
80 percent of shares were tendered at 98% of net asset value (NAV), clearly
indicating that the vast majority of shareholders want to be able to receive NAV
for their shares. (The second tender offer in July 2001 was at only 95% of the
NAV, but still attracted 65 percent of shares.) Since the tender expired on July
19, the share price discount from NAV has again crept upwards toward double
digits and, as of the date of this statement (August 24, 2001), stands at 9.75%.

Shareholders voted for eliminating the discount and, I believe, still want
to see it eliminated once and for all. This proposal again asks the Board "to
take the steps necessary to convert the Fund to an open-end Fund." If it again
passes, we urge the Board to act on it expeditiously.

Statement of Position of the Board of Directors

In light of the fact that this is a non-binding shareholder proposal, the
Board, after thorough consideration, has determined to use this proxy as a forum
for shareholders to express their views on the future of the Fund without being
influenced by a recommendation of the Board. As always, the Board will act
consistent with its understanding of the Fund's best interest. Therefore, at
this time, the Board is not recommending that shareholders vote "For" or
"Against" this proposal.

Instead, the Board of Directors has asked Fund management for its analysis
of and response to the shareholder proposal and supporting statement, and the
following reflects those views, which the Board believes should be available to
investors.

Fund Management's Analysis and Response

In assessing this non-binding shareholder proposal and formulating a
response, the Board and Fund Management have been attempting to establish a
balance that satisfies the greatest number of shareholders, recognizing that
investors have divergent expectations and goals. This non-binding shareholder
proposal focuses on the one-time financial benefit achieved by converting the
Fund to an open-end structure, whereas Management believes that maintaining the
closed-end structure is the most effective means to deliver continuing,
long-term benefits to investors.

There are three major benefits to long-term investors in maintaining the
closed-end fund structure of the Fund: Flexibility to invest in smaller issues
not readily available to investors outside Italy; demonstrated strong
performance as a closed-end fund; and the access it provides to investors
globally via its New York Stock Exchange listing.

Investment Flexibility in Managing Fund Assets: The current closed-end
structure of the Fund allows Fund Management to take a longer-term perspective
on investments. This perspective permits a more effective investment strategy
which is not disrupted by cash inflows or outflows when shareholders buy or
redeem shares. Moreover, because the Fund is not required to effect redemptions
of its shares, it does not recognize additional capital gains from the sale of
its investments that would result in increased shareholder tax liability.

For the Fund, smaller and mid-sized companies have contributed in the past
to its strong long-term performance. Earlier this year, the portfolio manager
reallocated the Fund's portfolio to smaller and mid-sized companies that offer
potentially greater growth than do larger capitalization companies. These
smaller and mid-sized companies are generally not as readily available to
investors outside of Italy. These types of companies have contributed in the
past to the Fund's strong absolute long-term performance and relative
performance versus the Italian indices. Simply stated, Fund Management does not
believe it could manage the Fund as an open-end fund as effectively.

Demonstrated Strong Performance as a Closed-End Fund: The closed-end
structure has proven beneficial to shareholders of the Fund since its inception.
The Fund has delivered strong investment returns to shareholders, based on
market price, for the past 3, 5 and 10-years periods. Only recently, in line
with the world's (and particularly, the Italian) stock markets, have returns not
been positive.

The non-binding shareholder proposal focuses on the one-time benefit
potentially achieved by open-ending the Fund. The fact is that the Fund's
returns on market price are better than on net asset value. Had this been an
open-end fund, shareholders would have received less return than they did from
the Fund in the closed-end structure in which it currently operates.

Performance Returns as of July 31, 2001

Excess of Market
Market Returns NAV Returns Returns over NAV
-------------- ----------- ----------------

1 year (20.64%) (27.01%) 6.37%
3 year 11.32% 3.20% 8.12%
5 year 20.82% 15.56% 5.26%
10 year 8.82% 7.20% 1.62%

The Fund is Well-Suited for Global Investors: As a New York Stock
Exchange-listed company, the Fund is owned by shareholders around the globe. Its
shareholders reside not only in the United States, but also in countries such as
Switzerland, Germany, Luxembourg, the United Kingdom, Mexico, Japan and even
Italy itself. In assessing this non-binding shareholder proposal and formulating
a response, Management reiterates its attempts to establish a balance that
satisfies the greatest number of shareholders. However, converting to an
open-end structure could severely disadvantage these global investors by
potentially creating problems in how and where this new security can be acquired
and held.

Finally, Fund Management is optimistic about the long-term potential of
the Italian equity market and believes that both the Italian market and the Euro
are currently undervalued.

Management Has Demonstrated its Proactive Commitment to Enhancing
Shareholder Value

Fund Management has successfully undertaken specific programs to address
the Fund's market price discount to NAV and, via its two tender offers, to
provide shareholders with an opportunity to exit at NAV minus administrative
costs. Specifically, it recommended to the Board of Directors a share buyback
program that the Board approved in 1998. This share buyback program has resulted
in a $.51 increase in net asset value from October 27, 1998 until present, and
we believe, improved liquidity. In addition, Fund Management recommended, and
the Board approved, two tender offers, in the fall of 2000 and summer of 2001,
both of which permitted shareholders to tender shares while preserving the
viability of the Fund.

These efforts have resulted in a dramatic reduction in the Fund's discount
to net asset value. As the table on the next page demonstrates, the trend is for
a narrowing between the market price of the Fund and its net asset value per
share.

Market Value Discount to Net Asset Value (March 31, 1998-June 20, 2001)

[GRAPHIC OMITTED]

[The following table was depicted as a bar chart in the printed material.]

1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr.
1998 1998 1998 1998 1999 1999 1999 1999 2000 2000 2000 2000 2001 2001
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------

16.69% 14.65% 22.68% 17.90% 17.74% 15.66% 14.79% 16.21% 13.99% 13.03% 11.35% 12.40% 7.95% 6.10%

Short Term versus the Long Term

Whereas Fund Management's and the Board's actions heretofore have enhanced
shareholder value over a period of time, open-ending the Fund would provide
shareholders with only a short-term, one-time benefit. As indicated above, the
Fund's performance over many years and the Board's prior actions - share
repurchase program and two tender offers - resulted in enhanced value for
shareholders versus the one-time benefit that would be the likely outcome of
open-ending the Fund.

THE BOARD OF DIRECTORS, INCLUDING THE NON-INTERESTED DIRECTORS, MAKES NO
RECOMMENDATION AS TO WHETHER SHAREHOLDERS SHOULD VOTE "FOR" OR "AGAINST" THE
SHAREHOLDER PROPOSAL.

SUBMISSION OF SHAREHOLDER PROPOSALS

Shareholder proposals intended to be presented at the 2002 Annual Meeting
of the Shareholders of the Fund must be received by December 1, 2001 to be
included in the proxy statement and the form of proxy relating to that meeting
as the Fund expects that the 2002 Annual Meeting will be held in May of 2002.
The submission by a shareholder of a proposal for inclusion in the proxy
statement does not guarantee that it will be included. Shareholder proposals are
subject to certain regulations under the federal securities laws.

The persons named as proxies for the 2002 Annual Meeting will have
discretionary authority to vote on any other matter presented by a shareholder
for action at that meeting unless the Fund receives notice of the matter by
January 1, 2002, in which case these persons will not have discretionary voting
authority except as provided in the SEC's rules governing shareholder proposals.

OTHER MATTERS

The Manager knows of no other matters which are to be brought before the
Meeting. However, if any other matters properly come before the Meeting, it is
the intention of the persons named in the enclosed form of proxy to vote such
proxy in accordance with their judgment on such matters.

All proxies received will be voted "for" Proposal 1 and "Abstain" for
Proposal 2, unless otherwise directed therein.

By Order of the Board of Directors

Christina T. Sydor
Secretary

October 12, 2001

IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING ARE THEREFORE URGED TO COMPLETE AND SIGN, DATE AND
RETURN THE PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.

Appendix A

THE ITALY FUND INC.
AUDIT COMMITTEE CHARTER

I. Composition of the Audit Committee: The Audit Committee shall be
comprised of at least three directors, each of whom shall have no relationship
to the Company that may interfere with the exercise of their independence from
management and the Company and shall otherwise satisfy the applicable membership
requirements under the rules of the New York Stock Exchange, Inc. as such
requirements are interpreted by the Board of Directors in its business judgment.

II. Purposes of the Audit Committee: The purposes of the Audit Committee
are to assist the Board of Directors:

1. in its oversight of the Company's accounting and financial
reporting principles, policies and controls, and audit processes;

2. in its oversight of the Company's financial statements and the
independent audit thereof;

3. in selecting, evaluating and, where deemed appropriate, replacing
the outside auditors; and

4. in evaluating the independence of the outside auditors.

The function of the Audit Committee is oversight. The management of the
Company is responsible for the preparation, presentation and integrity of the
Company's financial statements. Management and the internal auditing department
are responsible for maintaining appropriate accounting and financial reporting
principles and policies and internal controls and procedures designed to assure
compliance with accounting standards and applicable laws and regulations. The
outside auditors are responsible for planning and carrying out a proper audit of
the Company's annual financial statement in accordance with Generally Accepted
Auditing Standards. In fulfilling their responsibilities hereunder, it is
recognized that members of the Audit Committee are not full-time employees of
the Company and are not, and do not represent themselves to be, accountants or
auditors by profession or experts in the fields of accounting or auditing
including the issue of auditor independence. As such, it is not the duty or
responsibility of the Audit Committee or its members to conduct "field work" or
other types of auditing or accounting reviews or procedures or to set auditor
independence standards, and each member of the Audit Committee shall be entitled
to rely on (i) the integrity of those persons and organizations within and
outside the Company from which it receives information (ii) the accuracy of the
financial and other information provided to the Audit Committee by such persons
and organizations absent actual knowledge to the contrary (which shall be
promptly reported to the Board of Directors) and (iii) representations made by
management of the Company or of Smith Barney Fund

A-1

Management LLC ("SBFM") as to any information technology, internal audit and
other non-audit services provided by the outside auditors of the Company to the
Company, SBFM and any entity controlling, controlled by or under common control
with SBFM that provides services to the Company ("SBFM Affiliates").

The outside auditors for the Company are ultimately accountable to the
Board of Directors (as assisted by the Audit Committee). The Board of Directors,
with the assistance of the Audit Committee, has the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the outside
auditors.

The outside auditors shall submit to the Audit Committee annually a formal
written statement delineating all relationships between the outside auditors and
the Company ("Statement as to Independence") which, in the auditor's
professional judgement may be reasonably thought to bear on independence,
addressing each non-audit service provided to the Company, SBFM and the SBFM
Affiliate and at least the matters set forth in Independence Standards Board No.
1. The Statement as to Independence shall also identify any audit, tax or
consulting services to the custodian, or other service providers to the Company,
and to other investment companies advised by the Company's investment adviser or
administered by the Company's administrator, as the Audit Committee and the
outside auditors may agree. These professional services may include those
relating to the services provided by such service providers to the Company or
any other services that the outside auditors or the Committee believe may bear
on the outside auditor independence with respect to the Company. The Audit
Committee acknowledges that the disclosure of such services provided by the
outside auditors may be limited by the Code of Professional Conduct of the
American Institute of Certified Public Accountants.

The outside auditors shall submit to the Company annually a formal written
statement of the fees billed for each of the following categories of services
rendered by the outside auditors: (i) the audit of the Company's financial
statements; (ii) information technology consulting services provided to the
Company, SBFM, and the SBFM Affiliates for the most recent fiscal year, in the
aggregate and, (iii) all other services provided to the Company, SBFM, and the
SBFM Affiliates by the outside auditors for the most recent fiscal year, in the
aggregate.

III. Meetings of the Audit Committee: The Audit Committee shall meet at
least annually with the outside auditors to discuss the annual audited financial
statements and results of their audit. The Audit Committee may request any
officer or employee of the Company or the Company's outside counsel or outside
auditors to attend a meeting of the Audit Committee or to meet with any members
of, or consultants to, the Audit Committee.

A-2

IV. Duties and Powers of the Audit Committee: To carry out its purposes,
the Audit Committee shall have the following duties and powers:

1. to provide advice to the Board of Directors in selecting,
evaluating or replacing outside auditors;

2. to review the fees charged by the outside auditors for audit and
non-audit services;

3. to ensure that the outside auditors prepare and deliver annually
a Statement as to Independence (it being understood that the outside
auditors are responsible for the accuracy and completeness of this
Statement), to discuss with the outside auditors any relationships or
services disclosed in this Statement that may impact the objectivity and
independence of the Company's outside auditors and to recommend that the
Board of Directors take appropriate action in response to this Statement
to satisfy itself of the outside auditors' independence;

4. If applicable, to consider whether the outside auditors'
provision of (a) information technology consulting services relating to
financial information systems design and implementation and (b) other
non-audit services is compatible with maintaining the independence of the
outside auditors;

5. to instruct the auditors that the outside auditors are ultimately
accountable to the Board of Directors and Audit Committee;

6. to advise management and the outside auditors that they are
expected to provide to the Audit Committee a timely analysis of
significant financial reporting issues and practices;

7. to consider any reports or communications (and management's
responses thereto) submitted to the Audit Committee by the outside
auditors required by or referred to in SAS 61 (as codified by AU Section
380), as may be modified or supplemented, including reports and
communications related to:

o deficiencies noted in the audit in the design or operation of
internal controls;

o consideration of fraud in a financial statement audit;

o detection of illegal acts;

o the outside auditors' responsibility under generally accepted
auditing standards;

o significant accounting policies;

o management judgments and accounting estimates;

o adjustments arising from the audit;

o the responsibility of the outside auditors for other
information in documents containing audited financial
statements;

A-3

o disagreements with management;

o consultation by management with other accountants;

o major issues discussed with management prior to retention of
the outside auditors;

o difficulties encountered with management in performing the
audit;

o the outside auditors' judgments about the quality of the
entity's accounting principles; and

o reviews of interim financial information conducted by the
outside auditors;

8. with respect to reporting and recommendations, to discuss with
the Company's General Counsel any significant legal matters that may have
a material effect on the financial statements, the Company's compliance
policies, including material notices to or inquiries received from
governmental agencies;

9. to prepare any report or other disclosures, including any
recommendation of the Audit Committee, required by the rules of the
Securities and Exchange Commission to be included in the Company's annual
proxy statement;

10. to review this Charter at least annually and recommend any
changes to the full Board of Directors; and

11. to report its activities to the full Board of Directors on a
regular basis and to make such recommendations with respect to the above
and other matters as the Audit Committee may deem necessary or
appropriate.

V. Resources and Authority of the Audit Committee: The Audit Committee
shall have the resources and authority appropriate to discharge its
responsibilities, including the authority to engage outside auditors for special
audits, reviews and other procedures and to retain special counsel and other
experts or consultants.

A-4

PROXY

THE ITALY FUND INC.

PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING ON NOVEMBER 14, 2001

The undersigned holder of shares of The Italy Fund Inc. (the "Fund"), a Maryland
corporation, hereby appoints Heath B. McLendon, Christina T. Sydor and Robert M.
Nelson as attorneys and proxies for the undersigned, with full powers of
substitution and revocation, to represent the undersigned and to vote on behalf
of the undersigned all shares of the Fund that the undersigned is entitled to
vote at the Annual Meeting of Shareholders of the Fund (the "Meeting") to be
held in the offices of Wilkie Farr & Gallagher on the 38th floor, Conference
Room C, 787 Seventh Avenue, New York, New York, on the date indicated above, and
any adjournment or adjournments thereof. The undersigned hereby acknowledges
receipt of the Notice of Annual Meeting and Proxy Statement dated October 12,
2001, and hereby instructs said attorneys and proxies to vote said shares as
indicated hereon. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the Meeting. A majority of the
proxies present and acting at the Meeting in person or by substitute (or, if
only one shall be so present, then that one) shall have and may exercise all of
the power and authority of said proxies hereunder. The undersigned hereby
revokes any proxy previously given.

SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE

Please mark
X votes as in
this example.

This proxy, if properly executed, will be voted in the manner directed by the
undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1 AND AS AN ABSTENTION FOR PROPOSAL 2.

1. To elect Heath B. McLendon 2. To consider a non-binding
as a Class III Director of the Fund shareholder recommendation that the
Board of Directors take steps to
FOR WITHHOLD convert the Fund to an open-end
structure.
--- ---
FOR AGAINST ABSTAIN

--- --- ---

NOTE: Please sign exactly as your name
appears on this Proxy. If joint owners,
EITHER may sign this Proxy. When signing as
attorney, executor, administrator, trustee,
guardian or corporate officer, please give
full title.

PLEASE SIGN, DATE AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE.

Signature:____________ Date:____________ Signature:____________ Date:___________