SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION 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 |_| Check the appropriate box: |_| Preliminary Proxy Statement |_| Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |X| Definitive Proxy Statement |_| Definitive Additional Materials |_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 The Italy Fund, Inc. ---------------------------------------------------------------------------- (Name of Registrant as Specified in Its Charter) Payment of Filing Fee (Check the appropriate box): |X| No fee required. |_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: -------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: -------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11:1 (set forth the amount on which the filing fee is calculated and state how it was determined): -------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: -------------------------------------------------------------------------- (5) Total fee paid: |_| 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: --------------------------------------------------- (2) Form, schedule or registration statement no.: --------------------------------------------------- (3) Filing party: --------------------------------------------------- (4) Date filed: --------------------------------------------------- THE ITALY FUND INC. 125 Broad Street New York, New York 10004 ----------------- NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 14, 2002 ----------------- 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 Citigroup Center on the 14th floor, Conference Room J at 153 E. 53rd St., New York, New York, on November 14, 2002 at 1:00 p.m. (New York time) for the following purposes: 1. To elect three directors, to hold office for the term indicated and until their successors shall have been elected and qualified; 2. To transact such other business as may properly come before the meeting or any adjournments thereof. Proposal 1 is discussed in greater detail in the attached Proxy Statement. The Board of Directors has fixed the close of business on September 17, 2002 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 4, 2002 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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 ----------------- PROXY STATEMENT ----------------- FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 14, 2002 ----------------- 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 Citigroup Center on the 14th floor, Conference Room J at 153 E. 53rd St., New York, New York, on November 14, 2002 at 1:00 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, 2002, 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 4, 2002. The Fund will provide, without charge, additional copies of the annual report to any shareholder upon request by calling the 1 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. 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. 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, 2002 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, 2002, the Fund had outstanding 4,982,386 shares of Common Stock, par value $0.01 per share, the only authorized class of stock, of which 4,834,070.048 (or 97.0%) were held in accounts of, but not beneficially owned by Cede & Co., as nominee of The Depository Trust Company. 2 Owners of More Than Five Percent of the Outstanding Shares of the Fund The following table shows, as of September 17, 2002, 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 14.5% One Chase Manhattan Plaza, 42nd Floor New York, New York 10005 Common Stock Lazard Freres & Co. LLC 730,361 14.7% 30 Rockefeller Plaza New York, New York 10020 - ---------- * Based upon 4,982,386 shares outstanding as of September 17, 2002. 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, Heath B. McLendon, has resigned as Chairman and Director of the Fund in order to serve as Chairman of the Equity Research Policy Committee of Salomon Smith Barney Inc. Mr. R. Jay Gerken has been nominated by the Board of Directors to be elected at the Meeting to serve as 3 a Class III director until the year 2004 Annual Meeting of Shareholders or until his successor has been duly elected and qualified. Two additional directors who are currently serving in Class I have been nominated for re-election at the Meeting to serve until the year 2005 Annual Meeting. The Board of Directors of the Fund knows of no reason why the nominees 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 nominees 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 a Class III Director Number of Shares Principal Occupations and % Beneficially During Past Five Years, owned+ as of Name Other Directorships, and Age December 31, 2001 - ----------------------- ---------------------------------- ------------------ * R. Jay Gerken Managing Director of Salomon Smith None Director since 2002 Barney ("SSB"); formerly portfolio (less than 1%) manager, Smith Barney Growth and Income Fund (1994-2000) and Smith Barney Allocation Series Inc. (1996-2001); Chairman or Co-Chairman of seventy-three investment companies affiliated with Citigroup; 51. Persons Nominated for Re-Election as Class I Directors Number of Shares Principal Occupations and % Beneficially During Past Five Years, owned+ as of Name Other Directorships, and Age December 31, 2001 - ----------------------- ---------------------------------- ------------------ Dr. Paul Hardin Professor of Law and Chancellor 1,566.402 Director since 1986 (I) Emeritus at the University of (less than 1%) North Carolina at Chapel Hill; Director of twenty-one investment companies affiliated with Citigroup; formerly, Director of The Summit Bancorporation; Chancellor of the University of North Carolina at Chapel Hill; 71 George M. Pavia Senior Partner, Pavia & Harcourt, Director since 1991 (I) Attorneys; Director of ten None investment companies affiliated with Citigroup; 74 The remainder of the Board constitutes Class II Directors (as indicated by the Number II), neither of whom will stand for election at the meeting, as their terms will expire in 2003. 4 Directors Continuing in Office Number of Shares Principal Occupations and % Beneficially During Past Five Years, owned+ as of Name Other Directorships, and Age December 31, 2001 - ----------------------- ---------------------------------- ------------------ Phillip Goldstein Since 1992, Mr. Goldstein has 105,560 Director since 2000 (II) managed investments for a limited (2.1%) 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, and Brantley Capital Corporation since July, 2001; formerly, director of Clemente Strategic Value Fund (1998 to 2000) and Dresdner RCM Global Strategic Income Fund (2000-2002); 57 Glenn Goodstein Since 1992, Mr. Goodstein has 38,353 Director since 2000 (II) managed investments for a limited (less than 1%) number of clients. Between 1988 and 1996, Mr. Goodstein held several executive positions with Automatic Data Processing; Director of The Mexico Equity and Income Fund; formerly, director of Dresdner RCM Global Strategic Income Fund (2000-2001); 39 -------------- 145,479.402* - ------- + 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 2.9% of the outstanding shares. 5 The following table provides information concerning the dollar range of equity securities owned beneficially by each Director and nominee for election as Director as of December 31, 2001: Aggregate Dollar Range of Equity Securities in All Funds Overseen Dollar Range of Equity by Director/Nominee and Name of Director/Nominee Securities in the Fund Advised by SBAM - ----------------------- ---------------------- -------------------------------- Non-Interested Directors/Nominees Dr. Paul Hardin $10,001-$50,000 Over $100,000 George Pavia None None Philip Goldstein Over $100,000 Over $100,000 Glenn Goodstein Over $100,000 Over $100,000 Interested Directors/Nominees R. Jay Gerken None Over $100,000 - ---------- * Mr Gerken is an "interested person" as defined in the 1940 Act. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 and Section 30(h) of the 1940 Act in combination require the Fund's directors and officers and persons who own more than 10% of the Fund's common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, Inc. Such persons are required by SEC regulations to furnish the Fund with copies of all such filings. Based solely upon its review of the copies of such filings received by it and certain other information received by it, the Fund believes that, for the fiscal year ended January 31, 2002, all filing requirements applicable to such persons were complied with. 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 (attached hereto as Appendix A), 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, 2002. The membership of the Audit Committee is comprised of all of the independent directors. 6 Current Officers The names of the principal officers of the Fund, with the exception of Mr. Gerken, are listed in the table below along with certain additional information. Mr. Gerken was elected Chairman of the Board and Director in 2002 by the Board of Directors and accordingly is the Board's nominee for election as Director. 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; 61. Lewis E. Daidone Chief Administrative Managing Director of Salomon Smith Officer (2002) Barney; Chief Financial Officer of each of the Smith Barney Mutual Funds; Director and Senior Vice President of SBFM and TIA; 44. Richard L. Peteka Chief Financial Officer Director and Head of Internal and Treasurer (2002) Control for Citigroup Asset Management U.S. Mutual Fund Administration from 1999-2002; Vice President, Head of Mutual Fund Administration and Treasurer at Oppenheimer Capital from 1996-1999; 40 Rein van der Does Vice President and Managing Director of Salomon Smith Investment Officer Barney; 62. (1996) Christina T. Sydor Secretary (1994) Managing Director of Salomon Smith Barney; General Counsel and Secretary of SBFM and TIA; 51. The principal business address of Messrs. Gerken, van der Does, Daidone and Peteka 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. The principal business address of Ms. Sydor is 300 First Stamford Place, Stamford, Connecticut 06902. 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 during the calendar year ended December 31, 2001 amounted to$2,059.82. 7 Required Vote Election of the listed nominees 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 NOMINEES TO THE BOARD. 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, 2002 totaled $36,000. 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, 2002 and by the Fund complex for the calendar year ended December 31, 2001: 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 1/31/02 Fund Expenses Ended 12/31/01 Fund Complex - -------------- ------------- ---------------- ----------------- -------------- R. Jay Gerken** $ 0 0 $ 0 73 Glenn Goodstein 10,700 0 10,700 1 Phillip Goldstein 10,700 0 10,700 1 Dr. Paul Hardin 9,950 0 100,800 21 George M. Pavia 10,700 0 10,700 10 - ---------- * 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 $5,250. ** Designates an "interested director." 8 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, 2002, 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. SUBMISSION OF SHAREHOLDER PROPOSALS Shareholder proposals intended to be presented at the 2003 Annual Meeting of the Shareholders of the Fund must be received by December 1, 2002 to be included in the proxy statement and the form of proxy relating to that meeting as the Fund expects that the 2003 Annual Meeting will be held in May of 2003. 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 2003 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, 2003, in which case these persons will not have discretionary voting authority except as provided in the SEC's rules governing shareholder proposals. 9 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 unless otherwise directed therein. By Order of the Board of Directors Christina T. Sydor Secretary October 4, 2002 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. 10 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 Management LLC ("SBFM") A-1 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, 2002 The undersigned holder of shares of The Italy Fund Inc. (the "Fund"), a Maryland corporation, hereby appoints R. Jay Gerken, 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 at Citigroup Center, 153 East 53rd Street, 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 4, 2002, 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. CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE SEE REVERSE SIDE X Please mark 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 . 1. To elect (01) R. Jay Gerken as Class III Director of the Fund And (02) to re-elect Dr. Paul Hardin and (03) George M. Pavia As Class I Directors of the Fund FOR WITHHOLD ALL FROM ALL NOMINEES NOMINEES -------- -------- _____ For all nominees except as noted above 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:_________