Jason Holzer of AIM European Growth Fund

AIM: As of October 31: financials, 25.70%; consumer discretionary, 23.30%; industrials, 15.90%; health care, 12.30%; consumer staples, 11.00%; energy, 5.80%; information technology, 2.20%; telecommunication services, 1.70%; utilities, 1.50%; and materials, 0.70%.

Although financials is our number one sector, our allocation actually represents a slight underweight relative to our benchmark, the MSCI Europe Index.

Within financials, we are focused on domestic-oriented banks like Anglo Irish, Banco Popular Espanol, and Royal Bank of Scotland. We also like insurance brokerage companies such as Jardine Lloyd Thompson and Willis Group Ltd.

S&P: What are you largest country exposures?

AIM: As of October 31: United Kingdom, 25.20%; Italy, 11.94%; France, 11.80%; Spain, 9.89%; Ireland, 9.60%; Germany, 9.48%; Sweden, 2.40%; Belgium, 2.16%; Netherlands, 1.90%; and Switzerland, 1.71%.

These allocations are strictly a function of our bottom-up stock-picking methodology; we don't try to match the Index in any way.

S&P: Your exposure to technology and telecom seems quite small.

AIM: We have actually been increasing our exposure to European telecom stocks recently. The industry, as a whole, appears to have realized they are not in a massive growth business. So, instead of throwing tons of money into such things as third-generation wireless, ISPs and Internet companies, etc., they have really buckled down and focused on cash flow. They have started serious restructuring and have been cutting back on capital expenditures. They are starting to do the right things, and they are now again appearing on our radar screens.

In addition, lower interest rates and faster debt repayment have provided European telecoms some nice leverage in terms of profitability.

S&P: Generally speaking, how is the pace of corporate restructuring in Europe proceeding?

AIM: Not as rapidly as we would like. Indeed, some companies are under the gun and are being forced to operate a tighter, more efficient businesses. However, there remain several impediments to restructuring, particularly in Germany and Italy, where you have powerful labor unions and rigid labor regimens. It's nearly impossible to lay off people en masse.

S&P: Why do you have no exposure in Russia or Eastern Europe since these markets have performed better than their Western counterparts?

AIM: We are not forbidden to invest in these countries by mandate, but we have shied away from them for various reasons. In Russia, they have problems with poor corporate governance. Even though the Russian markets have performed very well over the past two years, and Russian corporations are beginning to reform, you still have huge gulfs in disclosure and corporate reporting.

We currently own one Russian stock, VimpelCom, which is a cellular operator known for strong communication and which recently reported better-than-expected third-quarter earnings. Admittedly, not having greater exposure to Russia has certainly hurt our fund's performance this year.

With respect to Eastern Europe, there are really very few companies that can be invested in, and almost none of significant size. Moreover, their markets still lack liquidity and the earnings backdrop is not too good. In the past, however, we have has as much as 5% of our assets in Russia and Eastern Europe.

S&P: How has the weakening U.S. dollar affected European stocks?

AIM: As the dollar has lost ground to the euro, European companies dependent on exports to the US have fared worse than firms that focus on domestic markets. However, this hasn't hurt us, since we are not heavily exposed to the big exporting companies. Germany is a major exporter, but we don't have high exposure there.

S&P: The euro seems to be flourishing without the participation of Europe's biggest market, Britain.

AIM: The euro is doing quite well, and, coincidentally, the British economy has enjoyed buoyant growth. Thus, they may not need each other. The U.K. has little to gain in the short term by adopting the euro.

S&P: What is your outlook on Europe for 2003?

AIM: We have been disappointed with the performance of the European markets this year. There is no doubt that economic conditions there are weakening. However, we are positive about Europe's outlook, primarily because there is a massive valuation gap relative to the U.S. stock market. Aside from that, we don't expect to see corporate earnings rebounding this year and, consequently, we are not forecasting a major recovery in Europe in 2003.