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THE ITALY FUND INC.
OFFER TO PURCHASE FOR CASH UP TO 2,012,879 OF ITS ISSUED
AND OUTSTANDING SHARES AT 98% OF NET ASSET VALUE PER SHARE
THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT EASTERN
TIME ON SEPTEMBER 5, 2000, UNLESS THE OFFER IS EXTENDED.
To the Shareholders of The Italy Fund Inc.:
The Italy Fund Inc., a non-diversified, closed-end management investment
company incorporated in Maryland (the "Fund"), is offering to purchase up to
2,012,879 of its issued and outstanding shares of Common Stock, par value
$0.01 per share (the "Shares"). The offer is for cash at a price equal to 98%
of the net asset value ("NAV") per Share determined as of the close of the
regular trading session of the New York Stock Exchange, the principal market
in which the Shares are traded (the "NYSE"), on the date after the date the
offer expires, and is upon the terms and subject to the conditions set forth
in this Offer to Purchase and the related Letter of Transmittal (which
together with any amendments or supplements thereto collectively constitute
the "Offer"). The Offer will expire at 12:00 Midnight Eastern Time on
September 5, 2000, unless extended. The Shares are traded on the NYSE under
the symbol "ITA". The NAV as of the close of the regular trading session of
the NYSE on July 31, 2000 was $20.61 per Share. During the pendency of the
Offer, current NAV quotations can be obtained from Georgeson Shareholder
Communications Inc. (the "Information Agent"), by calling (800) 223-2064
between the hours of 9:00 a.m. and 5:00 p.m. Eastern Time, Monday through
Friday (except holidays). Tendering shareholders will not be obliged to pay
brokerage fees or commissions or, except as set forth in Instruction 7 of the
Letter of Transmittal, stock transfer taxes on the purchase of Shares by the
Fund pursuant to the Offer. The Fund will pay all charges and expenses of the
Information Agent and PFPC, Inc. (the "Depositary"). The Fund has mailed
materials to record holders on or about August 7, 2000, for the Offer.
This Offer is subject to certain conditions. See Section 3.
Important Information
Shareholders who desire to tender their Shares should either: (1) properly
complete and sign the Letter of Transmittal, provide thereon the original of
any required signature guarantee(s) and mail or deliver it together with the
Shares (in proper certificated or uncertificated form) and any other documents
required by the Letter of Transmittal; or (2) request their broker, dealer,
commercial bank, trust company or other nominee to effect the transaction on
their behalf. Shareholders who desire to tender Shares registered in the name
of such a firm must contact that firm to effect a tender on their behalf.
Tendering shareholders will not be obligated to pay brokerage commissions in
connection with their tender of Shares, but they may be charged a fee by such
a firm for processing the tender(s). The Fund reserves the absolute right to
reject tenders determined not to be in appropriate form.
If you do not wish to tender your Shares, you need not take any action.
Neither the Fund nor its Board of Directors nor SSB Citi Fund Management
LLC, the Fund's investment manager ("SSB Citi"), makes any recommendation to
any shareholder as to whether to tender or refrain from tendering shares. No
person has been authorized to make any recommendation on behalf of the Fund,
its Board of Directors or SSB Citi as to whether shareholders should tender or
refrain from tendering shares pursuant to the offer or to make any
representation or to give any information in connection with the offer other
than as contained herein or in the Letter of Transmittal. If made or given,
any such recommendation, representation or information must not be relied upon
as having been authorized by the Fund, its Board of Directors or SSB Citi.
Shareholders are urged to evaluate carefully all information in the Offer,
consult their own investment and tax advisers and make their own decisions
whether to tender or refrain from tendering their shares.
PFPC, Inc.
DEPOSITARY
BY REGISTERED, CERTIFIED
OR
BY FIRST CLASS MAIL: EXPRESS MAIL OR OVERNIGHT BY HAND:
COURIER:
PFPC, Inc. Securities Transfer &
PFPC, Inc. c/o EquiServe Trust Reporting
c/o EquiServe Trust Company, N.A. Services, Inc.
Company, N.A. Attn: Corporate Actions c/o EquiServe Trust
P.O. Box 9573 40 Campanelli Drive Company, N.A.
Boston, MA 02205-9573 Braintree, MA 02184 100 William Street
New York, NY 10038
GEORGESON SHAREHOLDERS COMMUNICATIONS INC.,
INFORMATION AGENT
17 State Street, 10th Floor
New York, New York 10004
Bank and Brokers Call Collect:
(212) 440-9800
All Others Call Toll Free:
(800) 223-2064
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY TERM SHEET................................................................... 1
1.Price; Number of Shares........................................................... 4
2.Purpose of the Offer; Plans or Proposals of the Fund.............................. 4
3.Certain Conditions of the Offer................................................... 5
4.Procedures for Tendering Shares................................................... 5
a.Proper Tender of Shares........................................................ 5
b.Signature Guarantees and Method of Delivery.................................... 6
c.Book-Entry Delivery............................................................ 7
d.Guaranteed Delivery............................................................ 7
e.Determinations of Validity..................................................... 8
f.United States Federal Income Tax Withholding................................... 8
5.Withdrawal Rights................................................................. 8
6.Payment for Shares................................................................ 9
7.Source and Amount of Funds........................................................ 9
8.Price Range of Shares; Dividends/Distributions.................................... 10
9.Selected Financial Information.................................................... 11
10.Interest of Directors, Executive Officers and Certain Related Persons............. 13
11.Certain Information about the Fund................................................ 13
12.Additional Information............................................................ 13
13.Certain United States Federal Income Tax Consequences............................. 13
14.Amendments; Extension of Tender Period; Termination............................... 15
16.Miscellaneous..................................................................... 15
</TABLE>
(i)
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SUMMARY TERM SHEET
(Section references are to the Offer to Purchase)
This Summary Term Sheet highlights certain information concerning this
tender offer. To understand the offer fully and for a more complete discussion
of the terms and conditions of the offer, you should read carefully the entire
Offer to Purchase and the related Letter of Transmittal.
What is the tender offer?
. The Italy Fund Inc. (the "Fund") is offering to purchase up to 2,012,879 of
its shares of Common Stock for cash at a price per share equal to 98% of
the per share net asset value as of the close of regular trading session of
the NYSE on September 6, 2000 (or, if the offer is extended, on the date
after the date to which the offer is extended) upon specified terms and
subject to conditions as set forth in the tender offer documents.
Why is the Fund making this tender offer?
. In July 2000, the Board of Directors of the Fund, in recognition of the
fact that the Fund's shares have traded at a discount to their net asset
value and on the recommendation of SSB Citi Fund Management, its investment
adviser, determined that it was in the best interests of the Fund to
initiate this tender offer. After the completion of the tender offer, the
Board will continue to evaluate other options in its ongoing efforts to
address the discount and will take further actions as necessary.
When will the tender offer expire, and may the offer be extended?
. The tender offer will expire at 12:00 Midnight Eastern Time on September 5,
2000, unless extended. The Fund may extend the period of time the offer
will be open by issuing a press release or making some other public
announcement by no later than the next business day after the offer
otherwise would have expired. See Section 15.
What is the net asset value per Fund share as of a recent date?
. As of July 31, 2000, the net asset value per share was $20.61. See Section
8 of the Offer to Purchase for details. During the pendency of the tender
offer, current net asset value quotations can be obtained from Georgeson
Shareholder Communications Inc. by calling (800) 223-2064 between 9:00 a.m.
and 5:00 p.m. Eastern Time, Monday through Friday (except holidays).
Will the net asset value be higher or lower on the date that the price to be
paid for tendered shares is to be determined?
. No one can accurately predict the net asset value at a future date.
How do I tender my shares?
. If your shares are registered in your name, you should obtain the tender
offer materials, including the Offer to Purchase and the related Letter of
Transmittal, read them, and if you should decide to tender, complete a
Letter of Transmittal and submit any other documents required by the Letter
of Transmittal. These materials must be received by PFPC, Inc., the
Depositary, in proper form before 12:00 Midnight Eastern Time on September
5, 2000 (unless the tender offer is extended by the Fund in which case the
new deadline will be as stated in the public announcement of the
extension). If your shares are held by a broker, dealer, commercial bank,
trust company or other nominee (e.g., in "street name"), you should contact
that firm to obtain the package of information necessary to make your
decision, and you can only tender your shares by
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directing that firm to complete, compile and deliver the necessary
documents for submission to the Depositary by September 5, 2000 (or if the
offer is extended, the expiration date as extended). See Section 4.
May I withdraw my shares after I have tendered them and, if so, by when?
. Yes, you may withdraw your shares at any time prior to 12:00 midnight
Eastern Time on September 5, 2000 (or if the offer is extended, at any time
prior to 12:00 midnight Eastern Time on the new expiration date). Withdrawn
shares may be re-tendered by following the tender procedures before the
offer expires (including any extension period). In addition, if shares
tendered have not by then been accepted for payment, you may withdraw your
tendered shares at any time after October 2, 2000. See Section 5.
How do I withdraw tendered shares?
. A notice of withdrawal of tendered shares must be timely received by PFPC,
Inc., which specifies the name of the shareholder who tendered the shares,
the number of shares being withdrawn (which must be all of the shares
tendered) and, as regards share certificates which represent tendered
shares that have been delivered or otherwise identified to PFPC, Inc., the
name of the registered owner of such shares if different than the person
who tendered the shares. See Section 5.
May I place any conditions on my tender of shares?
. No.
What if more than 2,012,879 shares are tendered (and not timely withdrawn)?
. The Fund will purchase duly tendered shares from tendering shareholders
pursuant to the terms and conditions of the tender offer on a pro rata
basis (disregarding fractions) in accordance with the number of shares
tendered by each shareholder (and not timely withdrawn), unless the Fund
determines not to purchase any shares.
Does the Fund have the financial resources to make payment?
. Yes. Although permitted to do so, the Fund does not expect to borrow money
to finance the purchase of any tendered shares. See Section 7.
If shares I tender are accepted by the Fund, when will payment be made?
. It is contemplated, subject to change, that payment for tendered shares, if
accepted, will be made as soon as possible after September 11, 2000. See
Section 6.
Is my sale of shares in the tender offer a taxable transaction?
. For most shareholders, yes. All U.S. shareholders other than those who are
tax exempt who sell shares in the tender offer will recognize gain or loss
for U.S. federal income tax purposes equal to the difference between the
cash they receive for the shares sold and their adjusted basis in the
shares. The sale date for tax purposes will be the date the Fund accepts
shares for purchase. See Section 14 for details, including the nature of
the income or loss and the differing rules for U.S. and non-U.S.
shareholders. Please consult your tax advisor as well.
Is the Fund required to complete the tender offer and purchase all shares
tendered up to the number of shares tendered for?
. Yes, unless certain conditions described in Section 3 are not satisfied.
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Is there any reason shares tendered would not be accepted?
. In addition to those circumstances described in Section 3 in which the Fund
is not required to accept tendered shares, the Fund has reserved the right
to reject any and all tenders determined by it not to be in appropriate
form. Tenders will be rejected if they do not include original signature(s)
or the original of any required signature guarantee(s).
How will tendered shares be accepted for payment?
. Properly tendered shares, up to the number tendered for, will be accepted
for payment by a determination of the Fund's Board of Directors followed by
notice of acceptance to PFPC, Inc. which is thereafter to make payment as
directed by the Fund with funds to be deposited with it by the Fund. See
Section 6.
What action need I take if I decide not to tender my shares?
. None.
Does management encourage shareholders to participate in the tender offer, and
will they participate in the tender offer?
. No. Neither the Fund, its Board of Directors nor the Fund's investment
adviser is making any recommendation to tender or not to tender shares in
the tender offer. Phillip F. Goldstein and Glenn S. Goodstein, directors of
the Fund, intend to tender their shares. No other director or officer of
the Fund intends to tender shares. See Section 10.
How do I obtain information?
. Questions, requests for assistance and requests for additional copies of
the Offer to Purchase, the Letter of Transmittal and all other tender offer
documents should be directed to Georgeson Shareholder Communications Inc.,
the Information Agent for the tender offer, toll free at (800) 233-2064. If
you do not own shares directly, you should obtain this information and the
documents from your broker, dealer, commercial bank, trust company or other
nominee, as appropriate.
3
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1. Price; Number of Shares. Upon the terms and subject to the conditions of
the Offer, the Fund will accept for payment and purchase for cash up to
2,012,879 of its issued and outstanding Shares that are properly tendered
prior to 12:00 Midnight Eastern Time on September 5, 2000 (and not withdrawn
in accordance with Section 5). The Fund reserves the right to amend, extend or
terminate the Offer. See Sections 3 and 15. The Fund will not be obligated to
purchase Shares pursuant to the Offer under certain circumstances. See Section
3. The later of September 5, 2000 or the latest date to which the Offer is
extended is hereinafter called the "Expiration Date." The purchase price of
the Shares will be 98% of their NAV per Share determined as of the close of
the regular trading session of the NYSE on the date after the Expiration Date.
The Fund will not pay interest on the purchase price under any circumstances.
The NAV as of the close of the regular trading session of the NYSE on July 31,
2000 was $20.61 per Share. During the pendency of the Offer, current NAV
quotations can be obtained from the Information Agent by calling (800) 223-
2064 between the hours of 9:00 a.m. and 5:00 p.m. Eastern Time, Monday through
Friday (except holidays).
The Offer is being made to all shareholders and is not conditioned upon
shareholders tendering in the aggregate any minimum number of Shares.
If more than 2,012,879 Shares are duly tendered pursuant to the Offer (and
not withdrawn as provided in Section 5), unless the Fund determines not to
purchase any Shares, the Fund will purchase Shares from tendering
shareholders, in accordance with the terms and conditions specified in the
Offer, on a pro rata basis (disregarding fractions), in accordance with the
number of Shares duly tendered by or on behalf of each shareholder (and not so
withdrawn). The Fund does not contemplate extending the Offer and increasing
the number of Shares covered thereby by reason of more than 2,012,879 Shares
having been tendered.
On July 31, 2000, there were 8,051,515 Shares issued and outstanding, and
there were 503 holders of record of Shares. Certain of these holders of record
were brokers, dealers, commercial banks, trust companies and other
institutions that held Shares in nominee name on behalf of multiple beneficial
owners.
2. Purpose of the Offer; Plans or Proposals of the Fund. The Board of
Directors of the Fund (the "Board") at a meeting held on July 6, 2000
considered and approved the Offer.
The Board has, over the years, discussed the significance of the existence
of the discount to net asset value at which the Fund's shares have traded on
the NYSE and the impact on shareholders of the discount. The Board has
discussed and considered various alternative strategies to address the
discount, including instituting share repurchases, combining with other funds,
converting to an open-end format, or liquidating. The Board has, however,
consistently concluded that it was in the best interests of the Fund and its
shareholders to maintain the current closed-end format, because, in the view
of the Board and of SSB Citi, the closed-end format is the most appropriate
investment vehicle for participating in the Italian equities markets. In SSB
Citi's view, many attractive equity investment opportunities in Italy have
been and continue to be found in the small-capitalization and less liquid
sectors of those markets. The Board believes that the long-term and recent
performance of the Fund supports this view.
The alternatives available to the Fund, including the full range of
alternatives that has been reviewed in the past discussions of the discount
issue, were considered at meetings of the Board held on May 10 and July 6,
2000. After consideration of these alternatives, SSB Citi recommended, and the
Board approved, making a tender offer for up to 25% of its common stock.
The Board believes that the Offer serves the best interests of the Fund and
its shareholders. After the completion of the tender offer, the Board will
continue to evaluate other options in their ongoing efforts to address the
discount and will take further actions as necessary.
Except as set forth above, the Fund does not have any present plans or
proposals and is not engaged in any negotiations that relate to or would
result in (a) any extraordinary transaction, such as a merger, reorganization
or liquidation, involving the Fund or any of its subsidiaries; (b) other than
in connection with transactions in the ordinary course of the Fund's
operations and for purposes of funding the Offer, any purchase, sale or
transfer of
4
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a material amount of assets of the Fund or any of its subsidiaries; (c) any
material change in the Fund's present dividend policy, or indebtedness or
capitalization of the Fund; (d) any change in the composition of the Board or
management of the Fund, including, but not limited to, any plans or proposals
to change the number or the term of members of the Board, to fill any existing
vacancies on the Board or to change any material term of the employment
contract of any executive officer; (e) any other material change in the Fund's
corporate structure or business, including any plans or proposals to make any
changes in the Fund's investment policy for which a vote would be required by
Section 13 of the Investment Company Act of 1940, as amended (the "1940 Act");
(f) any class of equity securities of the Fund to be delisted from a national
securities exchange or to cease to be authorized to be quoted in an automated
quotations system operated by a national securities association; (g) any class
of equity securities of the Fund becoming eligible for termination of
registration pursuant to Section 12(g)(4) of the Exchange Act; (h) the
suspension of the Fund's obligation to file reports pursuant to Section 15(d)
of the Exchange Act; (i) the acquisition by any person of additional
securities of the Fund, or the disposition of securities of the Fund; or (j)
any changes in the Fund's charter, bylaws or other governing instruments or
other actions that could impede the acquisition of control of the Fund.
3. Certain Conditions of the Offer. Notwithstanding any other provision of
the Offer, the Fund will not purchase shares pursuant to the Offer if (a) the
Fund would not be able to liquidate portfolio securities in an orderly manner
and consistent with the Fund's investment objective and policies in order to
purchase Shares tendered pursuant to the Offer; (b) there is any (i) material
legal action or proceeding instituted or threatened which challenges, in the
Board's judgment, the Offer or otherwise materially adversely affects the
Fund, (ii) suspension of or limitation on prices for trading securities
generally on the NYSE or any foreign exchange on which portfolio securities of
the Fund are traded, (iii) declaration of a banking moratorium by Federal,
state or foreign authorities or any suspension of payment by banks in the
United States, New York State or in a foreign country which is material to the
Fund, (iv) limitation which affects the Fund or the issuers of its portfolio
securities imposed by Federal, state or foreign authorities on the extension
of credit by lending institutions or on the exchange of foreign currencies,
(v) commencement of war, armed hostilities or other international or national
calamity directly or indirectly involving the United States or any foreign
country that is material to the Fund, or (vi) other event or condition which,
in the Board's judgment, would have a material adverse effect on the Fund or
its shareholders if Shares tendered pursuant to the Offer were purchased; or
(c) the Board determines that effecting the transaction would constitute a
breach of their fiduciary duty owed the Fund or its shareholders. The Board
may modify these conditions in light of experience.
The foregoing conditions are for the Fund's sole benefit and may be asserted
by the Fund regardless of the circumstances giving rise to any such condition
(including any action or inaction of the Fund), and any such condition may be
waived by the Fund, in whole or in part, at any time and from time to time in
its reasonable judgment. The Fund's failure at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right; the waiver of
any such right with respect to particular facts and circumstances shall not be
deemed a waiver with respect to any other facts or circumstances; and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time. Any determination by the Fund concerning the events
described in this Section 3 shall be final and binding.
The Fund reserves the right, at any time during the pendency of the Offer,
to amend, extend or terminate the Offer in any respect. See Section 15.
4. Procedures for Tendering Shares.
a. Proper Tender of Shares. For Shares to be properly tendered pursuant to
the Offer, a shareholder must cause a properly completed and duly executed
Letter of Transmittal bearing original signature(s) and the original of any
required signature guarantee(s), and any other documents required by the
Letter of Transmittal, to be received by the Depositary at the appropriate
address set forth on the front cover of this Offer and must either cause
certificates for tendered Shares to be received by the Depositary at such
address or cause such Shares to be delivered pursuant to the procedures for
book-entry delivery set forth below (and confirmation of receipt of
5
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such delivery to be received by the Depositary), in each case before 12:00
Midnight Eastern Time on the Expiration Date, or (in lieu of the foregoing)
such shareholder must comply with the guaranteed delivery procedures set forth
below. Letters of Transmittal and certificates representing tendered Shares
should not be sent or delivered to the Fund. Shareholders who desire to tender
Shares registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact that firm to effect a tender on their
behalf.
Section 14(e) of the Exchange Act and Rule 14e-4 promulgated thereunder make
it unlawful for any person, acting alone or in concert with others, directly
or indirectly, to tender Shares in a partial tender offer for such person's
own account unless at the time of tender, and at the time the Shares are
accepted for payment, the person tendering has a net long position equal to or
greater than the amount tendered in (a) Shares and will deliver or cause to be
delivered such Shares for the purpose of tender to the Fund within the period
specified in the Offer, or (b) an equivalent security and, upon the acceptance
of his or her tender, will acquire Shares by conversion, exchange, or exercise
of such equivalent security to the extent required by the terms of the Offer,
and will deliver or cause to be delivered the Shares so acquired for the
purpose of tender to the Fund prior to or on the Expiration Date. Section
14(e) and Rule 14e-4 provide a similar restriction applicable to the tender or
guarantee of a tender on behalf of another person.
The acceptance of Shares by the Fund for payment will constitute a binding
agreement between the tendering shareholder and the Fund upon the terms and
subject to the conditions of the Offer, including the tendering shareholder's
representation that the shareholder has a net long position in the Shares
being tendered within the meaning of Rule 14e-4 and that the tender of such
Shares complies with Rule 14e-4.
b. Signature Guarantees and Method of Delivery. No signature guarantee is
required if (a) the Letter of Transmittal is signed by the registered
holder(s) (including, for purposes of this document, any participant in The
Depository Trust Company ("DTC") book-entry transfer facility whose name
appears on DTC's security position listing as the owner of Shares) of the
Shares tendered thereby, unless such holder(s) has completed either the box
entitled "Special Payment Instructions" or the box entitled "Special Delivery
Instructions" in the Letter of Transmittal or (b) the Shares tendered are
tendered for the account of a firm (an "Eligible Institution") which is a
broker, dealer, commercial bank, credit union, savings association or other
entity and which is a member in good standing of a stock transfer
association's approved medallion program (such as STAMP, SEMP or MSP). In all
other cases, all signatures on the Letter of Transmittal must be guaranteed by
an Eligible Institution. See Instruction 5 of the Letter of Transmittal.
If the Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered thereby, the signature(s) must correspond with the name(s) as
written on the face of the certificate(s) for the Shares tendered without
alteration, enlargement or any change whatsoever.
If any of the Shares tendered thereby are owned of record by two or more
joint owners, all such owners must sign the Letter of Transmittal.
If any of the tendered Shares are registered in different names, it is
necessary to complete, sign and submit as many separate Letters of Transmittal
as there are different registrations.
If the Letter of Transmittal or any certificates for Shares tendered or
stock powers relating to Shares tendered are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and proper evidence satisfactory to the Fund of
their authority so to act must be submitted.
If the Letter of Transmittal is signed by the registered holder(s) of the
Shares transmitted therewith, no endorsements of certificates or separate
stock powers with respect to such Shares are required unless payment is to be
made to, or certificates for Shares not purchased are to be issued in the name
of, a person other than the registered holder(s). Signatures on such
certificates or stock powers must be guaranteed by an Eligible Institution.
6
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If the Letter of Transmittal is signed by a person other than the registered
holder(s) of the certificate(s) listed thereon, the certificate(s) must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on the
certificate(s) for the Shares involved. Signatures on such certificates or
stock powers must be guaranteed by an Eligible Institution. See Section 6.
c. Book-Entry Delivery. The Depositary has established an account with
respect to the Shares at DTC for purposes of the Offer. Any financial
institution that is a participant in the DTC system may make book-entry
delivery of tendered Shares by causing DTC to transfer such Shares into the
Depositary's account at DTC in accordance with DTC's procedures for such
transfers. However, although delivery of Shares may be effected through book-
entry transfer into the Depositary's account at DTC, a Letter of Transmittal
(or a copy or facsimile thereof) properly completed and bearing original
signature(s) and the original of any required signature guarantee(s), or an
Agent's Message (as defined below) in connection with a book-entry transfer
and any other documents required by the Letter of Transmittal, must in any
case be received by the Depositary prior to 12:00 Midnight Eastern Time on the
Expiration Date at one of its addresses set forth on page 2 of this Offer, or
the tendering shareholder must comply with the guaranteed delivery procedures
described below.
The term "Agent's Message" means a message from DTC transmitted to, and
received by, the Depositary forming a part of a timely confirmation of a book-
entry transfer of Shares (a "Book-Entry Confirmation") which states that (a)
DTC has received an express acknowledgment from the DTC participant tendering
the Shares that are the subject of the Book-Entry Confirmation, (b) the DTC
participant has received and agrees to be bound by the terms of the Letter of
Transmittal, and (c) the Fund may enforce such agreement against the DTC
participant.
Delivery of documents to DTC in accordance with DTC's procedures does not
constitute delivery to the Depositary.
d. Guaranteed Delivery. Notwithstanding the foregoing, if a shareholder
desires to tender Shares pursuant to the Offer and the certificates for the
Shares to be tendered are not immediately available, or time will not permit
the Letter of Transmittal and all documents required by the Letter of
Transmittal to reach the Depositary prior to 12:00 Midnight Eastern Time on
the Expiration Date, or a shareholder cannot complete the procedures for
delivery by book-entry transfer on a timely basis, then such shareholder's
Shares may nevertheless be tendered, provided that all of the following
conditions are satisfied:
(i) the tender is made by or through an Eligible Institution; and
(ii) a properly completed and duly executed Notice of Guaranteed Delivery
in the form provided by the Fund is received by the Depositary prior to
12:00 Midnight Eastern Time on the Expiration Date; and
(iii) the certificates for all such tendered Shares, in proper form for
transfer, or a Book-Entry Confirmation with respect to such Shares, as the
case may be, together with a Letter of Transmittal (or a copy or facsimile
thereof) properly completed and bearing original signature(s) and the
original of any required signature guarantee(s) (or, in the case of a book-
entry transfer, an Agent's Message) and any documents required by the
Letter of Transmittal, are received by the Depositary prior to 5:00 P.M.
Eastern Time on the second NYSE trading day after the date of execution of
the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmission or mail to the Depositary and must include a guarantee
by an Eligible Institution and a representation that the shareholder owns the
Shares tendered within the meaning of, and that the tender of the Shares
effected thereby complies with, Rule 14e-4 under the Exchange Act, each in the
form set forth in the Notice of Guaranteed Delivery.
The method of delivery of any documents, including share certificates, the
Letter of Transmittal and any other required documents, is at the option and
sole risk of the tendering shareholder. If documents are sent by mail,
registered mail with return receipt requested, properly insured, is
recommended. Shareholders have the responsibility to cause their Shares to be
tendered (in proper certificated or uncertificated form), the Letter of
Transmittal (or a copy or facsimile thereof) properly completed and bearing
original
7
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signature(s) and the original of any required signature guarantee(s) and any
other documents required by the Letter of Transmittal, to be timely delivered.
Timely delivery is a condition precedent to acceptance of Shares for purchase
pursuant to the Offer and to payment of the purchase amount.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of Share certificates evidencing such Shares or a
Book-Entry Confirmation of the delivery of such Shares (if available), a
Letter of Transmittal (or a copy or facsimile thereof) properly completed and
bearing original signature(s) and the original of any required signature
guarantee(s) or, in the case of a book-entry transfer, an Agent's Message and
any other documents required by the Letter of Transmittal.
e. Determinations of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of tenders will be
determined by the Fund, in its sole discretion, which determination shall be
final and binding. The Fund reserves the absolute right to reject any or all
tenders determined not to be in appropriate form or to refuse to accept for
payment, purchase, or pay for, any Shares if, in the opinion of the Fund's
counsel, accepting, purchasing or paying for such Shares would be unlawful.
The Fund also reserves the absolute right to waive any of the conditions of
the Offer or any defect in any tender, whether generally or with respect to
any particular Share(s) or shareholder(s). The Fund's interpretations of the
terms and conditions of the Offer shall be final and binding.
Neither the Fund, its Board of Directors, SSB Citi, the Depositary nor any
other person is or will be obligated to give any notice of any defect or
irregularity in any tender, and none of them will incur any liability for
failure to give any such notice.
f. United States Federal Income Tax Withholding. To prevent the imposition
of a U.S. federal backup withholding tax equal to 31% of the gross payments
made pursuant to the Offer, prior to such payments each shareholder accepting
the Offer who has not previously submitted to the Fund a correct, completed
and signed Form W-9 (for U.S. shareholders) or Form W-8 (for non-U.S.
shareholders), or otherwise established an exemption from such withholding,
must submit the appropriate form to the Depositary. See Section 14.
Under certain circumstances (see Section 14), the Depositary will withhold a
tax equal to 30% of the gross payments payable to a non-U.S. shareholder
unless the Depositary determines that a reduced rate of withholding or an
exemption from withholding is applicable. (Exemption from backup withholding
tax does not exempt a non-U.S. shareholder from the 30% withholding tax.) For
this purpose, a Non-U.S. shareholder, is, in general, a shareholder that is
not (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States, any State thereof or the District of Columbia, (iii) an estate
the income of which is subject to United States federal income taxation
regardless of the source of such income, or (iv) a trust if a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust (a "Non-U.S. shareholder"). The Depositary
will determine a shareholder's status as a Non-U.S. shareholder and the
shareholder's eligibility for a reduced rate of, or an exemption from,
withholding by reference to any outstanding certificates or statements
concerning such eligibility, unless facts and circumstances indicate that such
reliance is not warranted. A Non-U.S. shareholder that has not previously
submitted the appropriate certificates or statements with respect to a reduced
rate of, or exemption from, withholding for which such shareholder may be
eligible should consider doing so in order to avoid over-withholding. See
Section 14.
5. Withdrawal Rights. At any time prior to 12:00 Midnight Eastern Time on
the Expiration Date, and, if the Shares have not by then been accepted for
payment by the Fund, at any time after October 2, 2000, any shareholder may
withdraw all, but not less than all, of the Shares that the shareholder has
tendered.
To be effective, a written notice of withdrawal of Shares tendered must be
timely received by the Depositary at the appropriate address set forth on page
2 of this Offer. Shareholders may also send a facsimile transmission notice of
withdrawal, which must be timely received by the Depositary at (781) 575-4826,
and the original notice
8
<PAGE>
of withdrawal must be delivered to the Depositary by overnight courier or by
hand the next day. Any notice of withdrawal must specify the name(s) of the
person having tendered the Shares to be withdrawn, the number of Shares to be
withdrawn (which may not be less than all of the Shares tendered by the
shareholder--see Sections 1 and 14) and, if one or more certificates
representing such Shares have been delivered or otherwise identified to the
Depositary, the name(s) of the registered owner(s) of such Shares as set forth
in such certificate(s) if different from the name(s) of the person tendering
the Shares. If one or more certificates have been delivered to the Depositary,
then, prior to the release of such certificate(s), the certificate number(s)
shown on the particular certificate(s) evidencing such Shares must also be
submitted and the signature on the notice of withdrawal must be guaranteed by
an Eligible Institution.
All questions as to the validity, form and eligibility (including time of
receipt) of notices of withdrawal will be determined by the Fund in its sole
discretion, which determination shall be final and binding. Shares properly
withdrawn will not thereafter be deemed to be tendered for purposes of the
Offer. Withdrawn Shares, however, may be re-tendered by following the
procedures described in Section 4 prior to 12:00 Midnight Eastern Time on the
Expiration Date. Except as otherwise provided in this Section 5, tenders of
Shares made pursuant to the Offer will be irrevocable.
Neither the Fund, its Board of Directors, SSB Citi, the Depositary nor any
other person is or will be obligated to give any notice of any defect or
irregularity in any notice of withdrawal, nor shall any of them incur any
liability for failure to give any such notice.
6. Payment for Shares. For purposes of the Offer, the Fund will be deemed to
have accepted for payment and purchased Shares that are tendered (and not
withdrawn in accordance with Section 5 pursuant to the Offer) when, as and if
it gives oral or written notice to the Depositary of its acceptance of such
Shares for payment pursuant to the Offer. Under the Exchange Act, the Fund is
obligated to pay for or return tendered Shares promptly after the termination,
expiration or withdrawal of the Offer. Upon the terms and subject to the
conditions of the Offer, the Fund will pay for Shares properly tendered as
soon as practicable after the Expiration Date. The Fund will make payment for
Shares purchased pursuant to the Offer by depositing the aggregate purchase
price therefor with the Depositary, which will make payment to shareholders
promptly as directed by the Fund. The Fund will not pay interest on the
purchase price under any circumstances.
In all cases, payment for Shares purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of: (a) a Letter of
Transmittal (or a copy thereof) properly completed and bearing original
signature(s) and any required signature guarantee(s), (b) such Shares (in
proper certificated or uncertificated form) and (c) any other documents
required by the Letter of Transmittal. Shareholders may be charged a fee by a
broker, dealer or other institution for processing the tender requested.
Certificates representing Shares tendered but not purchased will be returned
promptly following the termination, expiration or withdrawal of the Offer,
without further expense to the tendering shareholder. The Fund will pay any
transfer taxes payable on the transfer to it of Shares purchased pursuant to
the Offer. If, however, tendered Shares are registered in the name of any
person other than the person signing the Letter of Transmittal, the amount of
any such transfer taxes (whether imposed on the registered owner or such other
person) payable on account of the transfer to such person of such Shares will
be deducted from the purchase price unless satisfactory evidence of the
payment of such taxes, or exemption therefrom, is submitted. The Fund may not
be obligated to purchase Shares pursuant to the Offer under certain
conditions. See Section 3.
Any tendering shareholder or other payee who has not previously submitted a
correct, completed and signed Form W-8 or Form W-9, as necessary, and who
fails to complete fully and sign either the Form W-8 or Substitute Form W-9 in
the Letter of Transmittal and provide that form to the Depositary, may be
subject to federal backup withholding tax of 31% of the gross proceeds paid to
such shareholder or other payee pursuant to the Offer. See Section 14
regarding this tax as well as possible withholding at the rate of 30% (or
lower applicable treaty rate) on the gross proceeds payable to tendering Non-
U.S. shareholders.
7. Source and Amount of Funds. The total cost to the Fund of purchasing
2,012,879 of its issued and outstanding Shares pursuant to the Offer would be
$40,660,156 (based on a price per Share of $20.20, 98% of
9
<PAGE>
the NAV as of the close of the regular trading session of the NYSE on July 31,
2000). On July 31, 2000, the aggregate value of the Fund's net assets was
$165,908,234.
To pay the aggregate purchase price of Shares accepted for payment pursuant
to the Offer, the Fund anticipates that funds will first be derived from any
cash on hand and then from the proceeds from the sale of portfolio securities
held by the Fund. The selection of which portfolio securities to sell, if any,
will be made by SSB Citi, taking into account investment merit, relative
liquidity and applicable investment restrictions and legal requirements.
Although the Fund is authorized to borrow money to finance the purchase of
Shares, the Board believes that the Fund will have sufficient resources
through cash on hand and the disposition of assets to purchase Shares in the
Offer without utilizing such borrowing. However, the Fund reserves the right
to finance a portion of the Offer through temporary borrowing.
Because the Fund may sell portfolio securities to raise cash for the
purchase of Shares, during the pendency of the Offer, and possibly for a short
time thereafter, the Fund may hold a greater than normal percentage of its
assets in cash and cash equivalents, which would tend to decrease the Fund's
net income. As of July 31, 2000, cash and cash equivalents constituted
approximately 1.9% of the Fund's total assets.
Under some market circumstances, it may be necessary for the Fund to raise
cash by liquidating portfolio securities in a manner that could reduce the
market value of such securities and, thus, reduce both the NAV of the Shares
and the proceeds from the sale of such securities. Liquidating portfolio
securities, if necessary, may also lead to the premature disposition of
portfolio investments and additional transaction costs. Depending upon the
timing of such sales, any such decline in NAV may adversely affect any
tendering shareholders whose Shares are accepted for purchase by the Fund, as
well as those shareholders who do not sell Shares pursuant to the Offer.
Shareholders who retain their Shares may be subject to certain other effects
of the Offer. See Section 11.
8. Price Range of Shares; Dividends/Distributions. The following table sets
forth, for the periods indicated, the high and low NAVs per Share and the high
and low closing sale prices per Share as reported on the NYSE Composite Tape,
and the amounts of cash dividends/distributions per Share paid during such
periods.
<TABLE>
<CAPTION>
Net Asset
Value Market Price
------------- ---------------- Dividends/
High Low High Low Distributions
------ ------ ------- -------- --------------------
<S> <C> <C> <C> <C> <C>
Fiscal Year (ending
January 31)
1999
1st Quarter........... $19.37 $14.66 $ 16.50 $12.3125 $ --
2nd Quarter........... 19.22 16.23 15.50 13.50 --
3rd Quarter........... 17.66 13.59 14.3125 10.5625 --
4th Quarter........... 19.33 16.08 16.75 13.75 0.21 Dividends
0.2466 Capital Gains
2000
1st Quarter........... 18.55 17.23 15.50 14.4375 --
2nd Quarter........... 18.11 17.08 15.25 14.3125 0.05 Capital Gains
3rd Quarter........... 17.69 16.20 14.9375 13.8125 0.05 Capital Gains
4th Quarter........... 20.38 16.40 17.125 13.75 0.2457 Dividends
1.9372 Capital Gains
2001
1st Quarter........... 25.22 19.53 21.3125 16.75 --
2nd Quarter .......... 21.78 18.49 19.25 16 0.2297 Dividend
1.2944 Capital Gain
</TABLE>
As of the close of business on July 31, 2000, the Fund's NAV was $20.61 per
Share, and the high, low and closing prices per Share on the NYSE on that date
were $18.375, $18.25 and $18.3125, respectively. During the pendency of the
Offer, current NAV quotations can be obtained by contacting the Depositary in
the manner indicated in Section 1.
10
<PAGE>
The tendering of Shares, unless and until shares tendered are accepted for
payment and purchase, will not affect the record ownership of any such
tendered Shares for purposes of entitlement to any dividends payable by the
Fund.
9. Selected Financial Information. The table below is intended to help you
understand the financial performance of the Fund. This information is derived
from financial and accounting records of the Fund.
This information has been audited, except as noted, by KPMG, the Funds'
independent auditors, whose reports, along with the Fund's financial
statements, are incorporated herein by reference and included in the Fund's
Annual Reports to Shareholders. The Annual Reports may be obtained without
charge, by writing to Georgeson Shareholder Communications Inc., 17 State
Street, 10th Floor, New York, New York 10004, or by calling (800) 223-2064.
11
<PAGE>
The Italy Fund Inc.
Financial Highlights
The following table includes per share operating performance data for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data for each period indicated. This
information has been derived from information provided in the financial
statements and market price data for the Fund's shares.
<TABLE>
<CAPTION>
Three Months
Ended For the Years Ended January 31,
April 30, -----------------------------------------------
2000 2000 1999 1998 1997 1996
------------ -------- -------- -------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period.... $ 19.24 $ 18.09 $ 14.49 $ 11.94 $ 9.56 $ 9.82
-------- -------- -------- -------- -------
Net investment income... 0.03 0.12 0.17 0.07 0.10 0.15
Net realized and
unrealized gain/(loss)
on investments and
foreign currency
related transactions... 1.50 3.94 3.82 2.50 2.52 (0.39)
-------- -------- -------- -------- -------
Net increase/(decrease)
in net assets resulting
from operations........ 1.53 4.06 3.99 2.57 2.62 (0.24)
-------- -------- -------- -------- -------
Dividends and
distributions to
shareholders:
Net investment income... -- (0.24) (0.20) (0.02) (0.24) (0.02)
Net realized gain on
investments and foreign
currency related
transactions........... (2.94) (0.26)
In excess of net
realized gains.........
-------- -------- -------- -------- -------
Total dividends and
distributions to
shareholders.......... -- (3.18) (0.46) (0.02) (0.24) (0.02)
-------- -------- -------- -------- -------
Gain on treasury stock
repurchases............ 0.11 0.27 0.07
Dilutive impact due to
capital share rights
offering............... --
-------- -------- -------- -------- -------
Net asset value, end of
period................. 20.88 19.24 18.09 14.49 11.94 9.56
======== ======== ======== ======== =======
Market value, end of
period................. 18.125 16.688 14.938 12.125 10.00 8.25
======== ======== ======== ======== =======
Total investment return
(a)................... 8.61 35.61 26.96 21.53 24.49 (5.51)
======== ======== ======== ======== =======
Ratios And Supplemental
Data
Net assets, end of
period (000 omitted)... 169,120 160,731 167,682 137,712 113,433 90,841
Ratio of expenses to
average net assets
(c).................... 1.18 1.23 1.22 1.29 1.42 1.42
Ratio of expenses to
average net assets,
excluding fee waivers.. -- -- -- --
Ratio of expenses to
average net assets,
excluding taxes........ -- -- -- --
Ratio of net investment
income to average net
assets................. 0.50 0.68 0.58 0.61 0.97 1.12
Portfolio turnover
rate................... 20 28 22 16 47 58
<CAPTION>
For the Years Ended January 31,
------------------------------------------------------------
1995 1994 1993 1992 1991 1990
------------ -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period.... 9.84 8.43 11.08 11.37 13.24 9.91
Net investment income... 0.09 0.12 0.19 0.25 0.32 0.17
Net realized and
unrealized gain/(loss)
on investments and
foreign currency
related transactions... 0.06 1.72 (2.84) 0.03 (1.01) 3.31
Net increase/(decrease)
in net assets resulting
from operations........ 0.15 1.84 (2.65) 0.28 (0.69) 3.48
Dividends and
distributions to
shareholders:
Net investment income... (0.06) (0.07) (0.25) (0.34) (0.15)
Overdistributions of
investment income...... (0.11)
Net realized gain on
investments and foreign
currency related
transactions........... (0.24) (0.58)
Distributions from
capital................ (0.01) (0.08) (0.26)
Total dividends and
distributions to
shareholders.......... (0.17) (0.08) (0.57) (1.18) (0.15)
Anti-dilutive impact due
to capital shares
repurchased............ -- -- --
Dilutive impact due to
capital share rights
offering............... (0.32)
Offering expense charged
to paid in capital..... (0.03)
Net asset value, end of
period................. 9.82 9.84 8.43 11.08 11.37 13.24
Market value, end of
period................. 8.75 12.375 8.875 9.50 10 17.50
Total investment return
(a)................... (27.90) 40.54 (6.58) 1 (36.14) 121.31
Ratios And Supplemental
Data
Net assets, end of
period (000 omitted)... 93,347 93,518 53,384 70,186 72,055 83,902
Ratio of expenses to
average net assets
(c).................... 1.69 1.69 1.70 1.53 1.80 1.90
Ratio of expenses to
average net assets,
excluding fee waivers.. --
Ratio of expenses to
average net assets,
excluding taxes........ --
Ratio of net investment
income to average net
assets................. .85 1.30 2.04 2.17 2.28 1.54
Portfolio turnover
rate................... 42 46 33 24 24 15
</TABLE>
12
<PAGE>
--------
(a) Total investment return at market value is based on the changes in market
price of a share during the period and assumes reinvestment of dividends
and distributions, if any, at actual prices pursuant to the Fund's
dividend reinvestment program. Total investment return does not reflect
brokerage commissions or initial underwriting discounts and has not been
annualized.
(b) Annualized.
(c) Ratios reflect actual expenses incurred by the fund. Amounts are net of
fee waivers and inclusive of taxes.
10. Interest of Directors, Executive Officers and Certain Related
Persons. Information, as of particular dates, concerning the Fund's directors
and executive officers, their remuneration, any material interest of such
persons in transactions with the Fund and other matters is required to be
disclosed in proxy statements distributed to the Fund's shareholders in proxy
statements distributed to the Fund's shareholders and filed with the
Securities and Exchange Commission (the "SEC"). Neither the Fund nor, to the
best of the Fund's knowledge, any of the Fund's directors or executive
officers, or associates of any of the foregoing, has effected any transaction
in Shares, except for dividend reinvestment, during the past 40 business days.
Except as set forth in this Offer, neither the Fund, nor, to the best of the
Fund's knowledge, any of the Fund's officers or directors, is a party to any
contract, arrangement, understanding or relationship with any other person
relating, directly or indirectly to the Offer with respect to any securities
of the Fund, including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any
such securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies, consents or authorizations. Phillip F. Goldstein and Glenn S.
Goodstein, directors of the Fund, intend to tender their shares. Based upon
information provided or available to the Fund, no other director, officer or
affiliate of the Fund intends to tender Share pursuant to the Offer. The Offer
does not, however, restrict the purchase of shares pursuant to the Offer from
any such person.
11. Certain Information about the Fund. The Fund is a Maryland corporation
with its principal executive offices located at 388 Greenwich Street, New
York, New York 10013 (telephone number (800) 331-1710. The Fund is a closed-
end, non-diversified, management investment company organized as a Maryland
corporation. The Shares were first issued to the public on February 28, 1986.
As a closed-end investment company the Fund differs from an open-end
investment company (i.e., a mutual fund) in that it does not redeem its Shares
at the election of a shareholder and does not continuously offer its Shares
for sale to the public. The Fund's investment objective is long-term capital
appreciation through investments primarily in Italian equity securities. The
Fund has been managed since December 1995 by SSB Citi, which was formerly
known as SSBC Fund Management Inc., and its predecessors.
SSB Citi is a registered investment adviser under the Investment Advisers
Act of 1940 with offices located at 388 Greenwich Street, New York, NY 10013.
SSB Citi handles equity, balanced, fixed income, international and derivative
based accounts. Portfolios include international and emerging market
investments, common stocks, taxable and non-taxable bonds, options, futures
and venture capital. SSB Citi manages money for corporate pension and profit-
sharing funds, public pension funds, endowments and other charitable
institutions and private individuals. SSB Citi currently manages approximately
$130 billion in assets.
12. Additional Information. An Issuer Tender Offer Statement on Schedule TO
(the "Schedule TO") including the exhibits thereto, filed with the SEC,
provides certain additional information relating to the Offer, and may be
inspected and copied at the prescribed rates at the SEC's public reference
facilities at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, 7
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 W. Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of the
Schedule TO and the exhibits may also be obtained by mail at the prescribed
rates from the Public Reference Branch of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
13. Certain United States Federal Income Tax Consequences. The following
discussion is a general summary of the U.S. federal income tax consequences of
a sale of Shares pursuant to the Offer based on current U.S. federal income
tax law, including applicable Treasury regulations and Internal Revenue
Service rulings. Each shareholder should consult the shareholder's tax advisor
for a full understanding of the tax consequences
13
<PAGE>
of such a sale, including potential state, local and foreign taxation by
jurisdictions of which the shareholder is a citizen, resident or domiciliary.
U.S. shareholders. It is anticipated that shareholders (other than tax-
exempt persons) who are citizens and/or residents of the U.S., corporations,
partnerships or other entities created or organized in or under the laws of
the U.S. or any State thereof or the District of Columbia, estates the income
of which is subject to U.S. federal income taxation regardless of the source
of such income, and trusts if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more U.S. persons have the authority to control all substantial decisions of
the trust ("U.S. shareholders"), and who sell Shares pursuant to the Offer
will recognize gain or loss for U.S. federal income tax purposes equal to the
difference between the amount of cash they receive pursuant to the Offer and
their adjusted tax basis in the Shares sold. The sale date for tax purposes
will be the date the Fund accepts Shares for purchase. This gain or loss will
be capital gain or loss if the Shares sold are held by the tendering U.S.
shareholder at the time of sale as a capital asset and will be treated as
either long-term or short-term if the Shares have been held at that time for
more than one year or one year or less, respectively. Any such long-term
capital gain realized by a non-corporate U.S. shareholder will be taxed at a
maximum rate of 20% if the Shares had been held for more than one year at the
time of their sale. This U.S. federal income tax treatment, however, is based
on the expectation that not all shareholders will tender their Shares pursuant
to the Offer and that the continuing ownership interest in the Fund of
tendering shareholders will be sufficiently reduced to qualify the sale as a
sale rather than a distribution for U.S. federal income tax purposes. It is
therefore possible that the cash received for the Shares purchased would be
taxable as a distribution by the Fund, rather than as a gain from the sale of
the Shares. In that event, the cash received by a U.S. shareholder will be
taxable as a dividend (i.e., as ordinary income) to the extent of the U.S.
shareholder's allocable share of the Fund's current or accumulated earnings
and profits, with the excess of the cash received over the portion so taxable
constituting a non-taxable return of capital to the extent of the U.S.
shareholder's tax basis in the Shares sold and with any remaining excess of
such cash being treated as either long-term or short-term capital gain from
the sale of the Shares depending on how long they were held by the U.S.
shareholder. If cash received by a U.S. shareholder is taxable as a dividend,
the shareholder's tax basis in the purchased Shares will be considered
transferred to the remaining Shares held by the shareholder. In the case of a
tendering U.S. shareholder that is a corporation treated as receiving a
distribution from the Fund pursuant to the Offer, special basis adjustments
may also be applicable with respect to any Shares of such a U.S. shareholder
not purchased pursuant to the Offer.
Under the "wash sale" rules under the Code, loss recognized on Shares sold
pursuant to the Offer will ordinarily be disallowed to the extent the U.S.
shareholder acquires Shares within 30 days before or after the date the Shares
are purchased pursuant to the Offer and, in that event, the basis and holding
period of the Shares acquired will be adjusted to reflect the disallowed loss.
The Depositary may be required to withhold 31% of the gross proceeds paid to
a U.S. shareholder or other payee pursuant to the Offer unless either: (a) the
U.S. shareholder has completed and submitted to the Depositary an IRS Form W-9
(or Substitute Form W-9), providing the U.S. shareholder's employer
identification number or social security number as applicable, and certifying
under penalties of perjury that: (a) such number is correct; (b) either (i)
the U.S. shareholder is exempt from backup withholding, (ii) the U.S.
shareholder has not been notified by the Internal Revenue Service that the
U.S. shareholder is subject to backup withholding as a result of an under-
reporting of interest or dividends, or (iii) the Internal Revenue Service has
notified the U.S. shareholder that the U.S. shareholder is no longer subject
to backup withholding; or (c) an exception applies under applicable law. A
Substitute Form W-9 is included as part of the Letter of Transmittal for U.S.
shareholders.
Non-U.S. shareholders. The U.S. federal income taxation of a Non-U.S.
shareholder on a sale of Shares pursuant to the Offer depends on whether this
transaction is "effectively connected" with a trade or business carried on in
the U.S. by the Non-U.S. shareholder as well as the tax characterization of
the transaction as either a sale of the Shares or a distribution by the Fund,
as discussed above for U.S. shareholders. If the sale of Shares pursuant to
the Offer is not so effectively connected and if, as anticipated for U.S.
shareholders, it gives rise to gain or loss, any gain realized by a Non-U.S.
shareholder upon the tender of Shares pursuant to the Offer will
14
<PAGE>
not be subject to U.S. federal income tax or to any U.S. tax withholding,
provided, however, that such a gain will be subject to U.S. federal income tax
at the rate of 30% (or such lower rate as may be applicable under a tax
treaty) if the Non-U.S. shareholder is a non-resident alien individual who is
physically present in the United States for more than 182 days during the
taxable year of the sale. If, however, U.S. shareholders are deemed to receive
a distribution from the Fund with respect to Shares they tender, the cash
received by a tendering Non-U.S. shareholder will also be treated for U.S. tax
purposes as a distribution by the Fund, with the cash then being characterized
in the same manner as described above for U.S. shareholders. In such an event,
the portion of the distribution treated as a dividend to the Non-U.S.
shareholder would be subject to a U.S. withholding tax at the rate of 30% (or
such lower rate as may be applicable under a tax treaty) if the dividend does
not constitute effectively connected income. If the amount realized on the
tender of Shares by a Non-U.S. shareholder is effectively connected income,
regardless of whether the tender is characterized as a sale or as giving rise
to a distribution from the Fund for U.S. federal income tax purposes, the
transaction will be treated and taxed in the same manner as if the Shares
involved were tendered by a U.S. shareholder.
Non-U.S. shareholders should provide the Depositary with a completed Form W-
8 in order to avoid 31% backup withholding on the cash they receive from the
Fund regardless of how they are taxed with respect to their tender of the
Shares involved. A copy of Form W-8 is provided with the Letter of Transmittal
for Non-U.S. shareholders.
14. Amendments; Extension of Tender Period; Termination. The Fund reserves
the right, at any time during the pendency of the Offer, to amend, extend or
terminate the Offer in any respect. Without limiting the manner in which the
Fund may choose to make a public announcement of such an amendment, extension
or termination, the Fund shall have no obligation to publish, advertise or
otherwise communicate any such public announcement, except as provided by
applicable law (including Rule 14e-1(d) promulgated under the Exchange Act)
and by the requirements of the NYSE (including the listing agreement with
respect to the Shares).
Except to the extent required by applicable law (including Rule 13e-4(f)(1)
promulgated under the Exchange Act), the Fund will have no obligation to
extend the Offer. In the event that the Fund is obligated to, or elects to,
extend the Offer, the purchase price for each Share purchased pursuant to the
Offer will be equal to 98% of the per Share NAV determined as of the close of
the regular trading session of the NYSE on the date after the Expiration Date
as extended. No Shares will be accepted for payment until on or after the new
Expiration Date.
16. Miscellaneous. The Offer is not being made to, nor will the Fund accept
tenders from, or on behalf of, owners of Shares in any jurisdiction in which
the making of the Offer or its acceptance would not comply with the securities
or "blue sky" laws of that jurisdiction. The Fund is not aware of any
jurisdiction in which the making of the Offer or the acceptance of tenders of,
purchase of, or payment for, Shares in accordance with the Offer would not be
in compliance with the laws of such jurisdiction. The Fund, however, reserves
the right to exclude shareholders in any jurisdiction in which it is asserted
that the Offer cannot lawfully be made or tendered Shares cannot lawfully be
accepted, purchased or paid for. So long as the Fund makes a good-faith effort
to comply with any state law deemed applicable to the Offer, the Fund believes
that the exclusion of holders residing in any such jurisdiction is permitted
under Rule 13e-4(f)(9) promulgated under the Exchange Act. In any jurisdiction
where the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on the Fund's
behalf by one or more brokers or dealers licensed under the laws of such
jurisdiction.
August 7, 2000
The Italy Fund Inc.
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