Smith Barney Fund Management, in a filing with the SEC Friday, has recommended that shareholders of the closed-end, $34.6 million Italy Fund liquidate the fund at a Jan. 30 meeting.

Smith Barney cites a deep discount between the stock (ITA, NYSE) and the fund’s net asset value (NAV), as the reason. The fund was trading at $6.59, a 5.8% discount from the fund’s NAV, as of Dec. 31, 2002, according to Morningstar.

At a Nov. 6 meeting of the board, however, the fund’s directors determined that while the fund, which returned 13.7% in 2002, beat the MSCI Italy Index, an ongoing spread of 10% or greater between the NAV and stock price had not been alleviated. The November filing did not specify what the spread was at that time. And while the latest filing listed the fund’s total assets under management as just under $35 million, Morningstar data shows that the Italy Fund recently had as much as nearly $150 million.

When the fund was launched in 1986, the Italian securities market was illiquid, and a closed-end fund that could trade on a secondary market made sense, according to the filing. Since then, the Italian securities market has matured, according to the fund’s management.

Two of the biggest holders in the fund, according to the filing, are Bankgesellscaft of Berlin and Lazard Freres.

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