THE ITALY FUND INC.
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 18, 1995
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 the Fund, 388
Greenwich Street, 26th Floor, New York, New York at 11:00 a.m., on May 17,
1995, for the following purposes:
1. To elect two (2) Directors of the Fund (PROPOSAL 1).
2. To ratify the selection of KPMG Peat Marwick LLP as the independent
accountants of the Fund for the year ending January 31, 1996 (PROPOSAL
2).
3. To approve modification to the Fund's fundamental investment restriction
regarding the issuance of senior securities. (PROPOSAL 3).
4. To approve modification to the Fund's fundamental investment restriction
regarding short positions (PROPOSAL 4).
5. To approve modification to the Fund's fundamental investment restriction
regarding margin purchases (PROPOSAL 5).
6. To approve modification to the Fund's fundamental investment restriction
regarding commodities (PROPOSAL 6).
7. To consider and vote upon such other matters as may come before said
meeting or any adjournments thereof.
Proposal 1 through 6 are discussed in greater detail in the attached Proxy
Statement. The close of business on March 21, 1995, has been fixed 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
April 3, 1995
YOUR VOTE IS IMPORTANT REGARDLESS OF THE SIZE OF YOUR HOLDINGS IN
THE FUND. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE ASK THAT
YOU PLEASE COMPLETE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE WHICH NEEDS NO POSTAGE IF MAILED IN
THE CONTINENTAL UNITED STATES. INSTRUCTIONS FOR THE PROPER EXECUTION OF
PROXIES ARE SET FORTH ON THE INSIDE COVER.
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 reg-
istration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party sign-
ing 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 registra-
tion. For example:
<TABLE>
<CAPTION>
REGISTRATION VALID
SIGNATURE
<S> <C>
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 Jane B.
Doe
u/t/d 12/28/78
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
</TABLE>
THE ITALY FUND INC.
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
ANNUAL MEETING OF SHAREHOLDERS
MAY 17, 1995
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of The Italy Fund Inc. (the "Fund")
for use at the Annual Meeting of Shareholders of the Fund to be held on May
17, 1995, at the offices of the Fund, 388 Greenwich Street, 26th Floor, New
York, New York and at any adjournments thereof (the "Meeting"). A Notice
of Meeting of Shareholders and a proxy card accompany this Proxy Statement.
Proxy solicitations will be made primarily by mail, but proxy solicitations
also may be made by telephone, telegraph or personal interviews conducted
by officers and employees of: the Fund; Smith Barney Mutual Funds
Management Inc. ("SBMFM"), the administrator for the Fund; The Boston
Company Advisors, Inc., the sub-administrator for the Fund ("Boston
Advisors"); and/or The Shareholder Services Group, Inc., a subsidiary of
First Data Corporation ("TSSG") the transfer agent of the Fund. The
offices of the Fund, and SBMFM are located at 388 Greenwich Street, New
York, New York 10013 and Boston Advisors and TSSG are based in Boston
Massachusetts. The Fund will bear the cost and expense of the proxy
solicitation and reimburse brokerage firms and others for their expenses in
forwarding solicitation materials to the beneficial owners of shares. The
Annual Report of the Fund, which includes audited financial statements for
the fiscal year ended January 31, 1995, accompanies this Proxy Statement.
This Proxy Statement is first being mailed to shareholders on or about
April 3, 1995.
If the enclosed Proxy is properly executed and returned in the time
to be voted at the Meeting, the shares of Common Stock of the Fund
("Shares") represented thereby will be voted in accordance with the
instructions marked thereon. Unless instructions to the contrary are
marked thereon, a proxy will be voted FOR the matters listed in the
accompanying Notice of Annual Meeting of Shareholders. For purposes
determining the presence of a quorum for transacting business at the
Meeting, abstentions and broker "non-votes" (that is, 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 note been voted. For this reason abstentions and broker "non-votes"
will have the effect of a "no" vote for purposes of obtaining the requisite
approval of each proposal.
In the event that a quorum is not present at the Meeting, or in the
event that a quorum is present but sufficient votes to approve any of the
proposals are not received, the persons named as proxies may propose one or
more adjournments of the Meeting to permit further solicitation of proxies.
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 adjournment will require the affirmative vote of a
majority of the Shares represented at the Meeting in person or by proxy. A
shareholder vote may be taken on one or more of the proposals in this Proxy
Statement prior to such adjournment if sufficient votes have been received
and it is otherwise appropriate. If a quorum is present, the persons named
as proxies will vote those proxies which they are entitled to vote FOR any
such proposal in favor of such an adjournment and will vote those proxies
required to be voted AGAINST any such proposal against any such
adjournment. Under the Fund's By-Laws, a quorum is constituted by the
presence in person or by proxy of the holders of a majority of the
outstanding Shares entitled to vote at the Meeting.
The close of business on March 21, 1995, has been fixed as the record
date for the determination of shareholders entitled to notice of and to
vote at the Meeting and all adjournments thereof.
The Fund has one class of common stock, which has a par value of
$0.01 per share. On March 21, 1995, there were Shares outstanding.
Each shareholder is entitled to one vote for each full Share and a
proportionate fraction of a vote for each fractional Share held.
As of March 21, 1995, the United Nations Joint Staff Pension Fund,
Untied Nations, New York, New York 10017, owned beneficially __________or
_____% of the Shares. Information as to beneficial ownership is based on
reports filed with the Securities and Exchange Commission (the "SEC") by
such holder.
As of March 21, 1995, Cede & Co., a nominee partnership of Depository
Trust Company, held _____ Shares, or _____% of the Shares, including the
Shares beneficially owned by the United Nations Joint Staff Pension Fund,
which are held by Fiduciary Trust company. Of the Shares included in the
Shares held by Cede & Co., Nomura International Trust Company, c/o ADP, 51
Mercedes Way, Edgewood, New York 11717, held _____ or _____% of the Shares,
Charles Schwab & Co. Inc., located c/o ADP Proxy services, 51 Mercedes Way,
Edgewood, New York 11717, held _____ or _____% of the Shares, Chemical
Bank/MHT, located at 270 Park Avenue, New York, New York 10017, held _____
or _____% of the Shares and Smith Barney Inc., located c/o ADP Proxy
Services, 51 Mercedes Way, Edgewood, New York 11717, held _____ or _____%
of the Shares.
As of March 21, 1995, the Fund's officers and Directors beneficially
owned less than 1% of the outstanding Shares.
Proposal 1 requires for approval the affirmative vote of a plurality
of the votes cast at the Meeting in person or by proxy by the shareholders
of the Fund voting on the matter. proposal 2 requires for approval the
affirmative vote of a majority of the votes cast at the meting in person or
by proxy by the shareholders of the Fund voting on the matter and Proposal
3 through 6 require approval by the lesser of (i) 67% or more of the
Shares present at the Meeting, if the holders of 50% of the
outstanding Shares are present or represented by proxy at the
Meeting, or (ii) more than 50% of outstanding Shares.
PROPOSAL 1: ELECTION OF DIRECTORS.
The first proposal to be considered at the Meeting is the election of two
(2) of the six Directors (the "Class III Directors") of the Fund for a pe-
riod of three years or until their successors shall have been elected and
qualified. The Class III Directors' terms shall expire in 1998. Each year
the term of office of one class of Directors expires.
Each of the nominees currently serves as a Director of the Fund and has
indicated that he will continue to serve if elected, but if any nominee
should be unable to serve, the proxy confers discretionary power on the
persons named therein to vote in favor of a substitute nominee or nomi-
nees.
Set forth below are the names of the two nominees for election to the
Fund's Board of Directors, together with certain other information:
[CAPTION]
NUMBER
(AND PERCENTAGE)
NAME, AGE, PRINCIPAL OCCUPATION AND OTHER SERVED AS A OF
FUND SHARES
BUSINESS EXPERIENCE DURING THE PAST FIVE DIRECTOR
BENEFICIALLY OWNED**
YEARS SINCE CLASS AS OF
MARCH 21, 1995
[S] [C] [C] [C]
ALESSANDRO C. DI MONTEZEMOLO, age 76 1986 III
- --
Retired; former Chairman of the Board of
Marsh & McLennan, Inc.; a Director of
Offi/Bank.
*HEATH B. MCLENDON, age 61 1986 III
8,048
Managing Director of Smith Barney Inc., (less
than 1%)
Chairman of Smith Barney Strategy
Advisers Inc. and President of
SBMFM; prior to July 1993, Senior
Executive Vice President of Shearson
Lehman Brothers Inc. ("Shearson Lehman
Brothers"), Vice Chairman of Asset
Management Division of Shearson Lehman
Brothers, a Director of PanAgora Asset
Management, Inc. and PanAgora Asset
Management Limited.
[/TABLE]
The following Directors of the Fund will continue to serve in such capac-
ity until their terms of office expire and their successors are elected
and qualified:
<TABLE>
<CAPTION>
NUMBER
(AND PERCENTAGE)
NAME, AGE, PRINCIPAL OCCUPATION AND OTHER SERVED AS A OF
FUND SHARES
BUSINESS EXPERIENCE DURING THE PAST FIVE DIRECTOR
BENEFICIALLY OWNED**
YEARS SINCE CLASS AS OF
MARCH 21, 1994
<S> <C> <C> <C>
DR. PAUL HARDIN, age 63 1986 I
500
Chancellor of the University of North (less
than 1%)
Carolina at Chapel Hill; a Director of
The Summit Bancorporation.
GEORGE M. PAVIA, age 67 1991 I
- --
Senior Partner, Pavia & Harcourt,
Attorneys.
PAOLO M. CUCCHI, age 54 ............... 1992 II
500
Dean of College of Liberal Arts at Drew (less
than 1%)
University.
<FN>
* Interested person of the Fund as defined in the Investment Company Act
of 1940, as amended (the "1940 Act").
** For this purpose "beneficial ownership" is defined under Section 13(d)
of the Securities Exchange Act of 1934 (the "Exchange Act"). The infor-
mation as to beneficial ownership is based upon information furnished
to the Fund by the Directors.
</TABLE>
Section 16(a) of the Exchange Act requires the Fund's officers and direc-
tors, and persons who beneficially own more than ten percent of the Fund's
Common Stock, to file reports of ownership with the Securities and Ex-
change Commission, 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, except for one tardy
Annual Statement of Changes in Beneficial Ownership of Mr. McLendon, Mr.
Hardin, and Mr. Cucchi, the Fund believes that during its fiscal year
ended January 31, 1995, all filing requirements applicable to such persons
were complied with.
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 In-
vestment Officer in 1986. This table shows certain additional information.
Each officer of the Fund holds such office until a successor has been
elected by the Board of Directors.
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATIONS
POSITION AND OTHER
AFFILIATIONS
NAME (YEAR FIRST ELECTED) DURING THE PAST FIVE
YEARS
<S> <C> <C>
Mario d'Urso, age 54 President (1986) Formerly, Advisory
Director of
Shearson Lehman
Brothers;
formerly Managing
Director of
Shearson Lehman
Brothers.
Erich Stock, age 32 Vice President and Director, Equities of
Lehman
Investment Officer Brothers Global Asset
Management
(1988) Limited ("Global
Asset Manage-
ment").
Lewis E. Daidone, age 37 Senior Vice President Managing Director of
Smith Barney
and Treasurer (1994) Inc.; Chief Financial
Officer of
the Smith Barney
Mutual Funds;
Director and Senior
Vice President
of SBMFM.
Christina T. Sydor, age 44 Secretary (1994) Managing Director of
Smith Barney
Inc.; General Counsel
and
Secretary of SBMFM.
</TABLE>
The principal business address of Ms. Sydor and Mr. Daidone is 388 Green-
wich Street, New York, New York 10013. The principal business address of
Mr. d'Urso is 4/A Viale di Grazioli, Rome, Italy. The principal business
address of Mr. Stock is Two Broadgate, London, England. None of the execu-
tive officers of the Fund, with the exception of Mr. McLendon, as noted
above, owns any shares of the Fund.
No officer, director or employee of the Fund's investment adviser or ad-
ministrator receives any compensation from the Fund for serving as an of-
ficer or director of the Fund. The Fund pays each Director who is not a
director, officer or employee of the Fund's investment adviser or adminis-
trator a fee of $7,500 per year plus $750 per regular meeting attended and
each Director emeritus who is not a director, officer or employee of the
Fund's investment adviser or administrator, a fee of $3,750 per year plus
$375 per meeting attended. All directors are reimbursed for actual out-of-
pocket expenses relating to attendance at meetings. The aggregate remuner-
ation paid by the Fund to such Directors during the fiscal year ended Jan-
uary 31, 1995 amounted to $82,505.
Upon election, the annual compensation described above will be paid to the
nominees. The table below shows the compensation the incumbent Directors
received during the Fund's last fiscal year.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF PERSON, POSITION FROM FUND
<S> <C>
Paolo M. Cucchi ................. $10,500
Director
Allessandro DiMontezernolo ...... 10,500
Director
Paul Hardin ..................... 10,500
Director
Heath B. McLendon ............... --
Chairman of the Board
George M. Pavia ................. 10,500
Director
James J. Crisona ................ 9,750
Director Emeritus
</TABLE>
During the fiscal year ended January 31, 1995, the Directors of the Fund
met four times. Each Director attended at least 75% of the meetings held
during the period he was in office. The Fund's Audit Committee is com-
prised of those Directors who are not "interested persons" of the Fund as
defined in the 1940 Act. The Audit Committee is responsible for recommend-
ing the selection of the Fund's independent accountants and reviewing all
audit as well as nonaudit accounting services performed for the Fund. Dur-
ing the fiscal year ended January 31, 1995, the Audit Committee met once.
All of the members of the Audit Committee attended the meeting.
REQUIRED VOTE
Election of each of the listed nominees for Director requires the affirma-
tive vote of a plurality of the votes cast at the Meeting in person or by
proxy.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE "NON-INTERESTED" DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE ELECTION OF THE NOMINEES
TO THE BOARD.
PROPOSAL 2: RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS
The second proposal to be considered at the Meeting is the ratification of
the selection of KPMG Peat Marwick LLP ("Peat Marwick") as the independent
public accountants for the Fund for the fiscal year ending January 31,
1996.
Coopers & Lybrand L.L.P. ("Coopers & Lybrand") served as the Fund's inde-
pendent accountants for the fiscal year ended January 31, 1995. On Febru-
ary 15, 1995, based upon the recommendation of the Audit Committee of the
Fund's Board of Directors, and in accordance with Section 32 of the 1940
Act, and the rules thereunder, the Board voted to appoint Peat Marwick as
the Fund's independent accountants for the fiscal year ending January 31,
1996.
During the Fund's two most recent fiscal years ended January 31, 1995,
Coopers & Lybrand's reports on the Fund's financial statements contained
no adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope, or accounting principles. During
the same period, there were no disagreements with Coopers & Lybrand on any
matter of accounting principles or practices, financial statement disclo-
sure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Coopers & Lybrand, would have caused it to make
reference to the subject matter of the disagreement in connection with its
report. During this period, there have been no "reportable events" as such
term is described in Item 304(a)(1)(v) of Regulation S-K with respect to
Coopers & Lybrand.
During the Fund's two most recent fiscal years ended January 31, 1995, the
Fund has not consulted with Peat Marwick on items which (i) concerned the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered
on the Fund's financial statements or (ii) concerned the subject matter of
a disagreement or reportable event with Coopers & Lybrand.
The Fund has requested Coopers & Lybrand to furnish it with a letter ad-
dressed to the SEC stating whether Coopers & Lybrand agrees with the
statements contained in the paragraphs above. If the Fund receives a writ-
ten request from any shareholder at least five days prior to the Meeting
stating that the shareholder will be present in person at the Meeting and
desires to ask questions of Coopers & Lybrand and Peat Marwick, the Fund
will arrange to have representatives of each present at the Meeting to re-
spond to appropriate questions.
REQUIRED VOTE
Ratification of the selection of Peat Marwick as independent accountants
requires the affirmative vote of a majority of the votes cast at the Meet-
ing in person or by proxy.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE "NON-INTERESTED" DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" RATIFICATION OF THE SELECTION
OF PEAT MARWICK.
ADOPTION OF MODIFICATIONS TO
THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS
TO PERMIT TRANSACTIONS IN OPTIONS AND FUTURES CONTRACTS
FOR HEDGING PURPOSES
Introduction
The primary purpose of Proposals 3 through 6 is to modify several of
the
Fund's fundamental investment restrictions to permit certain hedging
techniques involving options and futures contracts.
The Board of Directors has approved, subject to the approval of the
shareholders of the Fund, proposed modifications to four of the Fund's
fundamental investment restrictions that, taken together, would permit the
Fund to engage in transactions in (i) options on securities and options on
securities indices and (ii) futures contracts and options on futures
contracts, as a hedge against changes resulting from market conditions in
the
values of securities in its portfolio (collectively, these transactions are
referred to herein as "Hedging"). The Board of Directors believes that
through such transactions, which are described more fully in Exhibit A to
this
Proxy Statement, the Fund would attempt to reduce various market risks as
it
continues to seek to achieve its investment objective of long-term capital
appreciation. The Fund would not, however, engage in such transactions for
speculative purposes. Hedging strategies, similar to the strategy proposed
by
the Fund, are regularly utilized by many investment companies.
The Fund's current investment restrictions generally limit the
availability of Hedging by prohibiting short positions and transactions in
futures contracts. When the Fund was organized in 1985, the Italian
securities markets were relatively small and inefficient and, as a result,
there were not many available options or futures contracts with which to
hedge
the portfolio of the Fund. Since that time, the Italian securities markets
have grown, providing increasing sources of options and futures contracts
relating to securities of the types in which the Fund is permitted to
invest.
As a result, in December 1994, the Fund announced a limited options trading
strategy subject to the Fund's current investment restrictions. In order
to
give the Fund greater flexibility in utilizing potential risk management
opportunities and techniques, the Fund's Board of Directors believes that
it
is in the best interests of the Fund to adopt Proposals 3 through 6.
A detailed discussion of Hedging, including applicable requirements of
the Commodity Futures Trading Commission ("CFTC"), the requirement to
segregate assets
with respect to these transactions and special risks associated with such
strategies appears as Exhibit A to this Proxy Statement.
Required Vote For Proposals 3 - 6
Approval of each of the proposed modifications to the Fund's
fundamental
investment restrictions set forth in Proposals 3 through 6 requires
approval
by the lesser of (i) 67 %(percent) or more of the Shares present at the
Meeting, if the holders of 50% (percent) of the outstanding Shares are
present or represented by proxy at the Meeting, or (ii) more than
50%(percent) of outstanding shares.
PROPOSAL 3: APPROVAL OF MODIFICATION TO THE FUND'S FUNDAMENTAL
INVESTMENT
RESTRICTION REGARDING THE ISSUANCE OF SENIOR SECURITIES
If approved by shareholders, fundamental investment restriction number
5
regarding the issuance of senior securities will be modified, as described
below. Material to be added is underlined.
Under the Fund's fundamental investment restrictions, the Fund may
not:
5. Issue senior securities [OMITTED GRAPHIC: UNDERSCORING BEGINS HERE];
provided, however, that the use of futures contracts or related
options,
and options on securities, options on securities indices and options
on
currencies shall not be deemed to involve the issuance of a "senior
security" when traded in accordance with the provisions of the
Investment
Company Act of 1940, as amended[UNDERSCORING ENDS HERE].
The Investment Company Act of 1940, as amended (the "1940 Act"),
limits
the ability of an investment company to issue senior securities or engage
in
investment techniques which could be deemed to create a senior security.
Although the definition of a "senior security" involves complex statutory
and
regulatory concepts, a senior security is generally thought of as an
obligation of an investment company which has a claim to the investment
company's assets or earnings that takes precedence over the claims of the
investment company's shareholders.
Although investment restriction number 5 currently prohibits the
issuance
of any senior security, investment companies are permitted under the 1940
Act
to engage in certain types of transactions that might be considered senior
securities provided that, among other things, the investment company
segregates cash or other high quality securities with its custodian.
Therefore, the proposed modification to investment restriction number 5
will
allow the Fund to use futures contracts or related options, and
options on securities, options on securities indices and options on
currencies
to the extent permitted under the 1940 Act. This will permit the Fund to
engage in Hedging.
A detailed discussion of Hedging, including applicable requirements of
the CFTC, the requirement to segregate assets
with respect to these transactions and special risks associated with such
strategies appears as Exhibit A to this Proxy Statement.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE "NON-INTERESTED"
DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE PROPOSED
MODIFICATION TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION REGARDING THE
ISSUANCE OF SENIOR SECURITIES.
PROPOSAL 4: APPROVAL OF MODIFICATION TO THE FUND'S FUNDAMENTAL
INVESTMENT
RESTRICTION REGARDING SHORT POSITIONS
If approved by shareholders, fundamental investment restriction number
6
regarding short positions will be modified, as described below. Material
to
be added is underlined.
Under the Fund's fundamental investment restrictions, the Fund may
not:
6. Make short sales of securities or maintain a short position in any
security [OMITTED GRAPHIC: UNDERSCORING BEGINS HERE], except for
"short
sales against the box"; provided that this restriction will not be
applied to limit the use of options, futures contracts and related
options, in the manner otherwise permitted by the Fund's investment
restrictions and policies [UNDERSCORING ENDS HERE].
Investment restriction number 6 currently prohibits the Fund from
maintaining a short position in any security, including an option on a
security. Thus, under the current restriction, the portfolio manager may
maintain only long positions in securities. This limits the portfolio
manager's ability to utilize options and futures contracts and related
options
in connection with Hedging. Therefore, the proposed modification to
investment restriction number 6 would clarify that the use of options,
futures
contracts and related options in the manner otherwise permitted by the
Fund's
investment restrictions and policies are not deemed to constitute selling
securities short. The proposed modification would also amend this
investment
restriction to confirm that the Fund may maintain a short position in a
security when it owns an equal amount of the securities or securities
convertible into or exchangeable for, without payment of any
further consideration, securities of the same issue as, and equal in amount
to, the securities sold short.
A detailed discussion of Hedging, including applicable requirements of
the CFTC, the requirement to segregate assets
with respect to these transactions and special risks associated with such
strategies appears as Exhibit A to this Proxy Statement.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE "NON-INTERESTED"
DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE PROPOSED
MODIFICATION TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
SHORT
POSITIONS.
PROPOSAL 5: APPROVAL OF MODIFICATION TO THE FUND'S FUNDAMENTAL
INVESTMENT
RESTRICTION REGARDING MARGIN PURCHASES
If approved by shareholders, fundamental investment
restriction number 7 regarding margin purchases will be modified, as
described
below. Material to be added is underlined.
Under the Fund's fundamental investment restrictions, the Fund may
not:
7. Purchase securities on margin, except such short-term credits as may
be
necessary or routine for the clearance or settlement of transactions.
[OMITTED GRAPHIC: UNDERSCORING BEGINS HERE] For purposes of this
restriction, the deposit or payments of initial and variation margin
in
connection with futures contracts or related options will not be
deemed
to be a purchase of securities on margin by the Fund.[UNDERSCORING
ENDS
HERE]
Margin purchases of securities involve the purchase of securities with
money borrowed from a broker. "Margin" in this context is the cash or
eligible securities that the borrower places with a broker as collateral.
Although futures transactions and related options do not involve loans from
a
broker, margin payments or deposits are generally required as good faith
deposits on obligations under futures contracts and related options.
Therefore, the proposed modification to investment restriction number 7
will
enable the Fund to make initial or variation margin deposits or payments in
connection with futures contracts or related options, as may be required to
cover its obligations under such instruments used in Hedging.
A detailed discussion of Hedging, including applicable requirements of
the CFTC, the
requirement to segregate assets with respect to these transactions and
special
risks associated with such strategies appears as Exhibit A to this Proxy
Statement.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE "NON-INTERESTED"
DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE PROPOSED
MODIFICATION TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
MARGIN
PURCHASES.
PROPOSAL 6: APPROVAL OF MODIFICATION TO THE FUND'S FUNDAMENTAL
INVESTMENT
RESTRICTION REGARDING COMMODITIES
If approved by shareholders, fundamental investment
restriction number 9 regarding commodities will be modified, as described
below. Material to be added is underlined.
Under the Fund's fundamental investment restrictions, the Fund may
not:
9. Purchase or sell commodities or real estate, except that the Fund may
invest in [OMITTED GRAPHIC: UNDERSCORING BEGINS HERE](i) futures
contracts and related options and other similar contracts (including
foreign currency forward and options contracts) and (ii)[UNDERSCORING
ENDS HERE] securities secured by real estate or interests in real
estate
or in securities issued by companies, including real estate investment
trusts, that invest in real estate or interests in real estate.
Investment restriction number 9 currently prohibits the purchase or
sale
of commodities. As the term "commodity" is defined under applicable law,
this
prohibition generally prevents the Fund from engaging in transactions
involving futures contracts and related options. Therefore, the proposed
modification to investment restriction number 9 will enable the Fund to
invest
in futures contracts and related options and other similar contracts
(including foreign currency forward and options contracts). This will
provide
the Fund with greater flexibility in using Hedging.
A detailed discussion of Hedging, including applicable requirements of
the CFTC, the requirement to segregate assets
with respect to these transactions and special risks associated with such
strategies appears as Exhibit A to this Proxy Statement.
THE BOARD OF DIRECTORS, INCLUDING ALL OF THE "NON-INTERESTED"
DIRECTORS,
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE PROPOSED
MODIFICATION TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION REGARDING
COMMODITIES.
OTHER MATTERS TO COME BEFORE THE MEETING
The Directors do not intend to present any other business at the Meeting,
nor are they aware that any shareholder intends to do so. If, however, any
other matters are properly brought before the Meeting, the persons named
in the accompanying form of proxy will vote thereon in accordance with
their judgment.
SHAREHOLDER'S REQUEST FOR SPECIAL MEETING
Shareholders entitled to cast at least 25% of all votes entitled to be
cast at a meeting may require the calling of a meeting of shareholders for
the purpose of voting on the removal of any Board Member of the Fund.
Meetings of shareholders for any other purpose also shall be called by the
Chairman of the Board, the President or the Secretary of the Fund when re-
quested in writing by shareholders entitled to cast at least 25% of all
votes entitled to be cast at the Meeting.
SUBMISSION OF SHAREHOLDER PROPOSALS
All proposals by shareholders of the Fund which are intended to be pre-
sented at the Fund's next Annual Meeting of Shareholders to be held in
1996 must be received by the Fund for consideration for inclusion in the
Fund's proxy statement and proxy relating to that meeting no later than
December 14, 1995.
April 3, 1995
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING ARE THEREFORE URGED TO COMPLETE, SIGN, DATE
AND RETURN THE PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
EXHIBIT A
GENERAL CHARACTERISTICS AND RISKS OF HEDGING
Approval of the proposed modifications to the Fund's fundamental
investment restrictions set forth in Proposals 3 through 6 set forth in the
accompanying Proxy Statement, would make available to the Fund the
following
hedging strategies and techniques. If the modifications are adopted by the
shareholders, the Fund will not be obligated, however, to use any of these
strategies and techniques and makes no representation as to their
availability
at this time or at any time in the future. For purposes of clarity in
presentation, the following discussion assumes approval of Proposals 3
through
6.
The Fund's ability to pursue certain of these strategies may be
limited
by the U.S. Commodity Exchange Act, as amended, applicable regulations of
the
Commodity Futures Trading Commission ("CFTC") thereunder and the federal
income tax requirements applicable to regulated investment companies which
are
not operated as commodity pools.
Put and Call Options on Securities and Indices
The Fund may purchase and sell put and call options on debt and equity
securities and indices based upon the prices of debt or equity securities.
A
put option on a security gives the purchaser of the option the right to
sell
and the writer the obligation to buy the underlying security at the
exercise
price during the option period. A call option on a security gives the
purchaser of the option the right to buy and the writer the obligation to
sell
the underlying security at the exercise price during the option period.
The
Fund may also purchase and sell options on indices based upon the prices of
debt or equity securities ("index options"). Index options are similar to
options on securities except that, rather than taking or making delivery of
securities underlying the option at a specified price upon exercise, an
index
option gives the holder the right to receive cash upon exercise of the
option
if the level of the index upon which the option is based is greater, in the
case of a call, or less in the case of a put, than the exercise price of
the
option.
The purchase of a put option on a security would be designed to
protect
against a substantial decline in the market value of a security held by the
Fund. The purchase of a call option on a security would be intended to
protect the Fund against an increase in the price of a security that it
intended to purchase in the future. In the case of either put or call
options
that it has purchased, if the option expires without being exercised or
sold,
the Fund will experience a loss in the amount of the option premium plus
any
related commissions. When the Fund sells put and call options, it receives
a
premium as the seller of the option. The premium that the Fund receives
for
writing the
option will serve as a partial hedge, in the amount of the option premium,
against changes in the value of the securities in its portfolio. During
the
term of the option, however, a covered call seller has, in return for the
premium on the option, given the opportunity for capital appreciation above
the exercise price of the option, less the premium received on the sale of
the
option.
The Fund is authorized to purchase exchange listed options and over-
the-
counter options ("OTC options") which are privately negotiated with the
counterparty to such contract. All such call options sold (written) by the
Fund will be "covered" as long as the call is outstanding (i.e., the Fund
will
own the instrument subject to the call or other securities or assets
acceptable under applicable segregation and coverage rules). All such put
options sold (written) by the Fund will be secured by segregated assets
consisting of cash or liquid high grade debt securities having a value not
less than the exercise price.
The Fund's ability to close out its position as a purchaser of an
exchange listed put or call option is dependent upon the existence of a
liquid
secondary market. Among the possible reasons for the absence of a liquid
secondary market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange;
(iii) trading halts; suspensions or other restrictions imposed with respect
to
particular classes or series of options or underlying securities;
(iv) interruption of the normal operations on an exchange; (v) inadequacy
of
the facilities of an exchange to handle current trading volume; or (vi) a
decision by one or more exchanges to discontinue the trading of options (or
a
particular class or series of options), in which event the secondary market
on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options on that exchange would generally continue to
be
exercisable in accordance with their terms.
OTC options are purchased from or sold to dealers, financial
institutions
or other counterparties which have entered into direct agreements with the
Fund. With OTC options, such variables as expiration date, exercise price
and
premium will be agreed upon between the Fund and the counterparty, without
the
intermediation of a third party. If the counterparty fails to make or take
delivery of the securities underlying an option it has written, or
otherwise
settle the transaction in accordance with the terms of that option as
written,
the Fund would lose the premium paid for the option as well as any
anticipated
benefit of the transaction. As the Fund must rely on the credit quality of
the counterparty, it will only purchase OTC options from
counterparties deemed creditworthy by the portfolio manager, and the Fund
will
adopt procedures for monitoring the creditworthiness of such entities.
Futures Contracts and Options on Futures Contracts
Characteristics. The Fund may purchase and sell futures contracts on
currencies, interest rates and indices of debt and equity securities and
purchase and sell (write) put and call options on such futures contracts
traded on recognized domestic (or, if applicable regulations permit, non-
U.S.)
exchanges as a hedge against anticipated interest rate or currency changes
or
movements in equity markets. The sale of a futures contract creates an
obligation by the seller to deliver and the buyer to accept delivery of the
specific type of financial instrument or commodity called for in the
contract
at a specified future time for a specified price. Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium
paid
to assume a position in a futures contract (a long position if the option
is a
call and a short position if the option is a put).
Margin Requirements. At the time a futures contract is purchased or
sold, the Fund must allocate cash or securities as a deposit payment
("initial
margin"). It is expected that the initial margin that the Fund will pay
may
range from approximately 1% to approximately 10% of the value of the
instruments underlying the contract. In certain circumstances, however,
such
as during periods of high volatility, the Fund may be required by an
exchange
to increase the level of its initial margin payment. Additionally, initial
margin requirements may be increased in the future pursuant to regulatory
action. An outstanding futures contract is valued daily and the payment in
cash of "variation margin" may be required, a process known as "marking to
the
market." Transactions in listed options and futures are usually settled by
entering into an offsetting transaction, and are subject to the risk that
the
position may not be able to be closed without generating significant
losses.
Limitations on Use of Futures Contracts and Options on Futures
Contracts.
The Fund's use of futures contracts and options on futures contracts will
in
all cases be consistent with applicable regulatory requirements and in
particular, the rules and regulations of the CFTC. Currently, CFTC rules
prohibit entering into futures contracts or options on futures contracts by
the Fund if aggregate initial margin and premiums for such positions that
do
not come within the CFTC's definition of bona fide hedging exceed 5% of the
liquidation value of the Fund's
portfolio. In addition, the Fund may not sell futures contracts if the
value
of such futures contracts exceeds the total market value of the Fund's
portfolio securities.
The Fund will not engage in transactions in futures contracts or
options
thereon for speculative purposes but only as a hedge against changes
resulting
from market conditions in the values of securities in its portfolio. Also,
when required, a segregated account of cash or cash equivalents will be
maintained and marked to market in an amount equal to the market value of
the
contract. The Fund's portfolio manager reserves the right to comply with
such
different standards as may be established from time to time by CFTC or
Securities and Exchange Commission (the "Commission") rules and regulations
with respect to the purchase and sale of futures contracts and options
thereon.
Risks of Options and Futures Contracts Transactions
The Fund's hedging strategy involves special risks, including
illiquidity
and, to the extent the portfolio manager's view as to certain market
movements
is incorrect, the risk that the use of hedging could result in losses
greater
than if such investment strategies had not been used. Use of put and call
options could result in losses to the Fund, force the sale or purchase of
portfolio securities at an inopportune time or for prices higher than (in
the case of put options) or lower than (in the case of call options)
current
market values, or cause the Fund to hold a security it might otherwise
sell.
The use of options and futures transactions entails certain special risks.
In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of
the
Fund could create the possibility that losses on the hedging instrument are
greater than gains in the value of the Fund's position. In addition,
futures
and options markets could be illiquid in some circumstances. As a result,
in
certain markets, the Fund might not be able to close out a position without
incurring substantial losses. Although the Fund's use of futures and
options
transactions for hedging purposes should tend to minimize the risk of loss
due
to a decline in the value of the hedged position, at the same time it will
tend to limit any potential gain to the Fund that might result from an
increase in value of the position. Finally, the daily variation margin
requirements for futures contracts create a greater ongoing potential
financial risk than would purchases of options, in which case the exposure
is
limited to the cost of the initial premium and transactions costs. Losses
resulting from hedging will reduce the Fund's net asset value, and possibly
income, and the losses can be greater than if the hedging had not been
used.
When conducted outside the United States, futures and options trading
may
not be regulated as rigorously as in the United States, may not involve a
clearing mechanism and related guarantees, and will be subject to the risk
of
governmental actions affecting trading in, or the prices of, non-U.S.
securities, currencies and other instruments. The value of positions taken
as
part of non-U.S. hedging also could be adversely affected by: (i) other
complex non-U.S. political, legal and economic factors; (ii) lesser
availability of data on which to make trading decisions than in the United
States; (iii) delays in the Fund's ability to act upon economic events
occurring in non-U.S. markets during non-business hours in the United
States;
(iv) the imposition of different exercise and settlement terms and
procedures
and margin requirements than in the United States; (v) lower trading
volume and liquidity; and (vi) higher execution costs.
Segregation and Cover Requirements
Much of the hedging which may be entered into by the Fund is subject
to
segregation and coverage requirements established by the Commission, with
the
result that, if the Fund does not hold the instrument underlying the
futures
contract or option, the Fund will be required to segregate on an ongoing
basis
with its custodian, cash, U.S. government securities, or other liquid high
grade debt obligations in an amount at least equal to the Fund's
obligations
with respect to such instruments. Such amounts will fluctuate as the
market
value of the obligations increases or decreases. The segregation
requirement
can result in the Fund maintaining positions it would otherwise liquidate
and
consequently segregating assets with respect thereto at a time when it
might
be disadvantageous to do so. In addition, with respect to futures
contracts
purchased by the Fund, the Fund will also be subject to the segregation
requirements with respect to the value of the instruments underlying the
futures contract.
Taxation
The Fund's hedging transactions will be subject to special provisions
of
the Internal Revenue Code of 1986, as amended (the "Code"), that, among
other
things, may affect the character of gains and losses realized by the Fund
(that is, may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the Fund and defer recognition of
certain
of the Fund's losses. These rules could therefore affect the character,
amount and timing of distributions to shareholders. In addition, these
provisions (i) will require the Fund to "mark-to-market" certain types of
positions in its portfolio (that is, treat them as if they were closed out)
and (ii) may cause the Fund to recognize income without receiving cash
with which to pay dividends or make distributions in amounts necessary
to satisfy the distribution requirements for avoiding income and excise
taxes.
The extent to which the Fund may be able to use such hedging
techniques
and continue to qualify as a regulated investment company may be limited by
certain requirements under the Code applicable to regulated investment
companies. Specifically, in order to qualify as a regulated investment
company for federal income tax purposes, the Fund must, among other things,
derive in each taxable year less than 30% of its gross income from the sale
or
other disposition of any of the following that are held for less than three
months: (i) stock or securities, (ii) options, futures or forward contracts
or
(iii) foreign currencies (or foreign currency options, futures or forward
contracts) that are not directly related to its principal business of
investing in stock or securities (or options and futures with respect to
stock
or securities). The Fund intends to monitor its transactions, will make
the
appropriate tax elections and will make the appropriate entries in its
books
and records when it acquires any foreign currency, forward contract,
option,
futures contract or hedged investment in order to mitigate the effect of
these
rules and prevent disqualification of the Fund as a regulated investment
company.
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
Please indicate your vote by an "X" in the appropriate box below.
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 PROPOSALS 1 and 2. Please refer to
the Proxy Statement for a discussion of the Proposals.
1. To elect Paolo M. Cucchi and James J. Crisona as * FOR both
nominees * WITHOUT
Class II Directors of the Fund. listed (except as marked
AUTHORITY
to the contrary below) to vote for both
ABSTAIN nominees
(Instructions: To withhold authority to vote for any nominee for
Class II director, write the appropriate name on the line provided
below:)
2. To ratify the selection of KPMG Peat Marwick LLP FOR *
AGAINST * ABSTAIN *
as the independent accountants of the Fund for the
fiscal year ending January 31, 1996.
3. To approve modification to the Fund's fundamental FOR *
AGAINST * ABSTAIN *
investment restriction regarding the issuance of
senior securities.
4. To approve modification to the Fund's fundamental FOR *
AGAINST * ABSTAIN *
investment restriction regarding short positions.
5. To approve modification to the Fund's fundamental FOR *
AGAINST * ABSTAIN *
investment restriction regarding margin purchases.
6. To approve modification to the Fund's fundamental FOR *
AGAINST * ABSTAIN *
investment restriction regarding commodities.
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
(Please Detach at Perforation Before Mailing)
THE ITALY FUND INC.- PROXY SOLICITED BY THE BOARD OF DIRECTORS
Annual Meeting on May 17, 1995
The undersigned holder of shares of The Italy Fund Inc. (the
"Fund"), a Maryland corporation, hereby appoints Heath B. McLendon
and Christina T. Sydor 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 the offices of the Fund, 388 Greenwich Street, 22nd
Floor, 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 March 31, 1995 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.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
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 your full title.
DATE: ________________________________
________________________________
________________________________
Signature(s) (Title(s), if applicable)
