================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-K ---------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________to ________ Commission File No. 1-7657 American Express Company (Exact name of registrant as specified in its charter) New York 13-4922250 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) World Financial Center 200 Vesey Street New York, New York 10285 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 640-2000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange ------------------- on which registered Common Shares (par value $0.20 per Share) --------------------- New York Stock Exchange Boston Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ] The aggregate market value, as of June 30, 2003, of voting shares held by non-affiliates of the registrant was approximately $53.8 billion. Common shares of the registrant outstanding at March 8, 2004 were 1,290,080,248. Documents Incorporated By Reference Parts I, II and IV: Portions of Registrant's 2003 Annual Report to Shareholders. Part III: Portions of Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on April 26, 2004. ================================================================================

TABLE OF CONTENTS Form 10-K Item Number <TABLE> <CAPTION> Page ---- <S> <C> PART I 1. Business............................................................................... 1 Introduction........................................................................ 1 Travel Related Services............................................................. 2 American Express Financial Advisors................................................. 26 Financial Planning.................................................................. 27 Competitive Environment............................................................. 31 American Express Bank............................................................... 51 Corporate and Other................................................................. 61 Foreign Operations.................................................................. 64 Important Factors Regarding Forward-Looking Statements.............................. 65 Segment Information and Classes of Similar Services................................. 70 Executive Officers of the Company................................................... 70 Employees........................................................................... 72 2. Properties............................................................................. 72 3. Legal Proceedings...................................................................... 73 4. Submission of Matters to a Vote of Security Holders.................................... 78 PART II 5. Market for Company's Common Equity and Related Stockholder Matters..................... 78 6. Selected Financial Data................................................................ 80 7. Management's Discussion and Analysis of Financial Condition and Results of Operation... 80 7A.Quantitative and Qualitative Disclosures About Market Risk............................. 80 8. Financial Statements and Supplementary Data............................................ 81 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 81 9A.Controls and Procedures................................................................ 81 PART III 10.Directors and Executive Officers of the Company........................................ 82 11.Executive Compensation................................................................. 82 12.Security Ownership of Certain Beneficial Owners and Management......................... 82 13.Certain Relationships and Related Transactions......................................... 82 14.Principal Accounting Fees and Services................................................. 82 PART IV 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................... 83 Signatures............................................................................. 85 Index to Financial Statements.......................................................... F-1 Consent of Independent Auditors........................................................ F-2 Exhibit Index.......................................................................... E-1 </TABLE>

PART I* ITEM 1. BUSINESS INTRODUCTION American Express Company (including its subsidiaries, unless the context indicates otherwise, the "Company") was founded in 1850 as a joint stock association and was incorporated under the laws of the State of New York in 1965. The Company is primarily engaged in the business of providing travel related services, financial advisory services and international banking services throughout the world. The Company maintains an Investor Relations Web site on the Internet at http://ir.americanexpress.com. The Company's filings with the Securities and Exchange Commission ("SEC"), including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available free of charge as soon as reasonably practicable following the time they are filed with or furnished to the SEC by clicking on the "SEC Filings" link found on the Investor Relations homepage. Interested persons are also able to access the Company's Investor Relations Web site through the Company's main Web site at www.americanexpress.com by clicking on the "About American Express" link, which is located at the bottom of the Company's homepage. Information on such website is not incorporated by reference in this report. American Express achieved record earnings in 2003, while significantly increasing its investments in its businesses to generate future growth. The Company entered the year in a defensive posture and with a cautious view of the environment as a result of continued weak corporate spending and equity markets, the war in Iraq and SARS. Nonetheless, during the latter part of the year, the Company was able to build strong momentum as equity markets gained strength, the U.S. economy grew and the global travel industry began to grow again from the depressed levels of the last several years. Significant growth in the Company's credit and charge card business, strong credit quality, the success of the Company's ongoing reengineering efforts (which yielded benefits in excess of $1 billion for the third consecutive year) and progress at American Express Financial Advisors ("AEFA") all played a role in 2003 performance. For the year, the Company delivered: o Revenues of $25.9 billion, up 9% from $23.8 billion in 2002 o Net income of $2.99 billion, up 12% from $2.67 billion in 2002 o Diluted earnings per share of $2.30, up 14% from $2.01 in 2002 o Return on equity of 20.6%, compared with 20.2% in 2002 For a complete discussion of the Company's financial results, including financial information regarding each of the Company's three operating segments, see pages 27 through 108 of the Company's 2003 Annual Report to Shareholders (the "2003 Annual Report"), which are incorporated herein by reference. For a summary of the Company and its operating segments, and discussion of the Company's principal sources of revenue, see pages 78 through 80 of the 2003 Annual Report. --------------- * Various forward-looking statements are made in this Annual Report on Form 10-K, which generally include the words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely" and similar expressions. Certain factors that may cause actual results to differ materially from these forward-looking statements are discussed on pages 65-70. 1

These results met or exceeded the Company's long-term targets of 12% to 15% earnings per share growth, 8% revenue growth and 18% to 20% return on equity, on average and over time. The Company believes that its 2003 results reflect its ability to capitalize on the changes it began to initiate in 2001 to build a more flexible and adaptable business. These changes focused on improving the Company's economics, diversifying its card business, lowering its risk and investing in growth. They were designed to help the Company meet its long-term financial targets in an environment of slower economic growth and market appreciation. In addition, these changes were intended to help it capitalize quickly on improving market conditions, which the Company believes it was able to do in 2003 as it increased expenditures in business building initiatives as the economy and markets improved during the latter half of the year. These expenditures were used for the launch of many new Card products, increased marketing efforts and the successful completion of two targeted acquisitions, all of which helped to drive substantially higher growth in Cardmember spending and loans at the TRS operating segment and higher results at the AEFA operating segment. TRAVEL RELATED SERVICES American Express Travel Related Services Company, Inc. (including its subsidiaries, unless the context indicates otherwise, "TRS"), which includes the Company's card, travel, merchant and network businesses, provides a variety of products and services worldwide, including, among others, global card network, issuing and processing services, customized charge card and credit cards for consumers and businesses worldwide, other consumer and corporate lending and banking products, American Express'r' Travelers Cheques and prepaid card products, business expense management products and services, corporate travel and travel management services, consumer travel services, tax, accounting and business consulting services, magazine publishing, merchant transaction processing and point-of-sale and back-office products and services. In certain countries, partly owned affiliates and unaffiliated entities offer some of these products and services under licenses from TRS. TRS' general purpose card network and card issuing businesses are global in scope. TRS is a world leader in providing charge and credit cards to consumers, small businesses and corporations. American Express'r' Cards are currently issued in 47 currencies, including Cards issued by third-party banks and other qualified institutions. In 2003, TRS' worldwide billed business (spending on American Express Cards, including Cards issued by third parties) was $352 billion, with approximately $90 billion coming from Cardmembers domiciled outside the United States. Cards permit Cardmembers to charge purchases of goods and services in most countries around the world at the millions of merchants that accept the American Express Card. In 2003, TRS rolled out numerous new Card products and entered into various cobrand and other Card arrangements. TRS added a net total of 3.5 million cards in 2003, bringing total worldwide cards-in-force to 60.5 million (including Cards issued by third parties). As a result of the global reach of American Express' brand, its card issuing capabilities and its general purpose card network, the Company is positioned to take advantage of the growth opportunities in the global payments services business. 2

Further, the Company believes that its "spend-centric" business model has significant competitive advantages. Card issuers generate the majority of their income through some combination of customer spending (which generates payments from merchants for card transactions), lending (which generates finance charges on revolving credit balances) and customer fees. The Company has strength in all three revenue streams, but has a unique edge in spending. On average, U.S. consumers spend about four times as much on their American Express Cards as they do on other cards. TRS generates revenue from this spending through the discount rate charged to merchants for Card transactions. Because of American Express Cardmembers' spending patterns, TRS can deliver greater value to merchants in the form of higher spending Cardmembers and therefore earn a premium discount rate. As a result, TRS can generate higher revenues from spending and has the flexibility to offer more attractive rewards and other incentives to keep customers spending more on their Cards. This, in turn, drives more business to merchants that accept the Card. This business model gives TRS a competitive advantage that TRS seeks to leverage to provide more value to its customers, merchants and Card-issuing partners. TRS' business as a whole has not experienced significant seasonal fluctuation, although travel sales tend to be highest in the second quarter, Travelers Cheque sales and Travelers Cheques outstanding tend to be greatest each year in the summer months, peaking in the third quarter, and Card-billed business tends to be moderately higher in the fourth quarter than in other quarters. TRS places significant importance on its trademarks and service marks and diligently protects its intellectual property rights around the world. Global Network Services TRS operates a global general purpose charge and credit card network. Network functions include operations, service delivery, systems, authorization, clearing, settlement and brand advertising and marketing; the development of new and innovative products for the network; and establishing and enhancing relationships with merchants globally, both online and offline. Since May 1996, the Company has been pursuing a strategy of inviting U.S. banks and other institutions to issue American Express-branded cards on the American Express merchant network, building on a business strategy it has implemented successfully in a number of countries outside the United States. By leveraging its global infrastructure and the appeal of the American Express brand, the Company aims to gain even broader reach for its network worldwide. American Express has established 79 card-issuing partnership arrangements in 89 countries. In January 2004, TRS and MBNA America Bank, NA ("MBNA") signed an agreement under which MBNA will issue its own American Express-branded credit cards in the United States and confirmed plans for MBNA to issue American Express-branded credit cards in Canada, Spain and the United Kingdom. As a result of this agreement, MBNA will become the first major U.S. bank to issue credit cards that are accepted on the American Express merchant network. MBNA's issuance of American Express-branded cards is subject to the elimination of VISA USA, Inc.'s ("VISA") and MasterCard International, Incorporated's ("MasterCard") rules prohibiting such issuance (see the discussion below describing the Department of Justice litigation). 3

One of the key assets of the American Express merchant network is the American Express brand, which is one of the world's most highly recognized and respected brands. Cards bearing the American Express logo ("Cards") are issued by TRS and by qualified licensed institutions, and are accepted at ATMs and at all merchant locations worldwide that accept the American Express Card. TRS issues the vast majority of Cards on the American Express network. The Global Network Services business ("GNS") of TRS authorizes third-party financial institutions to issue American Express-branded cards that are accepted on the American Express merchant network. While TRS' network arrangements are customized to the particular market and partner requirements, all GNS partnerships are designed to help its partners develop products for their high-spending and best customers. Network arrangements include independent operator ("IO") arrangements, under which GNS' partner issues local currency American Express Cards in a particular market and serves as the local merchant acquirer and processor; joint venture arrangements, under which a joint venture in which TRS has an ownership stake acts as the merchant acquirer and issues Cards locally; and non-proprietary license arrangements, under which TRS grants the partner a license to issue American Express Cards and the partner owns the customer relationships, provides service, billing, and credit management and designs the Card product features and TRS processes the transactions and maintains the merchant acquirer relationship with merchants. In 2003, TRS also entered into several arrangements outside the United States in which the GNS partner acts as the local merchant acquirer in a particular market, but does not issue Cards. TRS chooses GNS partners who share a core set of attributes such as commitment to high quality standards, strong marketing expertise and compatibility with the American Express brand, and TRS requires its GNS partners to adhere to its product, brand and service standards. In 2003, the Company entered into nine new GNS relationships with financial institutions. GNS partners launched a total of 30 new products during 2003, bringing the total number of American Express-branded GNS partner products to over 350. In 2003, for example, Nedcor Bank launched a Gold credit card and a Gold corporate card in South Africa, Banco Comercial Portugues launched Blue V2, the first credit card with a smart chip in Portugal and the Nations Trust Bank in Sri Lanka issued American Express Personal and Gold credit cards. GNS is an important strategic business that helps to increase American Express' market presence, drive more transaction volume onto the American Express merchant network and increase the number of merchants accepting the American Express Card. Since the creation of the GNS business in 1997, GNS partners have added 6.4 million new Cards to the American Express network (net of attrition). In addition, GNS merchant acquiring partners have added more than 2.5 million new establishments to the American Express network around the world. Since 1999, Cards-in-force issued by GNS partners have grown at a compounded annual growth rate of 24%. Spending on these Cards has grown at a compounded annual rate of 16% and totaled more than $12 billion in 2003. GNS' sources of revenues in IO arrangements include fees that are largely driven by the number of Cards issued and spending on those Cards. The credit risk for the issued cards resides with the local issuer, not with the Company. In addition, TRS benefits from expanded merchant 4

coverage, which accommodates more inbound spending by Cardmembers from other parts of the world. In joint venture arrangements, the economics of the joint venture are similar to TRS' proprietary business, and TRS receives its contractual portion of the venture's income. GNS' revenues in non-proprietary license arrangements are derived from the level of Cardholder spending, royalties and fees charged to the Card issuer based on transaction volume, and the provision of value-added issuer services such as insurance products and consulting services. The GNS partner bears the credit risk for the issued cards, as well as the Card marketing and acquisition costs, fraud costs and costs of rewards and other loyalty initiatives; however, TRS does bear the risk arising from the GNS partner's potential failure to meet its settlement obligations to TRS as a result of the GNS partner's inability or unwillingness to make payment to TRS in respect of transactions made on the Company's network. TRS mitigates this risk by selecting GNS partners whom it believes will meet their obligations and by monitoring its GNS partners' financial health, their compliance with the terms of their relationship with TRS and the political and economic environment in which they operate. In certain instances, TRS may require GNS partners to post a letter of credit, bank guarantee or other collateral to reduce this risk. Even though TRS' gross revenues from GNS business volumes are lower than from TRS' proprietary issuing business, since the GNS partner is responsible for most of the operating costs and risk, TRS' expenses are lower as well. The result is a highly attractive earnings stream and risk profile, requiring modest capital support. The leverage inherent in the GNS business cost structure is very attractive and will become even more valuable as the GNS business grows. Since the majority of GNS costs are fixed, the GNS business is highly scalable. GNS partners benefit from their association with the American Express brand and their ability to gain attractive revenue streams and expand and differentiate their product offerings. Local restrictive regulations governing the issuance of charge and credit cards have not been a significant factor impacting TRS' arrangements with banks and qualifying financial institutions in any country in which such arrangements exist, because such banks and institutions generally are already licensed to issue cards (e.g., VISA and MasterCard cards) prior to their issuing cards on the American Express network. Accordingly, TRS' GNS partners have generally not had difficulty in obtaining appropriate government authorization in the markets in which TRS has chosen to enter into these partnership arrangements. In contrast to the situation outside the United States, where banks and other qualified institutions have issued Cards on the network for many years, there have been no major U.S. banks issuing Cards on the American Express network in the United States. This situation is the result of rules and policies of VISA and MasterCard in the United States calling for expulsion of members who issue American Express-branded cards. No banks have been willing to forfeit membership in VISA and/or MasterCard to issue cards on the American Express network. In a lawsuit filed in October 1998 against VISA and MasterCard, the U.S. Department of Justice alleged that these rules and policies violate the antitrust laws of the United States. In October 2001, the trial judge ruled in favor of the U.S. Department of Justice, holding that these rules and policies do violate such laws. TRS views this decision as a major victory for U.S. consumers because it will ultimately lead to more vigorous network competition and more innovative card products and services. VISA and MasterCard appealed the decision and obtained a stay of the court's judgment during the appeals process. In September 2003, the U.S. Court of Appeals for the Second Circuit affirmed the trial court's decision, and in January 2004, the Court of Appeals denied VISA and MasterCard's motions for rehearing. In February 2004, the Court of Appeals continued the stay of the trial court's judgment while VISA and MasterCard file petitions for certiorari with the U.S. Supreme Court. However, in light of the Second Circuit's affirmation of the trial court's decision, followed by its denial of VISA and MasterCard's motions for rehearing, the Company 5

has renewed its discussions with banks about establishing network partnership agreements in the United States. In this regard, as stated above, the Company announced an agreement with MBNA in January 2004 under which MBNA will issue American Express-branded credit cards in the United States once VISA and MasterCard's rules are no longer in place. As a network, TRS competes with other card networks, including, among others, VISA, MasterCard, Diners Club, Discover Business Services, a business unit of Morgan Stanley (primarily in the United States), and JCB Co., Ltd. (primarily in Asia). The principal competitive factors that affect the network business are (i) the number of cards in force and amount of spending on these cards; (ii) the quantity and quality of establishments that accept the cards; (iii) the economic attractiveness to card issuers and merchant acquirers of participating in the network; (iv) the success of targeted marketing and promotional campaigns; (v) reputation and brand recognition; (vi) innovation in systems, technology and product offerings; and (vii) the quality of customer service. Global Merchant Services TRS operates a global merchant services business, which includes signing-up merchants to accept American Express Cards and receiving, processing and paying Cardmember charges for merchants that accept Cards. During 2003, TRS continued its ongoing efforts to encourage consumers to use the American Express Card as their card of choice for everyday spending at establishments, as well as for their travel and entertainment spending. TRS also continued to increase the range of merchants in retail and everyday spending categories that accept the Card, such as quick-serve restaurants, retail stores, supermarkets and gas stations. Other key signings of merchants also helped the Company to bring Card acceptance to industries where cash or checks are the predominant form of payment. For example, TRS signed agreements with eight major property management companies across the United States to accept the Card for rental payments at their luxury properties bringing the total number to ten. TRS also signed AIG Marketing, Inc. to accept the Card for insurance premium payments. TRS' objective is to achieve merchant coverage wherever and however Cardmembers want to use the Card, as well as to increase coverage in key geographic areas and new industries that have not, to date, accepted general purpose credit and charge cards as a means of payment. TRS adds new merchants to the American Express network through a number of sales channels: a proprietary sales force, third-party sales agents, strategic alliances with banks, the Internet, telemarketing and inbound "Want to Honor" calls (i.e., merchants desiring to accept the Card contacting the Company directly). As in prior years, during 2003, TRS continued to grow merchant acceptance of American Express Cards around the world and to refine its approach to calculating merchant coverage in accordance with changes in the marketplace. Globally, acceptance of general purpose charge and credit cards continues to increase, including among merchants that have not traditionally accepted charge and credit cards. Additionally, as the Global Network Services business signs partners in countries around the world who help to grow merchant acceptance in their local markets, and as American Express Card issuance expands in "emerging markets" outside the 6

United States, TRS has begun to include merchant coverage information from GNS merchant acquirers and from these "emerging markets". As a result of this refined approach, TRS estimates that, as of the end of 2003, TRS' merchant network in the United States accommodated more than 90% of Cardmembers' general purpose charge and credit card spending, and its international merchant network accommodated over 80% of Cardmembers' general purpose charge and credit card spending. TRS earns "discount" revenue from fees charged to "service establishments" for accepting Cards. The discount, which is the fee charged to the service establishment for accepting Cards, is deducted from the amount of the payment that the "merchant acquirer" (generally TRS) pays to a service establishment for charges submitted. A service establishment is defined as a merchant that enters into an agreement to accept Cards as a method of payment for goods and services. A merchant acquirer is the entity that contracts for Card acceptance with the service establishment, receives all Card transactions from the service establishment, pays the service establishment for these transactions and submits the transactions to TRS, which in turn submits them to the appropriate Card issuer for billing to the Cardmember. When a Cardmember presents the Card for payment, the service establishment creates a record of charge for the transaction and submits it to the merchant acquirer for payment. The discount is deducted from payment to the service establishment where TRS is the merchant acquirer and is recorded by TRS as discount revenue at the time the transaction is captured. Where TRS acts as the merchant acquirer and the Card presented at a service establishment is issued by a third-party bank or financial institution, such as in the case of some of TRS' GNS partnership arrangements, TRS will make financial settlement with the Card issuer. Such shared amounts are recorded by TRS as a reduction of discount revenue. Where the merchant acquirer is a third-party bank or financial institution, TRS also receives a portion of the discount revenue charged to such service establishments. Such amounts shared with and paid to TRS are recorded by TRS as discount revenue. The discount rate, which is generally expressed as a percentage of the amount charged on a Card, is contractually agreed with the service establishment. The level of the discount rate charged by TRS is principally determined by the value that is delivered to the service establishment and generally includes a premium over other card networks. Value is delivered to the service establishment through higher spending Cardmembers relative to competing card networks, the volume of spending by all Cardmembers, marketing programs and the insistence of Cardmembers to use their Cards when enrolled in rewards or other Card loyalty programs. The discount rate varies with the industry in which the service establishment does business, the charge volume, the timing and method of payment to the service establishment, the method of submission of charges and, in certain instances, the scope of the Card acceptance agreement signed with TRS (local or global), the average charge amount and the amount of information provided. TRS has generally been able to charge higher discount rates to participating service establishments than its competitors as a result of TRS' attractive Cardmember base. In 2003, as in prior years, the Company experienced some erosion in its discount rate, primarily reflecting the impact of stronger than average growth in the lower rate "everyday spend" merchant categories. Based on the Company's business strategy, it expects to see continued changes in the mix of business. This, along with volume-related pricing discounts 7

and selective re-pricing initiatives, will probably continue to result in some discount rate erosion over time. While many establishments understand the pricing in relation to the value provided, TRS has continued to encounter merchants that accept Cards, but prefer another type of payment and, consequently, suppress use of the Card. TRS continues to devote significant resources to respond to this issue, and has made progress by concentrating on acquiring merchants where Cardmembers want to use the Card, providing better and earlier communication of the American Express value proposition and, when necessary, by canceling merchants who suppress use of American Express Cards. TRS focuses on understanding and addressing key factors that influence merchant satisfaction, on executing programs that increase Card usage at merchants and on strengthening its relationships with merchants through an expanded roster of services that help them meet their business goals. TRS offers a full range of point-of-sale solutions that allow its merchant partners to accept American Express Cards as well as bankcards, debit cards and checks. All proprietary point-of-sale solutions support direct processing (i.e., direct connectivity) to American Express, which lowers a merchant's cost of Card acceptance and avoids any payment delays caused by a third party. In 2003, TRS introduced satellite technology within its point-of-sale product portfolio to meet the increasing merchant demand for high speed credit card processing. TRS continues to invest in various broadband connectivity options, including wireless and IP-based technology in order to facilitate Card acceptance in new and emerging industries. TRS continues to support the fast-growing recurring billing industry through the Automated Bill Payment platform, a product that allows merchants to bill Cardmembers on a regular basis for repeated charges such as insurance premiums and subscriptions. In 2003, TRS also made modifications to its host authorization system in order to approve more transactions and reduce Cardmember disruption at the point-of-sale without a corresponding increase in fraud or credit losses. These enhancements were primarily focused on the recurring billing industry. TRS also introduced address verification improvements, which assist merchants in reducing the risk of fraud by validating addresses for shipments to addresses other than the Cardmember's billing address. Wherever TRS manages both the acquiring relationship with merchants and the Card-issuing side of the business, there is a "closed loop," which distinguishes the American Express network from the bankcard networks in that there is access to information at both ends of the Card transaction. This enables TRS to provide targeted marketing for merchants and special offers to Cardmembers through a variety of channels. In addition, the closed loop allows TRS's Card-issuing bank partners to further customize marketing efforts and to work with TRS to drive business to merchants who accept the Card. TRS, as the merchant acquirer, has certain contingent liabilities that arise in the event that a billing dispute between a Cardmember and a merchant is settled in favor of the Cardmember. Drivers of this liability are returns in the normal course of business, disputes over quality or non- 8

delivery, and billing errors. Typically, the amount due to the Cardmember is offset against current or future submissions from the merchant. TRS can realize losses when offsetting submissions cease, such as when the merchant commences a bankruptcy proceeding or goes out of business. TRS actively monitors its merchant base to assess the risk of this exposure. When appropriate, the Company will take action to reduce the net exposure to a given merchant by either holding a set amount of the merchant's funds or lengthening the time between when the merchant submits a charge for payment and when TRS pays the merchant. TRS also holds reserves against these contingencies. In recent years there has been considerable interest on the part of a number of government regulators around the world regarding the fees involved in the operation of card networks, including the fees that merchants are charged to accept cards. Most significantly, regulators in the United Kingdom, European Union, Australia and Switzerland have conducted, and are continuing to conduct, investigations into the way that bankcard network members collectively set the "interchange," which is the fee paid by the merchant acquirer to the card-issuing bank. The interchange fee is generally the largest component of the merchant discount rate charged to merchants by the merchant acquirer with respect to bankcard charges. Although the regulators' focus has for the most part been specifically on VISA and MasterCard as the dominant card networks, government regulation of the card associations' pricing could ultimately affect all card service providers by mandating reduction of the levels of interchange and merchant discount. Downward movement of interchange and merchant discount fees may impact the relative economic attractiveness to card issuers and merchant acquirers of participating in a particular network, and may drive card service providers to look for other sources of revenue such as annual card fees, as well as reduction of costs by scaling back or eliminating rewards programs. In Spain, a parliamentary resolution in 2003 called on the government to take action to reduce the level of credit card interchange. In October 2003, new regulations issued by the Reserve Bank of Australia came into force that limit the interchange fees that VISA and MasterCard may charge to a "cost" basis formula. American Express and Diners Club were not included in the scope of these regulations. However, American Express and Diners Club may face increased pressure on merchant rates in Australia as the VISA and MasterCard rates are lowered. Regulators have also considered the industry practice of prohibiting merchants from passing the cost of merchant discount fees along to consumers through surcharges on card purchases. As a result of action taken by the Reserve Bank of Australia, as of January 1, 2003, merchants in Australia are permitted to surcharge card transactions, including American Express Card transactions. To date, only limited incidence of surcharging has occurred in Australia. Although surcharging of credit card purchases has been permitted in other countries, such as the United Kingdom, for a number of years, there has been relatively low incidence of surcharging, as merchants do not wish to risk offending customers or losing customers to competitors who do not surcharge. In some markets outside the United States, particularly in the United Kingdom, third party processors have begun to offer merchants the capability of converting credit card transactions from the local currency to the currency of the cardholder's residence (i.e., the cardholder's billing currency) at the point-of-sale, and submitting the transaction in the 9

cardholder's billing currency, thus bypassing the traditional foreign currency conversion process of the card network and card issuer. The merchant and processor would retain some or all of the revenue resulting from the point-of-sale conversion, thus reducing or eliminating revenue for card issuers and card networks relating to the conversion of foreign charges to the billing currency. This practice is not widespread, and it is uncertain to what extent consumers will prefer to have foreign currency transactions converted by merchants rather than their card issuer in accordance with terms disclosed by the issuer in the cardholder agreement and elsewhere. American Express is reviewing the potential impact of point-of-sale foreign currency conversion on revenues and Cardmembers. American Express' policy generally requires merchants to submit charges and be paid in the currency of the country in which the transaction occurs, and American Express itself converts the transaction to the Cardmember's billing currency. Consumer Card, Small Business and Consumer Travel Services TRS' Card business has a significant presence worldwide and serves a range of customer groups, including consumers and small businesses. TRS' consumer Card business is complemented by its consumer travel business, which provides travel services to Cardmembers and other consumers. TRS' Card business is focused on offering a broad set of card products, including customizing existing products to reach a greater number of customers. Core elements of TRS' strategy are its focus on acquiring and retaining high-spending, creditworthy Cardmembers across multiple groups; its breadth of product offering; the use of strong incentives to drive spending on the Card; the development and nurturing of wide-ranging relationships with cobrand, Membership Rewards'r' program and other partners; a multi-card strategy (having multiple Card products in a customer's wallet); and high-quality customer service. TRS and its licensees offer individual consumers charge cards such as the American Express Card, the American Express'r' Gold Card, the Platinum Card'r', and the ultra-premium Centurion'r' Card; revolving credit cards such as Blue from American Express'r', Blue Cash'r' from American Express and the Optima'r' Card, among others; and a variety of cards sponsored by and cobranded with other corporations and institutions, such as the Delta SkyMiles'r' Credit Card from American Express, the American Express'r' Platinum Cash Rebate Card exclusively for Costco Members and the Hilton HHonors Platinum Credit Card from American Express. Charge cards, which are marketed in the United States and many other countries and carry no pre-set spending limits, are primarily designed as a method of payment and not as a means of financing purchases of goods or services. Charges are approved based on a variety of factors including a Cardmember's account history, credit record and personal resources. Charge Cards generally require payment by the Cardmember of the full amount billed each month, and no finance charges are assessed. Charge Card accounts that are past due are subject, in most cases, to a delinquency assessment and, if not brought to current status, may be canceled. The no-preset-spending limit and pay-in-full nature of this product attracts high-spending Cardmembers who want to use a charge card to facilitate larger payments. TRS and its licensees also offer a variety of revolving credit cards in the United States and other countries. These cards have a range of different payment terms, grace periods and rate and fee structures. Since late 1994, when the Company began aggressively to expand its credit 10

card business, its lending balance growth has been among the top tier of card issuers. Much of this growth has been due to the breadth of the Company's lending products, such as Blue from American Express, Blue Cash from American Express and the Delta SkyMiles Credit Card from American Express, as well as the increased number of Charge Cardmembers who have taken advantage of the Company's "lending on charge" options (such as the Sign & Travel'r' and Extended Payment Option programs). The Sign & Travel program gives qualified U.S. Cardmembers the option of extended payments for airline, cruise and certain travel charges that are purchased with the Charge Card. The Extended Payment Option offers qualified U.S. Cardmembers the option of extending payment for certain charges on the Charge Card in excess of a specified amount. Various flexible payment options are offered to Cardmembers in international markets as well. American Express Centurion Bank ("Centurion Bank"), a wholly owned subsidiary of TRS, issues Blue from American Express, Blue Cash from American Express, the Optima Card, and all other American Express-branded revolving credit cards in the United States. In addition, Centurion Bank has outstanding lines of credit in association with certain Charge Cards and offers unsecured loans to Cardmembers in connection with its Sign & Travel and Extended Payment Option programs. Centurion Bank is also the issuer of certain Charge Cards in the United States. TRS continued to bolster its proprietary international Card business through the launch of more than 80 new or enhanced Card products during 2003. These are cards that American Express issues, either on its own or cobranded with partnering institutions. They included Centurion cards in Mexico and Japan, the International Dollar Platinum Card in 43 Latin American and Caribbean markets, and several Gold Card products in markets including India, Japan and Indonesia, as well as cards with premier partners like Holt Renfrew in Canada, BMW in Australia and E-Plus in Germany. TRS issues Cards under cobrand agreements with selected commercial firms both in the United States and internationally. Examples of TRS' cobrand arrangements include agreements with Indian Airlines, KLM, Holt Renfrew, Aeroplan, a subsidiary of Air Canada, Peninsula Hotel (Hong Kong), AeroMexico, Air France, Loyalty Management Group Canada, Inc. (Air Miles'r'*), Alitalia, Delta Air Lines, British Airways, Costco, Hilton Hotels, Shop Rite Supermarkets, Singapore Airlines and Starwood Hotels and Resorts. The duration of such arrangements generally range from five to ten years. Cardmembers earn rewards provided by the commercial firms' respective loyalty programs based upon their spending on the cobrand cards, such as frequent flyer miles, hotel loyalty points and rebates. TRS makes payments to its cobrand partners based primarily on the amount of Cardmember spending and corresponding rewards earned on such spending, and, under certain arrangements, on the number of accounts acquired and retained. TRS expenses amounts due under cobrand arrangements in the month earned. Payment terms vary by arrangement, but are monthly or quarterly. Once TRS makes payment to the cobrand partner, as described above, the partner is solely liable with respect to providing rewards to the Cardmember under the cobrand partner's own loyalty program. ---------- * Trademark of AirMiles International Trading B.V. Used under license by Loyalty Management Group Canada Inc. and American Express Bank of Canada. 11

The Company also issues Cards under distribution arrangements with banks, primarily outside the United States. Such bank distribution agreements involve the offering of a standard Company product (issued by TRS or one of its subsidiaries) to customers of the bank, generally with the bank's logo on the Card. In a bank distribution arrangement, the Company makes payments to the bank partners that are primarily based on the number of accounts acquired and retained through the arrangement and the amount of Cardmember spending on such Cards. The duration of such arrangements generally range from five to seven years. During 2003, new distribution agreements were signed with MeesPierson Asia Limited in Hong Kong, Phillips Securities in Singapore and ING Comercial America in Mexico. In addition to the payments to cobrand and bank partners referred to above, the arrangements with such entities may contain other terms unique to the arrangement with the partner, including an obligation on the part of TRS to make payments under certain circumstances. Many TRS Cardmembers, particularly Charge Card holders, are charged an annual fee that varies based on the type of Card, the number of Cards for each account, the currency in which the Card is denominated and the country of residence of the Cardmember. Many revolving credit Cards are offered with no annual fee. Each Cardmember must meet standards and criteria for creditworthiness that are applied through a variety of means both at the time of initial solicitation or application and on an ongoing basis during the Card relationship. The Company uses sophisticated credit models and techniques in its risk management operations and believes that its strong risk management capabilities provide it with a competitive advantage. Several products launched or renewed by TRS in the United States in the last few years continued to make significant contributions to its results in 2003, including the American Express'r' Rewards Green and American Express'r' Rewards Gold Cards for U.S. consumers. These Cards offer automatic enrollment in the Membership Rewards program and double points for purchases at supermarkets, gas stations, drugstores, and other everyday spend locations. Rewards-based products not only drive higher spending, they also have very favorable economics in terms of Cardmember attrition, credit and payment performance. These Cards provide Cardmembers with enhanced opportunities to earn rewards and support TRS' efforts to drive spending at everyday spend locations. Early in 2003, TRS introduced Blue Cash from American Express for U.S. consumers. This Card, which is in large part replacing the Company's Cash Rebate Card in the United States, carries no annual fee and offers up to five percent cash back on certain types of spending, based on a Cardmember's annual spending and payment activity. During 2003, TRS also continued to expand its U.S. Membership Rewards program - the largest program of its kind. TRS continued to add new Membership Rewards partners in a range of industries, including Elizabeth Arden Red Door Salons, Hyatt Hotels and Resorts, Telecharge.com, SeaWorld and Busch Gardens Adventure Parks, Fortunoff and Escada. TRS also introduced a new offering called Your Reward'r' that allows enrollees to create their own unique redemption packages, as well as to select from a diverse menu of ready-made adventures and experiences. TRS' Membership Rewards program continues to be an important driver of 12

Cardmember spending and loyalty. The Company believes, based on historical experience, that Cardmembers enrolled in rewards and co-brand programs yield higher spend, better retention, stronger credit performance and greater profit for the Company. As in the United States, rewards are a strong driver of Cardmember spending in the international consumer business. In 2003, TRS continued to enhance its rewards programs in several markets, offering richer and more flexible choices that enable Cardmembers to earn points more quickly, including the launch in New Zealand of the American Express Platinum Membership Rewards'sm' Credit Card and the Rewards Maximiser Card in Australia. TRS also introduced a rewards "Accelerator" program in ten markets that drives spending by enabling Cardmembers to earn points faster. When a Cardmember enrolled in the Membership Rewards program uses the Card, TRS establishes reserves in connection with estimated future reward redemptions. When a Membership Rewards program enrollee redeems a reward using the Membership Rewards program points, TRS makes a payment to the Membership Rewards program partner providing the reward pursuant to contractual arrangements. Due to higher charge volumes and greater program participation and penetration, the expense of Membership Rewards has increased over the past several years and continues to grow. By offering a broader range of redemption choices, TRS has improved customer satisfaction with the Membership Rewards program. TRS continually seeks ways to contain the overall cost of the program and make changes to enhance its value to Cardmembers. Throughout the world, Cardmembers have access to a variety of free and fee-based special services and programs, depending on the type of Card they have and their country of residence. These include the Membership Rewards program, Global Assist'r' Hotline, Buyer's Assurance Plan, Car Rental Loss and Damage Insurance, Travel Accident Insurance, Purchase Protection Plan, Best Value Guarantee, Emergency Card Replacement, Emergency Check Cashing Privileges, Automatic Flight Insurance, Premium Baggage Protection, Assured Reservations, Online Fraud Protection Guarantee, Credit Card Registry, Credit Bureau Monitoring and Credit Insurance services. Certain Cards provide Cardmembers with access to additional services, such as a Year-End Summary of Charges Report. The Platinum Card, a charge card offered to consumers in the United States and in virtually all other countries in which TRS issues Cards, provides access to additional and enhanced travel, financial, insurance, personal assistance and other services. The Centurion Card, which is offered by invitation to consumers in the United States and five other countries, is an ultra-premium charge card providing highly personalized customer service and an array of travel, lifestyle and financial benefits. Personal, Gold, Platinum and Centurion Cardmembers receive the Customer Relationship Statement, which is used to communicate special offers for products and services of both merchants and the Company. Over the past ten years, TRS has significantly expanded the number of service establishments that accept TRS' card products as well as the kinds of businesses that accept the Card. As discussed above, in recent years, TRS has focused its efforts on increasing the use of 13

its Cards for everyday spending. In 1990, 65% of all of TRS' U.S. billings came from the travel and entertainment sectors and 35% came from retail and other sectors. By 2003, that proportion was reversed, with retail and non-travel and entertainment spending in the United States accounting for approximately 65% of the business billed on American Express Cards. This shift resulted from the growth, over time, in the types of merchants who began to accept charge and credit cards in response to consumers' increased desire to use these cards for more of their purchases, and TRS' focus on expanding Card acceptance to exploit these opportunities. In recent years, this shift was important because of a decrease in spending in travel and entertainment resulting from the overall economic and political environment. TRS continues to make significant investments, both in the United States and internationally, in its card processing system and infrastructure to allow faster introduction and greater customization of products. TRS also is using technology to develop and improve its service capabilities in order to continue to deliver a high quality customer experience. For example, TRS maintains a service delivery platform that its employees use in the card business to support a variety of customer servicing and account management activities such as account maintenance, updating of Cardmember information, the addition of new cards to an account and resolving customer satisfaction issues. In international markets, TRS is building flexibility and enhancing its global platforms and capabilities in revolving credit, its full service banking platform called iWealthview, and consumer payment options. See "Corporate and Other" for a description of the Company's arrangement regarding the outsourcing of many of its technology operations to IBM. The Company continued to leverage the Internet to lower costs and improve service quality. During 2003, it expanded the number of services and capabilities available to customers online and increased their utilization. For example, within the United States, approximately 86% of the Company's card servicing call volume can now be handled online. The Company now has more online interactions with U.S. customers than it does by telephone or in person. Online Card sales grew steadily in 2003 as well. At year-end, approximately twelve million Cards were enrolled in "Manage Your Card Account Service". This service enables Cardmembers to review and pay their American Express bills electronically, view and service their Membership Rewards program accounts and conduct various other functions quickly and securely online. The Company now has an online presence in 55 markets. In addition to its U.S. and international consumer Card businesses, TRS is also a leading provider of financial and travel services to small businesses (firms that generally have less than 100 employees and/or sales of $10 million or less), a key growth area in the United States. OPEN: The Small Business Network'sm' from American Express ("OPEN Network") offers small business owners a wide range of tools, services and savings designed to meet their needs, including charge and credit cards, access to working capital, expense management reporting, enhanced online account management capabilities and savings on business services from OPEN Network partners. During 2003, TRS continued to expand the OPEN Network breadth of products and 14

services, including the introduction of the Business Cash Rebate Credit Card and the Platinum Business Credit Card. TRS also expanded its ability to offer line-of-credit products to U.S. small businesses through SBA Express, an innovative federal loan program that enables TRS to offer lines of credit backed by the U.S. Small Business Administration. During 2003, TRS introduced Online Expense Management Reports, an online tool that helps small business owners track and manage their business expenses, and Online Upgrades, which provides Cardmembers a quick and convenient new way to upgrade their Accounts. The OPEN Network also provides small business Cardmembers with the benefits of its Everyday Savings program, which provides savings to Cardmembers when they use their Cards to make purchases at program partners. Everyday Savings partners are leaders in categories relevant to businesses, including car rental, document reproduction, office supplies, shipping and wireless phones. The American Express Consumer Travel Network provides travel, financial and Cardmember services to consumers through American Express-owned travel service offices, call centers and participating American Express Representatives (independently-owned travel agency locations). Consumer Travel's vision and strategy is to be the premium travel service provider of choice to American Express Cardmembers. Consumer Travel markets unique travel products and services in conjunction with the Card to provide an end-to-end experience. U.S. Consumer Travel has distinguished itself in the luxury marketplace through its Platinum Travel Services and Centurion Travel Services, which provide programs such as the International Airline Program, which offers two-for-one fares on international first and business class tickets, and the Fine Hotels & Resorts program, a luxury hotel program offering room upgrades and value-added amenities. In addition, the Consumer Travel business operates a wholesale travel business in the United States, which packages American Express Vacations and distributes travel packages through other retail travel agents, and a cruise subsidiary in the United States, which markets value-added cruise products called the Mariner's Club. Consumer Travel also provides Membership Rewards program cruise and tour fulfillment, fee-free Traveler's Cheques, and foreign exchange. TRS' worldwide travel network of more than 1,700 retail travel locations is important in supporting the American Express brand and providing customer service throughout the world. TRS encounters substantial and increasingly intense competition with respect to the Card-issuing business. As a card issuer, TRS competes in the United States with financial institutions (such as Citibank, Bank One and JPMorgan Chase (which announced their plans to merge), MBNA, and Capital One Financial) that are members of VISA and/or MasterCard and that issue general purpose cards, primarily under revolving credit plans, on one or both of those systems, and the Morgan Stanley affiliate that issues the Discover Card on the Discover Business Services network. Internationally, TRS is also subject to competition from multinational banks, such as Citibank, HSBC and Banco Santander, as well as many local banks and financial institutions. TRS also encounters limited competition from businesses that issue their own cards or otherwise extend credit to their customers, such as retailers and airline associations, although these cards are not generally substitutes for TRS' Cards because of their limited acceptance. As a result of continuing consolidations among banking and financial services companies and credit 15

card portfolio acquisitions by major card issuers, there are now a smaller number of significant issuers and the largest issuers have continued to grow using their greater resources, economies of scale and brand recognition to compete. Competing card issuers offer a variety of products and services to attract cardholders including premium cards with enhanced services or lines of credit, airline frequent flyer program mileage credits and other reward or rebate programs, "teaser" promotional interest rates for both credit card acquisition and balance transfers, and cobranded arrangements with partners that offer benefits to cardholders. Target customers are segmented based on factors such as financial needs and preferences, brand loyalty, interest in rewards programs and creditworthiness, and specific products are tailored to specific customer segments. Most financial institutions that offer demand deposit accounts also issue debit cards to permit depositors to access their funds. Use of debit cards for point-of-sale purchases has grown as many financial institutions have replaced ATM cards with general purpose debit cards bearing either the VISA or MasterCard logo. As a result, the volume of transactions made with debit cards in the United States has continued to increase significantly and, in the United States, has grown more rapidly than credit and charge card transactions. Debit cards are marketed as replacements for cash and checks, and transactions made with debit cards are typically for small dollar amounts. While debit cards may be used instead of credit and charge cards for certain kinds of transactions, the ability to substitute debit cards for credit and charge cards is limited because the consumer must have sufficient funds in his or her demand deposit account to cover the transaction in question. For example, larger purchases or delayed purchases may not be appropriate for debit cards. TRS does not currently issue point-of-sale debit cards on the American Express merchant network. The principal competitive factors that affect the Card-issuing business are (i) the features and the quality of the services and products, including rewards programs provided to Cardmembers; (ii) the number, spending characteristics and credit performance of Cardmembers; (iii) the quantity and quality of the establishments that accept a card; (iv) the cost of cards to Cardmembers; (v) the terms of payment available to Cardmembers; (vi) the number and quality of other payment instruments available to Cardmembers; (vii) the nature and quality of expense management data capture and reporting capability; (viii) the success of targeted marketing and promotional campaigns; (ix) reputation and brand recognition; (x) the ability of issuers to implement operational and cost efficiencies; and (xi) the quality of customer service. American Express Credit Corporation, a wholly owned subsidiary of TRS, along with its subsidiaries ("Credco"), purchases the majority of Charge Card receivables arising from the use of Cards issued in the United States and in designated currencies outside the United States. Credco finances the purchase of receivables principally through the issuance of commercial paper and the sale of medium- and long-term notes. Centurion Bank finances its revolving credit receivables through the sale of short- and medium-term notes and certificates of deposit in the United States. TRS and Centurion Bank also fund receivables through asset securitization programs. The Company utilizes the gains from its securitization activities to help fund certain marketing and promotion activities. The cost of funding Cardmember receivables and loans is a major expense of Card operations. (For a further discussion of TRS' and Centurion Bank's 16

securitization and other financing activities, see page 27, pages 37 through 38, page 43, pages 44 through 47 and pages 53 through 57 under the caption "Financial Review," and Note 4 on pages 88 through 90 of the Company's 2003 Annual Report to Shareholders, which portions of such report are incorporated herein by reference.) Centurion Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") for up to $100,000 per depositor. Centurion Bank is a Utah-chartered industrial loan company regulated, supervised and regularly examined by the Utah Department of Financial Institutions and the FDIC. Among the activities of Centurion Bank that are regulated at the federal level are its anti-money laundering compliance activities. The Company has taken steps to maintain a compliance program consistent with applicable standards. For further discussion of the anti-money laundering initiatives affecting the Company, see "Corporate and Other" below. Centurion Bank is subject to the risk-based capital adequacy requirements promulgated by the FDIC. Under these regulations, a bank is deemed to be well capitalized if it maintains a tier one risk-based capital ratio of at least 6%, a total risk-based capital ratio of at least 10%, and a leverage ratio of at least 5%. As of December 31, 2003, AECB met the "well capitalized" standard, with a tier one risk-based capital ratio of 9.00%, a total risk-based capital ratio of 10.33%, and a leverage ratio of 11.55%. American Express Bank, FSB ("AEBFSB") is a federal savings bank regulated and supervised by the Office of Thrift Supervision ("OTS"). In December 2003, AEBFSB and certain of its affiliates received OTS approval to, among other things, transfer ownership of the federal savings bank from AEFA to TRS, relocate its headquarters from Minneapolis, Minnesota to West Valley, Utah, and amend its business plan to permit AEBFSB to offer certain credit, charge and consumer lending products, small business loans, mortgages and mortgage-related products and to operate a transactional Internet site. The implementation of the changes to AEBFSB's business plan, which will provide more flexibility to the Company, began in the first quarter of 2004 with the transfer of certain Card accounts from Centurion Bank to AEBFSB. AEBFSB continues to provide personal trust, custodial, agency and investment management services to individual clients of AEFA. AEBFSB is registered with the SEC as an investment adviser. AEBFSB is authorized to transact business in all 50 states and the District of Columbia, and utilizes AEFA as its primary distribution channel for these services. The charge card, ATM and consumer lending businesses are subject to extensive regulation in the United States, as well as in foreign jurisdictions. In the United States, the business is subject to a number of federal laws and regulations, including the Equal Credit Opportunity Act (which generally prohibits discrimination in the granting and handling of credit); the Fair Credit Reporting Act (which, among other things, regulates use by creditors of consumer credit reports and credit prescreening practices and requires certain disclosures when an application for credit is rejected); the Truth in Lending Act (which, among other things, requires extensive disclosure of the terms upon which credit is granted); the Fair Credit Billing Act (which, among other things, regulates the manner that billing inquiries are handled and specifies certain billing requirements); the Fair Credit and Charge Card Disclosure Act (which mandates certain disclosures on credit and charge card applications); and the Electronic Funds Transfer Act (which regulates disclosures and settlement of transactions for electronic funds transfers including those at ATMs). Certain federal privacy-related laws and regulations govern 17

the collection and use of customer information by financial institutions (see "Corporate and Other" below). Federal legislation also regulates abusive debt collection practices. In addition, a number of states, the European Union, and many foreign countries in which the Company operates have significant consumer credit protection, disclosure and privacy-related laws (in certain cases more stringent than the laws in the United States). The application of bankruptcy and debtor relief laws affect the Company to the extent that such laws result in amounts owed being classified as delinquent and/or charged off as uncollectible. Card issuers and card networks are subject to anti-money laundering and anti-terrorism legislation, including, in the United States, the USA PATRIOT Act. (For a discussion of this legislation and its effect on the Company's business see "Corporate and Other" below.) Centurion Bank, AEBFSB and the Company's other bank entities are subject to a variety of laws and regulations applicable to financial institutions. Changes in such laws and regulations or in the regulatory application or judicial interpretation thereof could impact the manner in which the Company conducts its business and the costs of compliance. The regulatory environment in which the Company's Card and lending businesses operate has become increasing complex and robust. The Company regularly reviews and, as appropriate, refines its business practices in light of existing and anticipated developments in laws, regulations and industry trends so that it can continue to manage its business prudently and consistent with regulatory requirements and expectations. In January 2003, the Federal Financial Institutions Examination Council (the "FFIEC"), an interagency body composed of the principal U.S. federal entities that regulate banks and other financial institutions, issued in final form its guidance on Credit Card Account Management and Loss Allowance Practices (the "Guidance"). The Guidance covers five areas: (i) credit line management, (ii) over-limit practices, (iii) minimum payment and negative amortization practices, (iv) workout and forbearance practices, and (v) certain income (fee) recognition and loss allowance practices. The Guidance is generally applicable to all institutions under the supervision of the federal bank regulatory agencies that comprise the FFIEC, although it is primarily the result of the identification by bank regulators in their examinations of other credit card lenders practices deemed by them to be inappropriate, particularly, but not exclusively, with regard to subprime lending programs. The Company does not have any lending programs that target the subprime market. The Guidance has not had any material impact on the Company's businesses or practices and the Company does not believe that the Guidance will have any material impact on its practices in the future, nor does the Guidance mandate any changes to the Company's practices. Global Corporate Services TRS' Global Corporate Services business ("GCS") helps companies around the world better manage the costs and processes associated with a range of expenses, including travel and entertainment and everyday business products and services. GCS offers three primary products and services: Corporate Card, issued to individuals through a corporate account established by their employer and designed primarily for travel and entertainment spending; Corporate Purchasing Solutions, an account established by a company to pay for everyday business expenses such as office and computer supplies; and Corporate Travel, a large corporate travel agency, which helps businesses manage their travel expenses through a variety of travel-related products and services. 18

The American Express'r' Corporate Card is a charge card issued to individuals through a corporate account established by their employer for business purposes. Through the Corporate Card program, companies can monitor travel and entertainment expenses and improve negotiating leverage with suppliers, among other benefits. American Express uses its direct relationships with merchants that accept the Card to offer Corporate Card clients superior data about company spending, as well as streamlined dispute resolution. American Express issues local currency Corporate Cards in 37 countries (both through proprietary operations and partner banks), and international dollar Corporate Cards in other countries. Corporate Purchasing Solutions ("CPS") provides large and middle market companies with tools to better manage their everyday spending. CPS is used by corporations to buy everyday goods and services, such as office supplies and industrial supplies and equipment, in 24 markets around the world. This type of spending by corporations is less susceptible to economic downturns than traditional travel and entertainment spending and helps to diversify the spending mix on the Company's Cards. GCS is a leading provider of expense management services to global, multinational and large businesses worldwide. GCS established the Global Business Partnerships group which serves a highly select group of Fortune 100 companies that have globalized their approach to travel and entertainment expense management and have structured their purchasing requirements in a global manner to more effectively manage and optimize their investments in travel and entertainment, as well as everyday corporate expenses. In addition, GCS provides Corporate Card and travel expense management services to middle market companies (defined in the United States as firms with annual revenues of $10 million to $1 billion) in mature economies worldwide, including the United States, Canada, the United Kingdom, France, Sweden, Germany, Australia, Singapore and Mexico. GCS is focused on continuing to expand its business with midsize companies and believes this market offers a strong growth opportunity, as it encompasses a segment of customers that typically do not have corporate card programs. In 2003, GCS invested in a wide range of marketing programs and product enhancements, and added sales staff to generate more Card and travel business with midsize firms. To enhance the card product for midsize and certain large market firms in the United States, in 2003 GCS expanded its Savings at Work'sm' program, which provides companies with discounts on everyday products and services, such as office supplies, and a range of business services. During 2003, GCS added several major clients in the United States and internationally for the Corporate Card, including Oracle, Merrill Lynch, Sony Corporation of America and BearingPoint. Raytheon and Novartis became CPS clients during the year. In 2003, TRS announced a new partnership with American Airlines in the U.S. Corporate Card business. The American Express Business ExtrAA Corporate Card, a cobranded Card for midsize and certain large market companies, delivers savings in the form of cash rebates on a company's airline spending, as well as bonus points and discounts on everyday business spending. The new partnership with American Airlines adds a new level of premium value to 19

TRS' Corporate Card portfolio, providing a growth opportunity in attracting and cultivating the loyalty of midsize companies. TRS also announced similar cobrand issuing arrangements with Qantas Airways, KLM Royal Dutch Airlines and Aeroplan, a wholly owned subsidiary of Air Canada. With the increased focus on cost containment by firms, GCS has seen significant growth over the past few years in the Corporate Meeting Card, which helps U.S.-based companies control company meeting expenses. The Corporate Meeting Card provides clients with a tool to capture such spending and provides company meeting planners with a tool to simplify the meetings payment process and access to data to negotiate with suppliers. GCS also launched the Corporate Defined Expense Program in 2003. This product allows companies to set a maximum amount to be charged on a Card before expiration and permits them to segregate spending data for specific purposes on projects. It is designed for companies that want to allocate funds for a specific purpose, such as employee relocations or training. In 2003, GCS expanded sales of American Express @ Work'r', a secure, web-based suite of online tools that enables Corporate Card, CPS and Corporate travel customers to perform account review and servicing and access management reports on a 24/7 basis through a single user interface. This suite helps companies manage expenses and manipulate spend data more efficiently than offline alternatives, while decreasing the costs associated with servicing. These products enable companies to review, combine and manipulate Corporate Card, Corporate Travel and Corporate Purchasing Solutions data. One of the products also allows companies to reconcile the data with its internal accounting system. Competition in the commercial card (Corporate Card and CPS) business is increasingly intense at both the card network and card issuer levels. At the network level, Diners Club remains a significant global competitor. In addition, both VISA and MasterCard have increased efforts to support card issuers such as U.S. Bank, JPMorgan Chase, GE Capital Financial Inc. and Citibank (in the United States and globally), who are willing to build and support data collection and reporting necessary to satisfy customer requirements. In the past few years, MasterCard has promoted enhanced web-based support for its corporate card issuing members, and VISA International supported the creation of a joint venture by a number of its member banks from around the world to compete against GCS and Diners Club for the business of multinational companies. The key competitive factors in the commercial card business are, in addition to the factors cited on page 16, (i) the ability to capture and deliver detailed transaction data and expense management reports; (ii) the number and types of businesses that accept the cards; (iii) pricing; (iv) the range and innovativeness of products and services to suit business needs; (v) quality of customer services; and (vi) global presence. GCS also provides a wide variety of travel services to customers traveling for business and is one of the world's largest corporate travel management companies. American Express Corporate Travel provides travel reservation advice and booking transaction processing; travel expense management policy consultation; supplier negotiation and consultation; management information reporting, data analysis and benchmarking; and group and incentive travel services. Corporate Travel services customers in 37 key markets worldwide, of which 31 are proprietary operations and six are managed through joint ventures. In 2003, GCS was awarded the corporate 20

travel business of companies including BearingPoint, British Telecom and the French Government's Ministry of Defense. In October 2003, the Company continued pursuing its growth strategy and expanded its global reach by completing the acquisition of Rosenbluth International, a corporate travel company that was the fifth-largest travel management company in the United States. The Rosenbluth acquisition added nearly 400 servicing locations and, as of year-end, approximately 2,700 employees in the United States, Canada, and the United Kingdom, as well as other strategic markets in Europe, Asia and the Pacific Rim. The Company believes that the Rosenbluth acquisition helps the Company expand an advantage over other competitors and online travel agencies that do not offer similar worldwide servicing capabilities. The Rosenbluth acquisition also has increased customer volume in both the large and middle market segments and will enable the continued development of a high quality product and services portfolio by integrating the technology and customer solutions from both companies. GCS continues to modify its economic model and invest in new technologies to address ongoing travel industry challenges. For example, GCS has been successful in its efforts to diminish its reliance on commission revenues from suppliers, such as airlines or hotels, and now relies more on customers to pay transaction or management fees for its travel services. In 2003, a smaller portion of U.S. corporate travel revenues came from airlines, hotels, rental car companies and other suppliers, and a majority came from customers. A few years ago, that mix was the reverse. In addition, GCS has moved many of its business processes and customer servicing for corporate travel online. Key initiatives included the acceleration of the use of interactive travel processes in the United States and other key markets, which streamlines processes, increases productivity, enhances the quality of customer service and satisfaction and improves overall GCS profitability. By the end of 2003, in the United States, 25% of all of GCS' corporate travel transactions were processed online, and online penetration rates in the United Kingdom, Canada, Mexico and Australia achieved levels within the 5% to 10% range. The corporate travel division of GCS faces vigorous competition in the United States and internationally from numerous traditional and online travel management companies, as well as from direct sales by airlines and other travel suppliers. Competition among travel management companies is mainly based on price, service, convenience, global capabilities and proximity to the customer. In addition, competition comes from corporate customers themselves, as some companies have become accredited as in-house corporate travel agents. In 2003, several U.S.-based online travel agencies strategically expanded their offerings and marketing efforts beyond their traditional target customer set, which had formerly been primarily the leisure traveler, with increasing focus on small or middle market companies in the United States. Orbitz, Expedia and Travelocity have all begun to pursue midsized and larger corporate travel customers in North America. While the majority of the online agencies' efforts to penetrate the managed corporate travel sector has to date occurred in the United States, it is likely that these efforts will be expanded to Canada, the United Kingdom and other mature European markets in 2004. Competition for these larger corporate travel customers will intensify as a result of these efforts. 21

Airlines have continued their efforts to reduce distribution expenses. Following the industry-wide action in March 2002 when U.S. airlines and some international carriers announced they would no longer pay "base" commissions to travel agents for tickets sold in the United States and Canada on all domestic and international travel, airlines in other markets followed suit. During late 2002 and throughout 2003, in the United Kingdom, Scandinavia, the Netherlands, Australia, Mexico, Brazil, and some Asia Pacific countries, the leading market airline has discontinued or drastically reduced base commission payments to travel agencies. Similar actions are expected in France and Germany in 2004. The impact in 2003 of global macro events, including the continued worldwide economic uncertainty, the war in Iraq, fear of terrorism and other geopolitical uncertainty and SARS, adversely impacted the travel industry and caused some travel agencies to go out of business and encouraged others to seek consolidation opportunities. For example, the North American Airlines Reporting Corporation ("ARC") reported 13% fewer ARC-accredited agencies operating in North America in 2003 versus the number of agencies in 2002. This year also saw the continued rise in popularity, relevance and profitability of the low-cost air carrier segment in the United States, Europe and Asia, including the successful launch of several new low-cost carriers, some of which are subsidiaries of financially troubled U.S. "mainline" carriers. While this segment has focused in the past primarily on leisure travelers, 2003 saw a continued rise in the number and percentage of business travelers using these low-cost airlines. Until the last few years, GCS had received commissions and fees for ticketing and reservations from airlines and other travel suppliers, and management and transaction fees from corporate travel customers. The ongoing trends of airline alliances, airline websites permitting travelers to book business directly and ongoing rate reductions in airline commissions continue to reduce revenue for travel companies and raise costs for travelers. In 2003, GCS announced its TravelBahn'r' Distribution Solution in North America, a proprietary distribution network alternative that provides access to best airline inventory and fares for American Express Corporate Travel customers with a number of carriers. The Company continues its negotiations with additional airline carriers to finalize similar distribution agreements. In response to the changing operating environment and the accelerated fluidity in airline and hotel pricing caused by unsteady capacity and demand, GCS has consulted with customers regarding the growing need to develop new, more fluid purchasing models. These new models attempt to utilize negotiated annual corporate fares for airline and hotel inventory often on short notice or on a last-minute basis. Late in 2003, GCS launched the PreferredExtras'sm' Hotel Program, designed to guarantee North American corporate travel customers the lowest available hotel rates at 1,400 locations globally among a select portfolio of preferred hotel partners. GCS, through its Consumer Travel International and Foreign Exchange Services Group ("CTI & FES"), provides leisure travel services outside the United States and retail and wholesale currency exchange and Cardmember services worldwide through a global retail network of American Express-owned and franchised offices. The division experienced material 22

volume decreases due to the war in Iraq, the impact of the SARS virus on global travel volumes and the fear of terrorism, all of which were particularly detrimental to leisure travel spending. CTI & FES expanded its retail presence in the airports with new signings at New Delhi, Newark and Munich airports, and with contract expansions or extensions at Rio de Janeiro, Mexico City and Sao Paolo airports. CTI & FES also provides electronic funds transfer services, primarily in the United States, Canada, the United Kingdom and Australia. These services offer small and midsize businesses an Internet-based solution to transfer, record and track payments to international suppliers and banks. CTI & FES also offers wholesale currency services to financial institutions and key corporate clients from its distribution and processing centers in the United Kingdom and Australia. In retail consumer travel, the group significantly expanded its number of retail locations in Australia and China through large partner franchise agreements in those markets. Membership Travel Services ("MTS") provides Card, travel and lifestyle servicing to the Company's premium Cardmembers, including Gold, Platinum and Centurion Cardmembers outside the United States, with the majority of operations in the United Kingdom, France, Italy, Germany, Spain, Belgium, Japan, Australia, Hong Kong, Singapore and Mexico. In 2003, MTS focused on rationalizing its customer servicing platforms and standardizing its service delivery, as well as investing in exclusive Cardmember benefits for travel, entertainment, recreation and dining offers through a network of preferred suppliers. Global Travelers Cheques and Prepaid Services The Company, through its Global Travelers Cheques and Prepaid Services Group ("TCPS"), is a leading issuer of travelers checks. In 2001, the Company made the decision to stop offering Money Order and Official Check products and will be fully exited from this business by August 2004. The Company will, however, continue to honor all previously issued and sold Money Orders and Official Checks. TCPS also offers the TravelFunds Direct'r' service, which provides direct delivery of foreign bank notes and Travelers Cheques in selected markets. The American Express Travelers Cheque ("Travelers Cheque" or "Cheque") is sold as a safe and convenient alternative to currency. The Travelers Cheque is a negotiable instrument, has no expiration date and is payable by the issuer in the currency of issuance when presented for the purchase of goods and services or for redemption. During 2003, TCPS launched a new Travelers Cheque product in Russia and Argentina, the American Express Cheque - Secure Funds. This product offers the same functionality and security as a Travelers Cheque and addresses consumers' desire to keep extra funds available at home. Gift Cheques, another type of travelers check, are used for gift-giving purposes. Travelers Cheques are issued in eight currencies, including a Euro-denominated Travelers Cheque, both directly by the Company and through a joint venture company in which the Company holds an equity interest. American Express Cheque - Secure Funds is issued in two currencies, U.S. dollars and Euros. Gift Cheques are issued in U.S. dollars and Canadian dollars. 23

American Express Travelers Cheques are sold through a broad network of selling outlets worldwide, including travel offices of the Company, its affiliates and representatives; travel agents; commercial banks; savings banks; savings and loan associations; credit unions; and other financial, travel and commercial businesses. The Company sometimes compensates selling outlets for their sale of Travelers Cheques. Arrangements with sellers continue to be critical to TCPS' expansion of its sales distribution network. In 2003, TCPS gained a number of new distributors, including AARP in the United States, TUI in Germany, Aeromexico in Mexico and the Thomas Cook UK Limited website. In addition, the Company's sale of Travelers Cheques and Gift Cheques over the Internet continued to grow. TCPS has also grown its prepaid card business. In 2003, TCPS introduced the TravelFunds'sm' Card ("TFC"), a prepaid, reloadable travel money card. The TFC is available in U.S. Dollars, British Pounds Sterling and Euros, and can be used worldwide at all merchants and ATMs that accept the American Express Card. The TFC offers the same customer service and security of the Travelers Cheque, including passport and credit card replacement assistance. The group also continued to expand the distribution channels for prepaid products with the addition of retail, airline, car rental, hotel and travel agency sellers, as well as postal services in Australia, Canada and the United States. In 2003, TCPS also continued to offer two prepaid gift products, the American Express Gift Card, which can be used at retail as well as restaurant establishments that accept American Express Cards, and the Be My Guest'r' Card, specifically designed for restaurant dining. TCPS is continually evaluating additional prepaid products to offer a variety of consumer segments. During the year, overall Travelers Cheque sales (including TFC sales) decreased 13.7% globally, and consumer Gift Product sales (including sales of paper Gift Cheques and Gift Cards) increased 28%. Gift Cheque growth, which is off a much lower base than Travelers Cheques, is primarily the result of new advertising and marketing programs. The lag in Travelers Cheque sales was primarily driven by the continuing global economic slowdown, the loss of the AAA account and by increasing competition from other forms of payment (including the convenient access to cash through ATMs). The proceeds from sales of Travelers Cheques and prepaid cards issued by TRS are invested predominantly in highly rated debt securities consisting primarily of intermediate- and long-term state and municipal obligations. Issuers of travelers checks are regulated in the United States under most states' "money transmitter" laws. Some states also regulate issuers of prepaid cards in the same manner. These laws require travelers check (and, where applicable, prepaid card) issuers to obtain licenses, to meet certain safety and soundness criteria, to hold outstanding proceeds of sale in highly rated and secure investments, and to provide detailed reports. Many states audit licensees annually. In addition, travelers check issuers are required to comply with state unclaimed and abandoned property laws. The U.S. state laws require issuers to pay to states the face amount of any travelers check that is uncashed or unredeemed after 15 years. A few states have amended their abandoned property laws to apply to prepaid cards. On December 31, 2001, new federal anti- 24

money laundering regulations became effective. These regulations required, among other things, the registration of traveler check issuers as "Money Service Businesses" and compliance with anti-money laundering recording and reporting requirements by issuers and selling outlets. At this time, stored value issuers and redeemers, while considered to be "Money Service Businesses", are not required to register. Outside the United States, there are varying anti-money laundering requirements, including some that are similar to those in the United States. Travelers Cheques compete with a wide variety of financial payment products. Consumers may choose to use their credit or charge cards when they travel instead of carrying Travelers Cheques, although a Travelers Cheque would not typically be an acceptable substitute for most transactions made with credit or charge cards. Other payment mechanisms that might substitute for Travelers Cheques include cash, checks, other brands of travelers checks, debit cards and cards accepted at ATM networks. The principal competitive factors affecting the travelers check industry are (i) the availability to the consumer of other forms of payment; (ii) the amount of the fee charged to the consumer; (iii) the availability and acceptability of travelers checks throughout the world; (iv) the compensation paid to, and frequency of settlement by, selling outlets; (v) the accessibility of travelers check sales and refunds; (vi) the success of marketing and promotional campaigns; and (vii) the ability to service the check purchaser satisfactorily if the checks are lost or stolen. Other Products and Services Interactive Enterprise Development ("IED") leverages interactive technologies to develop new businesses and enhance existing businesses. IED leads and coordinates the deployment of the Company's enterprise-wide interactive strategy with a focus on providing Internet and interactive capabilities to meet customer needs. American Express Tax and Business Services Inc. ("TBS") is a tax, accounting, consulting and business advisory firm that primarily provides services to small and middle market companies. TBS delivers a wide range of services, including tax planning and accounting, litigation support, business reorganization, business management advisory, business technology, internal audit outsourcing and other accounting, advisory and consulting services. TBS is not licensed to practice public accounting, but employs certified public accountants who deliver, along with professionals, the non-attest services described above. TBS has a continuing professional services relationship with several independent, licensed public accounting firms to which it leases personnel. These public accounting firms offer attest services to their clients. TBS has more than 50 offices in 17 states with approximately 2,700 employees. TRS, through American Express Publishing, also publishes luxury lifestyle magazines such as Travel+Leisure'r', T+L Family, a supplement to Travel+Leisure, T+L Golf'r', Food & Wine'r' and Departures'r'; travel resources such as SkyGuide'r'; business resources such as the American Express Appointment Book, Fortune Small Business magazine and SkyGuide Executive Travel, a business traveler supplement; a variety of general interest, cooking, travel, wine, financial and time management books; branded membership services; a growing roster of international magazine editions; as well as directly sold and licensed products. American Express Publishing also has a custom publishing group and is expanding its service-driven 25

websites such as: travelandleisure.com, foodandwine.com, departures.com, tlgolf.com, tlfamily.com and skyguide.net. AMERICAN EXPRESS FINANCIAL ADVISORS The Company, through its American Express Financial Advisors operating segment ("AEFA"), makes available a variety of financial products and services to help individuals, businesses and institutions establish and achieve their financial goals. Financial planning is at the core of AEFA's business, which helps clients meet their long-term financial goals. The AEFA operating segment principally includes American Express Financial Corporation ("AEFC") and its subsidiaries and affiliates described below. AEFA's business consists of three principal components: Retail Distribution, Asset Management and Insurance and Annuities. Retail Distribution AEFA strives to help clients achieve their financial objectives prudently and thoughtfully through a long term relationship based on trusted, knowledgeable advice. AEFA's financial advisors work with retail clients to develop strong relationships and long-term financial strategies. AEFA's financial advisors also provide each client access to a broad array of proprietary and non-proprietary product and service solutions to meet their individual needs, including annuities; a variety of insurance products, including life insurance, disability income insurance, long term care insurance, and property and casualty insurance; a variety of investment products, including investment certificates and mutual funds; investment services, including wrap programs; a variety of tax-qualified products, including individual retirement accounts, employer-sponsored retirement plans and Section 529 college savings plans; personal trust services; and retail securities brokerage. AEFA also offers online direct brokerage services. Sales Force At December 31, 2003, AEFA maintained a nationwide field sales force of over 12,100 financial advisors, which represented a 4% increase over 2002 and served more than 2.5 million clients throughout the United States. AEFA's organizational structure provides advisors several choices in how they affiliate with the organization, each having separate levels of service and compensation. The employee advisor platform provides compensation as a draw against commission. The employee advisors receive a higher level of support in exchange for a lower payout rate. In the branded independent franchisee advisor platform, advisors earn a higher payout rate, but cover their own expenses, including real estate and staff. AEFA also operates a non-American Express branded independent platform, Securities America, Inc., a broker-dealer owned by AEFC. Securities America distributes mutual funds, annuities and insurance products, as well as individual securities and wrap products. Approximately 25% of AEFA's financial advisors are American Express employees; approximately 62% are American Express-branded franchisees; and approximately 13% are in the unbranded platform. As discussed below, AEFA receives a variety of fees and expenses in connection with the products sold by its financial advisors. In turn, AEFA pays a significant portion of the revenue received in the form of sales charges and 12b-1 distribution fees to 26

advisors for their role in serving clients. The rate of commission paid to each advisor is determined by a schedule that takes into account the type of product sold, the manner in which the advisor is affiliated with AEFA (as discussed above) and other criteria. During 2003, AEFA continued to focus on improved recruiting and selection of employee advisors to drive higher retention of first year advisors. AEFA further improved the service and tools provided to franchisee advisors. AEFA also continued efforts to increase the size of its dedicated field force to further enhance its ability to attract and serve new clients and to compete effectively with the large sales forces of certain competitors. In attracting and retaining members of the field force, AEFA competes with financial planning firms, insurance companies, securities broker-dealers and other financial institutions. Financial Planning AEFA's financial planning services are intended to help clients meet important financial goals, such as providing an education to their children, purchasing a home and providing for their retirement years. The financial planning process generally begins with a written analysis and plan based on the client's personal information, goals and needs. Advisors typically recommend a range of proprietary and non-proprietary financial products and services based on such plan and work with the client to obtain such products and services for the client's account. For its financial planning services, AEFA generally receives fees based upon the services that the client selects and the complexity of the client's financial situation. Clients may be charged a flat fee, an hourly rate or a combination of the two. The fee is not based on or related to the performance of a client's funds or assets. Depending on what is most appropriate for their situation, clients may select a limited engagement period or may elect to receive ongoing financial planning services from their American Express financial advisor. The fees paid in connection with financial planning services are separate from and in addition to fees paid for any financial products and services purchased from or through AEFA or its affiliates. AEFA achieved record financial planning sales and fee revenue in 2003. Plan sales increased by 13% and fees from financial plans and other fee-based advice increased by 6% over 2002. During 2003, nearly 51% of new retail clients had a financial plan developed for them by an AEFA advisor, up 4% from 2002. As has been the case historically, clients with plans tend to buy more products. On average, they own almost three times as many accounts as non-planning clients and have more than twice as much cash invested with AEFA. In 2003, product sales generated through financial planning services were 75% of total advisor sales, an increase of 2% over 2002. Also in 2003, AEFA reached a significant milestone, exceeding one million current clients with a financial plan. AEFA continues to invest in the development of tools and training for its advisors to further strengthen its ability to offer sound advice and ongoing financial planning services. In December 2002, AEFA contracted with Morningstar Associates, LLC to provide investment advice tools that serve both retail and workplace markets. As a complement to AEFA's own proprietary suite of financial planning tools, the Morningstar'r' tools are intended to enable advisors to meet the ongoing financial and investment planning needs of more affluent clients. AEFA launched the research and illustration features of these tools in November 2003. 27

Brokerage Services AEFA has taken steps to integrate its direct retail distribution channel with the advisor channel. AEFA's online brokerage business, American Express Brokerage, allows clients to purchase and sell securities online, obtain research and information about a wide variety of securities, use self-directed asset allocation and financial planning tools, contact an advisor, as well as have access to more than 3,000 proprietary and non-proprietary mutual funds, among other services. AEFA's American Express One'r' Financial Account is an integrated financial management account that combines clients' investment, banking and lending relationships into a single account. The American Express One Financial Account enables clients to access a single cash account to fund a variety of financial transactions, including investments in mutual funds and other securities. Additional features of the American Express One Financial Account include unlimited check writing with overdraft protection, an American Express Gold Card, online bill payments, ATM access and a high-yield savings account. In 2003, AEFA launched an incentive program that pays Membership Rewards'r' program Bonus Points and American Express Gift Cheques to persons opening and funding an American Express One Financial Account and who then take additional steps to transfer funds into the account on an ongoing basis through direct deposit or bank authorization. AEFA also launched its Financial Accounts data aggregation service, which is an online capability that enables clients to view and manage their entire American Express relationship (i.e., brokerage, Card, 401(k), banking, financial advisor) in one place via the Internet. The Financial Accounts Service also allows clients to add third party account information, providing a consolidated view of their financial services account relationships. In recent years, AEFA has increased its sale of non-proprietary products, particularly mutual funds, to meet the demands of clients for a broader choice of investment products. During the past year, AEFA created the Select Group Program for mutual funds. As of year end 2003, this program consisted of twelve fund families, including American Express Funds, offering more than 700 mutual funds. Fund families are selected to participate in the Select Group Program based on several criteria including brand recognition, product breadth, investment performance and training and wholesaling support. In exchange for certain benefits, such as broader access to American Express financial advisors, fund families in the Select Group Program are required to pay AEFA for participation in the program by sharing with AEFA a portion of the revenue generated from the sales and ongoing management of fund shares. AEFA may also receive payment from other non-proprietary fund families whose products are available through American Express financial advisors and online brokerage. AEFA also receives administrative services fees from most funds sold through its distribution network. Sales of non-proprietary products on a stand-alone basis generally are less profitable than proprietary sales. In addition to purchases of non-proprietary products on a stand-alone basis, clients may purchase mutual funds in connection with fee-based programs or services and pay a fee based on a percentage of assets. One such program 28

sponsored by AEFA is American Express'r' Strategic Portfolio Service Advantage, a non-discretionary wrap program for investments in proprietary and non-proprietary mutual funds and individual securities built around asset-allocation strategies. A substantial portion of AEFA's non-proprietary mutual fund sales are made in these programs, and they tend to be more profitable than the sale of non-proprietary mutual funds alone. During 2003, AEFA launched American Express'r' Premier Portfolio Services ("Premier"), a service that allows customers to receive consolidated reporting and information on one or more fee-based accounts. The fee-based accounts available in Premier include non-discretionary brokerage accounts, for which clients pay a flat asset-based fee in lieu of individual commissions on transactions executed in mutual funds and individual securities. Also available in Premier is the Separately Managed Account Program, a wrap fee program in which clients select one or more professional investment managers to provide discretionary asset management services. Clients in American Express'r' Wealth Management Service ("WMS"), another professionally managed discretionary wrap service sponsored by AEFA that is being discontinued, have been given the option to transition to the Separately Managed Account Program within Premier. AEFA financial advisors also sell real estate investment trusts sponsored by other companies. AEFA also services, but does not sell, managed futures limited partnerships in which an AEFC subsidiary is a co-general partner, which subjects AEFA and its affiliated co-general partner to regulation by the CFTC. Additional Capabilities In 2003, AEFA continued to expand its securities brokerage services. American Enterprise Investment Services Inc. ("AEIS"), a wholly owned subsidiary of AEFC, provides securities execution and clearance services for retail and institutional clients of AEFA. As of December 31, 2003, AEIS held over $60 billion in assets for clients, an increase of $18 billion from December 31, 2002. AEIS is registered as a broker-dealer with the SEC, is a member of the National Association of Securities Dealers, Inc. ("NASD") and the Chicago Stock Exchange and is registered with appropriate states. American Express Financial Advisors Inc. ("AEFAI"), AEFC's principal marketing subsidiary, does business as a broker-dealer and investment adviser in all 50 states and the District of Columbia. AEFAI is registered as a broker-dealer and investment advisor regulated by the SEC and is a member of the NASD. AEFA's financial advisors must obtain all required state and NASD licenses and registrations. AEFA also acts as custodian and broker for Individual Retirement Accounts, Tax-Sheltered Custodial Accounts and other retirement plans for individuals and small and mid-sized businesses. As of December 31, 2003, these tax-qualified assets equaled $77.5 billion, which is in excess of 21% of total institutional and retail assets owned, managed and administered by AEFA. 29

AEFA is the primary distribution channel for The Personal Trust Services Division ("PTS") of American Express Bank, FSB ("AEBFSB"), which provides personal trust, custodial, agency and investment management services to individual clients. AEBFSB is a federal savings bank regulated and supervised by the Office of Thrift Supervision (the "OTS") and registered with the SEC as an investment adviser. As disclosed above (in "Travel Related Services") in December, 2003, AEBFSB and certain of its affiliates received OTS approval to amend its business plan to permit it to offer certain credit, charge and consumer lending products, small business loans, mortgages and mortgage-related products and to operate a transactional Internet site. Business Development Consistent with the Company's goal of leveraging business development across all of its units, AEFA continues to increase its sales to customers from other American Express businesses. AEFA's Financial Education and Planning Services ("FEPS") group provides workplace financial education and advisory services programs to the 401(k) client base of American Express Retirement Services ("AERS") and American Express Trust Company and to other major corporations and small businesses. Focused on the goal of creating advisor relationships with individual employees of client companies, FEPS trains and supports advisors working on-site at company locations presenting educational seminars, conducting one-on-one meetings and participating in company educational events. In 2003, AEFA expanded its on-site activities with 401(k) clients and had significant increases in sales of financial education relationships to companies that do not have a 401(k) relationship with AERS. During 2003, AEFA also provided financial advice service offerings tailored to discrete employee segments, such as FEPS Executive Financial Services. The growth and success of FEPS is consistent with industry research and AEFA's belief that marketplace demand for employee financial education is expected to remain high, particularly given the continuing trend toward increased employee responsibility for selecting retirement investments. As this service need grows, so too does the number of competitors seeking to provide employee education and planning services. In 2003, AEFA continued to leverage other American Express relationships with major companies to create alliances that help generate new financial services clients. AEFA continued its relationship with Costco Wholesale in 2003. The Costco Wholesale/AEFA relationship offers advisors an opportunity to market financial planning and advice services to millions of Costco Wholesale members, through various marketing channels. In 2003, AEFA entered into a new marketing alliance with Delta Air Lines. The Delta/AEFA marketing alliance provides AEFA with the opportunity to market to the millions of consumers who have a relationship with Delta through its Delta SkyMiles'r' program, including those consumers who already carry the cobranded American Express/Delta SkyMiles credit card. AEFA also has a marketing agreement with Sallie Mae, Inc., the educational loan company. The agreement, which was executed in July 2003, allows Sallie Mae customers to take advantage of special financial advice and product offerings through AEFA Internet, e-mail, direct mail and newsletter promotions. 30

The Internet also continues to be an important and cost effective tool for acquiring new customers. Advisor leads are generated via the Internet at a substantially reduced cost versus alternative channels. Additionally, the Internet continues to represent an important vehicle for customer service across all channels of distribution. Competitive Environment Competition in the financial services industry focuses primarily on cost, investment performance, yield, convenience, service, reliability, safety, innovation, distribution systems, reputation and brand recognition. Also, reputation and brand integrity are becoming increasingly more important as the mutual fund industry generally and certain firms in particular have come under regulatory and media scrutiny. See " - Regulation of Retail Distribution and Asset Management" below. Competition in this industry is very intense. AEFA competes with a variety of financial institutions such as banks, securities brokers, mutual funds and insurance companies. Some of these institutions are larger, have greater resources and are more global than AEFA. Many of these financial institutions also have products and services that increasingly cross over the traditional lines that previously differentiated one type of institution from another, thereby heightening competition for AEFA. The ability of certain financial institutions to offer online investment and information services has also affected the competitive landscape over the past few years. AEFA believes that its focus on financial planning and advice, coupled with an ability to provide broad-based products and services on a relationship basis, is a competitive advantage. Management believes this business model is more relevant today than in the past as a result of the significant market volatility experienced during the past few years. Unlike many of AEFA's competitors, whose field forces typically comprise brokers who focus on completing transactions, many of AEFA's advisors are Certified Financial Planner'r'* practitioners who work closely with clients to develop long-term financial plans. AEFA believes that this has contributed to an annual client retention rate that exceeds 94%. Many major brokerage firms are attempting to move away from their historical transaction orientation and toward financial planning and advice, AEFA's historical focus and longstanding strength. AEFA's business does not, as a whole, experience significant seasonal fluctuations. Asset Management AEFA's asset management business offers a range of products and services, including investment management services for fixed income, equity and international investment strategies. AEFA affiliates provide asset management and related services to two major groups of retail investment products, the AXP Funds, American Express's family of proprietary mutual funds, and American Express Certificate Company, an issuer of face amount investment certificates. Additionally, AEFA provides asset management products and services to its insurance companies' general and separate accounts. The separate accounts are organized as unit investment trusts, which in turn invest in various proprietary and non-proprietary registered ---------- * Registered trademark of Certified Financial Planner Board of Standards Inc. 31

investment companies. AEFA's asset management business provides investment management services to the proprietary registered investment companies that include the VP Funds, a part of the AXP Fund family, IDS Life Series Funds, Inc. and Funds A & B. For institutional customers, AEFA offers services such as separate account asset management, institutional trust and custody, and employee benefit plan administration as well as investment products, such as hedge funds. In 2003, one of AEFA's goals was to increase the competitiveness of its proprietary products and services for both retail and institutional customers. In furtherance of this goal AEFA took several steps to strengthen its asset management capabilities and investment management performance, including: o The acquisition of Threadneedle Asset Management Holdings Ltd. ("Threadneedle"), a group based in London that manages assets for insurance companies, private investors, corporations, investment funds, pension plans, and affiliated companies of Zurich Financial Services Group, the party from which Threadneedle was acquired; o The reorganization of its fixed income investment management staff into teams responsible for portfolio management and trading, and teams responsible for research for investment grade corporate bonds, high yield bonds, and cash; and o The announcement of plans to merge several equity mutual funds in 2004. Overall, despite some weaker than targeted performance in some of AEFA's equity funds in 2003, AEFA has made substantial improvements in investment performance over the past few years. Nonetheless, AEFA recognizes the need to continue to build on this progress in order to increase its competitiveness in the industry. AEFA's investment management business benefited in 2003 from an increase in management fees resulting from higher average assets under management, reflecting the Threadneedle acquisition. Since most fees that AEFA receives for asset management services are based on assets under management, market appreciation results in increased revenues, and inversely, market depreciation will depress AEFA's revenues. Mutual Funds AEFA offers a variety of proprietary mutual funds, for which AEFAI acts as principal underwriter (distributor of shares). AEFA mutual funds are distributed exclusively by AEFA advisors and through the retirement services and insurance third party distribution businesses discussed below. AEFC acts as investment manager for the funds, and AEFC and its affiliates perform various administrative services for the funds. As of December 31, 2003, the AXP Funds consisted of 64 retail mutual funds, of which six were launched in 2003, with varied investment objectives. The AXP Funds, with combined assets at December 31, 2003, of $68.8 billion, were the 29th largest mutual fund family in the United States and, excluding money market funds, were the 17th largest. The VP Funds consist of 22 variable product portfolios (including three 32

portfolios that were added in early 2004) that offer a variety of investment strategies including cash management, fixed income and domestic and international equity. The VP Funds had combined assets at December 31, 2003, of $15.7 billion. Late in 2003, Threadneedle personnel, as associated persons of American Express Asset Management International, Inc., assumed responsibility for several of AEFA's international equity portfolios, including several of the AXP and VP Funds. In a continuing effort to improve its line of mutual fund products, AEFA proposed to the boards of directors of the AXP Funds that several funds be merged. Subsequent to year-end, the fund boards approved the proposed mergers and recommended that they be put to vote of the funds' respective shareholders, which is expected to occur in the second quarter of 2004. AEFC earns management fees for managing the assets of the AXP Funds based on the underlying asset values. Most of the proprietary equity mutual funds have a performance incentive adjustment ("PIA"). This PIA adjusts the level of management fees received, both upward and downward, based on the specific fund's relative performance as measured against a designated external index of peers. AEFA earns fees for distributing the AXP Funds through point-of-sale fees (sales charges or loads) and distribution fees (12b-1 fees) based on a percentage of assets. The AXP Funds are sold in multiple classes. For most funds, shares are sold in four classes - A, B, C and Y. Index fund shares are sold in two classes - D and E. Class A shares are sold at net asset value plus any applicable sales charge. The maximum sales charge is 5.75% for equity funds and 4.75% for income funds, with reduced sales charges for larger purchases. The sales charge may be waived for certain purchases, including those made through an investment product sponsored by AEFAI or another authorized financial intermediary. Class B shares are sold with a contingent deferred sales charge or back-end load. The maximum deferred sales charge is 5%, declining to no charge for shares held more than six years. Class C shares do not have a front-end sales charge. A 1% contingent deferred sales charge may apply to shares redeemed less than one year after purchase. Class Y shares are primarily sold to institutional clients with no load. There are two index funds, which are sold in two no-load classes. Class D shares are sold with a 0.25% fee for distribution services, but without a sales charge, through an investment product sponsored by AEFAI or another authorized financial institution. Class E shares are sold without a sales or distribution fee through American Express brokerage accounts and qualifying institutional accounts. Face-Amount Certificates American Express Certificate Company ("AECC"), a wholly owned subsidiary of AEFC, issues face-amount certificates. AECC is registered as an investment company under the Investment Company Act of 1940. AECC currently issues nine types of face-amount certificates. Owners of AECC certificates are entitled to receive, at maturity, a stated amount of money equal to the aggregate investments in the certificate plus interest at rates declared from time to time by AECC. In addition, persons owning three types of certificates may have their interest calculated in whole or in part based on any upward movement in a broad-based stock market index up to a variable maximum return. The certificates issued by AECC are not insured 33

by any government agency. AEFC acts as investment manager for AECC. Certificates are sold by AEFA's field force. American Express Bank also markets AECC certificates. AECC believes it is the largest issuer of face-amount certificates in the United States. At December 31, 2003, it had approximately $5.3 billion in assets. AECC's certificates compete with many other investments offered by banks, savings and loan associations, credit unions, mutual funds, insurance companies and similar financial institutions, which may be viewed by potential customers as offering a comparable or superior combination of safety and return on investment. In times of weak performance in the equity markets, certificate sales are generally stronger. AEFC also operates a joint venture in the Cayman Islands with its affiliate, American Express Bank, that issues deposit certificates denominated in U.S. dollars, Euros, pounds sterling and Australian dollars. Institutional Products and Services American Express Asset Management Group Inc. ("AEAMG"), a subsidiary of AEFC and an SEC registered investment adviser, directly or through operating divisions, affiliates or subsidiaries, provides investment management services to: o Pension, profit-sharing, employee savings and, endowment funds and other investments of large- and medium-sized businesses, governmental units and other large institutional clients; o Smaller accounts of wealthy individuals and small institutional clients; and o Alternative investment products such as hedge funds, including funds structured as limited liability entities and offshore corporations, a fund of hedge funds structured as a closed-end mutual fund; and special purpose vehicles that issue their own securities and that are backed by high-yield bonds and bank loans (collateralized debt obligations ("CDO")). For its investment services, AEAMG generally receives fees based on the market value of assets under management. Clients may also pay fees to AEAMG based on the performance of their portfolio. At December 31, 2003, AEAMG managed assets on behalf of clients (including assets managed or administered on behalf of the Company and its affiliates) in separate accounts and alternative investment vehicles in the United States totaling $15.1 billion compared to $14.8 billion at December 31, 2002. AEAMG provides investment management services as collateral manager to various special purpose vehicles that issue securities collateralized by a pool of assets, i.e., CDOs. AEAMG also provides investment management services to secured loan trusts ("SLTs"). AEAMG or one or more of its affiliated companies has invested its own money in such vehicles, including in residual or "equity" interests, which are illiquid and the most subordinated (and accordingly, riskiest and most volatile) interests in such vehicles. Pursuant to its adoption of 34

FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), AEFA was required to consolidate one CDO and three SLTs as of December 31, 2003, which resulted in a non-cash charge of $13 million ($20 million pretax) and the consolidation of $1.2 billion in new assets and $500 million in new liabilities. Ongoing valuation adjustments specifically related to the application of FIN 46 to the CDO are also non-cash and will be reflected in operating results over the remaining life of the structure. The Company expects, in the aggregate, such gains and losses related to the CDO, including the implementation charge, to reverse themselves over time as the structure matures, because the debt issued to the investors in the CDO is non-recourse to the Company, and further reductions in value of the related assets will be absorbed by the third-party investors. To the extent losses are incurred on the SLT portfolio, charges could be incurred that may or may not be reversed. For a complete discussion of the impact of FIN 46 on AEFA and the Company, see pages 29 through 30 and pages 66 through 67 of the 2003 Annual Report, as well as Note 1 to the Consolidated Financial Statements of the Company on page 78 and pages 83 through 84 of the 2003 Annual Report. As of December 31, 2003, the carrying values of the CDO residual tranches and SLT notes managed by AEFA but not consolidated pursuant to FIN 46 were $16 million and nil, respectively. AEFA also has an interest in a CDO securitization (see " - Insurance and Annuities - Securitization of Certain Insurance Assets"), as well as an additional $28 million in rated CDO tranches and $27 million in minority-owned SLTs, both of which are managed by third parties and not consolidated pursuant to FIN 46. CDOs and SLTs are illiquid investments. AEFA's investment return on CDOs correlates to the performance of portfolios of high-yield bonds and/or bank loans and its return on SLTs is based on a reference portfolio of loans. Generally, the SLTs are structured such that the principal amount of the loans in the reference portfolio to which the SLTs correlate may be up to five times that of the par amount of the notes held by AEFA. Deterioration in the value of high-yield bonds or bank loans would likely result in deterioration of investment return on the relevant CDO or SLT, as the case may be. In the event of significant deterioration of a portfolio, the relevant CDO or SLT may be subject to early liquidation, which could result in further deterioration of the investment return or, in severe cases, loss of the carrying amount. Deterioration of a portfolio would likely have a negative impact on collateral management fees. International investment management services are offered to domestic and international institutional clients and mutual funds by other subsidiaries of AEFC. The acquisition of Threadneedle in September 2003 helped facilitate consolidation of international asset management activities in the United Kingdom, resulting in the cessation of management activities in Singapore and Tokyo. At December 31, 2003, AEAMG's international asset management subsidiary managed $3.4 billion in the aggregate, of which $2.4 billion represented mutual fund assets. Threadneedle AEFA's international asset management business is based in London and operates under the Threadneedle group of companies. Threadneedle offers asset management services, including segregated asset management, mutual funds and hedge funds to institutional clients and to intermediaries, banks and funds platforms primarily in the United Kingdom, Germany, 35

Austria and elsewhere in Europe. With the recovery of markets in 2003, Threadneedle benefited from growth in assets under management both through new client business and organic market growth of existing funds. Those assets comprise most asset classes including equities, fixed income, cash and real estate. Threadneedle employs approximately 1,000 persons and maintains all of its asset management and support arrangements. Threadneedle has a sales and marketing presence in Germany and representative offices in France and Switzerland. Threadneedle's businesses are organized along three lines, namely, retail, institutional and strategic alliances. The retail business line includes Threadneedle's U.K. mutual fund family, which ranks as the second largest retail fund complex in the United Kingdom. Threadneedle mutual funds are sold primarily in the United Kingdom and Germany through financial intermediaries and institutions. In 2003 Threadneedle saw a continued trend in the aggregation of retail business in Europe through funds of funds, banks and funds platforms. The retail business unit also includes Threadneedle's hedge funds comprising two long/short equity funds and one fixed income fund. Inflows into these hedge fund products during 2003 brought assets under management in these products to $1.3 billion. The institutional business offers traditional segregated asset management to U.K. and international pension funds and institutions as well as offering mutual fund-based products to pension funds. Threadneedle experienced continued growth in the management of assets for U.K. institutions during 2003 as it attracted several new clients. Threadneedle's strategic alliances business comprises the asset management activities undertaken by Threadneedle for the Zurich Group and for other American Express companies and clients. The Zurich Group represents Threadneedle's single largest client. Threadneedle manages assets for the Zurich Group for both its U.K. and international life funds and for its general insurance assets as well as offering Threadneedle mutual funds products through Zurich's U.K. sales force. Threadneedle will continue to manage certain assets of Zurich Financial Services U.K., which comprise a majority of Threadneedle assets under management, for an initial term of up to eight years, subject to its meeting standard performance criteria. As a result of its acquisition by AEFA, Threadneedle portfolio management personnel have begun to undertake asset management activity for American Express and its clients, which added approximately $3.7 billion of assets under Threadneedle's management during the latter part of 2003 consisting of mutual funds sold by other business groups within AEFA and the Company and institutional segregated account business, of which $3.3 billion was co-managed by AEFA. In addition to these three main lines of business, during 2003 Threadneedle also acquired a substantial interest in an institutional multi-manager business (MM Asset Management (formerly known as Attica Asset Management)) with $612 million under management. This business manages two Dublin-based institutional funds-of-funds that are sold to small market pension fund clients in the United Kingdom through consulting actuary firms. Threadneedle 36

intends to support the continued growth of this business in the institutional and multi-manager markets in the United Kingdom. Threadneedle's overall strategy is to continue to grow assets under management in each of its three businesses at effective margins. To execute this strategy Threadneedle expects to develop additional hedge funds and other products for both the retail and institutional markets as well as continued efforts to attract new retail and institutional clients. Additional Capabilities Through American Express Trust Company ("AETC"), AEFA offers retirement plan-related services to mid- and large-size private employers, governmental entities and labor unions. The primary market is for retirement plans with at least $10 million in assets. AETC is a Minnesota chartered, limited service trust company that primarily provides trustee, custodial, record keeping, investment management, securities lending and common trust fund services for employer-sponsored retirement plans, including pension, profit sharing, 401(k) and other qualified and non-qualified employee retirement plans. Services include a wide array of investment options, participant education offerings and both telephone and Internet-based plan servicing. At December 31, 2003, AETC acted as directed trustee or custodian of 297 benefit plans, which represented approximately $31.5 billion in assets managed or administered (including approximately $3.1 billion of assets managed or administered on behalf of the Company and its affiliates), and approximately one million participants. This includes approximately $5.5 billion invested in proprietary mutual funds, $5.8 billion invested in non-proprietary mutual funds, $12.6 billion actively managed by AETC through both separate investment accounts and collective investment funds, $7.6 billion of assets administered by AETC, $57.6 million invested through participant directed brokerage accounts, and $20.0 million invested in annuities. For its investment management services, AETC receives fees that are generally based upon a percentage of the market value of assets under management. AETC clients typically do not pay fees to AETC based on the performance of their portfolio. AEFA will also receive revenues based upon servicing agreements from both the proprietary and non-proprietary mutual funds that are generally based upon a percentage of the market value of assets invested in the mutual funds, and, in limited circumstances, may also include revenues on a per participant basis. While AETC and American Express Retirement Services may also receive fees that are assessed as a flat fee or on a per participant basis, revenues are principally based upon the value of assets managed or administered, which may fluctuate due to many factors, most notably due to net inflows or outflows of assets and fluctuations within the equity and fixed-income markets. Through its trustee and custodial services, AETC may enter into agreements to provide services to qualified employer-sponsored retirement plans holding employer stock. AETC also provides institutional asset custodial services to AEFC and the AEFA affiliates providing mutual funds, investment certificates, asset management and life insurance. As of December 31, 2003, AETC's institutional assets under custody were approximately $110.8 billion. AETC custody revenues are principally based upon the value of assets in custody, which 37

may fluctuate due to many factors, most notably due to net inflows or outflows of assets and fluctuations within the equity and fixed-income markets. Competition AEFA's asset management business is subject to intense competition. In addition to full-commission and discount brokerage firms, competitors include other financial institutions, such as banks and insurance companies. Trends in the market over the last decade, including the increased demand for mutual funds by retail investors, have expanded the number of competitors in the industry. Some competitors are larger and more diversified, offer a greater number of products and may have an advantage over AEFA in their ability to attract and retain customers on the basis of their being able to market themselves as a "one-stop shop" that can meet all of their clients' personal financial needs or in their ability to distribute their funds through multiple channels of distribution. The competitive factors affecting the sale of mutual funds include sales charges paid, administrative expenses, services received, the ability to attract and retain a network of third-party distributors, investment performance, fund ratings issued by third-parties such as Morningstar, the variety of products and services offered, convenience to the investor, advertising and promotion campaigns and general market conditions. The mutual funds compete with other investment products, including funds that have no sales charge ("no-load" funds), funds distributed through independent brokerage firms and exchange traded funds. The institutional investment management business is highly competitive and 2003 was a challenging year in which there was an overall reduction in AEFA's institutional assets under management (excluding the Threadneedle acquisition). AEAMG and its affiliates must compete against a substantial number of larger firms in seeking to acquire and maintain assets under management. Competitive factors in this business include fees, investment performance, including the quality and "track record" of portfolio managers, global capabilities, range of portfolios offered and client service. AEFA also faces intense competition in attracting and retaining qualified employees. Its ability to continue to compete effectively will depend upon its ability to attract and retain skilled and high performing asset management professionals. The business climate for retirement services is also highly competitive. AERS competes against a substantial number of larger firms in seeking to acquire and maintain assets under management. Competitive factors in this business include fees, record keeping and technological capabilities, investment performance and client servicing. Due in part to favorable market conditions, AERS's assets under management and assets administered in the retirement services business increased by 14% and 30%, respectively, over 2002. Regulation of Retail Distribution and Asset Management AEFA's retail distribution and asset management businesses are regulated by the SEC, NASD, the Commodity Futures Trading Commission, the National Futures Association and state securities regulators. AEFA has experienced, and believes it will continue to be subject to, increased regulatory oversight of the securities and commodities industries at all levels. In 38

addition, the SEC and NASD heightened applicable requirements for and continued scrutiny of the effectiveness of supervisory procedures and compliance programs generally, as well as the effectiveness of procedures for and oversight of recently adopted regulatory requirements regarding books and records, business continuation planning and anti-money laundering. The SEC and NASD also recently adopted revisions to various advertising rules for investment companies and broker dealers, new proxy rules and other compliance requirements for investment advisers and investment companies, including a requirement to appoint a separate chief compliance officer. AETC is primarily regulated by the Minnesota Department of Commerce (Banking Division), and as such, is subject to net capital requirements under Minnesota law. AETC may not accept deposits or make personal or commercial loans. As a provider of products and services to tax-qualified retirement plans and IRAs, certain aspects of AEFA's business, including the activities of AETC, fall within the compliance oversight of the U.S. Department of Labor ("DOL") and the U.S. Department of Treasury ("Treasury"), particularly with respect to the Employee Retirement Income Security Act of 1974 ("ERISA") and the tax reporting requirements applicable to such accounts. Compliance with these and other regulatory requirements adds to the cost and complexity of operating AEFA's business. In addition, the SEC, DOL, Treasury, self-regulatory organizations and state securities and insurance regulators may conduct periodic examinations and administrative proceedings, which may result in censure, fine, the issuance of cease-and-desist orders or suspension or expulsion of a broker-dealer or an investment advisor and its officers or employees. Individual investors also can bring complaints against AEFA. Because AEFA is structured as a franchise system, it is also subject to Federal Trade Commission and state franchise requirements. As has been widely reported, the SEC, the NASD and several state attorneys general have brought proceedings challenging several mutual fund industry practices, including late trading, market timing, charging of 12b-1 fees, disclosure of revenue sharing arrangements and inappropriate sales of B shares. AEFA has received requests for information concerning its practices and is providing information and cooperating fully with these inquiries. In February 2004 AEFA was one of 15 firms that settled an enforcement action brought by the SEC and the NASD relating to breakpoint discounts (which are volume discounts available to investors who make large mutual fund purchases) pursuant to which AEFA agreed to pay a fine of $3.7 million and to reimburse customers to whom the firm failed to deliver such discounts. These amounts were accrued by AEFA in 2003. In addition, Congress has proposed legislation and the SEC has proposed and, in some instances, adopted rules relating to the mutual fund industry, including expenses and fees, mutual fund corporate governance and disclosures to customers. While there remains a significant amount of uncertainty as to what legislative and regulatory initiatives may ultimately be adopted, these initiatives could impact mutual fund industry participants' results, including AEFA's, in future periods. 39

Insurance and Annuities Insurance and annuities are important AEFA products. AEFA sells these products primarily through IDS Life Insurance Company ("IDS Life") and its insurance subsidiaries. A wholly owned subsidiary of AEFC, IDS Life is a stock life insurance company organized under Minnesota law. IDS Property and Casualty Insurance Company and AMEX Assurance Company - subsidiaries of AEFC - offer automotive, homeowners and American Express Card-related insurance products. IDS Life has four wholly owned subsidiaries: IDS Life Insurance Company of New York, a New York corporation ("IDS Life of New York"); American Partners Life Insurance Company, an Arizona corporation ("American Partners Life"); American Enterprise Life Insurance Company, an Indiana corporation ("American Enterprise Life"); and American Centurion Life Assurance Company, a New York corporation ("American Centurion Life"). IDS Life and its four insurance company subsidiaries are referred to collectively in this section as the "IDS Life Companies" and individually as an "IDS Life Company." IDS Life serves residents of all states except New York and distributes its products exclusively through AEFA's retail distribution channel. IDS Life of New York serves New York residents and also distributes its products exclusively through AEFA's retail distribution channel. Generally, retail advisors of AEFA offer only IDS Life or IDS Life of New York variable and fixed annuities and, in certain circumstances, variable and fixed annuities issued by American Enterprise Life. Retail advisors affiliated with AEFAI do not offer annuity products of AEFA's competitors, except for annuities specifically designed for use in the small employer 401(k) market issued by two unaffiliated firms. Retail advisors affiliated with AEFAI may also offer life insurance products of AEFA's competitors under limited circumstances. Registered representatives of Securities America, Inc. offer annuities and insurance of many unaffiliated issuers. American Partners Life distributes its products directly to consumers, generally persons holding an American Express Card, outside New York. American Centurion Life offers one of its annuities directly to consumers in New York. In addition, AEFA continues to expand distribution by delivering proprietary insurance and annuity products through non-affiliated representatives and agents of third-party distributors. These products are offered through American Enterprise Life and American Centurion Life. American Enterprise Life provides financial institution clients with American Express-branded financial products and wholesaling services to support their retail insurance and annuity operations. It underwrites variable annuity contracts, fixed annuity contracts and variable life insurance primarily through regional and national financial institutions and regional and/or independent broker-dealers, in all states except New York and New Hampshire. American Centurion Life markets fixed and variable annuities in New York. American Enterprise Life remained competitive during the year due to its continued growth and attention to expense and risk management of its product line. In addition, in recognition of excellence in customer service for variable and fixed annuities, American Enterprise Life was awarded the 2003 Key Honors Award by DALBAR, Inc., a recognized independent financial services research organization. Business sold through AEFA's retail distribution channel by IDS Life and IDS Life of New York represents the majority of the insurance and annuity business for the IDS Life Companies. Business sold through third party distribution by American Enterprise Life and 40

American Centurion Life ranks second. Business sold directly to consumers by American Partners Life and American Centurion Life ranks a distant third. Insurance: Product Features and Risks The IDS Life Companies issue a wide range of insurance products including variable life insurance, universal life insurance, traditional whole life insurance, traditional term life insurance and disability income insurance. IDS Property Casualty Insurance Company and AMEX Assurance Company, affiliates of the IDS Life Companies, offer personal auto and homeowner's insurance. The IDS Life Companies issue no short-duration life insurance policies. The IDS Life Companies issue only non-participating contracts. Variable Life Insurance. IDS Life's and IDS Life of New York's biggest selling life insurance products are variable life insurance policies. Variable life insurance provides life insurance coverage along with investment returns linked to the underlying investments the policyholder chooses. These products also offer a fixed account with a guaranteed minimum interest crediting rate ranging from 4.0% to 4.5%. According to LIMRA, IDS Life ranked third in variable life insurance sales on the basis of premiums in 2003. IDS Life's variable life insurance products include American Express'r' Variable Universal Life IV/American Express'r' Variable Universal Life IV - Estate Series, which are individual flexible premium policies. The Estate Series policy is available to policyholders with initial specified amounts of $1 million or more. IDS Life also issues American Express Succession Select, a flexible premium survivorship policy that insures two lives. Succession Select is often used for estate planning purposes. Finally, IDS Life issues American Express'r' Single Premium Variable Life, an individual single premium variable life insurance policy. Beginning in 1999 and 2000, respectively, IDS Life and IDS Life of New York reinsured 80% of the mortality risk attributable to new sales of individual flexible premium variable life insurance. This means that on these product sales, IDS Life and IDS Life of New York are at risk for only 20% of each policy's death benefit from the first dollar of coverage. Beginning at the end of 2002 for IDS Life and the third quarter of 2003 for IDS Life of New York, the amount reinsured was increased to 90%, with 10% retained by the IDS Life Companies. In contrast and prior to this arrangement, IDS Life and IDS Life of New York generally retained risk up to $750,000 on each insured life and reinsured only those amounts in excess of $750,000. Generally, the prior arrangement left IDS Life and IDS Life of New York with more of the risk for the death benefit than the more recent practice. Universal Life Insurance. IDS Life's and IDS Life of New York's universal life insurance products provide life insurance coverage and cash value that increases by a fixed interest rate. The rate is periodically reset according to the terms of the policy at the discretion of the issuing company. Policies issued by IDS Life and IDS Life of New York also provide a guaranteed minimum interest crediting rate ranging from 4% to 5%. 41

IDS Life's universal life insurance products include Life Protection Plus, Life Protection Select and Life Protection Select Estate Series. The Estate Series policy is available to policyholders with initial specified amounts of $1 million or more. Traditional Life Insurance Products. IDS Life's and IDS Life of New York's traditional life insurance products include whole life insurance and term life insurance. Whole life insurance combines a death benefit with a cash value that generally increases gradually in amount over a period of years and does not pay a dividend. IDS Life and IDS Life of New York have sold very little traditional whole life insurance in recent years. Term life insurance provides only a death benefit, does not build up cash value and does not pay a dividend. The policyholder chooses the term of coverage at the time of issue. During the chosen term, IDS Life and IDS Life of New York cannot raise premium rates even if claims experience were to deteriorate. Beginning in 2001 and 2002, respectively, IDS Life and IDS Life of New York have reinsured 90% of the mortality risk attributable to new term insurance sales. This means that on these more recent product sales, IDS Life and IDS Life of New York are at risk for only 10% of each policy's death benefit from the first dollar of coverage. In contrast and prior to this arrangement, IDS Life and IDS Life of New York generally retained risk up to $750,000 on each insured life and reinsured only amounts in excess of $750,000. Generally, the prior arrangement left IDS Life and IDS Life of New York with more of the risk for the death benefit than the more recent practice. Disability Income Insurance. IDS Life and IDS Life of New York also issue disability income ("DI") insurance. DI insurance provides monthly benefits to individuals who are unable to earn income at either their occupation at time of disability ("own occupation") or at any suitable occupation ("any occupation"). Depending upon occupational and medical underwriting criteria, applicants for DI insurance can choose "own occupation" and "any occupation" coverage for varying benefit periods up to age 65. Applicants may also choose various benefit riders to help them integrate individual DI insurance benefits with Social Security or similar benefit plans and to help them protect their DI insurance benefits from the risk of inflation. IDS Life believes it has a significant presence in the DI insurance market. Long-Term Care Insurance. IDS Life and IDS Life of New York no longer issue long-term care ("LTC") insurance, but do retain risk on a large block of existing contracts, 50% of which is reinsured by General Electric Capital Assurance Company. As of December 31, 2002, IDS Life and IDS Life of New York generally discontinued underwriting LTC insurance. (A small number of applications were taken in early 2003.) Retail advisors of AEFA now sell only non-proprietary LTC insurance, primarily products offered by General Electric Capital Assurance Company ("GECA") and, in limited circumstances, those of other unaffiliated insurers. In addition, in May 2003, IDS Life and IDS Life of New York began outsourcing claims administration to GECA. Property Casualty Insurance. IDS Property Casualty Insurance Company and its wholly owned subsidiary, AMEX Assurance Company, provide personal auto and homeowner's coverage to clients in 37 states and the District of Columbia. IDS Property Casualty is regulated by the Commissioner of Insurance for Wisconsin. AMEX Assurance Company, which also provides certain American Express Card related insurance products, is regulated by the 42

Commissioner of Insurance for Illinois. IDS Property Casualty and AMEX Assurance market through alliances with financial institutions, affinity groups, such as alumni associations, and direct to American Express Cardmembers and the general public. IDS Property Casualty and AMEX Assurance have a major distribution agreement with Costco's affiliated insurance agency. As of December 31, 2003, this arrangement offered auto insurance in 36 states and homeowner's insurance in 35 states to Costco members. Insurance Risks. IDS Life's sales of individual life insurance in 2003, as measured by scheduled annual premiums and excluding lump sum premiums, consisted of 82% variable life, 6% universal life and 12% term life. Competitive factors applicable to the insurance business include product features, the interest rates credited to products, the charges deducted from the cash values of such products, investment performance, the financial strength of the organization, distribution and management expenses, claims paying ratings and the services provided to policyholders. For long-term profitability, it is crucial to ensure adequate pricing to cover insurance risks and to accumulate adequate reserves. Reserves are a measure of the assets that the IDS Life Companies estimate are needed to adequately provide for future benefits and expenses. Annuities: Product Features and Risks The IDS Life Companies offer variable and fixed annuities to a broad range of consumers through multiple distribution channels. Annuities may be deferred, where assets accumulate until the contract is surrendered, the contract owner dies, or the contract owner begins receiving benefits under an annuity payout option; or immediate, where payments begin within one year of issue and continue for life or for a fixed period of time. IDS Life is one of the largest issuers of annuities in the United States. As of the end of the third quarter of 2003, IDS Life, on a consolidated basis, ranked 11th among the top annuity writers. The IDS Life Companies posted annuity cash sales in 2003 of over $8 billion, a decrease of 2% across all distribution channels. Variable Annuities. Like variable life insurance, variable annuities provide contract owners with investment returns linked to the underlying investments the contract owner chooses. These products also offer a fixed account with a guaranteed minimum interest crediting rate ranging from 1.5% to 4%. One of IDS Life's variable annuities, the American Express Retirement Advisor Advantage'r' Variable Annuity, was the 12th largest-selling annuity in the country in 2003. In January 2004 IDS Life introduced an enhanced version of this annuity named American Express Retirement Advisor Advantage Plus'sm' Variable Annuity. Fixed Annuities. The IDS Life Companies' fixed annuities provide cash value that increases by a fixed interest rate. The rate is periodically reset according to the terms of the contract at the discretion of the IDS Life Companies. The contracts provide a guaranteed minimum interest crediting rate ranging from 1.5% to 4%. In 2003, a number of states adopted a model regulation providing for an indexed guaranteed minimum interest crediting rate, and a 43

number of states now follow this model. The IDS Life Companies filed a number of contract changes to begin taking advantage of the lower rate guarantee offer on new product sales. Annuity Risks. The relative proportion between fixed and variable annuities sales is generally driven by the relative performance of the equity and fixed income markets. In times of lackluster performance in equity markets, fixed sales are generally stronger. In times of superior performance in equity markets, variable sales are generally stronger. In addition, investment management performance is critical to the profitability of an annuity business. In past years, innovative features for annuity products have continually been evolving. These features include guaranteed minimum death benefits ("GMDBs") that protect beneficiaries from a drop in death benefits due to performance of the related underlying investments. The standard GMDB in the "flagship" annuity offered by IDS Life and IDS Life of New York in 2003, the American Express Retirement Advisor Advantage Variable Annuity, provides that if the contract owner and annuitant are age 80 or younger on the date of death, the beneficiary will receive the greatest of (i) the contract value, (ii) purchase payments minus adjusted partial surrenders, or (iii) the contract value as of the most recent sixth contract anniversary, plus purchase payments and minus adjusted partial surrenders since that anniversary. Under the new American Express Retirement Advisor Advantage Plus'sm' Variable Annuity, the standard GMDB provides that if the contract owner is age 75 or younger on the date of death, the beneficiary will receive the greater of (i) the contract value less a pro rata portion of any rider fees, or (ii) purchase payments minus adjusted partial surrenders. Additional optional GMDBs are also available. For example, IDS Life and IDS Life of New York contract owners may purchase a maximum anniversary value death benefit for an additional charge. This death benefit rider guarantees that the death benefit will not be less than the highest contract value achieved on a contract anniversary before the contract owner reaches the age of 81, adjusted for partial withdrawals. IDS Life contract owners also may purchase an enhanced earnings death benefit or an enhanced earnings plus death benefit for an additional charge. These death benefit riders are intended to provide additional benefits to a beneficiary to offset expenses after the contract owner's death. Other IDS Life Companies also issue annuity contracts with a variety of standard and optional GMDBs. To the extent a GMDB is higher than the current account value at the time of death, the IDS Life Companies incur a cost. For fiscal years beginning before December 16, 2003, GAAP did not prescribe advance recognition of the projected future net costs associated with these guarantees, and accordingly, the IDS Life Companies did not record a liability corresponding to these future obligations for death benefits in excess of annuity account value. Through December 31, 2003, the amount paid in excess of contract value was expensed when payable. Amounts expensed in 2003 and 2002 were $32 million and $37 million, respectively. In July 2003, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts" ("SOP 03-1"). The IDS Life Companies will adopt SOP 03-1 in the first quarter of 2004 (with an effective date of January 1, 2004), and will then be required by the IDS Life Companies to begin to establish reserves related to 44

GMDBs. The impact of that requirement as well as other provisions of SOP 03-1 are still subject to interpretation and are currently being evaluated. The general account assets of the IDS Life Companies support these GMDBs (see "The General Accounts" below). The IDS Life Companies bear the risk that protracted under-performance of the financial markets could result in GMDBs being higher than what current account values would support. Actual experience may differ from the IDS Life Companies' estimates. The IDS Life Companies' exposure to risk from these guarantees generally will increase when equity markets decline. The General Accounts Assets supporting contract values associated with fixed account life insurance and annuity products, as well as those associated with fixed account options under variable insurance and annuity products (collectively, the "fixed accounts"), are part of each IDS Life Company's "general account." Under fixed accounts, each IDS Life Company bears the investment risk. In investing their general account assets, the IDS Life Companies seek to maintain a dependable and targeted difference or "spread" between the interest rate earned on general account assets and the interest rate the IDS Life Company credits to contract owners' fixed accounts. This spread is a major driver of net income for the IDS Life Companies. The general account assets also include funds accumulated through insurance premiums and cost of insurance and annuity product charges. These premiums and charges are major sources of revenue for IDS Life and IDS Life of New York. In the general account, the IDS Life Companies primarily invest in fixed income securities over a broad range of maturities for the purpose of providing a targeted rate of return on their investments while controlling risk. The majority of these fixed income securities are interest-bearing investments such as government obligations, mortgage backed obligations and various corporate debt instruments. The IDS Life Companies do not invest in securities to generate trading profits. Each of the IDS Life Companies, through their respective Boards of Directors' investment committees or staff functions, reviews models projecting different interest rate scenarios, risk/return measures, and their effect on profitability. They also review the distribution of assets in the portfolio by type and credit risk sector. The objective is to structure the investment security portfolio based upon the type and expected behavior of products in the liability portfolio to meet contractual obligations and achieve targeted levels of profitability within defined risk parameters. The IDS Life Companies have the discretion to set the rate of interest credited to contract owners' accounts. However, this discretion is limited by the contract's guaranteed minimum interest crediting rate. Prior to 2003, this rate varied among fixed accounts and was as low as 3% and as high as 5%. To the extent the yield on IDS Life Companies' invested general account asset portfolio declines below its target spread plus the minimum guarantee, the IDS Life Companies' profitability would be negatively affected. 45

The interest rates credited to contract owners' fixed accounts are generally reset at shorter intervals than the maturity of underlying investments. Therefore, margins may be negatively impacted by increases in the general level of interest rates. Part of each IDS Life Company's strategy includes the use of derivatives, such as interest rate caps, swaps and floors, for risk management purposes. These derivatives help protect margins by increasing investment returns if there is a sudden and severe rise in interest rates, thereby mitigating the impact of an increase in rates credited to contract owners' fixed accounts. Conversely, in a low interest rate environment, such as that experienced recently, margins may be negatively impacted as the interest rates available on the IDS Life Companies' invested assets approach guaranteed minimum interest rates on the insurance or annuity contracts. This negative impact may be compounded by the fact that many of these interest-bearing investments are callable or prepayable by the issuer and calls and prepayments are more likely to occur in a low interest rate environment. In light of the present environment in which interest rates are at historic lows, the IDS Life Companies imposed fixed account allocation and transfer rules for new variable annuity sales in the summer of 2003. The IDS Life Companies sold approximately $16 billion of their invested assets during the year, on a consolidated basis. In addition, approximately $3 billion in assets were redeemed during the year. The cash generated by these sales and redemptions has been or will be reinvested. The Variable Accounts Variable insurance and annuity products also offer variable account investment options in addition to fixed account options. Under variable accounts, contract owners bear the investment risk. The variable accounts are registered as unit investment trusts under the Investment Company Act of 1940. The IDS Life Companies' major source of revenue from the variable insurance and annuities is the fees it receives, including mortality and expense fees. Prior to 2003, these fees included investment advisory fees for internally managed funds. In 2003, AEFC assumed these duties for the funds and retained IDS Life, and its non-New York subsidiaries, to provide underlying administrative services. In March 2004, a similar structure for the New York subsidiaries was approved by the New York Insurance Department effective as of February 1, 2004. Fees payable from AEFC to the IDS Life Companies include administrative service fees. Generally, the variable accounts consist of a number of subaccounts, each of which invests in shares of a particular fund. Contract owners can allocate their payments among these variable subaccounts. The underlying funds are managed both by internal and unaffiliated third-party money managers. These funds invest in portfolios containing a variety of securities including common stocks, bonds, managed assets and/or short-term securities. The value of the subaccounts fluctuates with the investment return of the funds in which the subaccounts invest. Variable life insurance and annuities are "separate account" rather than general account products. This means that state insurance law prohibits charging variable accounts with 46

liabilities of the general business. Under the subaccounts of each variable account, the IDS Life Companies credit or charge income, capital gains and capital losses only to that subaccount. Competition The insurance business is highly competitive, and the IDS Life Companies' competitors consist of both stock and mutual insurance companies, as well as other financial intermediaries' marketing insurance products. American Enterprise Life and American Centurion Life compete directly with many other insurers in the third party distribution channel. Competitive factors affecting the sale of life insurance products include cost of insurance and other contract charges, the level of premium rates, investment performance, the level of interest rates, financial strength ratings from third party agencies such as A. M. Best, the breadth and quality of products and services offered, the quality of underwriting and customer service and any advertising and promotion campaigns. The IDS Life Companies' annuity business competes with numerous other insurance companies, as well as certain banks, securities brokerage firms, independent financial advisors and other financial intermediaries that market annuities, mutual funds and other retirement-oriented products. Competitive factors affecting the sale of annuities include investment performance and financial strength ratings, product design, reputation and recognition in the marketplace, distribution capabilities, levels of charges and credited rates and customer service. With respect to variable annuities, customers also focus on equity market guarantee features that help them invest in a volatile equity market. Regulation IDS Life, American Enterprise Life and American Partners Life are subject to comprehensive regulation by the Minnesota Department of Commerce (Insurance Division), the Indiana Department of Insurance, and the Arizona Department of Insurance, respectively (collectively, and with the New York Insurance Department, "Domiciliary Regulators"). American Centurion Life and IDS Life of New York are regulated by the New York State Department of Insurance. The laws of the other states in which these companies do business also regulate such matters as the licensing of sales personnel and, in some cases, the marketing and contents of insurance policies and annuity contracts. The primary purpose of such regulation and supervision is to protect the interests of policyholders. Financial regulation of the IDS Life Insurance Companies is extensive. The IDS Life Companies' financial and intercompany transactions (such as intercompany dividends, capital contributions and investment activity) are often subject to pre-approval and continuing evaluation by the Domiciliary Regulators. Regulatory and judicial scrutiny of market conduct practices of insurance companies, including sales, marketing and replacements of life insurance and annuities, agent practices, "bonus" annuities and market timing and late trading under variable insurance and annuities, increased significantly in recent years and continues to affect the manner in which companies approach various operational issues, including compliance. Virtually all states mandate 47

participation in insurance guaranty associations, which assess insurance companies in order to fund claims of contract owners of insolvent insurance companies. On the federal level, there is periodic interest in enacting new regulations relating to various aspects of the insurance industry, including taxation of annuities and life insurance policies, accounting procedures, as well as the treatment of persons differently because of gender, with respect to terms, conditions, rates or benefits of an insurance contract. New federal regulation in any of these areas could potentially have an adverse effect upon the IDS Life Companies. More specifically, recent federal legislative proposals aimed at the promotion of tax-advantaged savings through Lifetime Savings Accounts and Retirement Savings Accounts may adversely impact IDS Life Companies' sales of annuity and life insurance products if enacted. Ratings The IDS Life Companies had consolidated assets at December 31, 2003 of approximately $66 billion, based on U.S. generally accepted accounting principles, and had total capital and surplus as of December 31, 2003 of $2.8 billion, on a statutory accounting basis. IDS Life receives ratings from independent rating agencies. Generally, its four insurance subsidiaries do not receive an individual rating, but receive the same rating as IDS Life. These agencies evaluate the financial soundness and claims-paying ability of insurance companies based on a number of different factors. The ratings reflect each agency's estimation of the IDS Life Companies' ability to meet their contractual obligations such as making annuity payouts and paying death benefits and other distributions from the contracts. As such, the ratings relate to the IDS Life Companies' general accounts and not to the management or performance of the variable accounts of the contracts. Ratings are important to maintaining public confidence in the IDS Life Companies. Lowering of the IDS Life Companies' ratings could have a material adverse effect on their ability to market their products and could lead to increased surrenders of their products. Rating agencies continually review the financial performance and condition of insurers. As of the end of 2003, IDS Life was rated "A+" (Superior) by A.M. Best Company, Inc. and its claims-paying ability/financial strength was rated "Aa3" (Excellent) by Moody's Investors Service, Inc. (Moody's), and "AA" (Very Strong) by Fitch. The foregoing ratings reflect each rating agency's opinion of the IDS Life Companies' financial strength, operating performance and ability to meet its obligations to contract owners. Such factors are of primary concern to contract owners, agents and intermediaries, but also may be of interest to investors. Risk Based Capital The National Association of Insurance Commissioners ("NAIC") adopted Risk Based Capital ("RBC") requirements for life insurance companies. The RBC requirements are to be used as minimum capital requirements by the NAIC and states to identify companies that merit 48

further regulatory action. At December 31, 2003, IDS Life had total adjusted capital of approximately $3.1 billion on a statutory accounting basis. As defined by the NAIC, total adjusted capital includes certain asset valuation reserves excluded from the $2.8 billion of statutory capital and surplus referred to above. The Minnesota Department of Commerce, IDS Life's insurance regulator, requires insurance companies to maintain a minimum RBC called the "authorized control level." If total adjusted capital fell below the authorized control level, the Minnesota Department of Commerce would be authorized to exercise management control over IDS Life. For IDS Life, the authorized control level capital was $507.1 million at December 31, 2003. In addition, IDS Life, like other life insurance companies, is expected to maintain capital at a level above which would require a company to file an action plan with the Minnesota Department of Commerce. This is referred to as the "company action level." For IDS Life, the company action level capital was $1 billion at December 31, 2003. As described above, IDS Life maintains levels of RBC far in excess of the authorized control and company action levels required by the Minnesota Department of Commerce. The level of capital maintained in IDS Life is thought to be appropriate by management and is more commensurate with standards necessary to maintain IDS Life's ratings with the various credit and claims-paying rating agencies. Liabilities and Reserves Insurance Liabilities and Reserves. The liabilities for reported and unpaid life insurance claims are equal to the death benefits payable under the policies. For DI insurance and LTC insurance claims, unpaid claim liabilities are equal to benefit amounts due and accrued. For life insurance, DI insurance, and LTC insurance, liabilities for incurred but not reported claims are estimated based on periodic analysis of the actual reported historical claim lag. Where applicable, amounts recoverable from reinsurers (i.e., other insurers who share in the risk of the products the IDS Life Companies offer) are separately recorded as receivables. The claim adjustment expense reserves for DI insurance and LTC insurance are based on the claim reserves. These reserves represent the expense of reviewing claims and making benefit payment determinations. For life insurance, no claim adjustment expense reserve is held. Policy liabilities for fixed and variable universal life insurance are accumulation values, i.e., the aggregate of the values contract owners have on account. Policy reserves for future benefits on term and whole life insurance are based on the net level premium method, using anticipated mortality rates (the likelihood of an insured's death), policy persistency rates (the likelihood that a policy will be continued by the policyholder), and interest rates earned on the assets supporting reserves. Anticipated mortality rates are based on established industry mortality tables, with modifications based on the IDS Life Companies' experience. Anticipated policy persistency rates vary by policy form, issue age and policy duration. IDS Life and IDS Life of New York generally anticipate persistency rates on level term and cash value plans to be better than persistency on yearly renewable term insurance plans. Anticipated interest rates on 49

assets held to support reserves range from 4% to 10%, depending on policy form, issue year and policy duration. Liabilities for future DI insurance and LTC insurance policy benefits include both policy reserves and claim reserves. IDS Life and IDS Life of New York base policy reserves on the net level premium method, using anticipated morbidity rates (meaning, claim frequency and severity), mortality rates (the likelihood of an insured's death, which means no DI insurance or LTC insurance benefits will become payable), policy persistency rates, and interest rates earned on the assets supporting reserves. They base anticipated morbidity and mortality rates on established industry morbidity and mortality tables. Anticipated policy persistency rates vary by policy form, issue age, policy duration and, for DI insurance policies, occupation class. Anticipated interest rates on assets supporting DI policy reserves are 7.5% at policy issue and grade to 5% over five years. Anticipated interest rates on assets supporting LTC policy reserves are currently 5.9% and grade up to 8.9% over 30 years. IDS Life and IDS Life of New York calculate claim reserves for DI insurance and LTC insurance based on claim continuance tables and anticipated interest rates earned on assets supporting these reserves. They base anticipated claim continuance rates on established industry tables. Anticipated interest rates on assets held to support claim reserves for both DI insurance and LTC insurance range from 5% to 8%, with an average rate of approximately 5.7%. Annuity Liabilities. Liabilities for fixed and variable deferred annuities are accumulation values, i.e., the aggregate of the values contract owners have on account. Liabilities for fixed annuities in a benefit or "payout" status are based on established industry mortality tables and interest rates established in the year of issue or commencement of payout. The latter range from 4.6% to 9.5%, with an average rate of approximately 6.3%. Deferred Acquisition Costs The IDS Life Insurance Companies deferred acquisition costs represent the costs of acquiring new business, principally direct sales commissions and other distribution and underwriting costs that have been deferred on the sale of annuity and insurance products. For these products, deferred acquisition costs are amortized over periods approximating the lives of the business, generally as a percentage of premiums or estimated gross profits or as a portion of the interest margins associated with the products. For a complete discussion of deferred acquisition costs, see pages 34 through 35, pages 62 through 63 and page 81 of the Company's 2003 Annual Report, which are incorporated herein by reference. Securitization of Certain Insurance Assets During 2001, AEFA placed a majority of its rated CDO securities and related accrued interest, as well as a relatively minor amount of other liquid securities, having an aggregate book value of $905 million, into a securitization trust. In return, the Company received $120 million 50

in cash (excluding transaction expenses) relating to sales to unaffiliated investors and retained interests in the trust with allocated book amounts aggregating $785 million. As of December 31, 2003, the retained interests had a carrying value of $694 million, of which $512 million is considered investment grade. Neither AEFA nor the Company has any obligations, contingent or otherwise, to such unaffiliated investors. AMERICAN EXPRESS BANK The Company's American Express Bank operating segment ("AEB") offers products that meet the financial service needs of three primary client groups: retail customers, wealthy individuals and financial institutions. AEB's operations are conducted principally through American Express Bank Ltd., a wholly owned indirect subsidiary of the Company, and its subsidiaries. AEB does not directly or indirectly do business in the United States except as an incident to its activities outside the United States. Accordingly, the following discussion relating to AEB generally does not distinguish between United States and non-United States based activities. AEB's three primary business lines are Personal Financial Services ("PFS"), The Private Bank and the Financial Institutions Group ("FIG"). PFS provides consumer products in direct response to specific financial needs of retail customers and includes interest-bearing deposits, unsecured lines of credit, installment loans, money market funds, mortgage loans, auto loans and mutual funds. The Private Bank focuses on high net worth individuals by providing such customers with investment management, trust and estate planning and banking services, including secured lending. FIG provides financial institution clients with a wide range of correspondent banking products including international payments processing (wire transfers and checks), trade-related payments and financing, cash management, loans, extensions of credit and investment products, including third-party distribution of AEB offshore mutual funds. AEB also provides treasury and capital market products and services to its customers, including foreign exchange, foreign exchange options and other derivatives and interest rate risk management products. In 2003 AEB neared completion of its shift in emphasis from corporate clients to individuals and financial institutions. This change aligns AEB's businesses more closely with those of the Company's other business units and positions it to play a more important role in the delivery of financial services on a global basis. Also, during the year, approximately $100 million of loans previously classified as "Other" were reclassified to the consumer category. These reclassified loans represent non-PFS consumer loans that are an ongoing part of AEB's consumer business. Both the change in strategy and the reclassification referred to in the previous sentences are reflected in the following loan information: AEB reduced its corporate banking loans by $156 million to $173 million at December 31, 2003, increased its consumer and private banking loans by $558 million, and increased its FIG loans by $464 million. Loans outstanding worldwide were $6.5 billion at December 31, 2003 and $5.6 billion at December 31, 2002. During 2003, The Private Bank client holdings rose 16% to a total of $16.2 billion, client volumes in PFS increased 2% and FIG-related non-credit fee revenue increased by 14%. 51

AEB continued to broaden its offering of offshore mutual funds, hedge funds and other managed products in 2003. AEB's fund products are sold by The Private Bank and PFS business lines to individual customers and by FIG through distributors in several foreign markets. AEB continued to expand its number of third-party relationships in Europe and Asia. During 2003, AEB signed more than 60 distribution agreements in Europe and Asia for the sale of its own American Express-branded products. AEB's assets under management in its fund products and related managed accounts and administered assets totaled approximately $5.3 billion at year-end (as compared with $3.1 billion at December 31, 2002). In 2003 AEB added a number of investment portfolios and share classes to its existing Luxembourg investment company umbrella fund and its Cayman domiciled hedge fund structure. AEB also introduced new investment options, which combine standard mutual funds, hedge funds and cash products within a wrap structure and increased the number of third party products available to customers. The asset management business of AEB's affiliate, AEFA (which includes its newly acquired subsidiary, Threadneedle Asset Management), provides investment management services to many of the Luxembourg umbrella fund portfolios. AEB also continued to work closely with other parts of the Company to cross-sell a range of payment, lending, insurance and financial service products and build deeper relationships with affluent and pre-affluent consumer and small business customers in key international markets. AEB markets The Private Bank services to a highly selective group of Cardmembers outside the United States. AEB offers credit products such as installment loans and revolving lines of credit to both Cardmembers and non-Cardmembers in Germany, Greece, United Kingdom, Hong Kong, India, Singapore and Taiwan. AEB also markets a wide range of investment and savings products to TRS Cardmembers and select non-cardmembers in Germany, Greece, Hong Kong, India, Indonesia, Singapore, Taiwan and Philippines. AEB has also contracted with AECC to market AECC's investment certificates, and separately operates a joint venture (American Express International Deposit Company) with AEFC in the Cayman Islands that issues deposit certificates denominated in U.S. dollars, Euros, pounds sterling and Australian dollars. AEB has a global network with offices in 44 countries. Its worldwide headquarters is located in New York City. It maintains an international banking agency in New York City and facility offices in San Francisco, San Diego and Los Angeles, California. Its wholly owned Edge Act subsidiary, American Express Bank International ("AEBI"), is headquartered in Miami, Florida and has branches in New York City and Miami. AEB's business does not, as a whole, experience significant seasonal fluctuations. Selected Financial Information Regarding AEB Subject to certain requirements related to transactions with affiliates, AEB provides banking services to the Company and its subsidiaries. AEB is only one of many international and local banks used by the Company and its other subsidiaries. The Company and its subsidiaries constitute only a few of AEB's many customers. 52

AEB's total assets were $14.2 billion at December 31, 2003 and $13.2 billion at December 31, 2002. Liquid assets, consisting of cash and deposits with banks, trading account assets and investments, were $5.4 billion at December 31, 2003 and $5.8 billion at December 31, 2002. 53

The following table sets forth a summary of financial data for AEB at and for each of the three years in the period ended December 31, 2003 (dollars in millions): <TABLE> <CAPTION> 2003 2002 2001 ------- ------- ------- <S> <C> <C> <C> Net financial revenues $ 801 $ 745 $ 649 Non-interest expenses $ 650 $ 624 $ 663 Net income (loss) (a) $ 102 $ 80 $ (13) ------- ------- ------- Cash and deposits with banks $ 1,890 $ 2,420 $ 2,215 Investments $ 3,341 $ 3,169 $ 3,044 Loans, net $ 6,371 $ 5,466 $ 5,157 Total assets $14,232 $13,234 $11,878 ------- ------- ------- Customers' deposits $10,775 $ 9,501 $ 8,411 Shareholder's equity $ 949 $ 947 $ 761 ------- ------- ------- Return on average assets (b) .74% .66% (.11)% Return on average total shareholder's equity (b) 10.8% 9.6% (1.7)% ------- ------- ------- Reserve for loan losses/total loans 1.70% 2.70% 2.42% 30+ days past due PFS loans as a % of total PFS loans 6.6% 5.4% 4.5% Total loans/deposits from customers 60.17% 59.12% 62.83% Average total shareholder's equity/average assets (b) 6.85% 6.89% 6.42% Risk-based capital ratios: (c) Tier 1 11.4% 10.9% 11.1% Total 11.3% 11.4% 12.2% Leverage ratio (c) 5.5% 5.3% 5.3% Qualifying capital: (c) Tier 1 capital $ 775 $ 652 $ 592 Total capital $ 767 $ 680 $ 654 Adjusted risk-weighted assets (c) $ 6,804 $ 5,985 $ 5,403 Adjusted average assets (c) $14,186 $12,208 $11,146 ------- ------- ------- Average interest rates earned: (d) Loans (e) 5.19% 6.41% 7.32% Investments (f) 5.26% 5.88% 6.49% Deposits with banks 1.87% 2.15% 4.04% ------- ------- ------- Total interest-earning assets (f) 4.57% 5.44% 6.35% ------- ------- ------- Average interest rates paid: (d) Deposits from customers 1.97% 2.38% 4.15% Borrowed funds, including long-term debt 1.53% 3.46% 5.63% ------- ------- ------- Total interest-bearing liabilities 1.93% 2.55% 4.35% ------- ------- ------- Net interest income/total average interest-earning assets (f) 2.77% 3.23% 2.75% ------- ------- ------- </TABLE> (a) Included in 2003 net income is a net restructuring reserve reversal of $2 million ($1 million after-tax). Included in 2002 net income is a net restructuring reserve reversal of $3 million 54

($2 million after-tax). Included in the 2001 net loss are restructuring charges of $96 million ($65 million after-tax). (b) Computed on a trailing 12-month basis using total assets and total shareholder's equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. Prior period amounts have been revised to conform to current presentation. (c) Based on the legal entity financial statements of American Express Banking Corp. (d) Based on average balances and related interest income and expense, including the effect of interest rate products where appropriate and transactions with related parties. (e) Interest rates have been calculated based upon average total loans, including those in non-performing status. (f) On a tax equivalent basis. The following tables set forth the composition of AEB's gross loan portfolio at year end for each of the five years in the period ended December 31, 2003 (millions): <TABLE> <CAPTION> By Geographic Region (a) 2003 2002 2001 2000 1999 ------------------------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> Asia/Pacific $2,320 $2,117 $2,052 $1,791 $1,698 Europe 1,502 1,553 1,370 1,500 1,414 Latin America 1,344 801 871 856 824 North America 780 533 273 352 255 Indian Subcontinent 375 439 440 442 449 Middle East 128 94 197 302 346 Africa 35 80 82 100 111 ------ ------ ------ ------ ------ Total $6,484 $5,617 $5,285 $5,343 $5,097 ====== ====== ====== ====== ====== </TABLE> 55

<TABLE> <CAPTION> 2003 ---------------------------- Due After 1 Year Due Due Through After 5 Within 1 5 Years Years By Type and Maturity Year (b) (b) 2003 2002 2001 2000 1999 --------------------------------------- -------- ------- ------- ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Consumer and private banking loans: Loans secured by real estate $ 17 $ 13 $310 $ 340 $ 397 $ 486 $ 361 $ 255 Installment, revolving credit and other 3,654 454 -- 4,108 3,338 2,705 1,839 1,637 ------ ---- ---- ------ ------ ------ ------ ------ 3,671 467 310 4,448 3,735 3,191 2,200 1,892 ------ ---- ---- ------ ------ ------ ------ ------ Commercial loans: Loans secured by real estate 48 15 2 65 61 139 157 141 Loans to businesses (c) 20 12 76 108 307 732 1,397 1,508 Loans to banks and other financial institutions 1,702 161 -- 1,863 1,399 1,168 1,519 1,475 Loans to governments and official institutions -- -- -- -- 29 28 34 37 ------ ---- ---- ------ ------ ------ ------ ------ 1,770 188 78 2,036 1,796 2,067 3,107 3,161 ------ ---- ---- ------ ------ ------ ------ ------ All other loans (d) -- -- -- -- 86 27 36 44 -------- ------- ------- ------ ------ ------ ------ ------ Total $5,441 $655 $388 $6,484 $5,617 $5,285 $5,343 $5,097 ======== ======= ======= ====== ====== ====== ====== ====== </TABLE> (a) Based primarily on the domicile of the borrower. (b) Loans due after one year at fixed (predetermined) interest rates totaled $266 million, while those at floating (adjustable) interest rates totaled $777 million. (c) Business loans, which accounted for approximately 2% of the portfolio as of December 31, 2003, were distributed over 25 commercial and industrial categories. (d) Included in 2002 is $37 million of loans resulting from a change in ownership of AEB's Brazilian operations from that of a joint venture to a consolidated subsidiary. The following tables present information about AEB's impaired (or non-performing) loans. AEB defines an impaired loan as any loan (other than certain smaller-balance consumer loans) on which the accrual of interest is discontinued because the contractual payment of principal or interest has become 90 days past due or if, in management's opinion, the borrower is unlikely to meet its contractual obligations. For smaller-balance consumer loans, management establishes reserves it believes to be adequate to absorb credit losses inherent in the portfolio. Generally, these loans are written off in full when an impairment is determined (e.g., borrower's 56

personal bankruptcy) or when the loan becomes 120 or 180 days past due, depending on loan type. <TABLE> <CAPTION> (in millions: December 31,) 2003 2002 2001 2000 1999 <S> <C> <C> <C> <C> <C> Loans to businesses $67 $103 $116 $135 $149 Loans to financial institutions and other 11 16 7 2 12 Real estate loans-commercial -- -- -- -- 7 --- ---- ---- ---- ---- Total $78 $119 $123 $137 $168 === ==== ==== ==== ==== </TABLE> <TABLE> <CAPTION> December 31, ------------ (in millions) 2003 2002 ---- ---- <S> <C> <C> Recorded investment in impaired loans not requiring an allowance (a) $ 1 $ 4 Recorded investment in impaired loans requiring an allowance 77 115 --- ---- Total recorded investment in impaired loans $78 $119 === ==== Credit reserves for impaired loans $43 $ 73 === ==== <CAPTION> December 31, ------------------ (in millions) 2003 2002 2001 ---- ---- ---- <S> <C> <C> <C> Average recorded investment in impaired loans $98 $121 $152 Interest income recognized on a cash basis $ 1 $ 1 -- </TABLE> (a) These loans do not require a reserve for credit losses since the values of the impaired loans equal or exceed the recorded investments in the loans. In addition to the above, AEB had other non-performing assets totaling $15 million at December 31, 2003 and 2002, and $22 million at December 31, 2001. The 2003, 2002 and 2001 balances primarily consist of matured foreign exchange and derivative contracts and credit-related commitments. The following table sets forth a summary of AEB's reserve for credit losses at and for each of the five years in the period ended December 31, 2003 (dollars in millions): 57

<TABLE> <CAPTION> 2003 2002 2001 2000 1999 <S> <C> <C> <C> <C> <C> Reserve for credit losses - January 1, $158 $148 $153 $189 $259 Provision for credit losses (a) 102 147 91 28 29 Translation and other (3) 10 (2) (4) 1 ---- ---- ---- ---- ---- Subtotal 257 305 242 213 289 ---- ---- ---- ---- ---- Write-offs: Consumer loans (b) 118 115 38 19 25 Real estate loans - commercial -- -- -- -- 1 Loans to businesses 33 39 72 43 50 Loans to banks and other financial institutions -- 7 -- 2 14 Foreign exchange and derivative contracts -- -- 1 6 20 Recoveries: Consumer loans (9) (5) (6) (6) (7) Loans to businesses (5) (8) (10) (3) (3) Loans to banks and other financial institutions (1) (1) (1) (1) -- ---- ---- ---- ---- ---- Net write-offs (recoveries) 136 147 94 60 100 ---- ---- ---- ---- ---- Reserve for credit losses December 31, (c) $121 $158 $148 $153 $189 ==== ==== ==== ==== ==== </TABLE> (a) The increases in 2002 and 2001 were primarily due to credit loss provisions related to the PFS business in the Asia/Pacific region, particularly Hong Kong. The provision for 2001 includes a restructuring-related provision of $26 million relating to the further reduction of corporate lending activities in parts of Asia, Latin America and Europe. (b) The increases in 2003 and 2002 were primarily due to write-offs in the PFS business in the Asia/Pacific region, primarily Hong Kong. (c) Allocation: <TABLE> <CAPTION> 2003 2002 2001 2000 1999 <S> <C> <C> <C> <C> <C> Loans $113 $151 $128 $137 $169 Other assets, primarily matured foreign exchange and other derivatives 6 6 4 14 16 Credit-related commitments 2 1 16 2 4 ---- ---- ---- ---- ---- Total reserve for credit losses $121 $158 $148 $153 $189 ==== ==== ==== ==== ==== </TABLE> Interest income is recognized on an accrual basis. When loans are placed on non-performing status, all previously accrued but unpaid interest is reversed against current interest income. Cash receipts of interest on non-performing loans are recognized either as interest income or as a reduction of principal, based upon management's judgment as to the ultimate collectibility of principal. Generally, a non-performing loan may be returned to performing status when all contractual amounts due are reasonably assured of repayment within a reasonable period and the borrower shows sustained repayment performance, in accordance with the contractual terms of the loan or when the loan has become well secured and is in the process of collection. Interest-earning advances under lines of credit and other similar consumer loans are written off against the reserve for credit losses upon reaching specified contractual delinquency stages, or earlier in the event of the borrower's personal bankruptcy or if the loan is otherwise deemed uncollectible. Interest income on these loans generally accrues until the loan is written off. 58

AEB separately maintains and provides for reserves relating to credit losses for loans, derivatives and other credit-related commitments. The reserve is established by charging a provision for credit losses against income. The amount charged to income is based upon several factors, including historical credit loss experience in relation to outstanding credits, a continuous assessment of the collectibility of each credit, and management evaluation of exposures in each applicable country as related to current and anticipated economic and political conditions. Management's assessment of the adequacy of the reserve is inherently subjective, as significant estimates are required. Amounts deemed uncollectible are charged against the reserve and subsequent recoveries, if any, are credited to the reserve. The reserve for credit losses related to loans is reported as a reduction of loans. The reserve related to derivatives is reported as a reduction of trading assets and the reserve related to other credit-related commitments is reported in other liabilities. Risks The global nature of AEB's business activities is such that concentrations of credit to particular industries and geographic regions are not unusual. AEB continually monitors and actively manages its credit concentrations to reduce the associated risk. At December 31, 2003, AEB had significant investments in certain on- and off-balance sheet financial instruments, which were primarily represented by deposits with banks, securities, loans, forward contracts, contractual amounts of letters of credit (standby and commercial) and guarantees. The counterparties to these financial instruments were primarily unrelated to AEB, and principally consisted of consumers to whom AEB has extended loans, banks and other financial institutions and various commercial and industrial enterprises and foreign government agencies operating geographically within the Asia/Pacific region, Europe, North America, Latin America, the Indian Subcontinent and Middle East/Africa. During late 2001 and 2002, the Hong Kong market experienced a significant increase in bankruptcy filings due to an economic slowdown and changes in Hong Kong law regarding personal bankruptcy. Accordingly, during 2002 AEB substantially increased its provision for consumer loan losses in its PFS business to reflect the expectation of higher bankruptcy related write-offs and suspended all new loan originations in Hong Kong. In 2003 losses in this PFS portfolio stabilized. AEB continues to closely monitor this portfolio. AEB's earnings are sensitive to interest rates due to the fact that the maturity of liabilities does not, generally, match the maturity of assets. AEB invests excess liquidity in high grade fixed income investment securities and maintains mandatory investment portfolios in a number of countries as required by central banks. AEB monitors and controls interest rate risk through a rigorous Earnings at Risk process both on a country and global level. AEB manages the duration/maturity mismatch of assets and liabilities through adjusting the duration/maturity of assets and/or by using derivatives. On occasion, AEB may decide to mismatch in anticipation of a change in future interest rates in accordance with guidelines. AEB sells foreign exchange products to its customer base and may decide to take proprietary trading positions as a result of this business. The foreign exchange risk is managed at the branch and global level through a 59

rigorous Value at Risk process. AEB manages counterparty credit exposure on foreign exchange and interest rate derivatives with a maturity greater than one year through a dynamic mark-to-market and potential future exposure process, in which the current positive fair value and potential future exposure are calculated and managed against counterparty loan equivalent limits. Because AEB conducts significant business in emerging market countries and in countries that are less politically and economically stable than the United States or those in Western Europe, its Private Banking, PFS and FIG activities may be subject to greater credit and compliance risks than are found in more well-developed jurisdictions. AEB continually monitors its exposures in such jurisdictions, and regularly evaluates its client base to identify potential legal risks as a result of clients' use of AEB's banking services. For a discussion relating to AEB's use of derivative financial instruments, see page 72 under the caption "Risk Management," and Note 9 on pages 93 through 95 of the Company's 2003 Annual Report to Shareholders, which portions of such report are incorporated herein by reference. Competition The banking services of AEB are subject to vigorous competition everywhere AEB operates. Competitors include local and international banks whose assets often exceed those of AEB, other financial institutions (including certain other subsidiaries of the Company) and, in certain cases, governmental agencies. Regulation American Express Banking Corp. ("AEBC") is a New York investment company organized under Article XII of the New York Banking Law and is a wholly owned direct subsidiary of the Company. American Express Bank Ltd. ("AEBL") is a wholly owned direct subsidiary of AEBC. AEBC, AEBL and AEBL's global network of offices and subsidiaries are subject to continuous supervision and examination by the New York State Banking Department ("NYSBD") pursuant to the New York Banking Law. AEBC does not directly engage in banking activities. AEBL's branches, representative offices and subsidiaries are licensed and regulated in the jurisdictions in which they do business and are subject to the same local requirements as other competitors that have the same license. Within the United States, AEBL's New York agency is supervised and regularly examined by the NYSBD. In addition, the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") regulates, supervises and examines AEBI and the California Department of Financial Institutions supervises and examines AEBL's San Francisco, Los Angeles and San Diego facility offices. Since AEBC and AEBL do not do business in the United States, except as an incident to their activities outside the United States, the Company's affiliation with AEBC and AEBL neither causes the Company to be subject to the provisions of the Bank Holding Company Act of 1956, as amended, nor requires it to register as a bank holding company under the Federal 60

Reserve Board's Regulation Y. AEBC and AEBL are not members of the Federal Reserve System, are not subject to supervision by the FDIC, and are not subject to any of the restrictions imposed by the Competitive Equality Banking Act of 1987 other than anti-tie-in rules with respect to transactions involving products and services of certain of its affiliates. AEBC and AEBL are not financial holding companies under the Gramm-Leach-Bliley Act. The NYSBD requires AEBC, on a consolidated basis, to comply with the Federal Reserve Board's risk-based capital guidelines and complementary leverage constraints applicable to state-chartered banks that are members of the Federal Reserve System. Pursuant to the FDIC Improvement Act of 1991, the Federal Reserve Board, among other federal banking agencies, adopted regulations defining levels of capital adequacy. Under these regulations, a bank is deemed to be well capitalized if it maintains a Tier 1 risk-based capital ratio of at least 6%, a total risk-based capital ratio of at least 10%, and a leverage ratio of at least 5%. Based on AEBC's Tier 1 risk-based capital, total risk-based capital and leverage ratios, AEBC is considered to be well capitalized at December 31, 2003. In recent years U.S. and foreign regulatory authorities, together with international organizations, have raised increasing concerns over the ability of criminal organizations and corrupt persons to use global financial intermediaries to facilitate money laundering. In the United States, the Secretary of the Treasury has issued regulations pursuant to the USA PATRIOT Act (the "Patriot Act") that specifically impact certain money laundering prevention activities of entities involved, as AEBL is, in correspondent and private banking activities. AEBL has taken steps as necessary to comply with these regulations, and increased its compliance efforts to combat money laundering generally. AEBL may increase these efforts to address further regulations expected under the USA PATRIOT Act as well as other evolving supervisory standards and requirements in jurisdictions in which AEBL does business. In April 2003 the Basel Committee on Banking Supervision (the "Basel Committee") issued a final consultative paper on the proposed new Basel Capital Accord ("new Accord"). The new Accord proposes risk-based capital guidelines that will replace the previous guidelines that have been in effect since 1988. The Basel Committee is comprised of representatives of central banks and bank supervisors from the major industrialized countries and develops broad supervisory standards and guidelines governing the prudential supervision of banking institutions. The new Accord sets capital requirements for operational risk and refines the existing capital requirements for credit and market risk exposures. The goal of the Basel Committee is to complete the new Accord by mid-year 2004, with implementation to take effect in member countries by year-end 2006. AEBC is monitoring the status and progress of the new Accord. AEBC believes that implementation of the new Accord, to the extent applicable to AEBC, could increase minimum risk-based capital requirements and result in changes to certain of AEBC's information systems, processes and employee training. CORPORATE AND OTHER The American Express brand and its attributes - trust, security, integrity, quality and customer service - are key assets of the Company. The Company continues to focus on the 61

brand by educating employees about its attributes and by further incorporating these attributes into its programs, products and services. During the year, the Company continued its strategy to obtain patents for its businesses. In 2003, the Company filed 65 U.S. patent applications. The Company has devoted substantial resources to its global technology platforms and undertaken significant efforts to protect and manage its proprietary systems and the data collected and stored on such systems. In this vein, the Company has continued to focus on ways to secure such systems from "hackers" and other unauthorized users. The Company uses information about its customers to develop products and services and to provide personalized services. Regulatory activity in the areas of privacy and data protection continues to grow worldwide and is generally being driven by the growth of technology and concomitant concerns about the rapid and widespread dissemination and use of information. The Gramm-Leach-Bliley Act ("GLBA") became effective on July 1, 2001. GLBA provides for disclosure of a financial institution's privacy policies and practices and affords customers the right to "opt out" of the institution's disclosure of their personal financial information to unaffiliated third parties (with limited exceptions). This legislation does not preempt state laws that afford greater privacy protections to consumers, and several states have adopted such legislation. For example, in 2003 California enacted that state's Financial Information Privacy Act. The Company will continue its efforts to safeguard the data entrusted to it in accordance with applicable law and its internal data protection policies, including taking steps to reduce the potential for identity theft, while seeking to properly collect and use data to achieve its business objectives. The Fair Credit Reporting Act of 1970 ("FCRA") regulates the disclosure of consumer credit reports by consumer reporting agencies and the use of consumer credit report information by banks and other companies. Provisions of FCRA that preempt states from enacting legislation regarding the sharing of customer information among affiliates and certain other uses of consumer credit report information were set to expire on January 1, 2004. The January 1, 2004 expiration date of these provisions was removed by the enactment in December 2003 of the Fair and Accurate Credit Transactions Act ("FACT Act"). The FACT Act significantly amends the FCRA to make the exchange of consumer information among affiliates, together with several other activities involving consumer credit report information, subject to only federal law. At the same time, the FACT Act requires any company that receives information concerning a consumer from an affiliate to permit the consumer to opt out from having that information used to market the company's products to the consumer. The FACT Act further amends FCRA by adding several new provisions designed to prevent or mitigate identity theft and to improve the accuracy of consumer credit information. New duties are imposed on both consumer reporting agencies and on businesses that furnish or use information contained in consumer credit reports. For example, a furnisher of information is required to implement procedures to prevent the reporting of any information that it learns is the result of identity theft. Also, if a consumer disputes the accuracy of information provided to a 62

consumer reporting agency, the furnisher of that information must conduct an investigation and respond to the consumer in a timely fashion. The FACT Act also requires grantors of credit that use consumer credit report information to offer a borrower credit on terms that are "materially less favorable" than the terms offered to most of the lender's other customers to notify the borrower that the terms are based on a consumer credit report and that the borrower is entitled to receive a free copy of the report from the consumer reporting agency. The effective dates and implementing regulations for many of the provisions of the FACT Act are expected to be issued by various federal regulatory agencies during 2004. The FACT Act and the implementing regulations are not expected to have a material impact on the Company's business operations or its ability to provide personalized services to its customers. In the United States, the Patriot Act was enacted in October 2001 in the wake of the September 11th terrorist attacks. The Patriot Act contains a wide variety of provisions aimed at fighting terrorism, including provisions aimed at impeding terrorists' ability to access and move funds used in support of terrorist activities. Among other things, the Patriot Act directs federal regulators, led by the Secretary of the Treasury, to promulgate regulations or take other steps to require financial institutions to establish anti-money laundering programs that meet certain standards, including expanded reporting and enhanced information gathering and record-keeping requirements. While the Company has long maintained anti-money laundering programs in its businesses, the Secretary of the Treasury has issued regulations under the Patriot Act applicable to certain of the Company's business activities conducted within AEB, TRS, AEFA and their subsidiaries and affiliates, prescribing minimum standards for such anti-money laundering programs, and the Company has enhanced existing programs and developed and implemented new ones in response to these new regulations. For example, in April 2002, the U.S. Treasury issued draft regulations applicable to operators of credit card networks (such as Visa, MasterCard, Diners Club, Discover and American Express) that would require credit card networks to have risk-based programs to screen institutions that are licensed to issue cards or acquire transactions from merchants on their networks. As a result, the Company developed and implemented a program for its Global Network Services business, and in 2003 completed its screening of almost all such licensed institutions. In 2004 and beyond, the Global Network Services business will complete its screening of existing licensed institutions and apply the screening under this program to all new licensing relationships. The Company has also developed and implemented a Customer Identification Program applicable to many of the Company's businesses, and has enhanced its Know Your Customer and Enhanced Due Diligence programs in others. The Company intends to take steps to comply with any additional regulations that are promulgated. In addition, the Company will take steps to comply with anti-money laundering initiatives adopted in other jurisdictions in which it conducts business. The Company has significant operations in the European Union, including a number of regulated businesses. The Company monitors developments in EU legislation, as well as in the other markets in which it operates, in order to ensure that it is in a position to comply with all applicable legal requirements. Significant EU developments include the EU Insurance Mediation Directive pursuant to which each EU member state is required to authorize general insurance intermediaries in its state by mid-January 2005. Subject to this authorization, intermediaries will then be permitted to conduct insurance intermediation in other member states via the EU "passporting" regime. In addition, the EU directive on the supplementary supervision 63

of financial conglomerates is required to be implemented by each EU member state by January 2005. This Directive contemplates that certain financial conglomerates involved in banking, insurance and investment activities will be subject to a system of supplementary supervision at the level of the holding company constituting the financial conglomerate. The Directive requires such financial conglomerates to, among other things, implement measures to prevent excessive leverage and multiple gearing of capital, and to maintain internal control processes to address risk concentrations as well as risks arising from significant intragroup transactions. In 2002, the Company outsourced most of its technology operations work to IBM. This arrangement, which has a seven-year term with options to extend, enables the Company to benefit from IBM's expertise while lowering its information technology costs. IBM has taken on responsibility for managing most of the Company's day-to-day technology operations functions, including mainframe, midrange and desktop systems; web hosting; database administration; help desk services; and data center operations. The Company's Technologies organization continues to retain its core technology competencies, including information technology strategy, managing strategic relationships with technologies' partners, developing and maintaining applications and databases, and managing the technologies' portfolios of its businesses. FOREIGN OPERATIONS The Company derives a significant portion of its revenues from the use of the Card, Travelers Cheques, travel and other financial products and services in countries outside the United States and continues to broaden the use of these products and services outside the United States. (For a discussion of the Company's revenue by geographic region, see Note 18 to the Company's Consolidated Financial Statement, which can be found on pages 104 through 106 of the Company's Annual Report to Shareholders.) Political and economic conditions in these countries (including the availability of foreign exchange for the payment by the local card issuer of obligations arising out of local Cardmembers' spending outside such country, for the payment of card bills by Cardmembers who are billed in other than their local currency, and for the remittance of the proceeds of Travelers Cheque sales) can have an effect on the Company's revenues. Substantial and sudden devaluation of local Cardmembers' currency can also affect their ability to make payments to the local issuer of the card in connection with spending outside the local country. The majority of AEB's revenues are derived from business conducted in countries outside the United States. Some of the risks attendant to those operations include currency fluctuations and changes in political, economic and legal environments in each such country. As a result of its foreign operations, the Company is exposed to the possibility that, because of foreign exchange rate fluctuations, assets and liabilities denominated in currencies other than the United States dollar may be realized in amounts greater or less than the United States dollar amounts at which they are currently recorded in the Company's Consolidated Financial Statements. Examples of transactions in which this may occur include the purchase by Cardmembers of goods and services in a currency other than the currency in which they are billed; the sale in one currency of a Travelers Cheque denominated in a second currency; foreign exchange positions held by AEB as a consequence of its client-related foreign exchange trading 64

operations; and, in most instances, investments in foreign operations. These risks, unless properly monitored and managed, could have an adverse effect on the Company's operations. The Company's policy in this area is generally to monitor closely all foreign exchange positions and to minimize foreign exchange gains and losses, for example, by offsetting foreign currency assets with foreign currency liabilities, as in the case of foreign currency loans and receivables, which are financed in the same currency. An additional technique used to manage exposures is the spot and forward purchase or sale of foreign currencies as a hedge of net exposures in those currencies as, for example, in the case of the Cardmember and Travelers Cheque transactions described above. Additionally, Cardmembers may be charged in United States dollars for their spending outside their local country. The Company's investments in foreign operations are hedged by forward exchange contracts or by identifiable transactions, where appropriate. IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS Various forward-looking statements have been made in this Form 10-K Annual Report. Forward-looking statements may also be made in the Company's other reports filed with the SEC, in its press releases and in other documents. In addition, from time to time, the Company through its management may make oral forward-looking statements. Forward-looking statements are subject to risks and uncertainties, including those identified below, which could cause actual results to differ materially from such statements. The words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely" and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update publicly or revise any forward-looking statements. Factors that could cause actual results to differ materially from the Company's forward-looking statements include, but are not limited to, the following: The Company's ability to: o successfully implement a business model that allows for significant earnings growth based on revenue growth that is lower than historical levels, including the ability to improve its operating expense to revenue ratio both in the short-term and over time, which will depend in part on the effectiveness of reengineering and other cost control initiatives, as well as factors impacting the Company's revenues; o grow its business and meet or exceed its return on equity target by reinvesting approximately 35% of annually generated capital and returning approximately 65% of such capital to shareholders, over time, which will depend, in part, on the Company's ability to manage its capital needs and the effect of business mix, acquisitions and rating agency requirements; 65

o increase investment spending, which will depend in part on the equity markets, other factors affecting revenues and the success of reengineering programs, and capitalize on such investments to improve business metrics; o extend the value of the American Express brand, which historically has been associated with the card and travel businesses (e.g., perception of trust, security and quality service), to a broad range of financial products and services in the financial services industry; o manage credit risk related to consumer debt, business loans, merchant bankruptcies and other credit exposures, both in the United States and abroad, including unseasoned balances in TRS' lending portfolios; o accurately estimate the provision for credit losses in the Company's outstanding portfolio of loans and receivables; o accurately estimate the fair value of the assets in the Company's investment portfolio and, in particular, those investments that are not readily marketable; o successfully achieve in a timely manner significant cost savings and other benefits (totaling at least $1 billion in the aggregate) from the reengineering efforts being implemented or considered by the Company, including cost management, structural and strategic measures such as vendor, process, facilities and operations consolidation, outsourcing functions (including, among others, technologies operations), relocating certain functions to lower cost overseas locations, moving internal and external functions to the Internet to save costs, the scale-back of corporate lending in certain regions, and planned staff reductions relating to certain of such reengineering actions; o successfully expand its online and offline distribution channels and cross-selling for financial, travel, card and other products and services to its customer base, both in the United States and internationally; o participate in payment and other systems material to its businesses on a fair and competitive basis; o control and manage operating, infrastructure, advertising and promotion and other expenses as business expands or changes, including balancing the need for longer term investment spending; o invest successfully in, and compete at the leading edge of, technology developments across all businesses, e.g., transaction processing, data management, customer interactions and communications, travel reservations systems, prepaid products, multi-application smart cards and risk management and compliance systems; 66

o recover under its insurance policies for losses resulting from the September 11th terrorist attacks; o recognize evolutionary technology developments by competitors or others which could hasten business model obsolescence or, because of patent rights held by such competitors or others, limit or restrict the Company's use of desired business technology or processes; o develop and implement successfully enterprise-wide interactive strategies; o improve online customer satisfaction, Web site performance and online availability for its customers and clients; o effectively leverage its assets, such as its brand, customers and international presence in the Internet environment; and o attract and retain qualified employees in all its businesses. TRS' ability to: o increase consumer and business spending and borrowing on its credit and charge Cards and travel related services products, gain market share and develop and issue new or enhanced products that capture greater share of customers' total spending on Cards issued on its network both in the United States and in its international operations; o execute the Company's global corporate services strategy including greater penetration of middle market companies, increasing capture of non-T&E spending through greater use of the Company's corporate purchasing solutions and other means, and further globalizing business capabilities; o manage credit risk and exposure in a challenging economic environment; o cost effectively manage and expand Cardmember benefits, including moderating the growth of marketing, promotion and rewards expenses; o accurately estimate the provision for the cost of the Company's Membership Rewards program; o expand the Global Network Services business, which, in the case of expansion in the United States, will depend on the ultimate outcome in the Department of Justice suit against Visa and MasterCard challenging their restrictions on member banks' issuing cards on the American Express Network in the United States, and which will depend more generally on the extent to which such business enhances the Company's brand, allows the Company to leverage its transaction processing scale, expands merchant coverage of the network overall, 67

provides GNS partners with the benefits of greater cardmember loyalty and higher spend per customer, and benefits merchants through greater transaction volume and additional higher spend customers; o enhance significantly its international operations, which will depend in part on its ability to reduce expenses for reinvestment in the international business and expand the proprietary and third party-issued Card businesses; o retain Cardmembers in consumer lending products after low introductory rate periods have expired; and o sustain premium discount rates, increase merchant coverage and reduce suppression, all of which will depend in part on its ability to maintain a customer base that appeals to merchants and to develop deeper merchant relationships through creation of new products and services. AEFA's ability to: o sell certain high-yield investments at expected values and within anticipated timeframes and to maintain its high-yield portfolio at certain levels in the future; o further improve investment performance in AEFA's businesses, including attracting and retaining high-quality personnel, and reduce outflows of invested funds; o develop and roll out new and attractive products to clients in a timely manner and effectively manage the economics in selling a growing volume of non-proprietary products to clients; o manage developments relating to AEFA's platform structure for financial advisors, including the ability to increase advisor productivity (including adding new clients), increase the growth of productive new advisors and create efficiencies in the infrastructure; o resolve the potential conflicts inherent in its growing multi-channel delivery systems; o make accurate assumptions used to determine the amount of amortization of deferred acquisition costs ("DAC") with respect to sale of annuity, insurance and certain mutual fund products; o respond effectively to fluctuation in the equity and fixed income markets, a short-term financial market crash or a long-term financial market decline or stagnation, or a prolonged period of relatively low or high interest rates, any of which could affect the amount and types of investment products sold by AEFA, AEFA's ability to earn target spreads on fixed account liabilities, the level of management, distribution and other fees received based on the market value of 68

managed assets, AEFA's ability to recover DAC as well as the timing of that DAC amortization, and the level of guaranteed minimum death benefits paid to clients; o respond effectively to changes to or elimination of federal tax benefits for AEFA's products and to other changes in laws and regulations that could adversely affect sales of mutual fund, insurance and annuity products; o respond effectively if the independent directors of the mutual funds managed by AEFA reduce the compensation paid to AEFA or terminate the contracts to manage, distribute and/or service those funds; and o respond effectively to changes in federal securities laws affecting the mutual fund industry, including possible enforcement proceedings and rules and regulations to prevent trading abuses or restrict or eliminate certain types of fees, change mutual fund governance and mandate additional disclosures. In general: o the continuation of favorable trends, such as increasing T&E spending, strong equity markets, lower interest rates and improving credit provisions; o the potential negative effect on the Company's businesses and infrastructure, including information technology systems, of terrorist attacks, disasters or other catastrophic events in the future; o the impact on the Company's businesses resulting from continuing geopolitical uncertainty; o relationships with third-party providers of various computer systems and other services integral to the operations of the Company's businesses; o the triggering of obligations to make payments to certain cobrand partners, merchants, vendors and customers under contractual arrangements with such parties under certain circumstances; o potential deterioration in the high-yield sector and other investment areas, which could result in further losses in AEFA's investment portfolio; o credit trends and the rate of bankruptcies, which can affect spending on card products, debt payments by individual and corporate customers and businesses that accept the Company's card products, and returns on the Company's investment portfolios; o fluctuations in foreign currency exchange rates; 69

o a downturn in the Company's businesses and/or negative changes in the Company's and its subsidiaries' credit ratings, which could result in contingent payments under contracts, decreased liquidity and higher borrowing costs; o the effect of fluctuating interest rates, which could affect AEFA's spreads in the investment and insurance businesses and benefits credited to clients' accounts, TRS' and AEB's borrowing costs; o changes in laws or government regulations applicable to the Company's businesses, including tax laws, or in regulatory activity in the areas of customer privacy, consumer protection, business continuity and data protection, which, among other things, could impact the sale of the Company's products and services, the Company's ability to cross sell products and services and the Company's ability to operate its businesses generally, including to maintain present levels of fees, finance charges and other revenues; o political or economic instability in certain regions or countries, which could affect commercial or other lending activities, among other businesses, or restrictions on convertibility of certain currencies; o the costs and integration of acquisitions; o competitive pressures in all of the Company's major businesses; and o outcomes and costs associated with litigation, compliance and regulatory matters. SEGMENT INFORMATION AND CLASSES OF SIMILAR SERVICES Information with respect to the Company's operating segments, geographic operations and classes of similar services is set forth in Note 18 to the Consolidated Financial Statements of the Company, which appears on pages 104 through 106 of the Company's 2003 Annual Report to Shareholders, which Note is incorporated herein by reference. EXECUTIVE OFFICERS OF THE COMPANY All of the executive officers of the Company as of March 1, 2004, none of whom has any family relationship with any other and none of whom became an officer pursuant to any arrangement or understanding with any other person, are listed below. Each of such officers was elected to serve until the next annual election of officers or until his or her successor is elected and qualified. Each officer's age is indicated by the number in parentheses next to his or her name. KENNETH I. CHENAULT - Chairman and Chief Executive Officer; Chairman and Chief Executive Officer, TRS 70

Mr. Chenault (52) has been Chairman of the Company since April 2001 and Chief Executive Officer of the Company since January 2001. Prior thereto he had been President and Chief Operating Officer of the Company since February 1997. He has also been Chairman of TRS since April 2001 and Chief Executive Officer of TRS since February 1997. JONATHAN S. LINEN - Vice Chairman Mr. Linen (60) has been Vice Chairman of the Company since August 1993. JAMES M. CRACCHIOLO - Group President, Global Financial Services; President and Chief Executive Officer, AEFC; Chairman and Chief Executive Officer, AEFA; Chairman, AEB; Mr. Cracchiolo (45) has been Group President, Global Financial Services of the Company since June 2000, President and Chief Executive Officer of AEFC since November 2000 and Chairman and Chief Executive Officer of AEFA since March 2001. Prior thereto he had been President and CEO of AEFA since June 2000. Mr. Cracchiolo also had been President and Chief Executive Officer of TRS International from May 1998 through July 2003. GARY L. CRITTENDEN - Executive Vice President and Chief Financial Officer Mr. Crittenden (50) has been Executive Vice President and Chief Financial Officer of the Company since June 2000. Prior thereto he had been Senior Vice President and Chief Financial Officer of Monsanto since September 1998. URSULA F. FAIRBAIRN - Executive Vice President, Human Resources and Quality Mrs. Fairbairn (61) has been Executive Vice President, Human Resources and Quality of the Company since December 1996. EDWARD P. GILLIGAN - Group President, Global Corporate Services and International Payments, TRS Mr. Gilligan (44) has been Group President, Global Corporate Services, TRS since June 2000 and President, International Payments, since July 2003. JOHN D. HAYES - Executive Vice President, Global Advertising and Brand Management and Chief Marketing Officer Mr. Hayes (49) has been Executive Vice President, Global Advertising and Brand Management of the Company since May 1995 and Chief Marketing Officer of the Company since August 2003. DAVID C. HOUSE - Group President, Global Network and Establishment Services and Travelers Cheque and Prepaid Services Group, TRS 71

Mr. House (54) has been Group President, Global Network and Establishment Services and Travelers Cheque and Prepaid Services Group, TRS since June 2000. Prior thereto he had been President, TRS Establishment Services since October 1995. ALFRED F. KELLY, JR. - Group President, U.S. Consumer and Small Business Services, TRS Mr. Kelly (45) has been Group President, U.S. Consumer and Small Business Services, TRS since June 2000. Prior thereto he had been President, Consumer Card Services Group, TRS since October 1998. LOUISE M. PARENT - Executive Vice President and General Counsel Ms. Parent (53) has been Executive Vice President and General Counsel of the Company since May 1993. GLEN SALOW - Executive Vice President and Chief Information Officer Mr. Salow (47) has been Executive Vice President and Chief Information Officer of the Company since March 2000. Prior thereto he had been Senior Vice President, E-Commerce, United States Card and Travel Services, TRS since December 1999. Prior thereto he had been Senior Vice President, Information Technology Strategy and Global Platform Development, TRS since April 1999. Prior thereto he had been Senior Vice President, Technology Operations, TRS since November 1997. THOMAS SCHICK - Executive Vice President, Corporate Affairs and Communications Mr. Schick (57) has been Executive Vice President, Corporate Affairs and Communications of the Company since March 1993. EMPLOYEES The Company had approximately 78,200 employees on December 31, 2003. ITEM 2. PROPERTIES The Company's principal executive offices are in a 51-story, 2.2 million square foot building located in lower Manhattan, which also serves as the headquarters for TRS and AEB. This building, which is on land leased from the Battery Park City Authority for a term expiring in 2069, is one of four office buildings in a complex known as the World Financial Center. The Company has a 48% ownership interest in the building. In 2002, an affiliate of Brookfield Financial Properties acquired the 52% interest in the building that had previously been owned by Lehman Brothers Holdings Inc. Due to its proximity to the World Trade Center, the Company's headquarters was damaged as a result of the terrorist attacks of September 11, 2001. As a result of these events, the Company was required to temporarily relocate its headquarters and the Company entered into 72

five new leases for approximately 750,000 square feet of space in the New York, New Jersey and Connecticut area. The repair work to the Company's headquarters was completed on schedule during 2002 and the Company relocated back into the Company headquarters. The Company has subleased a portion of this temporary space, and continues its efforts to sublease the remaining additional space in the tri-state area. The Company also relocated back to the World Financial Center employees from its Jersey City facility who had been permanently based at such location prior to September 11. The Company has subleased the Jersey City space to a third party. Other principal locations of TRS include: the American Express Service Centers in Fort Lauderdale, Florida; Phoenix, Arizona; Greensboro, North Carolina; Salt Lake City, Utah; and the Amex Canada Inc. headquarters in Markham, Ontario, Canada, all of which are owned by the Company or its subsidiaries. AEFA operates its business from three principal locations, each of which is located in Minneapolis, Minnesota: the American Express Financial Center, which the Company leases, the Operations Center, which the Company owns, and the Client Service Center, which the Company also owns. Title to the Operations Center is being transferred to TRS, which transfer is expected to be completed in the first quarter of 2004. AEFA's lease term for the American Express Financial Center, which began in November 2000, is for 20 years with several options to extend the term. AEFA also owns Oak Ridge Conference Center, a training facility and conference center in Chaska, Minnesota. IDS Property Casualty, a subsidiary of AEFA, owns its corporate headquarters in Green Bay, Wisconsin. Generally, the Company and its subsidiaries lease the premises they occupy in other locations. Facilities owned or occupied by the Company and its subsidiaries are believed to be adequate for the purposes for which they are used and are well maintained. In February 2000, the Company entered into a ten-year agreement with Trammell Crow Corporate Services, Inc. for facilities, project and transaction management and other related services. The agreement covers North and South America and parts of Europe. ITEM 3. LEGAL PROCEEDINGS The Company and its subsidiaries are involved in a number of legal and arbitration proceedings, including class actions, concerning matters arising in connection with the conduct of their respective business activities. The Company believes it has meritorious defenses to each of these actions and intends to defend them vigorously. The Company believes that it is not a party to, nor are any of its properties the subject of, any pending legal or arbitration proceedings that would have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity. However, it is possible that the outcome of any such proceedings could have a material impact on results of operations in any particular reporting period as the proceedings are resolved. Certain legal proceedings involving the Company are set forth below. 73

On August 15, 2000, Roger M. Lindmark ("Lindmark") filed a putative class action captioned Lindmark v. American Express Company, American Express Travel Related Services Company, Inc. ("TRS") and American Express Centurion Bank ("AECB") in the United States District Court for the Central District of California. The complaint principally alleges that class members improperly were charged daily compounded interest on revolving credit cards and that AECB and TRS improperly applied credits for returned merchandise against balance transfer balances. Lindmark asserted various claims including violation of the federal Truth in Lending Act, breach of contract, fraud and unfair and deceptive practices and violations of the California Consumer Legal Remedies Act. The action sought statutory and actual damages, restitution and injunctive relief. Although the Company believed it had meritorious defenses to this action, in light of the inherent uncertainties and the burden and expense of lengthy litigation, the Company reached an agreement to settle the lawsuit. On April 23, 2003 the court approved the proposed settlement filed by the parties. The settlement provided for certification of two classes. The first class, defined as the "finance charge" class, included all customers who incurred finance charges between August 1994 and September 2002. The settlement of the first class consists of a settlement fund in the amount of $15,950,000 that will be distributed with interest beginning in May 2004 on a pro rata basis to those class members who are entitled to a refund. The second class, defined as the "delayed notice" class, includes all customers who did not receive change in terms notices and who, as a result, incurred increased charges between September 2001 and September 2002. Commencing in April 2003, these class members received a refund of charges affected by the terms changes that were incurred during the class period. The Company has made appropriate reserves for the settlement amounts. In June 2002, British Airways filed an action in the United States District Court for the Southern District of New York captioned British Airways PLC v. American Express Travel Related Services Company, Inc. The action arose over British Airways' decision not to accept any credit or charge cards (including the American Express card) in the United Kingdom for payment of "corporate net fares", which are privately negotiated fares with corporations. British Airways' decision has the effect of requiring corporate customers who wish to use credit or charge cards for U.K. corporate net fares to purchase tickets through travel agents and pay a surcharge. The Company believes that British Airways' action is a material breach of its Merchant Agreement with the Company. British Airways' complaint asks the court for a declaration of whether its conduct is proper. British Airways' complaint also seeks unspecified monetary damages, interest, costs and attorneys' fees. British Airways has also amended its original complaint to add various claims alleging breaches by the Company of various contracts with the Company. American Express has filed an Answer and Counterclaim to the British Airways' complaint, and amended complaint, seeking unspecified monetary damages, interest, punitive damages, costs, attorneys' fees, and injunctive relief. Beginning in mid-July 2002, 12 putative class action lawsuits were filed in the United States District Court for the Southern District of New York. In October 2002, these cases were consolidated under the caption In Re American Express Company Securities Litigation. These 74

lawsuits allege violations of the federal securities laws and the common law in connection with alleged misstatements regarding certain investments in high-yield bonds and write downs in the 2000-2001 timeframe. The purported class covers the period from July 18, 1999 to July 17, 2001. The actions seek unspecified compensatory damages as well as disgorgement, punitive damages, attorneys' fees and costs, and interest. The Company has filed a motion to dismiss the complaint and is awaiting the court's ruling on such motion. In November 2002, a suit, captioned Haritos et al. v. American Express Financial Corporation and IDS Life Insurance Company, was filed in the United States District Court for District of Arizona. The suit is filed by plaintiffs who purport to represent a class of all persons that have purchased financial plans from AEFA advisors during an undefined class period. Plaintiffs allege that the sale of the plans violate the Investment Advisers Act of 1940. The suit seeks an unspecified amount of damages, rescission and injunctive relief. The Company believes that it has meritorious defenses to this suit and intends to defend this case vigorously. The Company filed a motion to dismiss, which is pending. The Company has been named in several purported class actions in various state courts alleging that the Company violated the respective state's laws by wrongfully collecting amounts assessed on converting transactions made in foreign currencies to U.S. dollars and/or failing to properly disclose the existence of such amounts in its Cardmember agreements and billing statements. The plaintiffs in the actions seek, among other remedies, injunctive relief, money damages and/or attorneys' fees on their own behalf and on behalf of the putative class of persons similarly situated. In February 2004, the Company and certain of its subsidiaries filed a motion in the U.S. District Court for the Southern District of Florida in the case captioned Lipuma v. American Express Bank, American Express Travel Related Services Company, Inc. and American Express Centurion Bank (filed in August 2003) seeking preliminary approval of a nationwide class action settlement to resolve all lawsuits and allegations with respect to the Company's collection and disclosure of fees assessed transactions made in foreign currencies. The motion asked the Court to preliminarily approve a settlement pursuant to which the Company would (a) deposit $66 million into a fund that would be established to reimburse class members with valid claims and pay attorneys' fees and (b) make certain changes to the disclosures in its Cardmember agreements and billing statements regarding its foreign currency conversion practices. The motion also asked the court to enjoin all other proceedings that make related allegations pending a final approval hearing including, but not limited to the following cases: (i) Environmental Law Foundation, et al. v. American Express Company, et al., Superior Court of Alameda County, California (file March 2003); (ii) Rubin v. American Express Company and American Express Travel Related Services Company, Inc., Circuit Court of Madison County, Illinois (filed April 2003); (iii) Angie Arambula, et al. v. American Express Company, et al., District Court of Cameron County, Texas, 103rd Judicial District (filed May 2003); (iv) Fuentes v. American Express Travel Related Services Company, Inc. and American Express Company, District Court of Hidalgo County, Texas (filed May 2003); (v) Wick v. American Express Company, et al., Circuit Court of Cook County, Illinois (filed May 2003); (vi) Bernd Bildstein v. American Express Company, et al., Supreme Court of Queens County, New York (filed June 2003); (vii) Janowitz v. American Express Company, et al., Circuit Court of Cook County, Illinois (filed September 2003); and (viii) Paul v. American Express Company, et al., Superior Court of Orange County, California (filed January 2004). Such motion was 75

approved by the Court in February 2004; however, the proposed settlement remains subject to final approval which is expected to be considered by the Court later in 2004. The Company has established reserves to cover the proposed payment that would be made to reimburse class members and pay attorneys' fees. In late April 2003, a purported class action, captioned Lorraine L. Osborne v. ADC Telecommunications, Inc. et al. was filed in the United States District Court, District of Minnesota. The action names American Express Trust Company ("AETC"), a wholly owned subsidiary of the Company, as a defendant in relation to AETC's role as directed trustee of the retirement savings plan of ADC Telecommunications (the "ADC Retirement Plan"). The complaint alleges that AETC breached fiduciary duties under the Employee Retirement Income Security Act of 1974, as amended (ERISA), in relation to the retention of ADC common stock in the ADC Retirement Plan. The complaint seeks certification of a class of all participants who held ADC common stock in accounts in the ADC Retirement Plan during the period from November 2, 2000 to the present. Based on these allegations, the plaintiffs seek injunctive relief, restitution, unspecified monetary damages and attorneys' fees and costs. AETC has been voluntarily dismissed from this case without prejudice. In May 2003, a purported class action, captioned eGeneral Medical, Inc., et al. v. Visa U.S.A., Inc. et al., was filed in the Eastern District of North Carolina alleging that the fees charged to Internet merchants when funds have been advanced by American Express and are later charged back to those merchants because a consumer transaction has been determined to be the result of fraud, or when a transaction has been disputed by the consumer and the dispute is resolved in the consumer's favor are excessive. The plaintiffs seek treble damages in an unspecified amount "but which is, at a minimum, hundreds of millions of dollars," disgorgement of fees earned, injunctive and other relief. In November 2003 the plaintiffs made a motion seeking the Court's permission to dismiss the action as to American Express Company without prejudice. Such motion has been preliminarily approved. The Company has been named in a number of purported class actions in which the plaintiffs allege an unlawful antitrust tying arrangement between the Company's charge cards, credit cards and debit cards in violation of various state and federal laws, including the following: (i) Cohen Rese Gallery et al. v. American Express Company et al., U.S. District Court for the Northern District of California (filed July 2003); (ii) Italian Colors Restaurant v. American Express Company et al., U.S. District Court for the Northern District of California (filed August 2003); (iii) DRF Jeweler Corp. v. American Express Company et al., U.S. District Court for the Southern District of New York (filed December 2003); (iv) Hayama Inc. v. American Express Company et al., Superior Court of California, Los Angeles County (filed December 2003); (v) Chez Noelle Restaurant v. American Express Company et al., U.S. District Court for the Southern District of New York (filed January 2004); (vi) Mascari Enterprises d/b/a Sound Stations v. American Express Company et al., U.S. District Court for the Southern District of New York (filed January 2004) and (vii) Mims Restaurant v. American Express Company et al., U.S. District Court for the Southern District of New York (filed February 2004). The plaintiffs in these actions seek injunctive relief and an unspecified amount of damages. Upon motion to the Court by the Company, the venue of the Cohen Rese and Italian Colors actions was moved to the U.S. District Court for the 76

Southern District of New York in December 2003. Each of the above-listed actions (except for Hayama) is now pending in the U.S. District Court for the Southern District of New York. In June 2003, a purported class action captioned Hudgins Moving & Storage Co., Inc. v. American Express Company et al., was filed in the Circuit Court for Davidson County, Tennessee against the Company and one of its subsidiaries on behalf of a class of Tennessee merchants, alleging an unlawful antitrust tying arrangements among the Company's charge cards, credit cards and "debit cards". The plaintiff alleged that the purported tying arrangement violated the Tennessee Trade Practices Act and the Tennessee Consumer Protection Act of 1977. Defendants removed this action to the United States District Court for the Middle District of Tennessee. In July 2003, defendants moved to compel arbitration or, alternatively, to dismiss the complaint for failure to state a claim upon which relief can be granted. The case was remanded to the State Court on plaintiff's motion and was dismissed voluntarily without prejudice in January 2004. In July 2003, a National Association of Securities Dealers, Inc. ("NASD") arbitration panel held Securities America, Inc. ("SAI"), a wholly owned subsidiary of the Company, liable in connection with certain claims filed by clients of a former broker of SAI who adopted an assumed identity to work for SAI and then allegedly engaged in improper practices in connection with his clients and their accounts. The arbitration panel awarded the clients approximately $1.4 million in compensatory damages and approximately $4.1 million in punitive damages. SAI filed a motion to have the decision of the arbitration panel vacated. The matter was subsequently settled for a reduced amount. To date, 16 additional claims by other clients (or groups of clients) of the former broker have been filed against SAI in various courts and before the NASD. Eleven of those claims have been settled or resolved by final judgment. In July 2003, a motion to authorize a class action captioned Option Consommateurs and Normand Painchaud v. American Express Bank of Canada et al. was filed in the Superior Court of Quebec, District of Montreal. The motion, which also names as defendants Citibank Canada, MBNA Canada, Capital One and Royal Bank of Canada, alleges that the defendants have violated the Quebec Consumer Protection Act by imposing finance charges on credit card transactions prior to 21 days following the receipt of the statement containing the charge. It is alleged that the Quebec Consumer Protection Act provisions which require a 21 day grace period prior to imposing finance charges applies to credit cards issued by American Express Bank of Canada in Quebec and that finance charges imposed prior to this grace period violate the Act. The proposed class claims seek reimbursement of all finance charges imposed in violation of the Act, $200 in punitive damages per class member, interest and fees and costs. The SEC, NASD, and several state attorneys general has brought numerous enforcement proceedings against individuals and firms challenging several mutual fund industry practices including late trading (allowing mutual fund customers to receive 4:00 p.m. ET prices for orders placed or confirmed after 4:00 p.m. ET), market timing (abusive rapid trading in mutual fund shares), disclosure of revenue sharing arrangements, which are paid by fund advisers or companies to brokerage firms who agree to sell those funds, and inappropriate sales of B (no front end load) shares. AEFA has received requests for information and has been contacted by regulatory authorities concerning its practices and is cooperating fully with these inquiries. 77

In addition to the foregoing, in February 2004 AEFA was one of 15 firms that settled an enforcement action brought by the SEC and the NASD relating to breakpoint discounts (i.e., volume discounts available to investors who make large mutual fund purchases) pursuant to which AEFA agreed to pay a fine of $3.7 million and to reimburse customers to whom the firm failed to deliver such discounts. These amounts were accrued by AEFA in 2003. In early March 2004, a purported class action, captioned Naresh Chand v. American Express Company, American Express Financial Corporation and American Express Financial Advisors, Inc. was filed in the United States District Court for the Southern District of New York. The plaintiff alleges violations of certain federal securities laws. In particular the plaintiff alleges that the defendants did not adequately disclose "incentive arrangements" for the sale of certain of the defendants' "preferred" mutual funds. The lawsuit seeks an unspecified amount of damages, rescission and restitution. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the last quarter of its fiscal year ended December 31, 2003. PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The principal market for the Company's Common Shares is The New York Stock Exchange under the trading symbol AXP. Its Common Shares are also listed in the United States on the Boston, Chicago and Pacific Stock Exchanges. The Company had 47,967 common shareholders of record at December 31, 2003. For price and dividend information with respect to such Common Shares, see Note 22 to the Consolidated Financial Statements on page 108 of the Company's 2003 Annual Report to Shareholders, which Note is incorporated herein by reference. For information on securities authorized for issuance under equity compensation plans, see the material included under the heading "Equity Compensation Plan Information" on page 27 of the Company's definitive proxy statement for the Company's Annual Meeting of Shareholders to be held on April 26, 2004, which will be filed with the SEC within 120 days of the close of the Company's last fiscal year. The material found under such heading is incorporated herein by reference. On November 21, 2003, the Company completed a private offering of $2.0 billion aggregate original principal amount of 1.85% convertible senior debentures due 2033. The debentures were sold pursuant to a purchase agreement among the Company and J.P. Morgan Securities Inc., Lehman Brothers Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint book-running managers for the initial purchasers in reliance on the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended. Pursuant to the purchase agreement, the debentures were offered and sold by the initial purchasers only to qualified institutional buyers as defined in and pursuant to Rule 144A under the Securities Act. The offering price of the debentures was 100% of their principal amount. The initial purchasers of the debentures received aggregate purchase discounts or commissions of $25 million. The debentures are convertible into the Company's common stock (i) at any time if the closing sale price of the Company's common stock for at least 20 trading days in a period of 30 78

consecutive trading days of any calendar quarter is more than 125% of the base conversion price (initially, 125% of $69.41, or $86.76) as of the last day of such calendar quarter (the "contingent trigger price"), (ii) during any period in which a credit rating assigned to the debentures by certain rating agencies falls below a specified level or no credit rating is assigned to the debentures by certain rating agencies, (iii) during the five business day period after any five consecutive trading day period in which the trading price per debenture for each day in that period is less than 96% of the product of the closing sale price of the Company's common stock and the conversion rate on each such day, provided that if the closing sale price of the Company's common stock on the day prior to conversion is greater than the effective conversion rate but less than or equal to 125% of the base conversion price, the debentures are convertible into an amount equal to the accreted principal amount of the debentures plus accrued and unpaid interest as of the conversion date, (iv) if the Company calls the debentures for redemption, or (v) if the Company takes certain corporate actions. The base conversion price and the conversion trigger price of a debenture are dependent on the accreted principal amount of the debenture and will increase as the principal amount of the debenture increases. The accreted principal amount of a debenture will be equal to the original principal amount of $1,000 per debenture increased daily by a yield, which until November, 30, 2006 will be equal to 0% per annum, and thereafter will be reset to 1.85% per annum; provided that if a remarketing reset event (as described below) occurs, the yield will equal the rate determined in connection with the remarketing of the debentures unless the Company elects, in connection with a remarketing, to have the debentures bear cash interest. The Company has the right to deliver on conversion of debentures, in lieu of shares of the Company's common stock, cash or a combination of common stock and cash, provided that at any time prior to maturity, the Company may elect irrevocably to pay in cash the accreted principal amount of any debentures submitted for conversion plus accrued and unpaid interest as of the conversion date. If the debentures are converted before December 1, 2006, (A) if the applicable stock price of the Company's common stock (which is equal to the average of the closing sale prices of the common stock over the ten trading day period starting on the third trading day following the conversion date of the debentures) is less than or equal to the base conversion price, a holder will receive a number of shares for each debenture equal to the base conversion rate, and (B) if the applicable stock price of the Company's common stock is greater than the base conversion price, a holder will receive a number of shares for each debenture equal to the base conversion rate plus an additional number of shares based upon the amount by which the applicable stock price of the Company's common stock exceeds the base conversion price, subject to an aggregate limit of 22.7633 shares of common stock per debenture (such limit being subject to the same adjustments as apply to the base conversion rate discussed below). The base conversion rate is 14.4073 subject to adjustment for (i) stock dividends, (ii) subdivisions or combinations, or certain reclassifications, of the shares of the Company's common stock, (iii) distributions to all holders of shares of the Company's common stock of certain rights or warrants to purchase shares of the Company's common stock, (iv) distributions to all holders of shares of the Company's common stock of shares of the Company's capital stock or the Company's assets or evidences of indebtedness, (v) cash dividends in excess of the Company's current cash dividends, or (vi) certain payments made by the Company in connection with tender offers and exchange offers. 79

If the debentures are converted on or after December 1, 2006, a holder will receive a number of shares of the Company's common stock for each debenture equal to the fixed conversion rate. The fixed conversion rate will be established pursuant to the provisions discussed in the preceding paragraph assuming a conversion date that is 13 trading days prior to December 1, 2006, and is subject to the same adjustments as apply to the base conversion rate. If a remarketing reset event occurs, the debentures will no longer be convertible. Otherwise, the ability to surrender debentures for conversion will expire at the close of business on their stated maturity date, unless they have previously been redeemed or repurchased. A remarketing reset event will occur if the average closing sale prices of the Company's common stock over a ten trading day period ending on the trading day immediately preceding December 1 of 2006, 2008, 2013, 2018, 2023 or 2028 is less than the effective conversion price as of such trading day. The effective conversion price is equal to the accreted principal amount per debenture (initially $1,000) divided by the conversion rate then in effect (assuming a conversion date 13 trading days prior to the date of determination). Unless a remarketing reset event occurs, the Company can redeem all or a portion of the debentures at any time on or after December 1, 2006 at a price equal to 100% of the accreted principal amount of the debentures to be redeemed plus any accrued and unpaid interest to but excluding the redemption date. The holders may require the Company to purchase all or a portion of their debentures on December 1 of 2006, 2008, 2013, 2018, 2023 or 2028 if the debentures are not immediately convertible on such date and a remarketing reset event has not occurred. The holders may also require the Company to purchase all or a portion of their debentures upon a change of control. The purchase price is equal to 100% of the accreted principal amount of the debentures to be purchased plus any accrued and unpaid interest up to but excluding the date of purchase. The Company used the aggregate net proceeds from the offering of debentures for general corporate purposes. ITEM 6. SELECTED FINANCIAL DATA The "Consolidated Five-Year Summary of Selected Financial Data" appearing on page 111 of the Company's 2003 Annual Report to Shareholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The information set forth under the heading "Financial Review" appearing on pages 27 through 73 of the Company's 2003 Annual Report to Shareholders is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 80

The information set forth under the headings "Risk Management" appearing on pages 43 through 44, page 59, pages 68 through 69 and page 72 and Note 9 to the Consolidated Financial Statements on pages 93 through 95 of the Company's 2003 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The "Consolidated Financial Statements," the "Notes to Consolidated Financial Statements" and the "Report of Ernst & Young LLP Independent Auditors" appearing on pages 74 through 108 and page 110 of the Company's 2003 Annual Report to Shareholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. ITEM 9A. CONTROLS AND PROCEDURES The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company's fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 81

PART III ITEMS 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY; EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company will file with the SEC, within 120 days after the close of its last fiscal year, a definitive proxy statement, pursuant to Regulation 14A, which involves the election of directors. The following portions of such proxy statement are incorporated herein by reference: page 4, paragraph 4, sentence 1 - material included under the heading "Corporate Governance"; page 5, paragraph 6 - material included under the heading "Corporate Governance - Board Meetings"; page 5 - material included in the table (including the footnotes thereto) under the heading "Corporate Governance - Membership on Board Committees"; page 6 - material included under the heading "Corporate Governance - Audit Committee"; pages 8 through 9 - material included under the heading "Compensation of Directors"; pages 10 through 11 - material included under the heading "Ownership of Our Common Shares"; pages 11 through 13 - material included under the heading "Item 1 - Election of Directors" and pages 21 through 31 (excluding the material preceding the Summary Compensation Table on page 21 and the portions titled "Performance Graph" on page 26 and "Directors and Officers Liability Insurance" on page 31). In addition, the Company has provided, under the caption "Executive Officers of the Company" at pages 70 through 72 hereof, the information regarding executive officers called for by Item 401(b) of Regulation S-K. The Company has adopted a set of Corporate Governance Principles, which together with the charters of the five standing committees of the Board of Directors (Audit; Compensation and Benefits; Executive; Nominating and Governance; and Public Responsibility) and the Company's Code of Conduct (which constitutes the Company's code of ethics), provide the framework for the governance of the Company. A complete copy of the Company's Corporate Governance Principles, the Charters of each of the Board committees and the Code of Conduct (which applies not only to the Company's Chief Executive Officer, Chief Financial Officer and Comptroller, but also to all other employees of the Company) may be found by clicking on the "Corporate Governance" link found on the Company's Investor Relations Web site at http://ir.americanexpress.com. Interested persons may also access the Company's Investor Relations Web site through the Company's main Web site at www.americanexpress.com by clicking on the "About American Express" link, which is located at the bottom of the Company's homepage. (Information from such sites is not incorporated by reference into this report.) Copies of these materials also are available without charge upon written request to the Secretary of the Company. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information set forth under the heading "Item 2 -- Selection of Auditors -- Audit Fees;" " -- Audit-Related Fees;" " -- Tax Fees;" " -- All Other Fees;" " -- Other Services Provided by Ernst & Young;" and " -- Policy on Pre-Approval of Retention of Independent Auditor which will appear on pages 13 and 14 of the Company's definitive proxy statement, is incorporated herein by reference. 82

PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements: See Index to Financial Statements on page F-1 hereof. 2. Financial Statement Schedules: See Index to Financial Statements on page F-1 hereof. 3. Exhibits: See Exhibit Index on pages E-1 through E-6 hereof. (b) Reports on Form 8-K: Form 8-K, dated October 8, 2003, Item 9, reporting on the completion of the acquisition of (i) Threadneedle Asset Management Holdings LTD from Zurich Financial Services Group and (ii) Rosenbluth International, Inc. Form 8-K, dated October 27, 2003, Items 9 and 12, reporting on the Company's financial results for the three and nine months ended September 30, 2003, and including a 2003 Third Quarter Earnings Supplement. Form 8-K, dated November 17, 2003, Items 5 and 7, announcing that it intends to raise $1.8 billion through an offering of convertible debt securities due 2033. Form 8-K, dated November 18, 2003, Items 5 and 7, announcing the pricing of $1.8 billion principal amount of convertible debt securities due 2033. Form 8-K, dated November 21, 2003, Items 5 and 7, announcing the completion of its sale of $2.0 billion principal amount of its convertible debt securities due 2033. Form 8-K, dated December 10, 2003, Item 9, announcing the appointment of Joan Lordi Amble to the position of Senior Vice President and Comptroller. Form 8-K, dated January 26, 2004, Items 9 and 12, reporting on the Company's financial results for the three months and fiscal year ended December 31, 2003, and including a 2003 Fourth Quarter/Full Year Earnings Supplement. Form 8-K, dated January 27, 2004, Item 9, announcing the election of Ursula M. Burns to the Board of Directors of the Company. 83

Form 8-K, dated February 2, 2004, Item 9, reporting on the announcement of a card issuing alliance between the Company and MBNA America. Form 8-K, dated February 4, 2004, Item 9, reporting on a presentation delivered by Kenneth I. Chenault, Chairman and Chief Executive Officer of the Company, and David C. House, Group President, Global Network and Establishment Services, to the financial community. 84

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN EXPRESS COMPANY March 12, 2004 /s/ Gary L. Crittenden ------------------------------- Gary L. Crittenden Executive Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the date indicated. /s/ Kenneth I. Chenault /s/ F. Ross Johnson ----------------------------- ------------------------- Kenneth I. Chenault F. Ross Johnson Chairman, Chief Executive Director Officer and Director /s/ Gary L. Crittenden /s/ Vernon E. Jordan, Jr. ----------------------------- ------------------------- Gary L. Crittenden Vernon E. Jordan, Jr. Executive Vice President and Director Chief Financial Officer /s/ Joan Lordi Amble /s/ Jan Leschly -------------------------------------- ------------------------- Joan Lordi Amble Jan Leschly Senior Vice President and Comptroller Director /s/ Daniel F. Akerson /s/ Richard A. McGinn -------------------------------------- ------------------------- Daniel F. Akerson Richard A. McGinn Director Director /s/ Charlene Barshefsky /s/ Edward D. Miller -------------------------------------- ------------------------- Charlene Barshefsky Edward D. Miller Director Director /s/ William G. Bowen /s/ Frank P. Popoff -------------------------------------- ------------------------- William G. Bowen Frank P. Popoff Director Director /s/ Ursula M. Burns /s/ Robert D. Walter -------------------------------------- ------------------------- Ursula M. Burns Robert D. Walter Director Director /s/ Peter R. Dolan -------------------------------------- Peter R. Dolan Director March 12, 2004 85

AMERICAN EXPRESS COMPANY INDEX TO FINANCIAL STATEMENTS COVERED BY REPORT OF INDEPENDENT AUDITORS (Item 14(a)) <TABLE> <CAPTION> Annual Report to Shareholders Form 10-K (Page) ------------- ------------ <S> <C> <C> American Express Company and Subsidiaries: Data incorporated by reference from attached 2003 Annual Report to Shareholders: Report of independent auditors............................ 110 Consolidated statements of income for the three years ended December 31, 2003......................... 74 Consolidated balance sheets at December 31, 2003 and 2002.............................................. 75 Consolidated statements of cash flows for the three years ended December 31, 2003................... 76 Consolidated statements of shareholders' equity for the three years ended December 31, 2003................... 77 Notes to consolidated financial statements................ 78 Consent of independent auditors............................... F-2 Schedules: I - Condensed financial information of the Company........... F-3 - F-6 II - Valuation and qualifying accounts for the three years ended December 31, 2003........................ F-7 </TABLE> All other schedules for American Express Company and subsidiaries have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the respective financial statements or notes thereto. The consolidated financial statements of American Express Company (including the report of independent auditors) listed in the above index, which are included in the Annual Report to Shareholders for the year ended December 31, 2003, are hereby incorporated by reference. With the exception of the pages listed in the above index, unless otherwise incorporated by reference elsewhere in this Annual Report on Form 10-K, the 2003 Annual Report to Shareholders is not to be deemed filed as part of this report. F-1

EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report on Form 10-K of American Express Company of our report dated January 26, 2004 (hereinafter referred to as our Report), included in the 2003 Annual Report to Shareholders of American Express Company (the "Company"). Our audits included the financial statement schedules of American Express Company listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Form S-8 No. 2-46918, No. 2-59230, No. 2-64285, No. 2-73954, No. 2-89680, No. 33-01771, No. 33-02980, No. 33-28721, No. 33-33552, No. 33-36422, No. 33-48629, No. 33-62124, No. 33-65008, No. 33-53801, No. 333-12683, No. 333-41779, No. 333-52699, No. 333-73111, No. 333-38238, and No. 333-98479; Form S-3 No. 2-89469, No. 33-43268, No. 33-50997, No. 333-32525, No. 333-45445, No. 333-47085, No. 333-55761 and No. 333-51828) and in the related Prospectuses of our Report with respect to the consolidated financial statements and schedules of American Express Company included and incorporated by reference in this Annual Report on Form 10-K for the year ended December 31, 2003. /s/ Ernst & Young LLP ------------------------ New York, New York March 9, 2004 F-2

AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY CONDENSED STATEMENTS OF INCOME (Parent Company Only) (millions) <TABLE> <CAPTION> Years Ended December 31, ------------------------- 2003 2002 2001 ------ ------ ------ <S> <C> <C> <C> Revenues $ 185 $ 241 $ 248 ------ ------ ------ Expenses: Interest 383 339 347 Human resources 99 88 64 Other (a) 121 242 261 ------ ------ ------ Total 603 669 672 ------ ------ ------ Pretax loss (418) (428) (424) Income tax benefit (159) (209) (199) ------ ------ ------ Net loss before equity in net income of subsidiaries and affiliates (259) (219) (225) Equity in net income of subsidiaries and affiliates (b) 3,246 2,890 1,536 ------ ------ ------ Net income $2,987 $2,671 $1,311 ====== ====== ====== </TABLE> (a) 2001 includes restructuring charges of $14 million ($9 million after-tax). (b) 2003 includes a $20 million non-cash pretax charge ($13 million after-tax) relating to the December 31, 2003 adoption of Financial Accounting Standards Board Interpretation No. 46, "Consolidation of Variable Interest Entities," revised December 2003. See Notes to Condensed Financial Information of the Parent Company on page F-6. F-3

AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY CONDENSED BALANCE SHEETS (Parent Company Only) (millions, except share amounts) <TABLE> <CAPTION> December 31, ----------------- 2003 2002 ------- ------- ASSETS <S> <C> <C> Cash and cash equivalents $ 4 $ 9 Equity in net assets of subsidiaries and affiliates 16,456 14,567 Accounts receivable and accrued interest, less reserves 5 26 Land, buildings and equipment - at cost, less accumulated depreciation: 2003, $77; 2002, $80 47 141 Due from subsidiaries 6,286 4,386 Other assets 363 292 ------- ------- Total assets $23,161 $19,421 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and other liabilities $ 321 $ 724 Long-term debt 5,739 2,745 Due to subsidiaries 1,778 1,576 Intercompany debentures -- 515 ------- ------- Total liabilities 7,838 5,560 Shareholders' equity: Common shares, $.20 par value, authorized 3.6 billion shares; issued and outstanding 1,284 million shares in 2003 and 1,305 million shares in 2002 257 261 Capital surplus 6,081 5,675 Retained earnings 8,793 7,606 Other comprehensive income, net of tax: Net unrealized securities gains (losses) 931 1,104 Net unrealized derivatives losses (446) (538) Foreign currency translation adjustments (278) (198) Minimum pension liability (15) (49) ------- ------- Accumulated other comprehensive income 192 319 ------- ------- Total shareholders' equity 15,323 13,861 ------- ------- Total liabilities and shareholders' equity $23,161 $19,421 ======= ======= </TABLE> See Notes to Condensed Financial Information of the Parent Company on page F-6. F-4

AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY CONDENSED STATEMENTS OF CASH FLOWS (Parent Company Only) (millions) <TABLE> <CAPTION> Years Ended December 31, --------------------------- 2003 2002 2001 ------- ------- ------- <S> <C> <C> <C> Cash flows from operating activities: Net income $ 2,987 $ 2,671 $ 1,311 Adjustments to reconcile net income to cash (used in) provided by operating activities: Equity in net income of subsidiaries and affiliates (3,246) (2,890) (1,536) Dividends received from subsidiaries and affiliates 1,688 1,812 1,006 Other operating activities, primarily with subsidiaries (2,380) (705) (486) ------- ------- ------- Net cash (used in) provided by operating activities (951) 888 295 ------- ------- ------- Purchase of land, building and equipment (19) (93) (16) ------- ------- ------- Net cash used in investing activities (19) (93) (16) ------- ------- ------- Cash flows from financing activities: Issuance of American Express common shares 348 161 84 Repurchase of American Express common shares (1,391) (1,153) (626) Dividends paid (471) (430) (424) Net increase in debt 2,994 625 696 Redemption of intercompany debentures (515) -- -- ------- ------- ------- Net cash provided by (used in) financing activities 965 (797) (270) ------- ------- ------- Net (decrease) increase in cash and cash equivalents (5) (2) 9 Cash and cash equivalents at beginning of year 9 11 2 ------- ------- ------- Cash and cash equivalents at end of year $ 4 $ 9 $ 11 ======= ======= ======= </TABLE> SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest (net of amounts capitalized) in 2003, 2002 and 2001 was $182 million, $169 million and $116 million, respectively. Net cash received for income taxes in 2003, 2002 and 2001 was $152 million, $231 million and $109 million, respectively. See Notes to Condensed Financial Information of the Parent Company on page F-6. F-5

AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE COMPANY NOTES TO CONDENSED FINANCIAL INFORMATION OF THE COMPANY (Parent Company Only) 1. Principles of Consolidation The accompanying condensed financial statements include the accounts of American Express Company (the "Parent Company") and, on an equity basis, its subsidiaries and affiliates. Parent Company revenues and expenses, other than human resources expenses, are primarily related to intercompany transactions with subsidiaries and affiliates. These financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes thereto of American Express Company and its subsidiaries. Certain amounts from prior years have been reclassified to conform to the current presentation. 2. Long-term debt consists of (millions): <TABLE> <CAPTION> December 31, --------------- 2003 2002 ------ ------ <S> <C> <C> 1.85% Convertible Debentures due December 1, 2033 $2,000 $ -- 3 3/4% Notes due November 20, 2007 746 744 4 7/8% Notes due July 15, 2013 993 -- 5 1/2% Notes due September 12, 2006 1,002 1,003 6 3/4% Senior Debentures due June 23, 2004 500 500 6 7/8% Notes due November 1, 2005 498 498 ------ ------ $5,739 $2,745 ====== ====== </TABLE> Aggregate annual maturities of long-term debt for the five years ending December 31, 2008 are as follows (millions): 2004, $500; 2005, $498; 2006, $1,002; 2007, $746; and 2008, $0. 3. Intercompany debentures consisted solely of Junior Subordinated Debentures issued to American Express Company Capital Trust I, a wholly owned subsidiary of the Company. The Company exercised its option to redeem such Junior Subordinated Debentures, in whole, on July 16, 2003. See Note 7 to the Consolidated Financial Statements on page 92 of the Company's 2003 Annual Report to Shareholders (which Note is incorporated herein by reference). F-6

AMERICAN EXPRESS COMPANY AND CONSOLIDATED SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 2003 (millions) <TABLE> <CAPTION> Reserve for credit losses, Reserve for doubtful loans and discounts accounts receivable --------------------------- ------------------------------ 2003 2002 2001 2003 2002 2001 ------- ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> Balance at beginning of period $ 1,226 $ 993 $ 796 $ 958 $ 1,166 $ 932 Additions: Charges to income 1,336 1,526 1,415 1,304(a) 1,334(a) 1,554(a) Recoveries of amounts previously written-off 22 68 78 -- -- -- Deductions: Charges for which reserves were provided (1,463) (1,361) (1,296) (1,328) (1,542) (1,320) ------- ------- ------- ------- ------- ------- Balance at end of period $ 1,121 $ 1,226 $ 993 $ 934 $ 958 $ 1,166 ======= ======= ======= ======= ======= ======= </TABLE> (a) Before recoveries on accounts previously written-off, which are credited to income (millions): 2003 - $223, 2002 - $241 and 2001 - $227. F-7

EXHIBIT INDEX The following exhibits are filed as part of this Annual Report or, where indicated, were already filed and are hereby incorporated by reference (*indicates exhibits electronically filed herewith). Exhibits numbered 10.1 through 10.18, 10.20 through 10.28, 10.32 through 10.34 are management contracts or compensatory plans or arrangements. <TABLE> <S> <C> 3.1 Company's Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-3, dated July 31, 1997 (Commission File No. 333-32525)). 3.2 Company's Certificate of Amendment of the Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000). 3.3 Company's By-Laws, as amended through November 26, 2001 (incorporated by reference to Exhibit 99.2B of the Company's Current Report on Form 8-K (Commission File No. 1-7657) dated November 26, 2001). 4. The instruments defining the rights of holders of long-term debt securities of the Company and its subsidiaries are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company hereby agrees to furnish copies of these instruments to the SEC upon request. 10.1 American Express Company 1989 Long-Term Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 1996). 10.2 Amendment of American Express Company 1989 Long-Term Incentive Compensation Plan Master Agreement dated February 27, 1995 (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000). 10.3 American Express Company 1998 Incentive Compensation Plan, as amended on April 22, 2002 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2002. 10.4 Amendment of American Express Company 1998 Incentive Compensation Plan Master Agreement dated April 27, 1998 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000). 10.5 American Express Company Deferred Compensation Plan for Directors, as amended effective July 28, 1997 (incorporated by reference to Exhibit 10.1 of the Company's </TABLE> E-1

<TABLE> <S> <C> Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended June 30, 1997). 10.6 Description of American Express Company Pay for Performance Deferral Program (incorporated by reference to Exhibit 10.8 of the Company's Quarterly Report on Form 10-Q (Commission File No. l-7657) for the quarter ended March 31, 2000). 10.7 Amendment to American Express Company Pay for Performance Deferral Program (incorporated by reference to Exhibit 10.9 of the Company's Quarterly Report on Form 10-Q (Commission File No. l-7657) for the quarter ended March 31, 2000). 10.8 American Express Company 1983 Stock Purchase Assistance Plan, as amended (incorporated by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1988). 10.9 American Express Company Retirement Plan for Non-Employee Directors, as amended (incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1988). 10.10 Certificate of Amendment of the American Express Company Retirement Plan for Non-Employee Directors dated March 21, 1996 (incorporated by reference to Exhibit 10.11 of the Company's Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1995). 10.11 American Express Key Executive Life Insurance Plan, as amended (incorporated by reference to Exhibit 10.12 of the Company's Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1991). 10.12 Amendment of American Express Company Key Executive Life Insurance Plan (incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1994). 10.13 Amendment of American Express Company Key Executive Life Insurance Plan (incorporated by reference to Exhibit 10.4 of the Company's Quarterly report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000). 10.14 American Express Key Employee Charitable Award Program for Education (incorporated by reference to Exhibit 10.13 of the Company's Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1990). 10.15 American Express Directors' Charitable Award Program (incorporated by reference to Exhibit 10.14 of the Company's Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1990). </TABLE> E-2

<TABLE> <S> <C> 10.16 American Express Company Salary/Bonus Deferral Plan (incorporated by reference to Exhibit 10.20 of the Company's Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1988). 10.17 Amendment of American Express Company Salary/Bonus Deferral Plan (incorporated by reference to Exhibit 10.4 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1994). 10.18 Amendment of American Express Salary/Bonus Deferral Plan (incorporated by reference to Exhibit 10.5 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000). 10.19 Tax Allocation Agreement, dated May 27, 1994, between Lehman Brothers Holdings Inc. and the Company (incorporated by reference to Exhibit 10.2 of Lehman Brothers Holdings Inc.'s Transition Report on Form 10-K (Commission File No. 1-9466) for the transition period from January 1, 1994 to November 30, 1994). </TABLE> E-3

<TABLE> <S> <C> 10.20 American Express Company 1993 Directors' Stock Option Plan, as amended (incorporated by reference to Exhibit 10.11 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000). 10.21 American Express Senior Executive Severance Plan Effective January 1, 1994 (as amended and restated through May 1, 2000) (incorporated by reference to Exhibit 10.10 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000). 10.22 Amendments to the American Express Senior Executive Severance Plan, effective November 26, 2001 (incorporated by reference to Exhibit 10.30 of the Company's Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2001). 10.23 Amendment of Long-Term Incentive Awards under the American Express Company 1979 and 1989 Long-Term Incentive Plans (incorporated by reference to Exhibit 10.6 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1994). 10.24 Amendments of (i) Long-Term Incentive Awards under the American Express Company 1979 and 1989 Long-Term Incentive Plans, (ii) the American Express Senior Executive Severance Plan, (iii) the American Express Supplemental Retirement Plan, (iv) the American Express Salary/Bonus Deferral Plan, (v) the American Express Key Executive Life Insurance Plan and (vi) the IDS Current Service Deferred Compensation Plan (incorporated by reference to Exhibit 10.37 of the Company's Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1997). </TABLE> E-4

<TABLE> <S> <C> 10.25 American Express Company Supplemental Retirement Plan Amended and Restated Effective March 1, 1995 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1999). 10.26 Amendment to American Express Company Supplemental Retirement Plan Amended and Restated Effective March 1, 1995 (incorporated by reference to Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000). 10.27 American Express Directors' Stock Plan (incorporated by reference to Exhibit 4.4 of the Company's Registration Statement on Form S-8, dated December 9, 1997 (Commission File No. 333-41779)). 10.28 American Express Annual Incentive Award Plan (incorporated by reference to Exhibit 10.6 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2000). 10.29 Agreement dated February 27, 1995 between the Company and Berkshire Hathaway Inc. (incorporated by reference to Exhibit 10.43 of the Company's Annual Report on Form 10-K (Commission File No. 1-7657) for the fiscal year ended December 31, 1994). 10.30 Agreement dated July 20, 1995 between the Company and Berkshire Hathaway Inc. and its subsidiaries (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended September 30, 1995). 10.31 Amendment dated September 8, 2000 to the agreement dated February 27, 1995 between the Company and Berkshire Hathaway Inc. (incorporated by reference to Exhibit 99.3 of the Company's Current Report on Form 8-K (Commission File No. 1-7657) dated January 22, 2001). 10.32 Description of a special grant of a stock option and restricted stock award to Kenneth I. Chenault, the Company's President and Chief Operating Officer (incorporated by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended June 30, 1999). 10.33 Description of new hire payment to Gary L. Crittenden (incorporated by reference to Exhibit 10.44 of the Company's Annual Report on Form 10-K (Commission File No. 1-7657) for the year ended December 31, 2001). </TABLE> E-5

<TABLE> <S> <C> 10.34 American Express Company 2003 Share Equivalent Unit Plan for Directors, as adopted and effective April 28, 2003 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q (Commission File No. 1-7657) for the quarter ended March 31, 2003). *12 Computation in Support of Ratio of Earnings to Fixed Charges. *13 Portions of the Company's 2003 Annual Report to Shareholders that are incorporated herein by reference. *21 Subsidiaries of the Company. *23 Consent of Ernst & Young LLP (contained on page F-2 of this Annual Report on Form 10-K). 31.1 Certification of Kenneth I. Chenault, Chief Executive Officer, pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. 31.2 Certification of Gary L. Crittenden, Chief Financial Officer, pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended. 32.1 Certification of Kenneth I. Chenault, Chief Executive Officer, and Gary L. Crittenden, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. </TABLE> E-6

================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 Commission File No. 1-7657 ---------- American Express Company (Exact name of Company as specified in charter) EXHIBITS ================================================================================ STATEMENT OF DIFFERENCES The registered trademark symbol shall be expressed as...................... 'r' The service mark symbol shall be expressed as.............................. 'sm'

EXHIBIT 12 AMERICAN EXPRESS COMPANY COMPUTATION IN SUPPORT OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions) <TABLE> <CAPTION> Years Ended December 31, ------------------------------------------ 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> Earnings: Pretax income from continuing operations $4,247 $3,727 $1,596 $3,908 $3,438 Interest expense 1,617 1,846 2,888 2,952 2,178 Other adjustments 157 174 175 163 151 ------ ------ ------ ------ ------ Total earnings (a) $6,021 $5,747 $4,659 $7,023 $5,767 ------ ------ ------ ------ ------ Fixed charges: Interest expense $1,617 $1,846 $2,888 $2,952 $2,178 Other adjustments 140 151 170 165 152 ------ ------ ------ ------ ------ Total fixed charges (b) $1,757 $1,997 $3,058 $3,117 $2,330 ------ ------ ------ ------ ------ Ratio of earnings to fixed charges (a/b) 3.43 2.88 1.52 2.25 2.48 </TABLE> Included in interest expense in the above computation is interest expense related to the international banking operations of American Express Company (the "Company") and Travel Related Services' Cardmember lending activities, which is netted against interest and dividends and Cardmember lending net finance charge revenue, respectively, in the Consolidated Statements of Income. For purposes of the "earnings" computation, other adjustments include adding the amortization of capitalized interest, the net loss of affiliates accounted for at equity whose debt is not guaranteed by the Company, the minority interest in the earnings of majority-owned subsidiaries with fixed charges, and the interest component of rental expense and subtracting undistributed net income of affiliates accounted for at equity. For purposes of the "fixed charges" computation, other adjustments include capitalized interest costs and the interest component of rental expense.

EXHIBIT 13 (p.27_axp_financial review) Financial Review INTRODUCTION The financial section of American Express Company's (the Company) Annual Report consists of this Financial Review, the Consolidated Financial Statements and related notes that follow. This introduction is designed to provide perspective regarding the information contained in the financial section. Business Operations American Express Company is a global travel, financial and network services provider. The Company has three operating segments: Travel Related Services (TRS), American Express Financial Advisors (AEFA) and American Express Bank (AEB). TRS includes the Company's card, travel, merchant and network businesses, as well as the Travelers Cheque and other prepaid products and services. Through its TRS businesses, the Company offers consumers and small businesses a variety of charge and credit cards, Travelers Cheques and other stored value products. The Company's Corporate Card services help companies and institutions manage their travel, entertainment and purchasing expenses. TRS' global network services business focuses on partnering with third-party financial institutions that issue American Express-branded cards accepted on the Company's merchant network. As the world's largest travel agency, the Company offers travel and related consulting services to individuals and corporations around the world. AEFA is one of the leading financial planning companies in the United States. AEFA has over 12,000 financial advisors nationwide and offers a wide array of products and services, including financial planning, brokerage services, mutual funds, insurance and other investment products. AEB provides banking and other financial services to wealthy individuals, financial institutions and retail customers outside the United States. Financial Reporting The Company follows accounting principles generally accepted in the United States (GAAP). In addition to information provided on a GAAP basis, the Company discloses certain data on a "managed basis." This information, which should be read only as a supplement to GAAP information, assumes there have been no securitization transactions at TRS, i.e., as if all securitized cardmember loans and related income effects are reflected in the Company's balance sheet and income statements. In addition, revenues are reported net of AEFA's provision for losses and benefits for annuities, insurance and investment certificate products, which are essentially spread businesses. See the TRS and AEFA Results of Operations sections for further discussion of this approach. Certain reclassifications of prior period amounts have been made to conform to the current presentation. Organization of Information o This Financial Review section (pages 27 to 73) is designed to provide the reader of the financial statements with a narrative on the Company's financial results. It provides an Executive Overview of how the business makes money and certain key performance indicators used by management. It also discusses and analyzes the results of operations and liquidity and capital resources on a consolidated basis and for each operating segment of the Company. o The Consolidated Financial Statements (pages 74 to 77) include the Company's statements of income and cash flow and its financial position. o The Notes to the Consolidated Financial Statements (pages 78 to 108) contain the Company's accounting policies (pages 78 through 85), detailed information on balances within the financial statements, certain contingencies and commitments (pages 95 to 96), and the results of each of the Company's segments and geographic operations (pages 104 to 106). 1

(p.28_axp_financial review) o The Report of Management (page 109) describes management's responsibilities regarding the Company's financial statements. o The Report of Independent Auditors (page 110) contains the opinion of Ernst & Young LLP regarding the Company's financial statements. EXECUTIVE OVERVIEW The Company's three operating segments generate revenue from a number of sources. Travel Related Services TRS generates revenue from a variety of sources including global payments, such as charge and credit cards, travel services and stored value products such as Travelers Cheques. Charge and credit cards generate revenue for the Company primarily in three different ways: o Discount revenue, the Company's largest single revenue source, represents fees charged to merchants when cardmembers purchase goods and services, o Card fees are earned for annual membership and other fees are earned for various services provided, and o Finance charge revenue is earned on outstanding card balances related to the cardmember lending portfolio. In addition to operating costs associated with these activities, other major expense categories are provision for anticipated cardmember credit and fraud losses and expenses related to marketing and reward programs that add new cardmembers and promote cardmember loyalty and spending. TRS' travel businesses provide travel services and earn transaction-based fees and other revenue from customers and travel suppliers. TRS' stored value products, including Travelers Cheques, earn investment income as prepaid cash is invested prior to encashment of the Travelers Cheque or use of the other stored value product. American Express Financial Advisors AEFA provides a variety of financial products and services to individuals, businesses and institutions, primarily through its nationwide force of over 12,000 financial advisors. AEFA's insurance and annuity products generate revenue through premium or other charges collected from contractholders and through investment income earned on owned assets supporting these products. AEFA also earns management and distribution fees on mutual funds, assets managed for institutions and separate accounts. AEFA provides for benefits paid to customers for annuities, investment certificates and insurance products. AEFA also incurs various operating costs, including asset- and production-related compensation to its financial advisors. American Express Bank AEB offers financial products and services to retail customers, wealthy individuals and financial institutions outside the United States. These products and services include a variety of lending products, investment management, trust and estate planning, correspondent banking products, including international payment processing, and treasury and capital market products and services that generate interest income, commissions and fees, foreign exchange income and other revenue. In addition to various operating costs AEB recognizes provisions for credit losses, mainly on its loans outstanding. *** Overall, it is management's priority to increase shareholder value over the moderate to long-term by focusing on the following long-term financial targets, on average and over time: o Earnings per share growth of 12 to 15 percent, o Return on equity of 18 to 20 percent, and o Revenue growth of 8 percent. In assessing its plans to achieve these targets, management makes the following assumptions: annual billings growth of 6 to 10 percent, growth in the average S&P 500 index of 8 percent and reengineering benefits that drive improved margins. 2

(p.29_axp_financial review) In 2003, the Company met or exceeded all of these targets. Diluted earnings per share (EPS) before accounting change of $2.31 was up 15 percent from a year ago. The Company's 2003 return on equity was 20.6 percent. Revenues totaled $25.9 billion, up 9 percent from $23.8 billion a year ago. Over the past few years, the Company has made changes to increase its flexibility and improve its risk profile. These efforts have included: o Shifting away from the Company's historic reliance on travel and entertainment spending to more stable everyday spending activities; o Diversifying revenue streams to incorporate revolving credit revenues in addition to historical spend-based revenues; o Making aspects of the Company's expense base more variable and creating a dynamic reengineering capability; and o Continually enhancing credit, risk and investment management capabilities. Management believes the Company has significant opportunities for organic growth and funded those opportunities in 2003. This funding contributed to increases in cardmember spending, cards-in-force and loan balances. In addition, the Company also completed two acquisitions during the year, Threadneedle Asset Management Holdings LTD (Threadneedle), an investment manager in the United Kingdom, and Rosenbluth International (Rosenbluth), a major corporate travel agency with clients and operations around the world. Looking forward to 2004, the Company expects continued growth in the United States and many other global economies and continued strength and confidence in the financial markets. The Company believes its business momentum and competitive capabilities in both the payments and retail financial services businesses will allow it to capitalize on these positive trends and opportunities. In September 2003, the Second U.S. Circuit Court of Appeals upheld a lower-court decision saying that Visa USA, Visa International and MasterCard violated U.S. antitrust laws by prohibiting their members from issuing American Express and Discover cards in the United States. Visa and MasterCard have announced their intent to seek Supreme Court review of this decision. Subsequent to the Circuit Court of Appeals' ruling, the Company announced an agreement with MBNA America Bank, NA (MBNA) pursuant to which MBNA would become the first major bank in the U.S. to issue American Express-branded credit cards. The Company does not expect a significant impact on EPS resulting from this agreement in 2004. The MBNA agreement is a milestone for the Company, as well as for the entire U.S. credit card industry. Once banks are free to issue cards on whichever network they choose, there will be increased competition, which will spur more innovation that will deliver greater value to merchants and increased benefits for consumers. The Company will continue to talk with other banks and financial institutions with a view towards ultimately forming a series of issuing partnerships in the United States. CONSOLIDATED RESULTS OF OPERATIONS Management believes the 2003 financial results illustrate the benefits of the fundamental changes made to its business and the strong momentum resulting from the business-building expenditures over the last several years. The Company has achieved strong growth in cardmember billings and lending balances, improved credit quality and higher client assets. The Company's 2003 consolidated income before accounting change rose 12 percent to $3.00 billion and diluted EPS before accounting change rose 15 percent to $2.31. The Company's 2003 consolidated net income of $2.99 billion rose 12 percent from $2.67 billion in 2002 and diluted EPS of $2.30 increased 14 percent from $2.01 in 2002. The Threadneedle and Rosenbluth acquisitions together contributed less than 1 percent to the Company's revenue and expense growth rate in 2003 and had a negligible impact on net income and EPS for the year ended December 31, 2003. In 2002, both net income and EPS were up significantly from 2001. The 2001 results included restructuring charges of $631 million ($411 million after-tax), $98 million ($65 million after-tax) of one-time costs and waived customer fees resulting from the September 11th terrorist attacks, and a charge of $1.01 billion ($669 million after-tax) reflecting losses in the high-yield portfolio at AEFA. Net income and EPS for 2003 reflect the impact of the Company's adoption of Financial Accounting Standard Board (FASB) Interpretation No. 46, "Consolidation of Variable Interest Entities," revised December 2003 (FIN 46), which addresses the 3

(p.30_axp_financial review) consolidation of variable interest entities (VIEs). The impact of the adoption is discussed in more detail in the AEFA Results of Operations section. On a trailing 12-month basis, return on average shareholders' equity was 20.6 percent. Both the Company's revenues and expenses are affected by changes in the relative values of non-U.S. currencies to the U.S. dollar. The currency rate changes increased both revenue and expense growth by approximately 2 percentage points in 2003, and had a negligible impact on both revenue and expense growth in 2002. The following discussion is presented on a basis consistent with GAAP unless noted. Revenues Consolidated revenues were $25.9 billion, up 9 percent from $23.8 billion in 2002, reflecting 8 percent growth at TRS, 10 percent growth at AEFA and 7 percent growth at AEB. Revenues for 2002 were 5 percent higher than 2001. As discussed below, the increase in 2003 was due to higher discount revenue and lending net finance charge revenue, greater management and distribution fees, higher insurance and annuity revenues, higher net card fees, improved travel commissions and fees and higher net investment income, as well as higher other revenues and net securitization income. The increase in 2002 was primarily due to increases in net investment income, discount revenue, net securitization income and insurance and annuity revenues. These increases in 2002 were partially offset by lower management fees, weaker travel revenues and reduced other revenues. Discount revenue rose 11 percent during 2003 as a result of a 13 percent increase in billed business, from both growth in cards-in-force and higher average cardmember spending, partially offset by a lower discount rate. During 2002, discount revenue rose 3 percent as a result of a 4 percent increase in billed business partially offset by a lower discount rate. Net investment income increased 2 percent from 2002 primarily due to higher levels of invested assets partially offset by lower average yields and lower interest income on investment and liquidity pools held within card funding vehicles at TRS. During 2002, net investment income increased 40 percent over 2001 primarily due to AEFA's $1.01 billion of investment losses during 2001. Management and distribution fees rose 7 percent in 2003 primarily due to a 4 percent increase in management fees resulting from higher average assets under management and a 12 percent increase in distribution fees. Distribution fees increased due to greater limited partnership product sales and increased brokerage-related activities. Management and distribution fees declined 7 percent in 2002 due to lower average assets under management partially offset by higher distribution fees. Cardmember lending net finance charge revenue at TRS increased 12 percent during 2003 due to 13 percent growth in average worldwide lending balances partially offset by lower yields. The decrease in yields versus last year reflects an increase in the proportion of the portfolio on introductory rates and the evolving mix of products toward more lower-rate offerings, partially offset by lower funding costs. Cardmember lending net finance charge revenue grew 7 percent during 2002 primarily due to improved spreads. Net card fees rose 6 percent in 2003 reflecting 6 percent growth in cards-in-force and the benefit of selected annual fee increases. The average annual fee per proprietary card-in-force increased to $35 in 2003 versus $34 in both 2002 and 2001. Net card fees increased 3 percent in 2002 reflecting growth in cards-in-force. Travel commissions and fees increased 7 percent in 2003 due to higher revenue earned per dollar of sales coupled with a 3 percent increase in travel sales, primarily due to the acquisition of Rosenbluth in the fourth quarter. Travel commissions and fees declined 8 percent in 2002 as a result of a 10 percent contraction in travel sales reflecting the weak corporate travel environment throughout 2002. Insurance and annuity revenues increased 12 percent in 2003 and 15 percent in 2002 due to strong property-casualty and higher life insurance-related revenues in both years. 4

(p.31_axp_financial review) Net securitization income at TRS rose 10 percent in 2003 as a result of a higher average balance of cardmember lending securitizations. Net securitization income at TRS rose 24 percent in 2002 primarily driven by a higher average balance of cardmember lending securitizations as well as higher portfolio yields. Other revenues increased 18 percent in 2003 primarily due to higher card and merchant-related revenues at TRS and higher financial planning and advice services fees at AEFA. Other revenues declined 5 percent during 2002. Expenses Consolidated expenses increased 8 percent in 2003 reflecting increases of 7 percent at TRS, 12 percent at AEFA and 4 percent at AEB. As discussed below, the increase in 2003 was driven by increased marketing, promotion, rewards and cardmember services expenses, higher human resources expense, greater professional services expense and higher other expenses partially offset by lower funding costs and provisions for losses. Consolidated expenses decreased 4 percent in 2002 primarily due to a decline in human resources expense, lower interest expense, reduced provisions for losses and the benefits of reengineering activities and expense control initiatives. Human resources expense increased 11 percent in 2003 due to increased costs related to merit increases, employee benefit expenses and management incentive costs, including higher stock-based compensation costs from both stock options and increased levels of restricted stock awards as well as the impacts of fourth quarter acquisitions. The higher stock-based compensation expense from stock options reflects the Company's decision to expense stock options beginning in 2003. Higher expense related to restricted stock awards reflects the Company's decision to modify compensation practices and use restricted stock awards in place of stock options for middle management. These increases were partially offset by lower staffing levels, excluding the impact of the Rosenbluth and Threadneedle acquisitions. Human resources expense declined 9 percent in 2002 primarily as a result of lower staffing levels and the benefit of reengineering activities, including the impact of outsourcing agreements. Total provisions for losses and benefits declined 3 percent in 2003, primarily driven by an 11 percent decline in both the charge card and lending provisions at TRS. The decrease in the provisions at TRS was primarily due to strong credit quality as reflected in improved past due and write-off rates, despite strengthening of past due reserve coverage ratios. These decreases were partially offset by a 7 percent net increase in annuity and investment certificate provisions at AEFA. Annuity provisions increased primarily due to higher inforce levels, the effect of appreciation in the S&P 500 on equity indexed annuities in 2003 versus depreciation in 2002, partially offset by the benefit of lower interest crediting rates on fixed annuity contract values and decreased costs related to guaranteed minimum death benefits. Investment certificate provisions increased due to the effect on the stock market certificate product of appreciation in the S&P 500 in 2003 versus depreciation in 2002 and higher average investment certificate levels, partially offset by the benefit of lower interest crediting rates. Total provisions for losses and benefits declined 3 percent in 2002, resulting from a 20 percent reduction in the charge card provision at TRS due to strong credit quality and an 8 percent reduction in provision for losses and benefits on annuities and investment certificates, primarily due to lower interest crediting rates on the investment certificate product. These decreases were partially offset by a 14 percent increase in life insurance, international banking and other provisions and a 4 percent increase in cardmember lending provisions at TRS. Marketing, promotion, rewards and cardmember services expenses increased 25 percent in 2003 including a 26 percent increase at TRS. Higher expenses were a result of the continuation of brand and product advertising, an increase in selected card acquisition activities and higher cardmember rewards and services expenses reflecting higher volumes and greater rewards program participation and penetration. While the amount of these expenses is expected to continue to rise, the growth rate for these costs is expected to be lower in 2004 as loyalty program utilization begins to stabilize and the Company further leverages expenditures made during 2003. Management believes, based on historical experience, that cardmembers enrolled in rewards and co-brand programs yield higher spend, better retention, stronger credit performance and greater profit for the Company. Marketing, promotion, rewards and cardmember services expenses increased 15 percent in 2002 primarily due to a 14 percent increase at TRS relating to the launch of a new brand advertising campaign and the intro- 5

(p.32_axp_financial review) duction of new card products, as well as increases in cardmember rewards and services expenses reflecting higher volumes and greater program participation. Professional services expense rose 11 percent and 22 percent during 2003 and 2002, respectively. The increase in 2003 was primarily due to higher business and service-related volumes. The increase in 2002 is primarily the result of the technology outsourcing agreements referenced earlier. Occupancy and equipment expense increased 5 percent in 2003 as higher amortization of capitalized computer software costs was partially offset by the benefits of reengineering activities. Occupancy and equipment expense decreased 7 percent in 2002 primarily due to the benefits of reengineering activities. Interest expense declined 16 percent in 2003 including a 22 percent decrease in charge card interest expense at TRS primarily due to the benefit of a lower effective cost of funds, partially offset by a higher average receivable balance. Interest expense declined 28 percent in 2002 including a 31 percent decrease in charge card interest expense at TRS due to the benefit of a lower effective cost of funds. Other expenses increased 11 percent in 2003 and 21 percent in 2002. The increase in 2003 was primarily due to acquisition-related expenses, the impact of fewer capitalized deferred acquisition cost (DAC)-related expenses and expenses related to legal and industry regulatory matters at AEFA. The increases in 2002 resulted primarily from losses on certain strategic investments versus gains in the prior year and increases in DAC-related expenses, including the net increase in DAC-related expenses in the third quarter of 2002 as a result of a comprehensive review of the Company's DAC-related practices. See AEFA's Results of Operations for further discussion of DAC. During 2003, the Company recognized a net pretax benefit of $2 million from adjustments to restructuring reserves established in 2002 at AEB. During 2002, the Company adjusted the 2001 restructuring charges by taking back into income a net pretax amount of $31 million, which is comprised of the reversal of severance and related benefits of $62 million partially offset by additional net exit costs related to various office facilities of $31 million. Additionally, during 2002, the Company recorded restructuring charges of $24 million, of which $19 million was recorded at TRS and $5 million was recorded at AEB. These new charges primarily relate to certain international operations and consist of $17 million of severance and related benefits and $7 million of other exit costs. See Note 19 to the Consolidated Financial Statements for further information. In the third and fourth quarters of 2001, the Company recorded aggregate restructuring charges of $631 million ($411 million after-tax). The aggregate restructuring charges consisted of $369 million for severance related to the elimination of approximately 12,900 jobs and $262 million of exit costs primarily consisting of $138 million of charges related to consolidation of real estate facilities, $35 million of asset impairment charges, $26 million in loss provisions, $25 million in contract termination costs and $24 million of currency translation losses. The estimated gross benefits realized from reengineering initiatives during both 2003 and 2002 were approximately $1.0 billion, which included the expected restructuring from charges taken in 2001, a portion of which flowed through to earnings while the rest was reinvested into business areas with high-growth potential. Additionally, the Company expects reengineering benefits for 2004 to be approximately $1.0 billion. In the third quarter of 2001, the Company incurred $98 million ($65 million after-tax) of one-time costs and business interruption losses related to the September 11th terrorist attacks. These losses included provisions for credit exposures to travel industry service establishments and insurance claims, as well as waived finance charges and late fees. Further, during 2002, $7 million ($4 million after-tax) of this amount was reversed as a result of lower than anticipated insured loss claims. Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," which established new accounting and reporting standards for goodwill and other intangible assets. 6

(p.33_axp_financial review) The following table presents the impact to net income and EPS of goodwill amortization for the year ended December 31,2001: <TABLE> <CAPTION> (Millions, except per share amounts) Net Income Basic EPS Diluted EPS ----------------------------------------------------------------------------------- <S> <C> <C> <C> Reported $1,311 $0.99 $0.98 Add back: Goodwill amortization (after-tax) 82 0.06 0.06 ----------------------------------------------------------------------------------- Adjusted $1,393 $1.05 $1.04 =================================================================================== </TABLE> Certain Critical Accounting Policies The Company's significant accounting policies are described in Note 1 to the Consolidated Financial Statements. The following provides information about certain critical accounting policies that are important to the Consolidated Financial Statements and that involve estimates requiring significant management assumptions and judgments about the effect of matters that are uncertain. These policies relate to reserves for cardmember credit losses, Membership Rewards costs, investment securities valuation and deferred acquisition costs. Reserves for cardmember credit losses The Company's reserves for credit losses relating to cardmember loans and receivables represent management's estimate of the amount necessary to absorb future credit losses inherent in the Company's outstanding portfolio of loans and receivables. Management's evaluation process requires many estimates and judgments. Reserves for these credit losses are primarily based upon models that analyze specific portfolio statistics and also reflect, to a lesser extent, management's judgment regarding overall adequacy. The analytic models take into account several factors, including average write-off rates for various stages of receivable aging (i.e., current, 30 days, 60 days, 90 days) over a 24-month period and average bankruptcy and recovery rates. In exercising its judgment to adjust reserves that are calculated by the analytic model, management considers the level of coverage of past-due accounts, as well as external indicators, such as leading economic indicators, unemployment rate, consumer confidence index, purchasing manager's index, bankruptcy filings and the regulatory environment. Management believes the impact of each of these indicators can change from time to time and thus reviews these indicators in concert. Loans are charged-off when management deems amounts to be uncollectible, which is generally determined by the number of days past due. In general, bankruptcy and deceased accounts are written-off upon notification, or when 180 days past due for lending products and 360 days past due for charge card products. For all other accounts, write-off policy is based upon the delinquency and product. Given both the size and volatility of write-offs, management continually monitors evolving trends and adjusts its business strategy accordingly. To the extent historic credit experience is not indicative of future performance or other assumptions used by management do not prevail, loss experience could differ significantly, resulting in either higher or lower future provisions for credit losses, as applicable. As of December 31,2003, if average write-off rates were 5% higher or lower, the reserve for credit losses would change by approximately $100 million. Membership Rewards costs The Company's Membership Rewards loyalty program allows enrolled cardmembers to earn points that can be redeemed for a broad range of travel rewards, retail merchandise and gourmet gifts. The Company makes payments to its reward partners when cardmembers redeem their points and establishes reserves to cover the cost of future reward redemptions. The provision for the cost of Membership Rewards is based upon points awarded that are ultimately expected to be redeemed by cardmembers and the current weighted-average cost per point of redemption. The ultimate points to be redeemed are estimated based on many factors, including a review of past behavior of cardmembers segmented by product, year of enrollment in the program, spend level and duration in the program. Past behavior is used to predict when current enrollees will attrite and their ultimate redemption rate. The weighted-average cost per point is affected by the mix of redemptions. 7

(p.34_axp_financial review) In addition, the cumulative balance sheet liability for unredeemed points is adjusted over time based on actual redemption and cost experience with respect to redemptions. As of December 31, 2003, if the expected redemption rate for unredeemed points was 100 basis points higher or lower, the reserve for Membership Rewards costs would change by approximately $40 million. In addition to the variables outlined above, the related provisions and reserves will be affected over time as a result of changes in the number of cardmembers in the Membership Rewards program, the actual amount of points awarded and redeemed, the actual weighted-average cost per point, the economic environment, the availability of Membership Rewards offerings by vendors, the choices that cardmembers make in considering their rewards options, and possible changes that the Company could make to the Membership Rewards program in the future. Investment securities valuation Generally, investment securities are carried at fair value on the balance sheet with unrealized gains (losses) recorded in other comprehensive income (loss) within equity, net of income tax provisions (benefits). At December 31, 2003, the Company had net unrealized pretax gains on Available-for-Sale securities of $1.5 billion. Gains and losses are recognized in results of operations upon disposition of the securities. In addition, losses are also recognized when management determines that a decline in value is other-than-temporary, which requires judgment regarding the amount and timing of recovery. Indicators of other-than-temporary impairment for debt securities include issuer downgrade, default or bankruptcy. The Company also considers the extent to which cost exceeds fair value, the duration and size of that gap, and management's judgment about the issuer's current and prospective financial condition. Fair value is generally based on quoted market prices. As of December 31, 2003, there were $211 million in gross unrealized losses that related to $11.7 billion of securities (excluding structured investments), of which only $14 million has been in a continuous unrealized loss position for 12 months or more. The Company does not believe that the unrealized loss on any individual security at December 31, 2003 represents an other-than-temporary impairment, and the Company has the ability and intent to hold these securities for a time sufficient to recover its amortized cost. The Company's investment portfolio also contains structured investments of various asset quality, including collateralized debt obligations (CDOs) and secured loan trusts (backed by high-yield bonds and bank loans), which are not readily marketable. As a result, the carrying values of these structured investments are based on future cash flow projections that require a significant degree of management judgment as to the amount and timing of cash payments, defaults and recovery rates of the underlying investments and, as such, are subject to change. The carrying value will vary if the actual cash flows differ from projected due to actual defaults or an increase in the near-term default rate. As an example, an increase in the near-term default rate by 100 basis points, in and of itself, would reduce the cash flow projections by approximately $15 million based on underlying investments as of December 31, 2003. Deferred acquisition costs Deferred acquisition costs represent the costs of acquiring new business, principally direct sales commissions and other distribution and underwriting costs that have been deferred on the sale of annuity, life and health insurance and, to a lesser extent, property/casualty and certain mutual fund products. For annuity and insurance products, DAC are amortized over periods approximating the lives of the business, generally as a percentage of premiums or estimated gross profits or as a portion of the interest margins associated with the products. For certain mutual fund products, DAC are generally amortized over fixed periods on a straight-line basis. For annuity and life and health insurance products, the DAC balances at any reporting date are supported by projections that show management expects there to be adequate premiums, estimated gross profits or interest margins after that date to amortize the remaining balances. These projections are inherently uncertain because they require management to make assumptions about financial markets and policyholder behavior over periods extending well into the future. Projection periods used for AEFA's annuity business are typically 10 to 25 years, while projection periods for AEFA's life and health insurance products are often 50 years or longer. Management regularly monitors financial market conditions and compares actual 8

(p.35_axp_financial review) policyholder behavior experience to its assumptions. For annuity and universal life insurance products, the assumptions made in projecting future results and calculating the DAC balance and DAC amortization expense are management's best estimates. Management is required to update these assumptions whenever it appears that, based on actual experience or other evidence, earlier estimates should be revised. When assumptions are changed, the percentage of estimated gross profits or portion of interest margins used to amortize DAC might also change. A change in the required amortization percentage is applied retrospectively; an increase in amortization percentage will result in a decrease in DAC balance and increase in DAC amortization expense while a decrease in amortization percentage will result in an increase in DAC balance and a decrease in DAC amortization expense. The impact on results of operations of changing assumptions can be either positive or negative in any particular period and is reflected in the period in which such changes are made. For other life and health insurance products, the assumptions made in calculating the DAC balance and DAC amortization expense are intended to provide for adverse deviations in experience and are revised only if management concludes experience will be so adverse that DAC is not recoverable. For annuity and life and health insurance products, key assumptions underlying these long-term projections include interest rates, equity market performance, mortality and morbidity rates and the rates at which policyholders are expected to surrender their contracts, make withdrawals from their contracts and make additional deposits to their contracts. Assumptions about interest rates drive projected interest margins, while assumptions about equity market performance drive projected customer asset value growth rates and assumptions about surrenders, withdrawals and deposits comprise projected persistency rates. Management must also make assumptions to project maintenance expenses associated with servicing its annuity and insurance business during the DAC amortization period. The customer asset value growth rate is the rate at which contract values are assumed to appreciate in the future. The rate is net of asset fees and anticipates a blend of equity and fixed income investments. Management reviews and, where appropriate, adjusts its assumptions with respect to customer asset value growth rates on a quarterly basis. The Company uses a mean reversion method as a guideline in setting near-term customer asset value growth rates based on a long-term view of financial market performance. In periods when market performance results in actual contract value growth at a rate that is different than that assumed, the Company will reassess the near-term rate in order to continue to project its best estimate of long-term growth. Management is currently assuming a 7 percent long-term customer asset value growth rate. If the Company increased or decreased its assumption related to this growth rate by 100 basis points, the impact on the DAC balance would be an increase or decrease of approximately $40 million. Management monitors other principal DAC assumptions, such as persistency, mortality, morbidity, interest margin and maintenance expense levels each quarter. Unless management identifies a material deviation over the course of the quarterly monitoring, management reviews and updates these DAC assumptions annually in the third quarter of each year. The analysis of DAC balances and the corresponding amortization is a dynamic process that considers all relevant factors and assumptions discussed above. Therefore, an assessment of sensitivity associated with changes in any single assumption would not necessarily be an indicator of future results. CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES Capital Strategy The Company generates equity capital primarily through net income to fund current needs and future business growth and to maintain a targeted debt rating. Equity capital generated in excess of these needs is returned to shareholders through dividends and the share repurchase program. The maintenance of a strong and stable equity capital base provides the Company with a strong and stable debt rating and uninterrupted access to diversified sources of deposit and debt financing to fund growth in its assets, such as cardmember receivables. The Company maintains flexibility in its equity capital planning and has developed a contingency funding plan to ensure that it has adequate sources of financing in difficult economic or market environments. 9

(p.36_axp_financial review) The Company believes allocating capital to its growing businesses with a return on risk-adjusted equity in excess of their cost of capital will continue to build shareholder value. The Company's philosophy is to retain earnings sufficient to enable it to meet its growth objectives, and, to the extent capital exceeds investment opportunities, return excess capital to shareholders. Assuming the Company achieves its financial objectives of 12 to 15 percent EPS growth, 18 to 20 percent return on equity and 8 percent revenue growth, on average and over time, it will seek to return to shareholders an average of 65 percent of capital generated, subject to business mix, acquisitions and rating agency requirements. The Company met or exceeded all three of its financial objectives during 2003 and invested in two business acquisitions. During 2003, the Company returned to shareholders through dividends and share repurchases approximately 54 percent of capital generated. Excluding the equity capital required to support the Threadneedle and Rosenbluth acquisitions, the Company returned 69 percent of capital generated in 2003. Since the inception of the Company's current share repurchase program in 1994, approximately 64 percent of capital generated has been returned to shareholders. The Company maintains sufficient equity capital to support its businesses. Flexibility is maintained to shift capital among business units as appropriate. For example, the Company may infuse additional capital into subsidiaries to maintain capital at targeted levels, which include consideration of debt ratings and regulatory requirements. These infused amounts can affect both Parent Company capital and liquidity levels. The Company maintains discretion to manage these effects, including the issuance of public debt or the reduction of projected common share buybacks. Additionally, the Company may transfer short-term funds within the Company to meet liquidity needs, subject to and in compliance with various contractual and regulatory constraints. On September 30, 2003, the Company, through its AEFA segment, completed its acquisition of Threadneedle Asset Management Holdings LTD, one of the premier asset management organizations in the United Kingdom, for (pound)340 million (approximately $565 million at September 30, 2003 exchange rates). As a result, the Company acquired $3.6 billion of owned assets, which were consolidated into the Company's balance sheets, and $81.1 billion of assets under management. Included in the assets under management are certain assets of Zurich Financial Services, U.K., which Threadneedle will continue to manage for an initial term of up to eight years, subject to standard performance criteria. Additionally, in October 2003, the Company announced the completion of the acquisition of Rosenbluth International, a leading global travel management company with more than $3 billion of annual travel volume. Cash Flows Cash Flows from Operating Activities The Company generated net cash provided by operating activities in amounts greater than net income for the years ended December 31, 2002 and 2001, primarily due to provisions for losses and benefits, which represent expenses in the Consolidated Statements of Income but do not require cash at the time of provision. Similarly, depreciation and amortization represents a non-cash expense. Net cash provided by operating activities is lower in 2003 than 2002, as higher net income in 2003 was more than offset by fluctuations in the Company's operating assets and liabilities, primarily reflecting the purchase of securities in 2002, settled in 2003. These accounts vary significantly in the normal course of business due to the amount and timing of various payments. Net cash provided by operating activities was higher in 2002 than in 2001 due to higher net income and an increase in accounts payable. Management believes cash flows from operations, available cash balances and short-term borrowings will be sufficient to fund the Company's operating liquidity needs. Cash Flows from Investing Activities The Company's investing activities primarily include funding TRS' cardmember loans and receivables and AEFA's Available-for-Sale investment portfolio. For the year ended December 31, 2003, net cash used in investing activities increased over the prior year primarily due to an increased investment portfolio reflecting the cumulative benefit of sales of annuities, insurance and certificate products 10

(p.37_axp_financial review) at AEFA and fewer sales of cardmember receivables and loans to TRS' securitization trusts. The Company also invested in two acquisitions, Threadneedle and Rosenbluth, increasing the net cash used in investing activities. The increase in investing activities in 2002 as compared to 2001 also relates to increases in investments and cardmember receivables and loans. Cash Flows from Financing Activities The Company's financing activities primarily include the issuance of debt and AEFA's sale of annuities and investment certificates, in addition to taking customer deposits. The Company also regularly repurchases its common shares. Net cash provided by financing activities for the year ended December 31, 2003 was greater than 2002, primarily due to a net increase in total debt compared to a net decrease in 2002. In 2002, financing activities provided net cash while in 2001 net cash was used in financing activities, primarily due to a net decrease in debt. Share Repurchases As discussed previously, the Company has in place a share repurchase program to return equity capital in excess of its business needs to shareholders. These share repurchases both offset the issuance of new shares as part of employee compensation plans and reduce shares outstanding. The Company repurchases its common shares primarily by open market purchases using several brokers at competitive commission and fee rates. In addition, common shares may also be purchased from the Company-sponsored Incentive Savings Program (ISP) to facilitate the ISP's required disposal of shares when employee-directed activity results in an excess common share position. Such purchases are made at market price without commissions or other fees. Repurchases were also accomplished by cash prepayments under the Company's agreements with third parties, which are described below. During 2003, the Company repurchased 36 million common shares at an average price of $38. Since the inception of the current share repurchase program, 426 million shares have been acquired at an average price of $26 under authorizations to repurchase up to 570 million shares, including purchases made under the agreements with third parties. Included in the 2003 repurchase amount are 15 million shares delivered to the Company as part of the prepayments discussed below. In August 1999 and March 2000, the Company entered into agreements under which a financial institution purchased an aggregate 29.5 million of the Company's common shares at an average purchase price of $50.41 per share. These agreements were entered into to partially offset the Company's exposure to the effect on diluted earnings per share of outstanding in-the-money stock options issued under the Company's stock option program. The agreements provided that upon their termination, the Company would be required to deliver an amount equal to the original purchase price for the shares less any prepayments. During 2003 and 2002, the Company elected to prepay $535 million and $600 million, respectively, of the aggregate outstanding amount. The 2003 prepayment amount includes $335 million related to the final payment and termination of the agreements. Financing Activities The Company is committed to maintaining cost-effective, well-diversified funding programs to support current and future asset growth in its global businesses. Its funding plan is structured to meet expected and changing business needs to fund asset balances efficiently and cost-effectively through diversified sources of financing, to ensure the availability of financing in unexpected but foreseeable periods of stress, and to be concurrently integrated into the asset-liability management of interest rate exposures. Liquidity refers to the Company's ability to meet its current and future cash needs. In addition to its funding plan described below, the Company's contingent funding strategy is designed to allow for the continued funding of business operations through difficult economic, financial market and business conditions when access to its regular funding sources could become diminished or interrupted. 11

(p.38_axp_financial review) TRS is the primary asset generating business with significant assets in both domestic and international cardmember charge card and lending activities. As such, the Company's most significant borrowing and liquidity needs are associated with TRS' card businesses. TRS pays merchants for card transactions and bills cardmembers accordingly. TRS funds merchant payments during the period cardmember loans and receivables are outstanding. AEFA's borrowing needs are less significant as it generates funds through its operations, primarily by the sale of insurance, annuity or certificate products. AEB also has limited borrowing needs as its principal funding source is customer deposits. See the Liquidity and Capital Resources section for TRS, AEFA and AEB for further discussion regarding each operating segment's funding activities and liquidity management practices. The following discussion includes information on both a GAAP and managed basis. The managed basis presentation includes debt issued in connection with the Company's lending securitization activities, which are off-balance sheet. The Company's management views and manages funding requirements on a managed basis because asset securitization is just one of several ways for the Company to fund cardmember loans. Use of a managed basis presentation, including both on-and off-balance sheet debt, avoids distortions due to the mix of funding sources at any particular point in time. Funding Strategy The Company's funding sources are well diversified and include commercial paper, retail and institutional customer deposits, bank notes, medium-term notes, senior debt, asset securitizations and other borrowed funds. Diversity of funding sources by debt instrument and by investor base provides additional insulation from unforeseen events in the short-term debt market. The Company had the following consolidated debt on both a GAAP and managed basis and customer deposits outstanding at December 31, 2003 and 2002: <TABLE> <CAPTION> (in billions) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Short-term debt $19.0 $21.1 Long-term debt 20.7 16.3 -------------------------------------------------------------------------------- Total debt (GAAP basis) $39.7 $37.4 Off-balance sheet securitizations 19.5 17.2 -------------------------------------------------------------------------------- Total debt (managed basis) $59.2 $54.6 Customer deposits $21.3 $18.3 ================================================================================ </TABLE> In addition to deposits and debt, the Company uses off-balance sheet arrangements, principally through the sales of consumer cardmember loans in securitizations. In 2003, the Company securitized $3.5 billion in loans from its consumer loans portfolio. The Company had $19.4 billion of securitized cardmember loans as of December 31, 2003. Additionally, the Company had securitized cardmember charge card receivables of $3.0 billion at December 31, 2003, which remain on the Consolidated Balance Sheet. 12

(p.39_axp_financial review) The Company's funding strategy is designed to maintain high and stable debt ratings from the major credit rating agencies, Moody's, Standard & Poor's, and FitchRatings. Maintenance of high and stable debt ratings is critical to ensuring the Company has continuous access to the capital and credit markets. It also enables the Company to reduce its overall borrowing costs. At December 31, 2003, its debt ratings were as follows: <TABLE> <CAPTION> Standard Moody's & Poor's FitchRatings -------------------------------------------------------------------------------- <S> <C> <C> <C> Short-term P-1 A-1 F-1 Senior unsecured A1 A+ A+ ================================================================================ </TABLE> The Company has strengthened its liquidity position over the last few years through reductions in the amount of short-term debt outstanding, by extending and spreading out the maturities of long-term debt and through the establishment of an investment pool of high quality, liquid assets. <TABLE> <CAPTION> DEBT ISSUANCE GREATER THAN ONE YEAR: MATURITY DISTRIBUTION FOR 2003 AND 2002 (% of Total Term Debt Issued) Maturity (Years) ----------------------------------------------------------------------- 1 1.5 2 3 4 5 7 10 ----------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> 2003 1.6% 5.0% 19.0% 25.6% --% 42.5% --% 6.3% 2002 21.2% 16.4% 4.9% 20.5% 6.7% 26.3% 4.0% --% </TABLE> In 2003, the Company continued to reduce its reliance on short-term debt. At December 31, 2003, on a GAAP basis short-term debt was 48.0% of total debt versus 56.4% a year ago. On a managed basis, short-term debt at December 31, 2003 was 32.2% of total debt versus 38.6% a year ago. Term debt offerings of $12.5 billion in 2003 were issued to refinance maturing long-term obligations, fund business growth and decrease short-term debt obligations. <TABLE> <CAPTION> December 31, ($ in billions) 2003 2002 2001 -------------------------------------------------------------------------------- <S> <C> <C> <C> Short-term debt $19.0 $21.1 $31.6 Short-term debt percentage of total debt (GAAP basis) 48.0% 56.4% 80.2% Short-term debt percentage of total debt (managed basis) 32.2% 38.6% 58.0% ================================================================================ </TABLE> 13

(p.40_axp_financial review) In 2003, medium- and long-term debt with maturities ranging from 2 to 10 years (excluding convertible debt securities issued by the Parent Company, that have a final maturity of 30 years) was issued. The Company's 2003 term offerings on a managed basis, which include those made by the Parent Company, American Express Credit Corporation (Credco) and American Express Centurion Bank (Centurion Bank), both wholly-owned subsidiaries of TRS, and the American Express Credit Account Master Trust, are highlighted in the table below: <TABLE> <CAPTION> Description Amount (millions) Coupon/Rate Index Maturity Entity ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Senior Global Notes $1,000 4.88% July 15, 2013 Parent Company Convertible Senior Debentures $2,000 1.85% December 1, 2033 Parent Company Floating Rate Medium-Term Notes $4,891 1.24% Various Credco Floating Rate Medium-Term Extendible Notes $2,000 1.20% February 14, 2005(1) Credco Floating Rate Extendible Notes $1,000 1.17% January 21, 2005(2) Credco Fixed Rate Senior Notes $1,000 3.00% May 16, 2008 Credco Floating Rate Senior Notes $ 500 1.32% May 16, 2006 Credco Floating Rate Senior Notes $ 100 1.15% September 9, 2005 Centurion Bank Trust Investors Certificates (off-balance sheet) $3,450 Various Various Master Trust =============================================================================================================================== </TABLE> Note: The above table excludes $325 million of debt consolidated upon adoption of FIN 46. (1) These floating rate medium-term extendible notes had an initial maturity date of March 5, 2004 and are subject to extension by the holders through March 5, 2008. (2) These floating rate extendible notes had an initial maturity date of July 19, 2004 and are subject to extension by the holders through June 20, 2008. These long-term debt issues have longer average maturities and a wider distribution along the maturity spectrum as compared to the 2002 long-term funding activity to reduce and spread out the refinancing requirement in future periods. The Company also enhanced its contingent liquidity resources for alternative funding sources principally through the addition of an investment liquidity portfolio as discussed further in the TRS Liquidity and Capital Resources section. The Company believes that its funding strategy allows for the continued funding of business operations through difficult economic, financial market and business conditions. The Company actively manages the risk of liquidity and cost of funds resulting from the Company's financing activities. Management believes a decline in the Company's long-term credit rating by two levels could result in the Company having to significantly reduce its commercial paper and other short-term borrowings. Remaining borrowing requirements would be addressed through other means such as the issuance of long-term debt, additional securitizations, increased deposit taking, the sale of investment securities or drawing on existing credit lines. This would result in higher interest expense on the Company's commercial paper and other debt, as well as higher fees related to unused lines of credit. The Company believes a two level downgrade is highly unlikely due to its capital position and growth prospects. Parent Company Funding Total Parent Company long-term debt outstanding was $5.7 billion and $2.7 billion at December 31,2003 and 2002, respectively. During 2003, the Parent Company issued $1 billion of 4.875% Senior Global Notes due in 2013 and $2 billion of 1.85% convertible senior debt securities due in 2033. The convertible securities cannot be called or put prior to December 1, 2006. After December 1, 2006, the Company may call the convertible securities at any time. The convertible securities were offered to qualified institutional investors pursuant to Rule 144A under the Securities Act of 1933, as amended. Proceeds from these debt offerings were for general corporate purposes. The convertible securities are convertible into common shares of American Express Company if the per share price of American Express common stock exceeds a contingent conversion trigger price of $86.76 per share, or approximately 97.5% above American Express' closing stock price of $43.93 on the issuance date. Holders of the convertible securities will then have the right to convert the convertible securities at an initial conversion price of $69.41 per share. After December 1, 2006, both the contingent conversion trigger price and the conversion price, as adjusted, will increase at a rate equal to 1.85%, the annual rate of accretion of the convertible debt securities. Holders may require the Company to purchase for cash a portion 14

(p.41_axp_financial review) of their Debentures on December 1, 2006, 2008, 2013, 2018, 2023 or 2028 at 100% of the accreted principal amount, plus accrued and unpaid interest. This convertible debt offering has a distribution of realized financing costs that depends on the Company's share price performance. If share price remains below the conversion price, then the Company benefits from issuing inexpensive debt (at a 1.85% coupon). However, if the share price moves above the contingent conversion price, then the debt may be converted into common shares of the Company. This convertible debt offering was attractive due to the low effective debt coupon and provided further diversification of the Company's funding sources. See Note 6 to the Consolidated Financial Statements for a more complete discussion regarding the terms of this offering. At December 31, 2003 and 2002, the Parent Company had $1.8 billion and $2.8 billion, respectively, of debt or equity securities available for issuance under shelf registrations filed with the Securities and Exchange Commission (SEC). The Board of Directors has authorized a Parent Company commercial paper program supported by a $1.29 billion multipurpose committed bank credit facility that expires incrementally through 2007. There was no Parent Company commercial paper outstanding during 2003 and 2002, and no borrowings have been made under its bank credit facility. The Company maintained total committed bank lines of credit with approximately 60 large financial institutions totaling $10.85 billion at December 31, 2003, which include the Parent Company credit lines. The availability of the credit lines is subject to the Company's compliance with certain financial covenants. See TRS' Liquidity and Capital Resources discussion for details of the principal covenants that govern this committed bank credit facility. In addition, TRS, Centurion Bank, Credco, American Express Overseas Credit Corporation Limited (a wholly-owned subsidiary of Credco) and AEB have established programs for the issuance, outside the United States, of debt instruments to be listed on the Luxembourg Stock Exchange. The maximum aggregate principal amount of debt instruments outstanding at any one time under the program will not exceed $6.0 billion. At both December 31, 2003 and 2002, $0.5 billion of debt was outstanding under this program. Off-Balance Sheet Arrangements and Contractual Obligations The Company has identified off-balance sheet transactions, arrangements, obligations and other relationships that may have a material current or future effect on its financial condition, changes in financial condition, results of operations or liquidity and capital resources. Contractual Obligations The contractual obligations identified in the table below include both on- and off-balance sheet transactions that represent material expected or contractually committed future obligations of the Company: <TABLE> <CAPTION> Payments due by year ----------------------------------------------------------------------------------------- 2009 and (Millions) Total 2004 2005-2006 2007-2008 thereafter ----------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> On-Balance Sheet: Long-term debt $20,654 $3,452 $12,136 $1,747 $3,319 Lease obligations 53 5 19 11 18 Other long-term liabilities(1) 3,802 1,514 904 632 752 Off-Balance Sheet: Lease obligations 2,487 273 446 328 1,440 Purchase obligations(2) 9,308 2,284 2,578 2,067 2,379 ----------------------------------------------------------------------------------------- Total $36,304 $7,528 $16,083 $4,785 $7,908 ========================================================================================= </TABLE> (1) Other long-term liabilities exclude insurance and annuity potential payments that are primarily not time certain and are represented by reserves of approximately $32 billion at December 31, 2003. (2) Purchase obligations include agreements to purchase goods and services that are enforceable and legally binding on the Company and that specify significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The purchase obligation amounts include expected spend by period under contracts that were in effect at December 31, 2003. Minimum contractual payments associated with purchase obligations, including termination payments, were $340 million. 15

(p.42_axp_financial review) In addition, the Company has certain contingent obligations for worldwide business arrangements. These payments relate to contractual agreements with partners entered into as part of the ongoing operation of the TRS business. The contingent obligations under such arrangements were $2.5 billion as of December 31, 2003. In addition to the off-balance sheet contractual obligations noted above, the Company has off-balance sheet arrangements that include guarantees, retained interests in structured investments, unconsolidated variable interest entities and other off-balance sheet arrangements as more fully described below. Guarantees The Company's principal guarantees are associated with cardmember services provided to enhance the value of owning an American Express card. At December 31, 2003, the Company had guarantees totaling $82 billion related to TRS cardmember protection plans, as well as other guarantees in the ordinary course of business that are within the scope of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). Expenses relating to claims under these guarantees were approximately $30 million in 2003. The Company had $955 million of bank standby letters of credit and bank guarantees and other letters of credit within the scope of FIN 45. At December 31, 2003, the Company held $761 million of collateral supporting standby letters of credit and guarantees. Additionally, at December 31, 2003 the Company had $770 million of loan commitments and other lines of credit as well as $544 million of bank standby letters of credit, bank guarantees and bank commercial and other bank letters of credit that were outside the scope of FIN 45. See Note 10 to the Consolidated Financial Statements for further discussion regarding the Company's guarantees. Retained interests in assets transferred to unconsolidated entities The Company held, as an investment, $1.8 billion of retained subordinated security interests and $225 million of interest-only strips in a U.S. cardmember loan securitization trust at December 31,2003. See the TRS Liquidity and Capital Resources section and Note 4 to the Consolidated Financial Statements for details regarding TRS' securitization trusts. Additionally, the Company held, as an investment, $694 million of retained interests in a CDO-related securitization trust at December 31,2003. Of that total, approximately $512 million is considered investment grade. The securitization was the result of the Company placing a majority of its rated CDO securities into a trust in 2001. The rated CDO securities were held as part of the Company's investment strategy in order to pay a competitive rate to contractholders within the AEFA operating segment. Unconsolidated variable interest entities At December 31, 2003, the Company had interests in unconsolidated variable interest entities including $422 million of investments in affordable housing partnerships, $28 million of rated CDO tranches, $27 million of a minority-owned structured loan trust (SLT) managed by third parties, and CDO residual tranches with a carrying value of $16 million managed by the Company. These interests were obtained as part of the consolidated tax strategy in the case of affordable housing partnerships or as part of the overall investment strategies as it relates to the other entities. Additionally, investments in the CDO residual tranches are a condition to manage certain CDOs that generate management fee income for the Company. The Company has no material future obligations associated with these entities beyond the carrying values. These structures were not impacted by the consolidation provisions of FIN 46 as the Company is not the primary beneficiary. See the AEFA Liquidity and Capital Resources section for further information. 16

(p.43_axp_financial review) Other Off-Balance Sheet Arrangements At December 31, 2003, the Company had $156 billion of unused credit available to cardmembers, as part of established lending product agreements. Total unused credit available to cardmembers does not represent potential future cash requirements as a significant portion of this unused credit will likely not be drawn. The Company's charge card products have no pre-set limit and, therefore, are not reflected herein. As discussed in the TRS Liquidity and Capital Resources section, the Company also securitizes cardmember loans into special purposes entities that are off-balance sheet. The Company's charge card receivables securitizations remain on the Consolidated Balance Sheets. Risk Management The Company's risk management objective is to monitor and control risk exposures to earn returns commensurate with the appropriate level of risk assumed. Management establishes and oversees implementation of Board-approved policies covering the Company's funding, investments and the use of derivative financial instruments. The Company's Treasury department, along with various asset and liability committees in its businesses, is responsible for managing financial market risk exposures within the context of Board-approved policies. See Note 9 to the Consolidated Financial Statements for a discussion of the Company's use of derivatives. The Enterprisewide Risk Management Committee (ERMC) supplements the risk management capabilities resident within the business segments by routinely reviewing key financial market, credit, operational and other risk concentrations across the Company and recommending action where appropriate. The ERMC recommends risk limits, promotes an understanding of risks across the Company and supports senior management in making risk-return decisions. Hedging strategies for financial market risk exposures are established, maintained and monitored by the Company's Treasury department and are employed to manage interest rate, foreign currency and equity market exposures over a multi-year time horizon. The extent of the Company's unhedged exposures varies over time based on current foreign exchange and interest rates, equity market levels, the macro-economic environment and the hedging impact on particular business objectives. The Company's policies generally require that derivatives may be used only to meet business objectives and not be used for speculative purposes. AEB has a small proprietary trading portfolio that includes derivatives and operates with continuously monitored limits and tight controls. Hedging counterparties at TRS and AEFA must be rated by a recognized rating agency in one of its three highest categories. AEB provides derivative products to meet the needs of certain customers that are not rated or, as a consequence of the sovereign debt rating of the country in which they operate, are not able to achieve one of the three highest rating categories. Derivative credit and market exposures are aggregated to determine counterparty exposures. Netting agreements and, in certain instances, collateral are utilized to mitigate these exposures. Documentation is subject to counsel review and approval and is generally written on standard industry agreements. 17

(p.44_axp_financial review) The Company's foreign exchange exposures arise primarily from cross-currency charges made by cardmembers, as well as from cash flow and balance sheet exposures denominated in foreign currencies. The Company primarily uses spot and forward foreign exchange contracts to manage the cross border transaction exposures resulting from cardmember cross border spending in which the merchant transaction currency differs from the billing currency. In addition, the Company funds a portion of its local currency operations by raising U.S. dollar funding and converting U.S. dollars to local currency through foreign exchange derivative contracts. These foreign exchange instruments are sometimes combined with interest rate swaps to achieve the desired level of local market interest rate risk. Finally, the U.S. dollar value of anticipated future earnings in foreign currencies is economically managed from time to time using foreign exchange forward contracts. The risk management sections for each segment include sensitivity analyses of different types of market risk and estimate the effects of hypothetical sudden and sustained changes in the applicable market conditions on the ensuing year's earnings, based on year-end positions. The market changes, assumed to occur as of year-end, are a 100 basis point increase in market interest rates, a 10 percent strengthening of the U.S. dollar versus all other currencies, and a 10 percent decline in the value of equity securities under management at AEFA. Computations of the prospective effects of hypothetical interest rate, foreign exchange rate and equity market changes are based on numerous assumptions, including relative levels of market interest rates, foreign exchange rates and equity prices, as well as the levels of assets and liabilities. The hypothetical changes and assumptions will be different from what actually occurs in the future. Furthermore, the computations do not incorporate actions that management could take if the hypothetical market changes actually occur. As a result, actual earnings consequences will differ from those quantified. SUPPLEMENTAL INFORMATION -- MANAGED NET REVENUES The following supplemental information is presented on the basis used by management to evaluate operations. It differs in two respects from the accompanying financial statements, which are prepared in accordance with GAAP. First, revenues are presented as if there had been no asset lending securitizations at TRS. This format is generally termed on a managed basis, as further discussed in the TRS section of the Financial Review. Second, revenues are considered net of AEFA's provisions for losses and benefits for annuities, insurance and investment certificate products, which are essentially spread businesses, as further discussed in the AEFA section of the Financial Review. A reconciliation of consolidated revenues from a GAAP to a net managed basis is as follows: <TABLE> <CAPTION> Years Ended December 31, (Millions) 2003 2002 2001 ---------------------------------------------------------------------------------- <S> <C> <C> <C> GAAP revenues $25,866 $23,807 $22,582 Effect of TRS securitizations 943 948 743 Effect of AEFA provisions for losses and benefits (2,122) (1,954) (1,966) ---------------------------------------------------------------------------------- Managed net revenues $24,687 $22,801 $21,359 ================================================================================== </TABLE> Managed net revenues increased 8 percent in 2003 to $24.7 billion, compared with $22.8 billion in 2002, which was 7 percent higher than 2001. Managed net revenues rose in 2003 due to greater discount revenues, higher cardmember loan balances, increased management and distribution fees, larger insurance and annuity revenues, greater card fees and higher other revenues. Managed net revenues rose in 2002 due to higher revenues related to AEFA's investment portfolio, greater discount revenues, higher lending spreads and loan balances and greater insurance and annuity revenues. In 2002, these items were partially offset by lower management fees and weaker travel revenues. See TRS and AEFA segments for a discussion of why a managed basis presentation at TRS and net revenues at AEFA is used by management and is important to investors. 18

(p.45_axp_financial review) TRAVEL RELATED SERVICES Results of Operations STATEMENTS OF INCOME <TABLE> <CAPTION> Years Ended December 31, (Millions) 2003 2002 2001 -------------------------------------------------------------------------------------- <S> <C> <C> <C> Net revenues: Discount revenue $ 8,781 $ 7,931 $ 7,714 Net card fees 1,835 1,726 1,675 Lending: Finance charge revenue 2,525 2,338 2,643 Interest expense 483 510 939 -------------------------------------------------------------------------------------- Net finance charge revenue 2,042 1,828 1,704 Travel commissions and fees 1,507 1,408 1,537 Other commissions and fees 1,901 1,833 1,861 Travelers Cheque investment income 367 375 394 Securitization income, net 1,150 1,049 846 Other revenues 1,606 1,571 1,628 -------------------------------------------------------------------------------------- Total net revenues 19,189 17,721 17,359 -------------------------------------------------------------------------------------- Expenses: Marketing, promotion, rewards and cardmember services 3,814 3,027 2,654 Provision for losses and claims: Charge card 853 960 1,195 Lending 1,218 1,369 1,318 Other 127 149 164 -------------------------------------------------------------------------------------- Total 2,198 2,478 2,677 Charge card interest expense 786 1,001 1,443 Net discount expense -- -- 96 Human resources 3,822 3,503 3,992 Other operating expenses 4,998 4,636 4,025 Restructuring charges -- (4) 414 Disaster recovery charge -- -- 79 -------------------------------------------------------------------------------------- Total expenses 15,618 14,641 15,380 -------------------------------------------------------------------------------------- Pretax income 3,571 3,080 1,979 Income tax provision 1,141 945 520 -------------------------------------------------------------------------------------- Net income $ 2,430 $ 2,135 $ 1,459 ====================================================================================== </TABLE> Note: Certain reclassifications of prior period amounts have been made to conform to the current presentation. Travel Related Services reported net income of $2.4 billion in 2003, a 14 percent increase from $2.1 billion in 2002, which increased 46 percent from 2001. Results for 2001 included restructuring charges of $414 million ($267 million after-tax) and one-time costs and waived customer fees directly related to the September 11th terrorist attacks of $87 million ($57 million after-tax). 19

(p.46_axp_financial review) The quality of TRS' card customer base, the breadth of its product portfolio, the benefits of its reward-based, spend-oriented business model and its improved revolving credit capabilities combined to create a competitive advantage that was leveraged effectively to deliver strong results at TRS, despite the continuation of a difficult travel environment during most of 2003. TRS continued to expand into everyday spending categories, and the Company's investments in growth initiatives over the past two years drove strong cardmember spending, cards-in-force and lending balance growth. The following management discussion includes information on both a GAAP basis and managed basis. The managed basis presentation assumes there have been no securitization transactions, i.e., all securitized cardmember loans and related income effects are reflected in the Company's balance sheet and income statement, respectively. The Company presents TRS information on a managed basis because that is the way the Company's management views and manages the business. Management believes that a full picture of trends in the Company's cardmember lending business can only be derived by evaluating the performance of both securitized and non-securitized cardmember loans. Asset securitization is just one of several ways for the Company to fund cardmember loans. Use of a managed basis presentation, including non-securitized and securitized cardmember loans, presents a more accurate picture of the key dynamics of the cardmember lending business, avoiding distortions due to the mix of funding sources at any particular point in time. For example, irrespective of the mix, it is important for management and investors to see metrics, such as changes in delinquencies and write-off rates, for the entire cardmember lending portfolio because it is more representative of the economics of the aggregate cardmember relationships and ongoing business performance and trends over time. It is also important for investors to see the overall growth of cardmember loans and related revenue and changes in market share, which are significant metrics in evaluating the Company's performance and which can only be properly assessed when all non-securitized and securitized cardmember loans are viewed together on a managed basis. On a GAAP basis, results reflect finance charge revenue on the owned portfolio as well as finance charge revenue on retained, undivided interests in securitized loans, referred to as seller's interest. GAAP basis results also include interest income on the Company's subordinated securities, which are retained security interests of a U.S. cardmember loan securitization trust, as well as securitization income. Securitization income includes gains on securitizations (as discussed below), cash flows from a third retained interest known as interest-only strips (present value of future net cash flows related to securitized loan balances) and servicing revenue, net of related discounts. Net securitization income increased 10 percent in 2003 and 24 percent in 2002 primarily as a result of a higher average balance of cardmember lending securitizations. See Selected Statistical Information below for data relating to TRS' owned portfolio. TRS' results for the years ended December 31, 2003, 2002 and 2001 included net cardmember lending securitization gains of $124 million ($81 million after-tax), $136 million ($88 million after-tax) and $155 million ($101 million after-tax), respectively. Management views the gains from securitizations as discretionary benefits to be used for card acquisition expenses, which are reflected in both marketing, promotion, rewards and cardmember services expenses and other operating expenses. Consequently, the managed basis presentation for the years ended December 31, 2003, 2002 and 2001 assumes that lending securitization gains were offset by higher marketing, promotion, rewards and cardmember services expenses of $74 million, $81 million and $92 million, respectively, and other operating expenses of $50 million, $55 million and $63 million, respectively. Accordingly, the incremental expenses, as well as the gains, have been eliminated. The following table compares and reconciles the GAAP basis for certain TRS income statement line items to the managed basis information, where different. 20

(p.47_axp_financial review) GAAP Basis to Managed Basis Reconciliation -- Effect of Securitizations Years Ended December 31, (Millions) <TABLE> <CAPTION> ----------------------------------------------------------- --------------------------------------------------------- Effect of Securitizations --------------------------------------------------------- GAAP Basis Securitization Effect Managed Basis --------------------------- --------------------------------------------------------- 2003 2002 2001 2003 2002 2001 2003 2002 2001 ----------------------------------------------------------- --------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Net revenues: Discount revenue $ 8,781 $ 7,931 $ 7,714 Net card fees 1,835 1,726 1,675 $ -- $ -- $ 16 $ 1,835 $ 1,726 $ 1,691 Lending: Finance charge revenue 2,525 2,338 2,643 2,172 2,166 1,979 4,697 4,504 4,622 Interest expense 483 510 939 272 340 545 755 850 1,484 ----------------------------------------------------------- --------------------------------------------------------- Net finance charge revenue 2,042 1,828 1,704 1,900 1,826 1,434 3,942 3,654 3,138 Travel commissions and fees 1,507 1,408 1,537 Other commissions and fees 1,901 1,833 1,861 193 185 153 2,094 2,018 2,014 Travelers Cheque investment income 367 375 394 Securitization income, net 1,150 1,049 846 (1,150) (1,049) (846) -- -- -- Other revenues 1,606 1,571 1,628 -- (14) (14) 1,606 1,557 1,614 ----------------------------------------------------------- --------------------------------------------------------- Total net revenues 19,189 17,721 17,359 943 948 743 20,132 18,669 18,102 ----------------------------------------------------------- --------------------------------------------------------- Expenses: Marketing, promotion, rewards and cardmember services 3,814 3,027 2,654 (74) (81) (92) 3,740 2,946 2,562 Provision for losses and claims: Charge card 853 960 1,195 -- -- 36 853 960 1,231 Lending 1,218 1,369 1,318 1,067 1,098 925 2,285 2,467 2,243 Other 127 149 164 ----------------------------------------------------------- --------------------------------------------------------- Total 2,198 2,478 2,677 1,067 1,098 961 3,265 3,576 3,638 Charge card interest expense 786 1,001 1,443 -- (14) 33 786 987 1,476 Net discount expense -- -- 96 -- -- (96) -- -- -- Human resources 3,822 3,503 3,992 Other operating expenses 4,998 4,636 4,025 (50) (55) (63) 4,948 4,581 3,962 Restructuring charges -- (4) 414 Disaster recovery charge -- -- 79 ----------------------------------------------------------- --------------------------------------------------------- Total expenses 15,618 14,641 15,380 $ 943 $ 948 $ 743 $16,561 $15,589 $16,123 ----------------------------------------------------------- --------------------------------------------------------- Pretax income 3,571 3,080 1,979 Income tax provision 1,141 945 520 ----------------------------------------------------------- Net income $ 2,430 $ 2,135 $ 1,459 =========================================================== </TABLE> 21

(p.48_axp_financial review) The following discussion of TRS' results is presented on a managed basis. In 2003, TRS' net revenues were up 8 percent primarily due to greater cardmember spending, higher lending balances, increased cards-in-force and greater travel and other commissions and fees. Net revenues in 2002 were 3 percent higher than 2001 as a result of greater net finance charge and discount revenue, partially offset by lower travel commissions and fees, Travelers Cheque investment income and other revenues. Revenues and expenses are affected by changes in the relative values of non-U.S. currencies to the U.S. dollar. The currency rate changes had a favorable effect on revenue growth of approximately 3 percentage points in 2003 and negligible effect on revenue in 2002. Currency rate changes increased expenses by approximately 3 percentage points in 2003 and had a negligible impact on expenses in 2002. Discount revenue rose 11 percent compared to a year ago as a result of a 13 percent increase in billed business partially offset by a lower discount rate that primarily reflects the cumulative impact of stronger than average growth in the lower rate retail and other "everyday spend" merchant categories (i.e., supermarkets, discounters, etc.). Based on the Company's business strategy, it expects to see continued changes in the mix of business. This, along with volume-related pricing discounts and selective repricing initiatives, will probably continue to result in some discount rate erosion over time. Discount revenue rose 3 percent during 2002 as a result of a 4 percent increase in billed business partially offset by a lower discount rate. The 13 percent increase in billed business in 2003 resulted from 6 percent growth in cards-in-force on higher card acquisitions and an improved average customer retention level and 9 percent growth in spending per basic cardmember worldwide. U.S. cards-in-force rose 4 percent and 2 percent in 2003 and 2002, respectively, reflecting the continued benefit of increased card acquisition spending within the consumer and small business segments and, in 2003, a return to growth within corporate services. International cards-in-force increased 9 percent and 8 percent in 2003 and 2002, respectively, due to growth in both proprietary and network partnership cards. U.S. billed business rose 12 percent reflecting 13 percent growth within the consumer card business, 16 percent growth in small business services volume and a 4 percent increase within corporate services. U.S. non-T&E related volume categories, which represented approximately 65 percent of U.S. billed business during 2003, increased 16 percent over 2002 while U.S. T&E volumes rose 4 percent reflecting continued strengthening across all T&E industries as the year progressed. Total billed business outside the U.S., excluding the impact of foreign exchange translation, grew 5 percent reflecting mid double-digit improvement in Latin America, high single-digit growth in both Canada and Asia and low single-digit growth in Europe. Worldwide airline volumes, which represented 13 percent of total volumes during 2003, increased 4 percent as a result of a 5 percent growth in transaction volumes partially offset by a 1 percent decrease in the average airline charge. 22

(p.49_axp_financial review) Net card fees increased 6 percent in 2003 reflecting 6 percent growth in cards-in-force and the benefit of selected annual fee increases. The average annual fee per proprietary card-in-force increased to $35 in 2003 versus $34 in both 2002 and 2001. Net card fees increased 2 percent in 2002 reflecting growth in cards-in-force. Cardmember lending net finance charge revenue rose 8 percent in 2003 primarily due to a 13 percent increase in average worldwide lending balances partially offset by lower yields. The net interest yield on the worldwide lending portfolio decreased compared to 2002 reflecting an increase in the proportion of the portfolio on introductory rates and the evolving mix of products toward more lower-rate offerings, partially offset by lower funding costs. In 2002, cardmember lending net finance charge revenue increased 16 percent. Travel commissions and fees increased 7 percent in 2003 due to higher revenue earned per dollar of sales coupled with a 3 percent increase in travel sales, primarily due to the acquisition of Rosenbluth in the fourth quarter. Travel commissions and fees declined 8 percent in 2002 as a result of a 10 percent contraction in travel sales reflecting the weak corporate travel environment throughout 2002. Other commissions and fees increased 4 percent in 2003 due to higher card-related fees and assessments. The balances were relatively flat in 2002. Other revenues increased 3 percent in 2003 primarily due to greater merchant-related revenues and larger insurance premiums partially offset by lower interest income on investment and liquidity pools held within card funding vehicles and lower ATM revenues. The decrease in other revenues in 2002 was primarily due to significantly lower interest income on investment and liquidity pools held within card funding vehicles, which partially offset higher insurance related revenues. In 2003, TRS' expenses were up 6 percent primarily due to greater marketing, promotion, rewards and cardmember services expenses, higher human resources expense and increased other expenses, partially offset by lower interest costs, reduced provisions for losses and cost control initiatives. Expenses in 2002 were 3 percent lower than 2001 primarily due to decreases in interest costs, human resources expense and provisions for losses, partially offset by increases in marketing, promotion, rewards and cardmember services expenses and other operating expenses. Marketing, promotion, rewards and cardmember services expenses increased 27 percent in 2003 on the continuation of brand and product advertising, an increase in selected card acquisition activities and higher cardmember rewards and services expenses reflecting higher volumes and greater program participation and penetration. While the amount of these expenses is expected to continue to rise, the growth rate for these costs is expected to be lower in 2004 as loyalty program utilization begins to stabilize and the Company further leverages expenditures made during 2003. Management believes, based on historical experience, that cardmembers enrolled in rewards and co-brand programs yield higher spend, better retention, stronger credit performance and greater profit for the Company. Marketing, promotion, rewards and cardmember services expense increased 15 percent in 2002 from the launch of a new brand advertising campaign, the introduction of charge cards with Membership Rewards built-in and the Cash Rebate card, more loyalty marketing, and an increase in selected card acquisition activities, as well as increases in cardmember rewards and services expenses reflecting higher volumes and greater program participation. 23

(p.50_axp_financial review) The provision for losses on charge card products decreased 11 percent on strong credit quality reflected in an improved past due percentage and loss ratio. The net loss ratio as a percentage of charge volume decreased to 0.28% in 2003 from 0.38% in 2002. The worldwide charge card provision also decreased in 2002 due to strong credit quality. The provision for losses on the worldwide lending portfolio decreased 7 percent in 2003 despite growth in outstanding loans and increased reserve coverage levels due to well-controlled credit practices and improving economic trends. The worldwide lending provision increased in 2002, reflecting portfolio growth and increased reserve coverage levels. The net write-off rate for the worldwide lending portfolio was 5.2% in 2003 versus 5.9% in 2002. Charge card interest expense declined 20 percent in 2003 due to a lower effective cost of funds, partially offset by a higher average receivable balance. Charge card interest expense declined 33 percent in 2002 due to a lower effective cost of funds and a lower average receivable balance. Human resources expense increased 9 percent in 2003 as employee merit increases, higher employee benefit expenses and increased management incentive costs were partially offset by the benefits from reengineering efforts. Increases in 2003 management incentive costs included higher stock-based compensation costs from both stock options and increased levels of restricted stock awards. The higher stock-based compensation expense from stock options reflects the Company's decision to expense stock options beginning in 2003. Higher expense related to restricted stock awards reflects the Company's decision to modify compensation practices and use restricted stock awards in place of stock options for middle management. In 2002, human resources expense decreased 12 percent as a result of a lower average number of employees, reflecting ongoing reengineering efforts throughout 2002 and the impact of technology outsourcing agreements. Other operating expenses increased 8 percent reflecting, in part, the impact of greater business and service volume-related costs, including outsourcing activities. This increase was partially offset by the benefits of reengineering initiatives and other cost containment efforts. In 2002, other operating expenses rose due to losses primarily from strategic investments versus gains in the prior year, as well as the impact of outsourcing agreements, partially offset by reengineering initiatives and other cost containment efforts. 24

(p.51_axp_financial review) SELECTED STATISTICAL INFORMATION <TABLE> <CAPTION> (Billions, except percentages and where indicated) Years Ended December 31, 2003 2002 2001 ------------------------------------------------------------------------------- <S> <C> <C> <C> Total cards-in-force* (millions): United States 36.4 34.8 34.3 Outside the United States 24.1 22.2 20.6 ------------------------------------------------------------------------------- Total 60.5 57.0 54.9 ------------------------------------------------------------------------------- Basic cards-in-force (millions): United States 27.7 26.9 26.8 Outside the United States 19.9 18.3 15.6 ------------------------------------------------------------------------------- Total 47.6 45.2 42.4 ------------------------------------------------------------------------------- Card billed business: United States $262.1 $234.1 $224.5 Outside the United States 90.1 77.3 73.5 ------------------------------------------------------------------------------- Total $352.2 $311.4 $298.0 ------------------------------------------------------------------------------- Average discount rate* 2.59% 2.64% 2.67% Average basic cardmember spending (dollars)* $8,367 $7,645 $7,666 Average fee per card -- managed (dollars)* $ 35 $ 34 $ 34 Non-Amex brand:** Cards-in-force (millions) 0.7 0.7 0.7 Billed business $ 3.9 $ 3.7 $ 3.4 Travel sales $ 16.0 $ 15.5 $ 17.2 Travel commissions and fees/sales 9.4% 9.1% 8.9% Travelers Cheque and prepaid products: Sales $ 19.2 $ 22.1 $ 23.5 Average outstanding $ 6.6 $ 6.5 $ 6.4 Average investments $ 7.1 $ 6.9 $ 6.6 Investment yield 5.4% 5.6% 5.8% Tax equivalent yield 8.4% 8.7% 9.0% =============================================================================== </TABLE> * Cards-in-force include proprietary cards and cards issued under network partnership agreements outside the United States. Average discount rate, average basic cardmember spending and average fee per card are computed from proprietary card activities only. Total cards-in-force for prior periods have been reduced, reflecting a correction to the number of supplemental cards-in-force. ** These data relate to Visa and Eurocards issued in connection with joint venture activities. 25

(p.52_axp_financial review) SELECTED STATISTICAL INFORMATION (continued) <TABLE> <CAPTION> (Billions, except percentages and where indicated) Years Ended December 31, 2003 2002 2001 ------------------------------------------------------------------------------- <S> <C> <C> <C> Worldwide charge card receivables: Total receivables $ 28.4 $ 26.3 $ 26.2 90 days past due as a % of total 1.9% 2.2% 2.9% Loss reserves (millions) $ 916 $ 930 $ 1,032 % of receivables 3.2% 3.5% 3.9% % of 90 days past due 171% 162% 136% Net loss ratio as a % of charge volume 0.28% 0.38% 0.42% Worldwide lending -- owned basis: Total loans $ 25.8 $ 22.6 $ 21.0 Past due loans as a % of total: 30-89 days 1.6% 1.9% 2.0% 90+ days 1.1% 1.3% 1.3% Loss reserves (millions): Beginning balance $ 1,030 $ 831 $ 650 Provision 1,121 1,271 1,231 Net charge-offs (1,148) (1,167) (1,086) Other (5) 95 36 ------------------------------------------------------------------------------- Ending balance $ 998 $ 1,030 $ 831 =============================================================================== % of loans 3.9% 4.6% 4.0% % of past due 145% 144% 120% Average loans $ 22.6 $ 19.9 $ 20.4 Net write-off rate 5.1% 5.9% 5.3% Net interest yield 9.0% 9.2% 8.4% Worldwide lending -- managed basis: Total loans $ 45.3 $ 39.8 $ 36.0 Past due loans as a % of total: 30-89 days 1.6% 1.9% 2.1% 90+ days 1.1% 1.2% 1.2% Loss reserves (millions): Beginning balance $ 1,529 $ 1,240 $ 917 Provision 2,188 2,370 2,166 Net charge-offs (2,171) (2,176) (1,879) Other (5) 95 36 ------------------------------------------------------------------------------- Ending Balance $ 1,541 $ 1,529 $ 1,240 =============================================================================== % of loans 3.4% 3.8% 3.4% % of past due 127% 124% 103% Average loans $ 41.6 $ 36.7 $ 34.2 Net write-off rate 5.2% 5.9% 5.1% Net interest yield 9.5% 10.0% 9.2% =============================================================================== </TABLE> 26

(p.53_axp_financial review) TRS' owned portfolio is primarily comprised of cardmember receivables generated by the Company's charge card products, unsecuritized U.S. cardmember loans, international cardmember loans and unsecuritized equipment leasing receivables. As discussed more fully in the TRS Liquidity and Capital Resources section below, the Company securitizes U.S. cardmember loans as part of its financing strategy; consequently, the level of unsecuritized U.S. cardmember loans is primarily a function of the Company's financing requirements. As a portfolio, unsecuritized U.S. cardmember loans tend to be less seasoned than securitized loans, primarily because of the lead time required to designate and securitize each loan. The Company does not currently securitize international loans. Delinquency, reserve coverage and net write-off rates have historically been broadly comparable between the Company's owned and managed portfolios. Liquidity and Capital Resources SELECTED BALANCE SHEET INFORMATION (GAAP BASIS) <TABLE> <CAPTION> December 31, (Billions, except percentages) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Accounts receivable, net $30.2 $28.1 Travelers Cheque investments $ 7.7 $ 7.4 Worldwide cardmember loans $25.8 $22.6 Total assets $79.3 $72.2 Travelers Cheques outstanding $ 6.8 $ 6.6 Short-term debt $21.8 $21.7 Long-term debt $16.6 $14.8 Total liabilities $71.4 $64.9 Total shareholder's equity $ 7.9 $ 7.3 Return on average total shareholder's equity* 31.3% 30.3% Return on average total assets** 3.4% 3.2% ================================================================================ </TABLE> * Computed on a trailing 12-month basis using total shareholder's equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. ** Computed on a trailing 12-month basis using total assets as included in the Consolidated Financial Statements prepared in accordance with GAAP. Financing Activities TRS funds its charge card receivables and cardmember loans using various funding sources, such as short- and long-term debt, medium-term notes, and sales of cardmember receivables and loans in securitizations. In 2003, TRS had uninterrupted access to the money and capital markets to fund its business operations. TRS funds its receivables and loans primarily through two entities. Credco funds the vast majority of charge card receivables, and Centurion Bank funds mainly cardmember loans originated from the Company's lending activities. In addition, two trusts are used by the Company in connection with the securitization and sale of receivables and loans generated in the ordinary course of TRS' card businesses. The assets securitized consist principally of consumer cardmember receivables and loans arising from TRS' charge card and lending activities. TRS' funding needs are met primarily through the following sources: o Commercial paper issued by Credco o Bank notes, institutional CDs and Fed Funds borrowed by Centurion Bank o Medium-term notes and senior unsecured debentures o Sale of cardmember receivables and loans through securitizations o Local currency borrowings in selected markets TRS' debt offerings are placed either directly, as in the case of its commercial paper program through Credco, or through securities brokers or underwriters. In certain international markets, bank borrowings are used to partially fund cardmember receivables and loans. 27

(p.54_axp_financial review) Short-term debt is defined as any debt with an original maturity of 12 months or less. The commercial paper market represents the primary source of short-term funding for the Company. Credco's commercial paper is a widely recognized name among short-term investors and is a principal source of debt for the Company. At December 31, 2003, Credco had $8.8 billion of commercial paper outstanding, net of certain short-term investments. The outstanding amount, net of certain short-term investments, declined $0.5 billion or 5.6 percent from a year ago as part of the Company's efforts to lessen its reliance on short-term funding sources. Average commercial paper outstanding, net of certain short-term investments, was $7.7 billion and $10.6 billion in 2003 and 2002, respectively. TRS currently manages the level of commercial paper outstanding, net of certain short-term investments, such that the ratio of its committed bank credit facility to total short-term debt, which consists mainly of commercial paper, is not less than 100%. Centurion Bank raises short-term debt through various instruments. Bank notes issued and Fed Funds purchased by Centurion Bank totaled approximately $7.6 billion as of December 31, 2003. Centurion Bank also raises customer deposits through the issuance of certificates of deposits to retail and institutional customers. As of December 31, 2003, Centurion Bank held $8.8 billion in customer deposits. Long-term funding needs are met principally through the sale of cardmember loans in securitization transactions. Centurion Bank maintains $320 million of committed bank credit lines as a backup to its short-term funding programs. The Asset/Liability Committee of Centurion Bank provides management oversight to Centurion Bank with respect to formulating and ratifying funding strategy and to ensuring that all funding policies and requirements are met. Medium- and long-term debt is raised through the offering of debt securities in the U.S. and international capital markets. Medium-term debt is generally defined as any debt with an original maturity greater than 12 months but less than 36 months. Long-term debt is generally defined as any debt with an original maturity greater than 36 months. At December 31, 2003, TRS and its subsidiaries had the following amounts of medium- and long-term debt outstanding: <TABLE> <CAPTION> (Billions) Credco Centurion Other Subsidiaries Total TRS -------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Medium-term debt $ 9.4 $0.1 $0.9 $10.4 Long-term debt 2.0 -- 4.2 6.2 -------------------------------------------------------------------------------------- Total medium- and long-term debt $11.4 $0.1 $5.1 $16.6 ====================================================================================== </TABLE> During 2003, TRS further diversified its term funding sources through the issuance of new types of debt instruments and through the issuance of debt at maturities attractive to investor segments new to the Company: o $2 billion of extendible medium-term notes, a new debt instrument issued by Credco for the first time, raised proceeds for up to 5 years at an attractive cost. o $1 billion of extendible notes issued through a private placement. This debt was offered to eligible money market fund investors and expanded Credco's investor base. o $1 billion of 5-year notes issued by Credco. The following table highlights TRS' outstanding debt and off-balance sheet securitizations as of December 31, 2003 and 2002: <TABLE> <CAPTION> (Billions) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Short-term debt $21.8 $21.7 Long-term debt 16.6 14.8 -------------------------------------------------------------------------------- Total debt (GAAP basis) $38.4 $36.5 Off-balance sheet securitizations 19.5 17.2 -------------------------------------------------------------------------------- Total debt (managed basis) $57.9 $53.7 ================================================================================ </TABLE> 28

(p.55_axp_financial review) In 2004, TRS along with its subsidiaries, Credco and Centurion Bank, expects to issue approximately $20 billion in long-term debt to fund business growth and refinance maturing debt. This amount includes approximately $2.6 billion in connection with the Company's liquidity portfolio (which is discussed further in the Liquidity section below). The Company expects that its planned funding during the next year will be met through a combination of sources similar to those on which it currently relies. However, the Company continues to assess its needs and investor demand and may change its funding mix. The Company's funding plan is subject to various risks and uncertainties, such as disruption of financial markets, market capacity and demand for securities offered by the Company, accounting or regulatory changes, ability to sell receivables, and the performance of receivables previously sold in securitization transactions. Many of these risks and uncertainties are beyond the Company's control. As of December 31, 2003, Credco had the ability to issue approximately $9.8 billion of debt securities under shelf registration statements filed with the SEC. Cost of Funds Cost of funds is generally determined by a margin or credit spread over a benchmark interest rate. Credit spreads are measured in basis points where 1 basis point equals one one-hundredth of one percentage point. It is the smallest measure used in quoting borrowing spreads. Commercial paper and other short-term debt funding costs are based on spreads bench-marked against London Interbank Offered Rate (LIBOR), a commonly used interest rate. Costs for unsecured long-term debt and securitized funding are based on spreads benchmarked against LIBOR, U.S. Treasury securities of similar maturities, or other rates. The table below highlights average indicative spreads for 5-year unsecured and securitized funding. Spreads shown are off of 1 month LIBOR for each respective time period: <TABLE> <CAPTION> (Spread in basis points*) 2003 2002 2001 -------------------------------------------------------------------------------- <S> <C> <C> <C> Unsecured debt 21 45 37 Securitized debt** 11 12 13 ================================================================================ </TABLE> * Indicative spreads for each respective period. ** For AAA Lending Asset Backed Certificates only. Securitizations TRS uses asset securitization as a part of its overall funding program. TRS' securitization programs are similar to those widely used by many financial institutions. The securitization market in the United States is highly liquid, efficient and mature with over $1.3 trillion of asset-backed securities outstanding at December 31, 2003. This market provides TRS with very cost-effective funding for its long-term funding needs. TRS, through its special purpose subsidiaries, principally securitizes its cardmember charge card receivables and cardmember loans arising from its card businesses. Asset securitization involves selling receivables or loans into a separate legal entity, typically a trust. The trust issues interest-bearing certificates, commonly referred to as asset-backed securities, to third-party investors which are secured by the future collections on the sold receivables or loans. The trust utilizes the proceeds from the sale of such securities to pay the purchase price for receivables or loans that were sold into the trust. TRS, through its subsidiaries, retains an interest in the securitized receivables that may be represented by subordinated securities, undivided interests in receivables or loans, restricted cash held in segregated reserve funds for the benefit of the trust and interest-only strips. TRS' use of trusts in its securitization programs conforms to standard practices in the securitization market. The trusts are used in securitizations to segregate the sold receivables or loans for the benefit of the asset-backed securities investors. Assuming the criteria of securitization accounting rules are met under generally accepted accounting principles, the sold receivables and loans are removed from the balance sheet of the trust's sponsor and the certificates are not recorded as a liability. 29

(p.56_axp_financial review) No officer, director or employee holds any equity interest in the trusts or receives any direct or indirect compensation from the trusts. The trusts in the Company's securitization programs do not own stock of the Company or the stock of any affiliate. TRS' securitization programs are operated through its special purpose subsidiaries and two trusts. The American Express Credit Account Master Trust (the Master Trust) securitizes assets consisting of loans arising in a portfolio of designated consumer American Express Credit Card, Optima Line of Credit and Sign & Travel/Extended Payment Option revolving credit accounts or features owned by Centurion Bank. In the future, it may include other charge or credit accounts, features or products. The Master Trust securitized $3.5 billion and $4.6 billion of loans in 2003 and 2002, respectively, through the public issuance of investor certificates. During 2003 and 2002, $1.0 billion and $2.0 billion, respectively, of investor certificates that were previously issued by the Master Trust matured. When investor certificates mature, principal collections received from the Master Trust assets are used to redeem the certificates. At December 31, 2003 and 2002, TRS had a total of $19.4 billion and $16.9 billion, respectively, of trust-related securitized cardmember loans that are not on the Consolidated Balance Sheets. Retained subordinated interests related to these assets totaled $1.8 billion and $1.5 billion at December 31, 2003 and 2002, respectively, and are on the Consolidated Balance Sheets. Under the terms of the Master Trust pooling and servicing agreement, the occurrence of certain events could result in the Master Trust being required to pay down the investor certificates before their expected payment dates over an early amortization period. Examples of these events include: the failure of the securitized assets to generate specified yields over a defined period of time and the decline of the total of the securitized assets' principal balances below a specified percentage of total investor certificates outstanding after the failure to add additional securitized assets as required by the agreement. The Company does not expect an early amortization event to occur. In the event of a pay down, $17.6 billion of assets would revert to the balance sheet and an alternate source of funding of a commensurate amount would have to be obtained. Had a total pay down hypothetically occurred at a single point in time at December 31, 2003, the one-time negative effect on results of operations would have been approximately $750 million pretax to re-establish reserves and accelerate amortization of the interest-only strip related to these securitizations that would revert to the balance sheet. Subject to the performance of the loans, the one-time negative effect would be offset by finance charge revenue over the life of the loans. The second trust used by the Company, the American Express Master Trust (the Trust), securitizes charge card receivables generated under designated American Express Card, Gold Card and Platinum Card consumer accounts through the issuance of trust certificates. The assets in this Trust remain on the Company's Consolidated Balance Sheets. In 2002, the Trust securitized $1.8 billion of accounts receivable trust certificates and, in 2003, $2.0 billion of accounts receivable trust certificates that were previously issued by the Trust matured. The Trust specifies events the occurrence of which would result in a pay down. The Company does not expect a pay down to occur. While virtually no financial statement impact would result from a pay down, an alternate source of funding for the December 31, 2003 outstanding balance of $2.8 billion of receivables would have to be obtained. With respect to both the Master Trust and the Trust, a decline in the actual or implied short-term credit rating of TRS below A-1/P-1 will trigger a requirement that TRS, as servicer, transfer collections on the securitized assets to investors on a daily, rather than a monthly, basis or make alternative arrangements with the rating agencies to allow TRS to continue to transfer collections on a monthly basis. Such alternative arrangements include obtaining appropriate guarantees for the performance of the payment and deposit obligations of TRS, as servicer. 30

(p.57_axp_financial review) TRS also securitizes equipment lease receivables. At December 31, 2003 and 2002, the amount sold and outstanding to third party investors was $138 million and $254 million, respectively. These sales resulted in a reduction of interest expense and provisions for losses, as well as servicing revenue, all of which are insignificant to the Company's results of operations. Liquidity The Company balances the trade-offs between having too much liquidity, which can be costly and limit financial flexibility, with having inadequate liquidity, which may result in financial distress during a liquidity crisis (see Contingent Liquidity Planning section below). The Company considers various factors in determining its liquidity needs, such as economic and financial market conditions, seasonality in business operations, growth in business segments, cost and availability of alternative liquidity sources, and credit rating agency considerations. In 2003, TRS continued to strengthen its liquidity position by reducing its reliance on short-term debt through extension of its debt maturities. Short-term debt on a GAAP basis as a percentage of total debt declined to 57% at December 31, 2003 from 59% at December 31, 2002. Additionally, short-term debt on a managed basis as a percentage of total debt declined to 38% at December 31, 2003 from 40% at December 31, 2002. TRS estimates it will have liquidity requirements of approximately $8.7 billion within the next year related to the maturity of long-term debt obligations. These requirements include $3.8 billion related to certain securitization transactions that will enter their scheduled amortization period. In addition, TRS expects to maintain net short-term debt balances of approximately $14 billion over the period. TRS believes that its funding plan is adequate to meet these liquidity requirements. TRS believes that its available liquidity provides sufficient funding to meet normal operating needs at all times. In addition, alternative liquidity sources are available, mainly in the form of the liquidity portfolio, securitizations and committed bank credit facilities, to provide uninterrupted funding over a twelve-month period should access to unsecured debt sources become impaired. Liquidity Portfolio During the normal course of business, funding activities may raise more proceeds than are necessary for immediate funding needs. These amounts are invested principally in overnight, highly liquid instruments. In addition, in the fourth quarter of 2003, the Company began a program to develop a liquidity portfolio in which proceeds raised from such borrowings are invested in two to three year U.S. Treasury securities. At December 31, 2003, the Company held $800 million in two year U.S. Treasury notes under this program. This program was increased to approximately $4 billion in the first quarter of 2004. The invested amounts of the liquidity portfolio provide back-up liquidity, primarily for the commercial paper program at Credco, and also flexibility for other short-term funding programs at Centurion Bank. U.S. Treasury securities are the highest credit quality and most liquid of investment instruments available. The Company can easily sell these securities or enter into sale/repurchase agreements to immediately raise cash proceeds to meet liquidity needs. From time to time, either Credco or Centurion Bank may increase its liquidity portfolio in order to pre-refund maturing debt obligations when financial market conditions are favorable. These levels are monitored and adjusted when necessary to maintain short-term liquidity needs in response to seasonal or changing business conditions. 31

(p.58_axp_financial review) Committed Bank Credit Facilities The Company maintained committed bank credit facilities with 60 large financial institutions totaling $10.85 billion (including $1.29 billion at the Parent Company) at December 31, 2003. These facilities expire as follows (billions): 2004, $5.4; 2005, $2.3; 2006, $2.2 and 2007, $1.0. The availability of the credit lines is subject to the Company's compliance with certain financial covenants, including the maintenance by the Company of consolidated tangible net worth of at least $7.75 billion, the maintenance by Credco of a 1.25 ratio of combined earnings and fixed charges to fixed charges, and the compliance by Centurion Bank with applicable regulatory capital adequacy guidelines. At December 31, 2003, the Company's consolidated tangible net worth was approximately $12.4 billion, Credco's ratio of combined earnings and fixed charges to fixed charges was 1.46 and Centurion Bank exceeded the Federal Deposit Insurance Corporation's "well capitalized" regulatory capital adequacy guidelines. Committed bank credit facilities do not contain material adverse change clauses, which may preclude borrowing under the credit facilities. The facilities may not be terminated should there be a change in the Company's credit rating. Contingent Liquidity Planning TRS has developed a contingent funding plan that enables it to meet its daily funding obligations when access to unsecured funds in the debt capital markets is impaired or unavailable. This plan is designed to ensure that the Company and all of its main operating entities could continuously maintain normal business operations for at least a 12-month period in which its access to unsecured funds is interrupted. The contingent funding plan includes access to diverse sources of alternative funding, including but not limited to its liquidity investment portfolio, committed bank lines, intercompany borrowings, sale of consumer loans and cardmember receivables through its existing securitization programs and sale of other eligible receivables, such as corporate and small business receivables and international cardmember loans and receivables, through enhanced securitization programs. In addition, the Company maintains substantial flexibility to reduce its operating cash requirements, such as through its share repurchase program, and the delay or deferment of certain operating expenses. The funding sources that would be relied upon depend on the exact nature of such a hypothetical liquidity crisis; nonetheless, TRS' liquidity sources are designed with the goal of ensuring there is sufficient cash on hand to fund business operations over a 12-month period regardless of whether the liquidity crisis was caused by an external, industry or Company specific event. The contingent funding plan also addresses operating flexibilities in quickly making these funding sources available to meet all financial obligations. The simulated liquidity crisis is defined as a sudden and unexpected event that impairs access to or makes unavailable funding in the unsecured debt markets. It does not address asset quality deterioration. Asset quality deterioration, if it were to occur, would be expected to unfold over an extended time period and should allow management sufficient time to take appropriate corrective actions to mitigate further asset quality deterioration as it becomes more visible. TRS estimates that, under a worst case liquidity crisis scenario, it has in excess of $25 billion in alternate funding sources available to cover cash needs over the first 60 days after a liquidity crisis has occurred. Contingent Securitization Capacity A key source in the Company's contingent funding plan is asset securitization. Management expects that $10 billion of additional consumer loans, cardmember receivables and small business loans could be sold to existing securitization trusts. In order to further enhance its flexibility, the Company is seeking to add the capabilities to sell other assets from the loan and cardmember receivables portfolios. The primary goal of adding this additional securitization capacity is to further enhance the Company's flexibility in accessing diverse funding sources on a contingency basis. 32

(p.59_axp_financial review) The Company believes that the securitized financing would be available even through adverse conditions due to the structure, size and relative stability of the securitization market. Proceeds from secured financings completed during a liquidity crisis could be used to meet current obligations, to reduce or retire other contingent funding sources such as bank credit lines, or a combination of the two. However, other factors affect the Company's ability to securitize loans and receivables and do so at a favorable cost to the Company, such as credit quality of the assets and the legal, accounting, regulatory and tax environment for securitization transactions. Material changes in any of these factors may potentially limit the Company's ability to securitize its loans and receivables and could introduce certain risks to the Company's ability to meet its financial obligations. In such a case, the use of investment securities, asset dispositions, asset monetization strategies and flexibility to reduce operating cash needs could be utilized to meet its liquidity needs. Risk Management For TRS' charge card and fixed rate lending products, interest rate exposure is managed through a combination of shifting the mix of funding toward fixed rate debt and through the use of derivative instruments, with an emphasis on interest rate swaps, that effectively fix TRS' interest expense for the length of the swap. The Company endeavors to lengthen the maturity of interest rate hedges in periods of falling interest rates and to shorten their maturity in periods of rising interest rates. For the majority of its cardmember loans, which are linked to a floating rate base and generally reprice each month, TRS uses floating rate funding. TRS regularly reviews its strategy and may modify it. Non-trading interest rate products, primarily interest rate swaps, with notional amounts of approximately $39 billion (a portion of which extends to 2011) were outstanding at December 31, 2003. The detrimental effect on TRS' pretax earnings of a hypothetical 100 basis point increase in interest rates would be approximately $64 million ($50 million related to the U.S. dollar) and $50 million ($40 million related to the U.S. dollar), based on the 2003 and 2002 year-end positions, respectively. This effect is primarily a function of the extent of variable rate funding of charge card and fixed rate lending products, to the degree that interest rate exposure is not managed by derivative financial instruments. TRS' foreign exchange risk arising from cross-currency charges and balance sheet exposures is managed primarily by entering into agreements to buy and sell currencies on a spot or forward basis. At December 31, 2003, foreign currency products with total notional amounts of approximately $9.9 billion were outstanding. Based on the year-end 2003 and 2002 foreign exchange positions, but excluding forward contracts managing the anticipated overseas operating results for the subsequent year, the effect on TRS' earnings of a hypothetical 10 percent change in the value of the U.S. dollar would be immaterial. With respect to forward contracts related to anticipated overseas operating results for the subsequent year, a 10 percent change would hypothetically impact pretax income by $57 million and $59 million related to the 2003 and 2002 year-end positions, respectively. 33

(p.60_axp_financial review) AMERICAN EXPRESS FINANCIAL ADVISORS Results of Operations STATEMENTS OF INCOME <TABLE> <CAPTION> Years Ended December 31, (Millions) 2003 2002 2001 -------------------------------------------------------------------------------- <S> <C> <C> <C> Revenues: Investment income $2,279 $2,058 $1,162 Management and distribution fees 2,458 2,292 2,458 Other revenues 1,435 1,267 1,171 -------------------------------------------------------------------------------- Total revenues 6,172 5,617 4,791 -------------------------------------------------------------------------------- Expenses: Provision for losses and benefits: Annuities 1,104 1,034 989 Insurance 817 737 648 Investment certificates 201 183 329 -------------------------------------------------------------------------------- Total 2,122 1,954 1,966 Human resources 2,090 1,898 1,969 Other operating expenses 1,101 907 762 Restructuring charges -- -- 107 Disaster recovery charge -- (7) 11 -------------------------------------------------------------------------------- Total expenses 5,313 4,752 4,815 -------------------------------------------------------------------------------- Pretax income (loss) before accounting change 859 865 (24) Income tax provision (benefit) 177 233 (76) -------------------------------------------------------------------------------- Income before accounting change 682 632 52 Cumulative effect of accounting change, net of tax (13) -- -- -------------------------------------------------------------------------------- Net income $ 669 $ 632 $ 52 ================================================================================ </TABLE> In 2003, American Express Financial Advisors generated improved revenues on increased investment income and management and distribution fees primarily due to strengthening markets, higher asset levels and the acquisition of Threadneedle. AEFA's 2003 income before accounting change rose 8 percent to $682 million. AEFA's net income increased 6 percent to $669 million in 2003, up from $632 million in 2002 and $52 million in 2001. AEFA's 2003 results reflect a $41 million reduction in tax expense due to adjustments related to the finalization of the 2002 tax return filed during the third quarter and the publication of favorable technical guidance related to the taxation of dividend income. Results for 2003 also reflect the impact of the December 31, 2003 adoption of FIN 46, as revised, which addresses consolidation by business enterprises of VIEs and is discussed in more detail below. Results for 2002 included a benefit of $7 million ($4 million after-tax) to reverse a portion of the 2001 September 11th related reserves as a result of lower than anticipated insured loss claims. Included in 2001 results are restructuring charges of $107 million ($70 million after-tax) and one-time costs of $11 million ($8 million after-tax) directly related to the September 11th terrorist attacks. In addition, investment income and results for 2001 included $1.01 billion in charges ($669 million after-tax) from the write down and sale of high-yield securities and from reducing risk within its investment portfolio. Total revenues increased 10 percent in 2003 primarily due to higher investment income, increased management fees from higher average assets under management primarily reflecting the Threadneedle acquisition, increased distribution fees and greater insurance premiums. Total revenues rose 17 percent in 2002 due to higher investment income, reflecting the impact of the high-yield losses noted previously and higher levels of invested assets, higher insurance premiums and advice services fees, and higher distribution fees, partially offset by reduced management fees. 34

(p.61_axp_financial review) Investment income increased 11 percent in 2003 as higher levels of invested assets and the effect of appreciation in the S&P 500 on the value of options hedging outstanding stock market certificates and equity indexed annuities this year versus depreciation last year, which was offset in the related provisions for losses and benefits, were partially offset by a lower average yield. During 2002, investment income increased significantly reflecting the effect of the $1.01 billion in investment losses in 2001 noted previously, higher average invested assets and the effect of depreciation in the S&P 500 on the value of options hedging stock market certificates and equity indexed annuities during 2002. AEFA's gross realized gains on sales of securities classified as Available-for-Sale, using the specific identification method, were $323 million, $342 million and $157 million for the years ended December 31, 2003, 2002 and 2001, respectively. Gross realized losses on sales were ($146 million), ($168 million) and ($529 million) for the same periods. AEFA also recognized losses of ($163 million), ($204 million) and ($428 million) in other-than-temporary impairments on Available-for-Sale securities for the years ended December 31, 2003, 2002 and 2001, respectively. Realized gains and losses are recorded in investment income. Management and distribution fees rose 7 percent in 2003. Management fees increased 4 percent resulting from higher average assets under management reflecting the Threadneedle acquisition. Distribution fees increased 12 percent primarily due to greater limited partnership product sales and an increase in brokerage-related activities. In 2002, management and distribution fees declined 7 percent due to lower average assets under management, partially offset by higher distribution fees. The distribution fee increase was the result of lower mutual fund sales being more than offset by other product related sales increases. Other revenues rose 13 percent and 8 percent in 2003 and 2002, respectively, primarily due to higher property-casualty and life insurance-related revenues coupled with higher financial planning and advice services fees. In the following table, the Company presents AEFA's aggregate revenues on a basis that is net of provisions for losses and benefits because the Company manages the AEFA business and evaluates its financial performance, where appropriate, in terms of the "spread" on its products. An important part of AEFA's business is margin related, particularly the insurance, annuity and certificate businesses. One of the drivers for the AEFA business is the return on invested cash, primarily generated by sales of insurance, annuity and investment certificates, less provisions for losses and benefits on these products. These investments tend to be interest rate sensitive. Thus, GAAP revenues tend to be higher in periods of rising interest rates and lower in times of decreasing interest rates. The same relationship is true of provisions for losses and benefits, only it is more accentuated period-to-period because rates credited to customers' accounts generally reset at shorter intervals than the yield on underlying investments. The Company presents this portion of the AEFA business on a net basis to eliminate potentially less informative comparisons of period-to-period changes in revenue and provisions for losses and benefits in light of the impact of these changes in interest rates. <TABLE> <CAPTION> Years Ended December 31, (Millions) 2003 2002 2001 -------------------------------------------------------------------------------- <S> <C> <C> <C> Total GAAP revenues $6,172 $5,617 $4,791 Less: Provision for losses and benefits -- Annuities 1,104 1,034 989 Insurance 817 737 648 Investment certificates 201 183 329 -------------------------------------------------------------------------------- Total 2,122 1,954 1,966 -------------------------------------------------------------------------------- Net revenues $4,050 $3,663 $2,825 ================================================================================ </TABLE> 35

(p.62_axp_financial review) The provision for losses and benefits for annuities increased 7 percent in 2003 due to higher average inforce levels and the effect of appreciation in the S&P 500 on equity indexed annuities in 2003 versus depreciation in 2002, partially offset by the benefit of lower interest crediting rates on fixed annuity contract values and lower costs related to guaranteed minimum death benefits. In 2002, the annuities provision increased 5 percent reflecting a higher inforce level, increased costs related to guaranteed minimum death benefits, and the effect of depreciation in the S&P 500 on equity indexed annuities, partially offset by the benefit of lower interest crediting rates on fixed annuity contract values. Insurance provisions rose in 2003 and 2002, reflecting higher inforce levels and higher claims in both years, partially offset by the benefit of lower interest crediting rates on fixed life insurance contract values. Investment certificate provisions increased 10 percent in 2003 due to the effect on the stock market certificate product of appreciation in the S&P 500 in 2003 versus depreciation in 2002 and higher average investment certificate levels, partially offset by the benefit of lower interest crediting rates. Investment certificate provisions decreased 44 percent during 2002 due to lower interest crediting rates, partially offset by higher average investment certificate levels and the effect on the stock market certificate product of depreciation in the S&P 500 during 2002. Human resources expense increased 10 percent in 2003 primarily due to merit increases, greater employee benefit costs, higher management incentive costs for employees (excluding financial advisors) and higher field force compensation-related costs, as well as the effect of the Threadneedle acquisition. Increases in 2003 management incentive costs included higher stock-based compensation costs from both stock options and increased levels of restricted stock awards. The higher stock-based compensation expense from stock options reflects the Company's decision to expense stock options beginning in 2003. Higher expense related to restricted stock awards reflects the Company's decision to modify compensation practices and use restricted stock awards in place of stock options for middle management. These increases were also partially offset by the effects of a $22 million favorable impact from DAC adjustments in 2003 versus a $1 million favorable impact in 2002. These DAC adjustments are discussed below. The average number of employees (excluding financial advisors) was down 4 percent, excluding Threadneedle. Human resources expense declined 4 percent in 2002, reflecting lower field force compensation-related costs and the benefits of reengineering and cost containment initiatives where the average number of employees (excluding financial advisors) was down 15 percent from 2001. Other operating expenses increased in both years. The 2003 increase is due to the impact of fewer capitalized costs in the first half of 2003 due to the ongoing impact of the comprehensive review of DAC-related practices in 2002, professional fees related to various industry regulatory matters, the effect of the Threadneedle acquisition and greater legal and acquisition-related costs. See the DAC and related adjustments discussion below for further information. The 2002 increase reflects the impact of technology outsourcing agreements, which resulted in the transfer of costs from human resources expense, a higher minority interest for the premium deposits joint venture with AEB, and the recognition of additional expenses based on a comprehensive review of DAC practices at AEFA. This DAC review is discussed below. In addition, 2003 results include a $41 million reduction to tax expense noted above. For annuity and insurance products, the projections underlying the amortization of DAC require the use of certain assumptions, including interest margins, mortality rates, persistency rates, maintenance expense levels and customer asset value growth rates for variable products. Management routinely monitors a wide variety of trends in the business, including comparisons of actual and assumed experience. The customer asset value growth rate is the rate at which contract values are assumed to appreciate in the future. The rate is net of asset fees and anticipates a blend of equity and fixed income investments. Management reviews and, where appropriate, adjusts its assumptions with respect to customer asset value growth rates on a quarterly basis. 36

(p.63_axp_finanacial review) Management monitors other principal DAC assumptions, such as persistency, mortality rates, interest margin and maintenance expense level assumptions, each quarter. Unless management identifies a material deviation over the course of the quarterly monitoring, management reviews and updates these DAC assumptions annually in the third quarter of each year. When assumptions are changed, the percentage of estimated gross profits or portion of interest margins used to amortize DAC might also change. A change in the required amortization percentage is applied retrospectively; an increase in amortization percentage will result in an increase in DAC amortization expense while a decrease in amortization percentage will result in a decrease in DAC amortization expense. The impact on results of operations of changing assumptions with respect to the amortization of DAC can be either positive or negative in any particular period and is reflected in the period in which such changes are made. As a result of these reviews, AEFA took actions in both 2003 and 2002 that impacted DAC balance and expenses. In the third quarter of 2003, based on its detailed review, AEFA took certain actions that resulted in a net $2 million DAC amortization expense reduction (a $22 million reduction in human resources expense and a $20 million increase in other operating expenses) reflecting: o A $106 million DAC amortization reduction resulting from extending 10-15 year amortization periods for certain Flex Annuity contracts to 20 years. o A $92 million DAC amortization increase resulting from the recognition of a premium deficiency on AEFA's Long-Term Care (LTC) business. o A $12 million net DAC amortization increase across AEFA's universal life, variable universal life and fixed and variable annuity products. In the third quarter of 2002, AEFA completed a comprehensive review of its DAC-related practices and took actions that resulted in a net $44 million increase in expenses (a $1 million reduction in human resources expense and a $45 million increase in other operating expenses) reflecting: o A $173 million DAC amortization increase resulting from resetting the customer asset value growth rate assumptions for variable annuity and variable life products to anticipate near-term and long-term growth at an annual rate of 7%. o A $155 million DAC amortization reduction from revising certain mortality and persistency assumptions for universal and variable universal life insurance products and fixed and variable annuity products to better reflect actual experience and future expectations. o A $26 million operating expense increase from the revision of the types and amounts of costs deferred, in part to reflect the impact of advisor platform changes and the effects of related reengineering. This revision, which resulted in an increase in ongoing expenses, continued to impact 2003 results. DAC balances for various insurance, annuity and other products sold by AEFA are set forth below: <TABLE> <CAPTION> December 31, (Millions) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Life and health insurance $1,602 $1,654 Annuities 2,013 1,656 Other 382 473 -------------------------------------------------------------------------------- Total $3,997 $3,783 ================================================================================ </TABLE> 37

(p.64_axp_finanacial review) Impact of Recent Market-Volatility on Results of Operations Various aspects of AEFA's business are impacted by equity market levels and other market-based events. Several areas in particular involve DAC, asset management fees, structured investments and guaranteed minimum death benefits (GMDB). The direction and magnitude of the changes in equity markets can increase or decrease DAC expense levels and asset management fees and correspondingly affect results of operations in any particular period. Similarly, the value of AEFA's structured investment portfolio and derivatives resulting from the consolidation of certain secured loan trusts are impacted by various market factors. Persistency of, or increases in, bond and loan default rates, among other factors, could result in negative adjustments to the market values of these investments in the future, which would adversely impact results of operations. See discussion of structured investments and consolidated derivatives below. The majority of the variable annuity contracts offered by AEFA contain GMDB provisions. The standard GMDB provision in the "flagship" variable annuity product offered by IDS Life Insurance Company (IDS Life) and IDS Life of New York throughout 2003, American Express Retirement Advisor Advantage Variable Annuity, provides that if the contract owner and annuitant are age 80 or younger on the date of death, the beneficiary will receive the greatest of (i) the contract value on the date of death, (ii) purchase payments minus adjusted partial surrenders, or (iii) the contract value as of the most recent sixth contract anniversary, plus purchase payment and minus adjusted partial surrenders since that anniversary. To the extent that the GMDB is higher than the current account value at the time of death, AEFA incurs a benefit cost. For the results through December 31, 2003, GAAP did not prescribe advance recognition of the projected future net costs associated with these guarantees, and accordingly, AEFA did not record a liability corresponding to these future obligations for death benefits in excess of annuity account value. The amount paid in excess of contract value was expensed when payable. Amounts expensed for the years ended December 31, 2003 and 2002 were $32 million and $37 million, respectively. In July 2003, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts" (SOP 03-1), which is required to be adopted on January 1, 2004 and requires reserves related to GMDBs. The impact of that requirement as well as other provisions of SOP 03-1 are still subject to interpretation and are currently being evaluated. The Company's life and annuity products all have minimum interest rate guarantees in their fixed accounts. These guarantees range from 1.5% to 5%. To the extent the yield on AEFA's invested asset portfolio declines below its target spread plus the minimum guarantee, AEFA's profitability would be negatively affected. Mutual Fund Industry Developments As has been widely reported, the Securities and Exchange Commission, the National Association of Securities Dealers, Inc. (NASD) and several state attorneys general have brought proceedings challenging several mutual fund industry practices, including late trading, market timing, disclosure of revenue sharing arrangements and inappropriate sales of B shares. AEFA has received requests for information concerning its practices and is providing information and cooperating fully with these inquiries. In February 2004, AEFA was one of 15 firms that settled an enforcement action brought by the SEC and the NASD relating to breakpoint discounts pursuant to which AEFA agreed to pay a fine of $3.7 million and to reimburse customers to whom the firm failed to deliver such discounts. These amounts were fully accrued by AEFA in 2003. In addition, Congress has proposed legislation and the SEC has proposed and, in some instances, adopted rules relating to the mutual fund industry, including expenses and fees, mutual fund corporate governance and disclosures to customers. While there remains a significant amount of uncertainty as to what legislative and regulatory initiatives may ultimately be adopted, these initiatives could impact mutual fund industry participants' results, including AEFA's, in future periods. 38

(p.65_axp_finanacial review) SELECTED STATISTICAL INFORMATION <TABLE> <CAPTION> Years Ended December 31, (Millions, except where indicated) 2003 2002 2001 ------------------------------------------------------------------------------------------- <S> <C> <C> <C> Life insurance inforce (billions) $ 131.4 $ 119.0 $ 107.9 Deferred annuities inforce (billions) $ 47.4 $ 41.0 $ 41.3 Assets owned, managed or administered (billions): Assets managed for institutions $ 116.4 $ 42.3 $ 49.7 Assets owned, managed or administered for individuals: Owned assets: Separate account assets 30.8 22.0 27.3 Other owned assets 53.8 51.7 44.2 ------------------------------------------------------------------------------------------- Total owned assets 84.6 73.7 71.5 ------------------------------------------------------------------------------------------- Managed assets 110.2 81.6 98.7 Administered assets* 54.1 33.0 33.4 ------------------------------------------------------------------------------------------- Total $365.3 $ 230.6 $ 253.3 =========================================================================================== Market appreciation (depreciation) during the period: Owned assets: Separate account assets $ 5,514 $ (5,057) $ (5,752) Other owned assets $ (244) $ 898 $ 879 Managed assets $26,213 $(16,788) $(18,662) Cash sales: Mutual funds $30,407 $ 31,945 $ 33,581 Annuities 8,335 8,541 5,648 Investment certificates 5,736 4,088 3,788 Life and other insurance products 760 710 895 Institutional 3,033 3,331 5,006 Other 5,787 5,201 5,276 ------------------------------------------------------------------------------------------- Total cash sales $54,058 $ 53,816 $ 54,194 =========================================================================================== Number of financial advisors 12,121 11,689 11,535 Fees from financial plans and advice services $ 120.7 $ 113.9 $ 107.5 Percentage of total sales from financial plans and advice services 74.8% 73.3% 72.5% =========================================================================================== </TABLE> * Excludes non-branded administered assets of $3.6 billion and $2.3 billion at December 31, 2002 and 2001, respectively. Liquidity and Capital Resources SELECTED BALANCE SHEET INFORMATION (GAAP BASIS) <TABLE> <CAPTION> December 31, (Billions, except percentages) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Investments $42.1 $38.2 Separate account assets $30.8 $22.0 Deferred acquisition costs $ 4.0 $ 3.8 Total assets $84.6 $73.7 Client contract reserves $41.2 $37.3 Separate account liabilities $30.8 $22.0 Total liabilities $77.5 $67.4 Total shareholder's equity $ 7.1 $ 6.3 Return on average total shareholder's equity* 10.4% 10.9% ================================================================================ </TABLE> * Computed on a trailing 12-month basis using income before cumulative effect of accounting change and total shareholder's equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. 39

(p.66_axp_financial review) On September 30, 2003, AEFA acquired Threadneedle for cash of 340 million (pounds) (approximately $565 million at September 30, 2003 exchange rates). AEFA received a $564 million capital contribution from the Parent Company for purposes of this acquisition. Threadneedle is one of the premier asset management organizations in the United Kingdom. Threadneedle will continue to manage certain assets of Zurich Financial Services, U.K., which constitute a substantial portion of Threadneedle assets under management, for an initial term of up to eight years, subject to standard performance criteria. Effective September 30, 2003, $3.6 billion of owned assets and $3.0 billion of liabilities, and $81.1 billion of assets under management, were consolidated into AEFA's balance sheet and statistical information, respectively. AEFA's total assets and liabilities increased in 2003 primarily due to higher investments, client contract reserves and separate account assets and liabilities, which increased mainly as a result of market appreciation. Investments primarily include corporate debt and mortgage-backed securities. AEFA's corporate debt securities comprise a diverse portfolio with the largest concentrations, accounting for approximately 65 percent of the portfolio, in the following industries: banking and finance, utilities, and communications and media. Investments also include $3.8 billion and $4.0 billion of investment loans at December 31, 2003 and 2002, respectively. Investments are principally funded by sales of insurance, annuities and certificates and by reinvested income. Maturities of these investments are largely matched with the expected future payments of insurance and annuity obligations. Investments include $3.2 billion and $2.4 billion of below investment grade securities (excluding net unrealized appreciation and depreciation) at December 31, 2003 and 2002, respectively. These investments represent 8 percent and 6 percent of AEFA's investment portfolio at December 31, 2003 and 2002, respectively. Non-performing assets relative to invested assets (excluding short-term cash positions) were 0.07% and 0.1% at December 31, 2003 and 2002, respectively. Management believes a more relevant measure of exposure of AEFA's below investment grade securities and non-performing assets should exclude $236 million of below investment grade securities (excluding net unrealized appreciation and depreciation), which were recorded as a result of the December 31,2003 adoption of FIN 46. These assets are not available for AEFA's general use as they are for the benefit of the CDO debt holders and reductions in values of such investments will be fully absorbed by the third party investors. Excluding the impacts of FIN 46, investments include $2.9 billion of below investment grade securities (excluding net unrealized appreciation and depreciation), representing 7 percent of AEFA's investment portfolio, and non-performing assets relative to invested assets (excluding short-term cash positions) were 0.01% at December 31, 2003. Assets consolidated as a result of the December 31, 2003 adoption of FIN 46 were $1.2 billion. The newly consolidated assets consisted of $844 million of cash, $244 million of below investment grade securities classified as Available-for-Sale (including net unrealized appreciation and depreciation), $64 million of derivatives and $15 million of loans and other assets, essentially all of which are restricted. The effect of consolidating these assets on AEFA's balance sheet was offset by AEFA's previously recorded carrying values of its investment in such structures, which totaled $673 million, $500 million of newly consolidated liabilities, which consisted of $325 million of non-recourse debt and $175 million of other liabilities, and $9 million of net unrealized after-tax appreciation on securities classified as Available-for-Sale. The consolidation of FIN 46-related entities resulted in a cumulative effect of accounting change that reduced 2003 net income through a non-cash charge of $13 million ($20 million pretax). The net charge was comprised of a $57 million ($88 million pretax) non-cash charge related to the consolidated CDO offset by a $44 million ($68 million pretax) non-cash gain related to the consolidated SLTs. The initial charge related to the application of FIN 46 for the CDO and SLTs had no cash flow effect on the Company. Ongoing valuation adjustments specifically related to the application of FIN 46 to the CDO are also non-cash items and will be reflected in the Company's quarterly results until maturity. These ongoing valuation adjustments, which will be reflected in operating results over the remaining lives of the structure subject to FIN 46 and which will be dependent upon market factors during such time, will result in periodic gains and losses. In the aggregate, such gains or losses related to the CDO, including the December 31, 2003 implementation charge, will reverse themselves over time as the structure matures, because the debt issued to the investors in the CDO is non-recourse to the Company, and further reductions in the value of the related assets will ultimately be absorbed by the third-party investors. To the extent losses are incurred in the SLT 40

(p.67_axp_financial review) portfolio, charges could be incurred that may or may not be reversed. Taken together over the lives of the structures through their maturity, the Company's maximum cumulative exposure to pretax loss as a result of its investment in these entities is represented by the carrying values prior to adoption of FIN 46, which were nil and $673 million for the CDO and SLTs, respectively, as well as the $68 million pretax non-cash gain recorded upon consolidation of the SLTs. During 2003, AEFA continued to hold investments in CDOs and an SLT, some of which are also managed by AEFA, and were not consolidated pursuant to the adoption of FIN 46 as the Company was not considered a primary beneficiary. As a condition to its managing certain CDOs, AEFA is required to invest in the residual or "equity" tranche of the CDO, which is typically the most subordinated tranche of securities issued by the CDO entity. AEFA invested in CDOs and the SLT as part of its investment strategy in order to offer a competitive rate to contractholders' accounts. AEFA's exposure as an investor is limited solely to its aggregate investment in the CDOs and SLTs, and it has no obligations or commitments, contingent or otherwise, that could require any further funding of such investments. As of December 31, 2003, the carrying values of the CDO residual tranches and SLT notes, managed by AEFA, were $16 million and nil, respectively. AEFA also has an interest in a CDO securitization described below, as well as an additional $28 million in rated CDO tranches and $27 million in a minority-owned SLT, both of which are managed by third parties. CDOs and the SLT are illiquid investments. As an investor in the residual tranche of CDOs, AEFA's return correlates to the performance of portfolios of high-yield bonds and/or bank loans. As a noteholder of the SLT, AEFA's return is based on a reference portfolio of loans. The carrying value of the CDO and SLT investments, as well as derivatives recorded on the balance sheet as a result of consolidating certain SLTs, and AEFA's projected return are based on discounted cash flow projections that require a significant degree of management judgment as to assumptions primarily related to default and recovery rates of the high-yield bonds and/or bank loans either held directly by the CDO or in the reference portfolio of the SLT and, as such, are subject to change. Generally, the SLTs are structured such that the principal amount of the loans in the reference portfolio may be up to five times that of the par amount of the notes held by AEFA. Although the exposure associated with AEFA's investment in CDOs and SLTs is limited to the carrying value of such investments, they have additional volatility associated with them because the amount of the initial value of the loans and/or other debt obligations in the related portfolios is significantly greater than AEFA's exposure. In addition, the derivatives recorded as a result of consolidating certain SLTs under FIN 46 are valued based on the expected performance of a reference portfolio of high-yield loans. As previously mentioned, the exposure to loss related to these derivatives is represented by the $673 million carrying value of the SLTs prior to adoption of FIN 46 and the $68 million pretax non-cash gain recorded upon consolidation. Deterioration in the value of the high-yield bonds or bank loans would likely result in deterioration of AEFA's investment return with respect to the relevant CDO or SLT investment or consolidated derivative, as the case may be. In the event of significant deterioration of a portfolio, the relevant CDO or SLT may be subject to early liquidation, which could result in further deterioration of the investment return or, in severe cases, loss of the CDO, SLT or consolidated derivative carrying amount. See Note 1 to the Consolidated Financial Statements. During 2001, the Company placed a majority of its rated CDO securities and related accrued interest, as well as a relatively minor amount of other liquid securities (collectively referred to as transferred assets), having an aggregate book value of $905 million, into a securitization trust. In return, the Company received $120 million in cash (excluding transaction expenses) relating to sales to unaffiliated investors and retained interests in the trust with allocated book amounts aggregating $785 million. As of December 31, 2003, the retained interests had a carrying value of $694 million, of which $512 million is considered investment grade. The Company has no obligations, contingent or otherwise, to such unaffiliated investors. One of the results of this transaction is that increases and decreases in future cash flows of the individual CDOs are combined into one overall cash flow for purposes of determining the carrying value of the retained interests and related impact on results of operations. AEFA holds reserves for current and future obligations related to fixed annuities, investment certificates and life and disability insurance. Reserves for fixed annuities, universal life contracts and investment certificates are equal to the underlying contract accumulation values. Reserves for other life and health insurance products are based on various assumptions, including mortality rates, morbidity rates and policy persistency. 41

(p.68_axp_financial review) Separate account assets represent funds held for the exclusive benefit of variable annuity and variable life insurance contract holders. These assets are generally carried at market value, and separate account liabilities are equal to separate account assets. AEFA earns investment management, administration and other fees from the related accounts. Separate account assets increased in 2003 due to market appreciation, an additional $2.6 billion of assets from the Threadneedle acquisition and net inflows. The National Association of Insurance Commissioners (NAIC) has prescribed Risk-Based Capital (RBC) requirements for insurance companies. The RBC requirements are to be used as minimum capital and surplus requirements by the NAIC and state insurance regulators to identify companies that merit further regulatory attention. At December 31, 2003, each of AEFA's insurance companies had adjusted capital and surplus in excess of amounts requiring such attention. State insurance statutes also contain limitations as to the amount of dividends and distributions that insurers may make without providing prior notification to state regulators. For IDS Life, any dividends or distributions in 2004, whose amount, together with that of other distributions made within the preceding 12 months, exceeds IDS Life's 2003 statutory net gain from operations, would require notification to the Minnesota Commissioner of Commerce who would have the option to disapprove the proposed distribution based on consideration of general solvency as well as RBC results. Contingent Liquidity Planning AEFA has developed a contingent funding plan that enables it to meet daily customer obligations during periods in which its customers do not roll over maturing certificate contracts and elect to withdraw funds from their annuity and insurance contracts. This plan is designed to ensure that AEFA could meet these customer withdrawals by selling or obtaining financing, through repurchase agreements, of portions of its investment securities portfolio. AEFA received a $564 million capital contribution from the Parent Company for purposes of the September 30, 2003 Threadneedle acquisition, as mentioned earlier. Risk Management At AEFA, interest rate exposures arise primarily within its insurance and investment certificate subsidiaries. Rates credited to customers' accounts generally reset at shorter intervals than the yield on underlying investments. Therefore, AEFA's interest spread margins are affected by changes in the general level of interest rates. The extent to which the level of rates affects spread margins is managed primarily by a combination of modifying the maturity structure of the investment portfolio and entering into swaps or other derivative instruments that effectively lengthen the rate reset interval on customer liabilities. Interest rate derivatives with notional amounts totaling approximately $3.9 billion were outstanding at December 31, 2003 to hedge interest rate exposures. Additionally, AEFA has entered into interest rate swaptions with notional amounts totaling $1.2 billion to hedge the impact of increasing interest rates on forecasted fixed annuity sales. The negative effect on AEFA's pretax earnings of a 100 basis point increase in interest rates, which assumes repricings and customer behavior based on the application of proprietary models, to the book of business at December 31, 2003 and 2002 would be approximately $53 million and $20 million for 2003 and 2002 (including the impact of minority interest expense related to the joint venture with AEB), respectively. AEFA has two primary exposures to the general level of equity markets. One exposure is that AEFA earns fees from the management of equity securities in variable annuities, variable insurance, proprietary mutual funds and other managed assets. The amount of fees is generally based on the value of the portfolios, and thus is subject to fluctuation with the general level of equity market values. To reduce the sensitivity of AEFA's fee revenues to the general performance of equity markets, AEFA has from time to time entered into various combinations of financial instruments that mitigate the negative effect on fees that would result from a decline in the equity markets. The second exposure is that AEFA writes and purchases index options to manage the margin related to certain investment certificate and annuity products that pay interest based upon the relative change in a major stock market index between the beginning and end of the product's term. At December 31, 2003, equity-based derivatives with a net notional amount of $264 million were outstanding to hedge equity market exposures. 42

(p.69_axp_financial review) The negative effect on AEFA's pretax earnings of a 10 percent decline in equity markets would be approximately $89 million and $57 million based on assets under management, certificate and annuity business inforce, and index options as of December 31, 2003 and 2002, respectively. AEFA's acquisition of Threadneedle resulted in balance sheet exposures to foreign exchange risk, which is managed primarily by entering into agreements to buy and sell currencies on a spot or forward basis. At December 31, 2003, foreign currency products with total notional amounts of approximately $777 million were outstanding. Based on the year-end 2003 foreign exchange positions, the effect on AEFA's earnings and equity of a hypothetical 10 percent strengthening of the U.S. dollar would be immaterial. AEFA's owned investment securities are, for the most part, held by its life insurance and investment certificate subsidiaries, which primarily invest in long-term and intermediate-term fixed income securities to provide their clients with a competitive rate of return on their investments while controlling risk. Investment in fixed income securities is designed to provide AEFA with a targeted margin between the interest rate earned on investments and the interest rate credited to clients' accounts. AEFA does not trade in securities to generate short-term profits for its own account. AEFA's Balance Sheet Management Committee and the Company's ERMC regularly review models projecting various interest rate scenarios and risk/return measures and their effect on the profitability of the Company. The committees' objectives are to structure their investment security portfolios based upon the type and behavior of the products in the liability portfolios to achieve targeted levels of profitability within defined risk parameters and to meet contractual obligations. Part of the committees' strategies include the use of derivatives, such as interest rate caps, swaps and floors, for risk management purposes. AMERICAN EXPRESS BANK Results of Operations STATEMENTS OF OPERATIONS <TABLE> <CAPTION> Years Ended December 31, (Millions) 2003 2002 2001 -------------------------------------------------------------------------------- <S> <C> <C> <C> Net revenues: Interest income $575 $606 $698 Interest expense 226 246 396 -------------------------------------------------------------------------------- Net interest income 349 360 302 Commissions and fees 238 215 203 Foreign exchange income and other revenues 214 170 144 -------------------------------------------------------------------------------- Total net revenues 801 745 649 -------------------------------------------------------------------------------- Expenses: Human resources 271 236 247 Other operating expenses 279 244 255 Provisions for losses: Ongoing 102 147 65 Restructuring related -- -- 26 -------------------------------------------------------------------------------- Total provisions for losses 102 147 91 Restructuring charges (2) (3) 70 -------------------------------------------------------------------------------- Total expenses 650 624 663 -------------------------------------------------------------------------------- Pretax income (loss) 151 121 (14) Income tax provision (benefit) 49 41 (1) -------------------------------------------------------------------------------- Net income (loss) $102 $ 80 $(13) ================================================================================ </TABLE> 43

(p.70_axp_financial review) American Express Bank's results reflect the positive impact of growth within Private Banking and its Financial Institutions Group (FIG), partially offset by loan and other activity reductions within Corporate Banking, and within its Personal Financial Services (PFS) lending business, particularly Hong Kong. AEB reported net income of $102 million in 2003 and $80 million in 2002, compared to a net loss of $13 million in 2001. 2001 results included restructuring charges of $96 million ($65 million after-tax). Net revenues rose 7 percent in 2003 primarily due to higher commissions and fees as well as higher foreign exchange income and other revenues. Net revenues rose 15 percent in 2002, primarily due to higher net interest income and foreign exchange income and other revenue. Net interest income in 2003 declined 3 percent compared to 2002 due to lower levels of PFS loans, reflecting AEB's decision to temporarily curtail loan origination in Hong Kong, and declining Corporate Banking loan balances due to AEB's exit strategy, partially offset by lower funding costs on the investment portfolio and strong growth in Private Banking loans. Net interest income in 2002 increased over 2001 due to the effects of lower funding costs. Commissions and fees increased 11 percent primarily due to higher volumes in FIG and Private Banking, partially offset by reduced PFS activities. In 2002, commissions and fees increased due to growth in loan originations in the PFS business and greater non-credit transactions in FIG, partially offset by lower results in Corporate Banking. Foreign exchange income and other revenues rose 26 percent due to higher client activity in Private Banking and higher mark-to-market gains on FIG seed capital investments in mutual funds. In 2002, foreign exchange income and other revenue increased primarily because of higher joint venture income, due to lower funding costs within the premium deposits joint venture with AEFA. Human resources expense rose 15 percent in 2003 reflecting merit increases, greater employee benefit costs, higher management incentive costs and severance costs related to AEB's downsizing of its operations in Greece. Increases in 2003 management incentive costs included higher stock-based compensation costs from both stock options and increased levels of restricted stock awards. The higher stock-based compensation expense from stock options reflects the Company's decision to expense stock options beginning in 2003. Higher expense related to restricted stock awards reflects the Company's decision to modify compensation practices and use restricted stock awards in place of stock options for middle management. Human resources expense decreased 4 percent in 2002 reflecting the benefits of reengineering activities. Other operating expenses increased 14 percent in 2003 due to higher technology expenses and currency translation losses, previously recorded in Shareholder's Equity, resulting from AEB's scaling back of activities in Europe, partially offset by gains on the sale of real estate properties in Greece. Other operating expenses declined 4 percent in 2002 reflecting the benefits of reengineering activities and tighter expense controls. Provision for losses decreased 31 percent in 2003 due to lower PFS loan volumes and an improvement in bankruptcy-related write-offs in the consumer lending portfolio in Hong Kong. Provision for losses increased substantially in 2002 primarily due to higher bankruptcy-related write-offs in the consumer lending portfolio in Hong Kong. 44

(p.71_axp_financial review) Liquidity and Capital Resources SELECTED BALANCE SHEET INFORMATION (GAAP BASIS) <TABLE> <CAPTION> December 31, (Billions, except percentages and where indicated) 2003 2002 --------------------------------------------------------------------------------- <S> <C> <C> Total loans $ 6.5 $ 5.6 Total non-performing loans (millions) $ 78 $ 119 Other non-performing assets (millions) $ 15 $ 15 Reserve for credit losses (millions)* $ 121 $ 158 Loan loss reserve as a percentage of total loans 1.7% 2.7% Total Personal Financial Services (PFS) loans $ 1.4 $ 1.6 30+ days past due PFS loans as a percentage of total PFS loans 6.6% 5.4% Assets managed**/administered $16.2 $12.5 Assets of non-consolidated joint ventures $ 1.7 $ 1.8 Total assets $14.2 $13.2 Deposits $10.8 $ 9.5 Total liabilities $13.3 $12.3 Total shareholder's equity (millions) $ 949 $ 947 Return on average total assets*** 0.74% 0.66% Return on average total shareholder's equity**** 10.8% 9.6% Risk-based capital ratios: Tier 1 11.4% 10.9% Total 11.3% 11.4% Leverage ratio 5.5% 5.3% --------------------------------------------------------------------------------- *Allocation of reserves (millions): Loans $ 113 $ 151 Other assets, primarily foreign exchange and other derivatives 6 6 Unfunded contingents 2 1 --------------------------------------------------------------------------------- Total reserve for credit losses $ 121 $ 158 ================================================================================= </TABLE> ** Includes assets managed by AEFA. *** Computed on a trailing 12-month basis using total assets as included in the Consolidated Financial Statements prepared in accordance with GAAP. **** Computed on a trailing 12-month basis using total shareholder's equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. Contingent Liquidity Planning AEB has in place a contingent funding plan that enables it to meet daily customer obligations during periods in which its customers do not roll over maturing deposits. This plan is designed to ensure that AEB could meet these customer withdrawals by selling a portion of its investment securities or by obtaining financing through repurchase agreements. AEB had worldwide loans outstanding at December 31, 2003 of approximately $6.5 billion, up from $5.6 billion at December 31, 2002. The increase since 2002 resulted from a $600 million net increase in consumer and Private Banking loans, consisting of an $800 million increase in Private Banking loans and a $200 million decrease in PFS and other loans, and a $500 million increase in Financial Institution loans, partially offset by a $200 million decrease in Corporate Banking loans. As of December 31, 2003, consumer and Private Banking loans comprised 68 percent of total loans versus 69 percent at December 31,2002. Corporate Banking comprised 3 percent of total loans at December 31,2003 versus 6 percent at December 31, 2002. Financial Institution loans comprised 29 percent of total loans at December 31, 2003 versus 25 percent at December 31, 2002. In addition to the loan portfolio, other banking activities, such as securities, unrealized gains on foreign exchange and derivatives contracts, various contingencies and market placements added approximately $7.6 billion and $8.0 billion to AEB's credit exposures at December 31, 2003 and 2002, respectively. Included in these additional exposures are relatively lower risk cash and securities related balances totaling $5.4 billion at December 31, 2003. 45

(p.72_axp_financial review) Risk Management AEB employs a variety of financial instruments in managing its exposure to fluctuations in interest and currency rates. Derivative instruments consist principally of foreign exchange spot and forward contracts, foreign currency options, interest rate swaps, futures and forward rate agreements. Generally, they are used to manage specific interest rate and foreign exchange exposures related to deposits, long-term debt, equity, loans and securities holdings. At December 31, 2003, interest rate products with notional amounts totaling approximately $12.2 billion and $0.3 billion for trading and non-trading purposes, respectively, were outstanding. Notional amounts outstanding at December 31, 2003 for foreign currency products were approximately $28.8 billion and $5.0 billion for trading and non-trading purposes, respectively. Additionally, equity products with notional amounts of $830 million were outstanding at December 31, 2003. The negative effect of a 100 basis point increase in interest rates on AEB's pretax earnings would be $42 million and $19 million at December 31, 2003 and 2002 (including the impact of pretax earnings related to the joint venture with AEFA), respectively. The effect on earnings of a 10 percent change in the value of the U.S. dollar would be negligible and, with respect to translation exposure of foreign operations, would result in a $9 million and $16 million pretax impact to equity as of December 31, 2003 and 2002, respectively. AEB utilizes foreign exchange and interest rate products to meet the needs of its customers. Customer positions are usually, but not always, offset. They are evaluated in terms of AEB's overall interest rate or foreign exchange exposure. AEB also takes limited proprietary positions. Potential daily exposure from trading activities is calculated using a Value at Risk methodology. This model employs a parametric technique using a correlation matrix based on historical data. The Value at Risk measure uses a 99 percent confidence interval to estimate potential trading losses over a one-day period. The average Value at Risk for AEB was less than $1 million for both 2003 and 2002. Asset/liability and market risk management at AEB are supervised by the Asset and Liability Committee, which comprises senior business managers of AEB. It meets monthly and monitors: (i) liquidity, (ii) capital exposure, (iii) capital adequacy, (iv) market risk and (v) investment portfolios. The committee evaluates current market conditions and determines AEB's tactics within risk limits approved by AEB's Board of Directors. AEB's treasury and risk management operations issue policies and control procedures and delegate risk limits throughout AEB's regional trading centers. CORPORATE AND OTHER Corporate and Other reported net expenses of $214 million, $176 million and $187 million in 2003,2002 and 2001, respectively. 2001 results include $14 million ($9 million after-tax) of the restructuring charges noted earlier. Included in 2002 results were the final preferred stock dividends from Lehman Brothers totaling $69 million ($59 million after-tax) compared with $46 million ($39 million after-tax) in 2001. The dividends were offset by business building initiatives in each year. OTHER REPORTING MATTERS Accounting Developments In July 2003, the AICPA issued Statement of Position 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts" (SOP 03-1). The Company is currently evaluating its impact, which, among other provisions, requires reserves related to guaranteed minimum death benefits included within the majority of variable annuity contracts offered by AEFA. SOP 03-1 is required to be adopted on January 1,2004, and its impact will be recognized as a cumulative effect of change in accounting principle in the Company's first quarter 2004 Statement of Income. See AEFA's Impact of Recent Market-Volatility on Results of Operations section of the Financial Review for further discussion. Forward-Looking Statements This Annual Report includes forward-looking statements, which are subject to risks and uncertainties. The words "believe," "expect," "anticipate," "optimistic," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely," and similar 46

(p.73_axp_financial review) expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update or revise any forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to: the Company's ability to successfully implement a business model that allows for significant earnings growth based on revenue growth that is lower than historical levels, including the ability to improve its operating expense to revenue ratio both in the short-term and over time, which will depend in part on the effectiveness of reengineering and other cost-control initiatives, as well as factors impacting the Company's revenues; the Company's ability to moderate the growth rate of its marketing, promotion, rewards and cardmember services expenses to levels below 2003; the Company's ability to accurately estimate the provision for the cost of the Membership Rewards program; the Company's ability to grow its business and meet or exceed its return on shareholders' equity target by reinvesting approximately 35% of annually-generated capital, and returning approximately 65% of such capital to shareholders, over time, which will depend on the Company's ability to manage its capital needs and the effect of business mix, acquisitions and rating agency requirements; the ability of the Company to generate sufficient revenues for expanded investment spending and to actually spend such funds to the extent available, and the ability to capitalize on such investments to improve business metrics; credit risk related to consumer debt, business loans, merchant bankruptcies and other credit exposures both in the U.S. and internationally; fluctuation in the equity and fixed income markets, which can affect the amount and types of investment products sold by AEFA, the market value of its managed assets, and management, distribution and other fees received based on the value of those assets; AEFA's ability to recover DAC, as well as the timing of such DAC amortization, in connection with the sale of annuity, insurance and certain mutual fund products; changes in assumptions relating to DAC, which could impact the amount of DAC amortization; the ability to improve investment performance in AEFA's businesses, including attracting and retaining high-quality personnel; the success, timeliness and financial impact, including costs, cost savings and other benefits including increased revenues, of reengineering initiatives being implemented or considered by the Company, including cost management, structural and strategic measures such as vendor, process, facilities and operations consolidation, outsourcing (including, among others, technologies operations), relocating certain functions to lower-cost overseas locations, moving internal and external functions to the Internet to save costs, and planned staff reductions relating to certain of such reengineering actions; the ability to control and manage operating, infrastructure, advertising and promotion and other expenses as business expands or changes, including balancing the need for longer-term investment spending; the potential negative effect on the Company's businesses and infrastructure, including information technology, of terrorist attacks, disasters or other catastrophic events in the future; the impact on the Company's businesses resulting from continuing geopolitical uncertainty; the overall level of consumer confidence; consumer and business spending on the Company's travel related services products, particularly credit and charge cards and growth in card lending balances, which depend in part on the ability to issue new and enhanced card products and increase revenues from such products, attract new cardholders, capture a greater share of existing cardholders' spending, sustain premium discount rates, increase merchant coverage, retain cardmembers after low introductory lending rates have expired, and expand the global network services business; the triggering of obligations to make payments to certain co-brand partners, merchants, vendors and customers under contractual arrangements with such parties under certain circumstances; successfully cross-selling financial, travel, card and other products and services to the Company's customer base, both in the United States and internationally; a downturn in the Company's businesses and/or negative changes in the Company's and its subsidiaries' credit ratings, which could result in contingent payments under contracts, decreased liquidity and higher borrowing costs; fluctuations in interest rates, which impact the Company's borrowing costs, return on lending products and spreads in the investment and insurance businesses; credit trends and the rate of bankruptcies, which can affect spending on card products, debt payments by individual and corporate customers and businesses that accept the Company's card products and returns on the Company's investment portfolios; fluctuations in foreign currency exchange rates; political or economic instability in certain regions or countries, which could affect lending and other commercial activities, among other businesses, or restrictions on convertibility of certain currencies; changes in laws or government regulations; the costs and integration of acquisitions; and outcomes and costs associated with litigation and compliance with regulatory matters. A further description of these and other risks and uncertainties can be found in the Company's Annual Report on Form 10-K and its other reports filed with the SEC. 47

(p.74_axp_consolidated financial statements) Consolidated Statements of Income AMERICAN EXPRESS COMPANY <TABLE> <CAPTION> Years Ended December 31, (Millions, except per share amounts) 2003 2002 2001 ------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Revenues Discount revenue $ 8,781 $ 7,931 $ 7,714 Net investment income 3,063 2,991 2,137 Management and distribution fees 2,450 2,285 2,458 Cardmember lending net finance charge revenue 2,042 1,828 1,704 Net card fees 1,835 1,726 1,675 Travel commissions and fees 1,507 1,408 1,537 Other commissions and fees 1,977 1,928 1,935 Insurance and annuity revenues 1,366 1,218 1,063 Securitization income, net 1,150 1,049 846 Other 1,695 1,443 1,513 ------------------------------------------------------------------------------------------------- Total 25,866 23,807 22,582 ------------------------------------------------------------------------------------------------- Expenses Human resources 6,333 5,725 6,271 Provisions for losses and benefits: Annuities and investment certificates 1,306 1,217 1,318 Life insurance, international banking and other 1,052 1,040 909 Charge card 853 960 1,195 Cardmember lending 1,218 1,369 1,318 Marketing, promotion, rewards and cardmember services 3,901 3,119 2,718 Professional services 2,248 2,021 1,651 Occupancy and equipment 1,529 1,458 1,574 Interest 905 1,082 1,501 Communications 517 514 528 Restructuring charges (2) (7) 605 Disaster recovery charge -- (7) 90 Other 1,759 1,589 1,308 ------------------------------------------------------------------------------------------------- Total 21,619 20,080 20,986 ------------------------------------------------------------------------------------------------- Pretax income before accounting change 4,247 3,727 1,596 Income tax provision 1,247 1,056 285 ------------------------------------------------------------------------------------------------- Income before accounting change 3,000 2,671 1,311 Cumulative effect of accounting change, net of tax (Note 1) (13) -- -- ------------------------------------------------------------------------------------------------- Net income $ 2,987 $ 2,671 $ 1,311 ================================================================================================= Earnings Per Common Share -- Basic: Income before accounting change $ 2.34 $ 2.02 $ 0.99 Net income $ 2.33 $ 2.02 $ 0.99 ------------------------------------------------------------------------------------------------- Earnings Per Common Share -- Diluted: Income before accounting change $ 2.31 $ 2.01 $ 0.98 Net income $ 2.30 $ 2.01 $ 0.98 ------------------------------------------------------------------------------------------------- Average common shares outstanding for earnings per common share: Basic 1,284 1,320 1,324 Diluted 1,298 1,330 1,336 ================================================================================================= </TABLE> See Notes to Consolidated Financial Statements. 48

(p.75_axp_consolidated financial statements) Consolidated Balance Sheets AMERICAN EXPRESS COMPANY <TABLE> <CAPTION> December 31, (Millions, except share data) 2003 2002 ------------------------------------------------------------------------------------------------- <S> <C> <C> Assets Cash and cash equivalents (Note 1) $ 5,726 $ 10,288 Accounts receivable and accrued interest: Cardmember receivables, less credit reserves: 2003, $916; 2002, $930 27,487 25,403 Other receivables, less credit reserves: 2003, $18; 2002, $28 3,782 3,684 Investments (Note 2) 57,067 53,638 Loans: (Note 3) Cardmember lending, less credit reserves: 2003, $998; 2002, $1,030 24,836 21,574 International banking, less credit reserves: 2003, $113; 2002, $151 6,371 5,466 Other, net 1,093 782 Separate account assets 30,809 21,981 Deferred acquisition costs 4,137 3,908 Land, buildings and equipment--at cost, less accumulated depreciation: 2003, $3,091; 2002, $2,603 3,184 2,979 Other assets 10,509 7,550 ------------------------------------------------------------------------------------------------- Total assets $175,001 $157,253 ================================================================================================= Liabilities and Shareholders' Equity Customers' deposits $ 21,250 $ 18,317 Travelers Cheques outstanding 6,819 6,623 Accounts payable 6,591 9,235 Insurance and annuity reserves: Fixed annuities 26,377 23,411 Life and disability policies 5,592 5,272 Investment certificate reserves 9,207 8,666 Short-term debt (Note 6) 19,046 21,103 Long-term debt (Note 6) 20,654 16,308 Separate account liabilities 30,809 21,981 Guaranteed preferred beneficial interests in the company's junior subordinated deferrable interest debentures (Note 7) -- 511 Other liabilities 13,333 11,965 ------------------------------------------------------------------------------------------------- Total liabilities 159,678 143,392 ------------------------------------------------------------------------------------------------- Shareholders' Equity Common shares, $.20 par value, authorized 3.6 billion shares; issued and outstanding 1,284 million shares in 2003 and 1,305 million shares in 2002 (Note 8) 257 261 Additional paid-in capital 6,081 5,675 Retained earnings 8,793 7,606 Other comprehensive income (loss), net of tax: Net unrealized securities gains 931 1,104 Net unrealized derivatives losses (446) (538) Foreign currency translation adjustments (278) (198) Minimum pension liability (15) (49) ------------------------------------------------------------------------------------------------- Accumulated other comprehensive income 192 319 ------------------------------------------------------------------------------------------------- Total shareholders' equity 15,323 13,861 ------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $175,001 $157,253 ================================================================================================= </TABLE> See Notes to Consolidated Financial Statements. 49

(p.76_axp_consolidated financial statements) Consolidated Statements of Cash Flows AMERICAN EXPRESS COMPANY <TABLE> <CAPTION> Years Ended December 31, (Millions) 2003 2002 2001 -------------------------------------------------------------------------------------------------- <S> <C> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,987 $ 2,671 $ 1,311 Adjustments to reconcile net income to net cash provided by operating activities: Provisions for losses and benefits 2,451 2,814 2,955 Depreciation and amortization 676 549 617 Deferred taxes, acquisition costs and other 120 184 70 Non-cash portion of restructuring charges (2) (7) 580 Non-cash portion of disaster recovery charge -- (7) 20 Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable and accrued interest (692) 484 455 Other assets (693) (255) 293 Accounts payable and other liabilities (2,774) 1,365 (1,456) Increase (decrease) in Travelers Cheques outstanding 187 431 (89) Increase in insurance reserves 265 271 240 Cumulative effect of accounting change, net of tax (Note 1) 13 -- -- -------------------------------------------------------------------------------------------------- Net cash provided by operating activities 2,538 8,500 4,996 -------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Sale of investments 14,743 13,155 11,049 Maturity and redemption of investments 11,877 6,410 6,182 Purchase of investments (30,174) (24,961) (19,912) Net increase in cardmember loans/receivables (7,021) (7,793) (3,147) Cardmember receivables sold to trust -- 1,750 750 Cardmember receivables redeemed from trust (2,085) -- (600) Cardmember loans sold to trust 3,442 4,589 4,315 Cardmember loans redeemed from trust (1,000) (2,000) (1,000) Loan operations and principal collections, net (883) (115) 592 Purchase of land, buildings and equipment (1,021) (670) (859) Sale of land, buildings and equipment 80 125 22 Acquisitions, net of cash acquired (749) (58) (165) -------------------------------------------------------------------------------------------------- Net cash used in investing activities (12,791) (9,568) (2,773) -------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in customers' deposits 2,381 3,246 988 Sale of annuities and investment certificates 12,109 10,124 5,834 Redemption of annuities and investment certificates (8,645) (5,782) (4,761) Net decrease in debt with maturities of three months or less (712) (7,201) (4,220) Issuance of debt 19,220 19,392 15,083 Principal payments on debt (16,498) (14,167) (15,318) Redemption of preferred beneficial interests securities (500) -- -- Issuance of American Express common shares 348 161 84 Repurchase of American Express common shares (1,391) (1,153) (626) Dividends paid (471) (430) (424) -------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 5,841 4,190 (3,360) Effect of exchange rate changes on cash (150) (56) (128) -------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (4,562) 3,066 (1,265) Cash and cash equivalents at beginning of year 10,288 7,222 8,487 -------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 5,726 $ 10,288 $ 7,222 ================================================================================================== </TABLE> See Notes to Consolidated Financial Statements. 50

(p.77_axp_consolidated financial statements) Consolidated Statements of Shareholders' Equity AMERICAN EXPRESS COMPANY <TABLE> <CAPTION> Accumulated Additional Other Common Paid-in Comprehensive Retained Three Years Ended December 31, 2003 (Millions) Total Shares Capital Income/(Loss) Earnings ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> Balances at December 31, 2000 $11,684 $265 $5,439 $(218) $ 6,198 ------------------------------------------------------------------------------------------------------------ Comprehensive income: Net income 1,311 1,311 Change in net unrealized securities gains 479 479 Cumulative effect of adopting SFAS No. 133 (120) (120) Change in net unrealized derivatives losses (605) (605) Derivatives losses reclassified to earnings 429 429 Foreign currency translation adjustments (39) (39) Minimum pension liability adjustment (103) (103) ------- Total comprehensive income 1,352 Repurchase of common shares (626) (2) (53) (571) Other changes, primarily employee plans 51 3 141 (93) Cash dividends declared: Common, $0.32 per share (424) (424) ------------------------------------------------------------------------------------------------------------ Balances at December 31, 2001 12,037 266 5,527 (177) 6,421 ------------------------------------------------------------------------------------------------------------ Comprehensive income: Net income 2,671 2,671 Change in net unrealized securities gains 770 770 Change in net unrealized derivatives losses (614) (614) Derivatives losses reclassified to earnings 372 372 Foreign currency translation adjustments (86) (86) Minimum pension liability adjustment 54 54 ------- Total comprehensive income 3,167 Repurchase of common shares (1,153) (7) (139) (1,007) Other changes, primarily employee plans 235 2 287 (54) Cash dividends declared: Common, $0.32 per share (425) (425) ------------------------------------------------------------------------------------------------------------ Balances at December 31, 2002 13,861 261 5,675 319 7,606 ------------------------------------------------------------------------------------------------------------ Comprehensive income: Net income 2,987 2,987 Change in net unrealized securities gains (173) (173) Change in net unrealized derivatives losses (323) (323) Derivatives losses reclassified to earnings 415 415 Foreign currency translation adjustments (80) (80) Minimum pension liability adjustment 34 34 ------- Total comprehensive income 2,860 Repurchase of common shares (1,391) (7) (160) (1,224) Other changes, primarily employee plans 488 3 566 (81) Cash dividends declared: Common, $0.38 per share (495) (495) ------------------------------------------------------------------------------------------------------------ Balances at December 31, 2003 $15,323 $257 $6,081 $ 192 $ 8,793 ============================================================================================================ </TABLE> See Notes to Consolidated Financial Statements. 51

(p.78_axp_notes to consolidated financial statements) Notes to Consolidated Financial Statements (Note 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying Consolidated Financial Statements include the accounts of American Express Company, its subsidiaries and certain variable interest entities (the Company). All significant intercompany transactions are eliminated. Certain reclassifications of prior period amounts have been made to conform to the current presentation. Principles of Consolidation As of December 31, 2003, pursuant to the Company's adoption of Financial Accounting Standards Board (FASB) Interpretation No. 46, "Consolidation of Variable Interest Entities," as revised, the Company consolidates all variable interest entities for which it is considered to be the primary beneficiary. In addition, the Company consolidates all entities in which it holds a greater than 50% interest, except for immaterial seed money investments in mutual and hedge funds. Entities in which the Company holds a greater than 20% but less than 50% equity interest are accounted for under the equity method. All other investments are accounted for under the cost method unless the Company determines that it exercises significant influence over the entity by means other than voting rights. Qualifying Special Purpose Entities (QSPEs) under Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," are not consolidated. Such QSPEs include those that the Company utilizes in connection with cardmember lending securitizations at the Travel Related Services (TRS) segment, as well as a securitization trust containing a majority of the Company's rated collateralized debt obligations (CDOs) described in Note 2. Other entities are evaluated using the control, risk and reward criteria as outlined under accounting principles generally accepted in the United States (GAAP) in determining whether to consolidate other entities where the Company has an interest, is the sponsor or transferor. See Recently Issued Accounting Standards section below for further information regarding consolidation of such entities. Additionally, the Company has securitized charge card receivables totaling $3.0 billion and $5.1 billion as of December 31, 2003 and 2002, respectively, which are included in cardmember receivables on the Consolidated Balance Sheets as they do not qualify for off-balance sheet treatment under SFAS No. 140; likewise, an equal amount of debt is included in long-term debt. Amounts Based on Estimates and Assumptions Accounting estimates are an integral part of the Consolidated Financial Statements. In part, they are based upon assumptions concerning future events. Among the more significant are those that relate to reserves for cardmember credit losses, Membership Rewards, investment securities valuation and the amortization of deferred acquisition costs as discussed in detail below. These accounting estimates reflect the best judgment of management and actual results could differ. Revenues The Company generates revenue from a wide range of business activities, including payment instruments such as charge and credit cards, travel services including airline, hotel and rental car reservations, and a wide range of investment, savings, lending and insurance products. Discount revenue The Company earns discount revenue from fees charged to service establishments with whom the Company has entered into card acceptance agreements for processing cardmember transactions. The discount is deducted from the payment to the service establishment and recorded as discount revenue at the time the charge is captured. Net investment income Investment income for the Company's performing fixed income securities and investment loans is generally accrued as earned using the effective interest method, which makes an adjustment of the yield for security premiums and discounts, fees and other payments, so that the related loan or security recognizes a constant rate of return on the outstanding balance 52

(p.79_axp_notes to consolidated financial statements) throughout its term. Gains and losses on securities are recognized on a trade date basis, and charges are recorded when securities are determined to be other-than-temporarily impaired. Investment income for the Company's international banking loans is accrued on unpaid principal balances in accordance with the terms of the loan. Loan fees and deferred loan acquisition costs are amortized over the life of the loan using the effective interest method. Generally, the accrual of interest on these loans is discontinued at the time the loan is 90 to 180 days delinquent, depending on loan type, or when an impairment is determined. Net investment income is presented net of interest expense of $229 million, $254 million and $434 million for the years ended December 31, 2003, 2002 and 2001, respectively. Management and distribution fees Management fees relate primarily to managed assets for proprietary mutual funds and proprietary account assets, and are primarily based on the underlying asset values which are accrued daily and generally collected monthly. Many of the proprietary mutual funds have a performance incentive adjustment (PIA). This PIA adjusts the level of management fees received based on the specific fund's relative performance as measured against a designated external index. Distribution fees primarily include point-of-sale fees (i.e., front-load mutual fund fees) and asset-based fees (i.e., 12b-1 fees) that are generally based on a contractual fee as a percentage of assets and recognized when received. Securitization income, net Securitization income includes gains on securitizations, cash flows from interest-only strips and servicing revenue net of related discounts. See Note 4 for further information regarding securitizations. Net card fees Card fees are recognized as revenue over the card membership period covered by the card fee, net of provision for projected refunds of card fees for cancellation of card membership. Similarly, deferred card acquisition costs are amortized into operating expenses over the card membership period covered by the card fee. Cardmember lending net finance charge revenue Cardmember lending finance charges are assessed using the average daily balance method for receivables owned and are recognized based upon the principal amount outstanding in accordance with the terms of the applicable account agreement until the outstanding balance is paid or charged off. Cardmember lending net finance charge revenue is presented net of interest expense of $483 million, $510 million and $939 million for the years ended December 31, 2003, 2002 and 2001, respectively. Travel commissions and fees Customer revenue is earned by charging a transaction or management fee for airline or other transactions based on contractual agreements with travel clients. Customer-related fees and other revenues are recognized at the time a client books travel arrangements. Travel suppliers pay commissions on airline tickets issued and on sales and transaction volumes, based on contractual agreements. These revenues are recognized at the time a ticket is purchased. Other travel suppliers are generally not under firm contractual agreements, and revenue is recognized when cash is received. Other commissions and fees Other commissions and fees include card-related assessments which are primarily recognized in the period charged to the cardmember. Fees related to the Company's Membership Rewards program are recognized over the period covered by the fee. Insurance and annuity revenues Insurance and annuity revenues include premiums on traditional life, disability income, long-term care and property/casualty insurance and certain charges assessed on universal and variable universal life insurance and annuities. Premiums on traditional life, disability income and long-term care insurance are recognized as revenue when due, whereas premiums on property/casualty insurance are recognized ratably over the coverage period. Cost of insurance charges on universal and 53

(p.80_axp_notes to consolidated financial statements) variable universal life insurance are recognized as revenue when earned, whereas contract charges and surrender charges on universal and variable universal life insurance and annuities are recognized as revenue when collected. Other Other revenues include fees from financial planning, consulting and business services and miscellaneous investment income. Marketing, Promotion, Rewards and Cardmember Services The Company expenses advertising costs in the year in which the advertising first takes place. The Company's Membership Rewards loyalty program allows enrolled cardmembers to earn points that can be redeemed for a broad range of travel rewards, retail merchandise and gourmet gifts. The Company makes payments to its reward partners when cardmembers redeem their points and establishes reserves to cover the cost of future reward redemptions. The provision for the cost of Membership Rewards is based upon points awarded that are ultimately expected to be redeemed by cardmembers and the current weighted-average cost per point of redemption. The ultimate points to be redeemed are estimated based on many factors, including a review of past behavior of cardmembers segmented by product, year of enrollment in the program, spend level and duration in the program. Past behavior is used to predict when current enrollees will attrite and their ultimate redemption rate. In addition, the cumulative balance sheet liability for unredeemed points is adjusted over time based on actual redemption and cost experience with respect to redemptions. Cash and Cash Equivalents At both December 31, 2003 and 2002, cash and cash equivalents included $1.1 billion segregated in special bank accounts for the benefit of customers. The Company has defined cash equivalents to include time deposits with original maturities of 90 days or less. The Company classifies restricted cash totaling $1.3 billion and $0.5 billion at December 31, 2003 and 2002, respectively, as other assets in cases where cash cannot be utilized for operations. Reserves for Cardmember Credit Losses The Company's reserves for credit losses relating to cardmember loans and receivables represent management's estimate of the amount necessary to absorb future credit losses inherent in the Company's outstanding portfolio of loans and receivables. Management's evaluation process requires many estimates and judgments. Reserves for these credit losses are primarily based upon models that analyze specific portfolio statistics and also reflect, to a lesser extent, management's judgment regarding overall adequacy. The analytic models take into account several factors, including average write-off rates for various stages of receivable aging (i.e., current, 30 days, 60 days, 90 days) over a 24-month period and average bankruptcy and recovery rates. In exercising its judgment to adjust reserves that are calculated by the analytic model, management considers the level of coverage of past-due accounts, as well as external indicators, such as leading economic indicators, unemployment rate, consumer confidence index, purchasing manager's index, bankruptcy filings and the regulatory environment. Loans are charged-off when management deems amounts to be uncollectible, which is generally determined by the number of days past due. In general, bankruptcy and deceased accounts are written-off upon notification, or when 180 days past due for lending products and 360 days past due for charge card products. For all other accounts, write-off policy is based upon the delinquency and product. To the extent historical credit experience is not indicative of future performance or other assumptions used by management do not prevail, loss experience could differ significantly, resulting in either higher or lower future provisions for credit losses, as applicable. Investments Generally, investment securities are carried at fair value on the balance sheet with unrealized gains (losses) recorded in equity, net of income tax provisions (benefits). Gains and losses are recognized in results of operations upon disposition of the securities. In addition, losses are also recognized when management determines that a decline in value is other-than-temporary, which requires judgment regarding the amount and timing of recovery. Indicators of other-than-temporary 54

(p.81_axp_notes to consolidated financial statements) impairment for debt securities include issuer downgrade, default or bankruptcy. The Company also considers the extent to which cost exceeds fair value, the duration and size of that gap, and management's judgment about the issuer's current and prospective financial condition. Fair value is generally based on quoted market prices. However, the Company's investment portfolio also contains structured investments of various asset quality, including CDOs and secured loan trusts (backed by high-yield bonds and bank loans), which are not readily marketable. As a result, the carrying values of these structured investments are based on future cash flow projections that require a significant degree of management judgment as to the amount and timing of cash payments, defaults and recovery rates of the underlying investments and, as such, are subject to change. Investments also include investment loans, primarily commercial mortgage loans, carried at amortized cost net of specific and unallocated reserves. Separate Account Assets and Liabilities Separate account assets and liabilities are funds held for the exclusive benefit of variable annuity and variable life insurance contractholders. The Company receives investment management fees, mortality and expense assurance fees, minimum death benefit guarantee fees and cost of insurance charges from the related accounts. Deferred Acquisition Costs Deferred acquisition costs (DAC) represent the costs of acquiring new business, principally direct sales commissions and other distribution and underwriting costs that have been deferred on the sale of annuity, life and health insurance and, to a lesser extent, property/casualty and certain mutual fund products. For annuity and insurance products, DAC are amortized over periods approximating the lives of the business, generally as a percentage of premiums or estimated gross profits or as a portion of the interest margins associated with the products. For certain mutual fund products, DAC are generally amortized over fixed periods on a straight-line basis. For annuity and insurance products, the projections underlying the amortization of DAC require the use of certain assumptions, including interest margins, mortality rates, persistency rates, maintenance expense levels and customer asset value growth rates for variable products. Management routinely monitors a wide variety of trends in the business, including comparisons of actual and assumed experience. Management reviews and, where appropriate, adjusts its assumptions with respect to customer asset value growth rates on a quarterly basis. Management monitors other principal DAC assumptions, such as persistency, mortality rate, interest margin and maintenance expense level assumptions, each quarter. Unless management identifies a material deviation over the course of the quarterly monitoring, management reviews and updates these DAC assumptions annually in the third quarter of each year. When assumptions are changed, the percentage of estimated gross profits or portion of interest margins used to amortize DAC may also change. A change in the required amortization percentage is applied retrospectively; an increase in amortization percentage will result in an acceleration of DAC amortization while a decrease in amortization percentage will result in a deceleration of DAC amortization. The impact on results of operations of changing assumptions with respect to the amortization of DAC can be either positive or negative in any particular period and is reflected in the period in which such changes are made. Insurance and Annuity Reserves Liabilities for reported and unpaid life insurance claims are equal to the death benefits payable. For disability income and long-term care claims, unpaid claim liabilities are equal to benefit amounts due and accrued. Liabilities for incurred but not reported claims are estimated based on periodic analysis of the actual reported claim lag. Where applicable, amounts recoverable from reinsurers are separately recorded as receivables. For life insurance, no claim adjustment expense reserve is held. The claim adjustment expense reserves for disability income and long-term care are based on the claim reserves. Liabilities for fixed and variable universal life insurance and fixed and variable deferred annuities are equal to accumulation values. 55

(p.82_axp_notes to consolidated financial statements) Liabilities for equity indexed deferred annuities issued in 1999 or later are equal to the accumulation of host contract values covering guaranteed benefits and the market value of embedded equity options. Liabilities for equity indexed deferred annuities issued before 1999 are equal to the present value of guaranteed benefits and the intrinsic value of index-based benefits. Liabilities for fixed annuities in a benefit status are based on established industry mortality tables and interest rates, ranging from 4.6% to 9.5%, depending on year of issue, with an average rate of approximately 6.3%. Liabilities for future benefits on term and whole life insurance are based on the net level premium method, using anticipated mortality, policy persistency and interest earning rates. Anticipated mortality rates are based on established industry mortality tables, with modifications based on Company experience. Anticipated policy persistency rates vary by policy form, issue age and policy duration with persistency on level term and cash value plans generally anticipated to be better than persistency on yearly renewable term insurance plans. Anticipated interest rates range from 4% to 10%, depending on policy form, issue year and policy duration. Liabilities for future disability income and long-term care policy benefits include both policy reserves and claim reserves. Policy reserves are based on the net level premium method, using anticipated morbidity, mortality, policy persistency and interest earning rates. Anticipated morbidity and mortality rates are based on established industry morbidity and mortality tables. Anticipated policy persistency rates vary by policy form, issue age, policy duration and, for disability income policies, occupation class. Anticipated interest rates for disability income policy reserves are 7.5% at policy issue and grade to 5% over 5 years. Anticipated interest rates for long-term care policy reserves are currently 5.9% grading up to 8.9% over 30 years. Claim reserves are calculated based on claim continuance tables and anticipated interest earnings. Anticipated claim continuance rates are based on established industry tables. Anticipated interest rates for claim reserves for both disability income and long-term care range from 5% to 8%, with an average rate of approximately 5.7%. The Company issues only non-participating life insurance contracts and does not issue short duration life insurance liabilities. Guaranteed Minimum Death Benefits The majority of the variable annuity contracts offered by American Express Financial Advisors (AEFA) contain guaranteed minimum death benefit (GMDB) provisions. At time of issue, these contracts typically guarantee that the death benefit payable will not be less than the amount invested, regardless of the performance of the customer's account. Most contracts also provide for some type of periodic adjustment of the guaranteed amount based on the change in value of the contract. A large portion of AEFA's contracts containing a GMDB provision adjust once every six years. The periodic adjustment of these contracts can either increase or decrease the guaranteed amount though not below the amount invested adjusted for withdrawals. When market values of the customer's accounts decline, the death benefit payable on a contract with a GMDB may exceed the accumulated contract value. Through December 31, 2003, the amount paid in excess of contract value was expensed when payable. Amounts expensed in 2003, 2002 and 2001 were $32 million, $37 million and $16 million, respectively. See Recently Issued Accounting Standards section below for a description of Statement of Position 03-1. Stock-Based Compensation At December 31, 2003, the Company has two stock-based employee compensation plans, which are described more fully in Note 14. Effective January 1,2003, the Company adopted the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," prospectively for all stock options granted after December 31, 2002. The fair value of each option is estimated on the date of grant using a Black-Scholes option-pricing model. Prior to 2003, the Company accounted for those plans under the recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Prior to the adoption of the fair value recognition provisions of SFAS No. 123 in 2003, no employee compensation cost was recorded in net income for stock options granted, since all options granted under these plans had an exercise price equal to the market value of the under- 56

(p.83_axp_notes to consolidated financial statements) lying common stock on the date of grant. For the year ended December 31, 2003, the Company expensed $24 million after-tax related to stock options granted in 2003. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which amended APB Opinion 28, "Interim Financial Reporting," to require disclosure about the pro forma effects of SFAS No. 123 on reported net income of stock-based compensation accounted for under APB Opinion No. 25. The following table illustrates the effect on net income and earnings per common share (EPS) assuming the Company had followed the fair value recognition provisions of SFAS No. 123 for all outstanding and unvested stock options and other stock-based compensation for the years ended December 31, 2003, 2002 and 2001: <TABLE> <CAPTION> (Millions, except per share amounts) 2003 2002 2001 ---------------------------------------------------------------------------------- <S> <C> <C> <C> Net income as reported $2,987 $2,671 $1,311 Add: Stock-based employee compensation included in reported net income, net of related tax effects 79 26 23 Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related tax effects (349) (355) (260) ---------------------------------------------------------------------------------- Pro forma net income $2,717 $2,342 $1,074 ================================================================================== Basic EPS: As reported $ 2.33 $ 2.02 $ 0.99 Pro forma $ 2.12 $ 1.77 $ 0.81 Diluted EPS: As reported $ 2.30 $ 2.01 $ 0.98 Pro forma $ 2.09 $ 1.76 $ 0.80 ================================================================================== </TABLE> Recently Issued Accounting Standards In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company adopted the provisions of SFAS No. 143 on January 1, 2003; the impact on the Company's financial statements was immaterial. In July 2002, the FASB issued SFAS No. 146, "Obligations Associated with Disposal Activities." The Statement is effective for exit or disposal activities initiated after December 31, 2002. The Company will comply with the Statement's requirements in any future restructuring activities. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities," as revised (FIN 46), which addresses consolidation by business enterprises of variable interest entities (VIEs) and was subsequently revised in December 2003. An entity is subject to consolidation according to the provisions of FIN 46, if, by design, either (i) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or, (ii) as a group, the holders of the equity investment at risk lack: (a) direct or indirect ability to make decisions about an entity's activities; (b) the obligation to absorb the expected losses of the entity if they occur; or (c) the right to receive the expected residual returns of the entity if they occur. In general, FIN 46 requires a VIE to be consolidated when an enterprise has a variable interest for which it is deemed to be the primary beneficiary which means that it will absorb a majority of the VIE's expected losses or receive a majority of the VIE's expected residual return. The variable interest entities primarily impacted by FIN 46, which the Company consolidated as of December 31, 2003, relate to structured investments, including a CDO and three secured loan trusts (SLTs), which are both managed and partially owned by AEFA. FIN 46 does not impact the accounting for QSPEs as defined by SFAS No. 140, such as the Company's cardmember lending securitizations, as well as the CDO-related securitization trust established in 2001. That trust contains a majority of the Company's rated CDOs whose retained interest in the trust had a carrying value of $694 million at December 31, 2003, of which $512 million is considered investment grade. In addition, FIN 46 did not impact the 57

(p.84_axp_notes to consolidated financial statements) accounting for an additional $28 million in rated CDO tranches or a $27 million minority-owned SLT, both of which are managed by third parties, and also did not impact the accounting for $16 million of CDO residual tranches managed by the Company or $422 million of affordable housing partnerships as the Company is not the primary beneficiary. The Company's maximum exposure to loss as a result of its investment in these entities is represented by the carrying values. The CDO consolidated as a result of FIN 46 contains debt issued to investors that is non-recourse to the Company and solely supported by a portfolio of high-yield bonds and loans. AEFA manages the portfolio of high-yield bonds and loans for the benefit of CDO debt held by investors and retains an interest in the residual and rated debt tranches of the CDO structure. The SLTs consolidated as a result of FIN 46 provide returns to investors primarily based on the performance of an underlying portfolio of high-yield loans which are managed by AEFA. The consolidation of FIN 46-related entities resulted in a cumulative effect of accounting change that reduced 2003 net income through a non-cash charge of $13 million ($20 million pretax). The net charge was comprised of a $57 million ($88 million pretax) non-cash charge related to the consolidated CDO offset by a $44 million ($68 million pretax) non-cash gain related to the consolidated SLTs. In addition, the consolidation of these VIEs resulted in the elimination of the Company's investment in the applicable VIEs, which was nil for the CDO and $673 million for the SLTs. The Company consolidated new assets of $1.2 billion ($844 million of cash, $244 million of below investment grade securities classified as Available-for-Sale (including net unrealized appreciation and depreciation), $64 million of derivatives and $15 million of loans and other assets, essentially all of which are restricted), liabilities of $500 million ($325 million of debt and $175 million of other liabilities, both of which are non-recourse to the Company) and $9 million of net unrealized after-tax appreciation on securities classified as Available-for-Sale. Taken together over the lives of the structures through their maturity, the Company's maximum cumulative exposure to pretax loss as a result of its investment in these entities is represented by the carrying values prior to adoption of FIN 46, which were nil and $673 million for the CDO and SLTs, respectively, as well as the $68 million pretax non-cash gain recorded upon consolidation of the SLTs. The initial charge related to the application of FIN 46 for the CDO and SLTs had no cash flow effect on the Company. Ongoing valuation adjustments specifically related to the application of FIN 46 to the CDO are also non-cash items and will be reflected in the Company's results until their maturity. Subsequent to the December 31, 2003 FIN 46 adoption, these ongoing valuation adjustments, which will be reflected in operating results over the remaining lives of the structure subject to FIN 46 and which will be dependent upon market factors during such time, will result in periodic gains or losses. The Company expects, in the aggregate, such gains or losses related to the CDO, including the December 31, 2003 implementation charge, to reverse themselves over time as the structure matures, because the debt issued to the investors in the CDO is nonrecourse to the Company, and further reductions in the value of the related assets will be absorbed by the third-party investors. To the extent losses are incurred in the SLT portfolio, charges could be incurred which may or may not be reversed. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." The Statement amends and clarifies accounting for derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. The adoption of this Statement did not have a material impact on the Company's financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." The Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability; many of those instruments were previously classified as equity. The adoption of this Statement did not have a material impact on the Company's financial statements. 58

(p.85_axp_notes to consolidated financial statements) In July 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts" (SOP 03-1). The Company is currently evaluating its impact, which, among other provisions, requires reserves related to guaranteed minimum death benefits included within the majority of variable annuity contracts offered by AEFA. SOP 03-1 is required to be adopted on January 1,2004, and any impact will be recognized as a cumulative effect of change in accounting principle in the Company's first quarter 2004 Consolidated Statement of Income. In November 2003, the FASB ratified a consensus on the disclosure provisions of Emerging Issues Task Force (EITF) Issue 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." The disclosure provisions of this rule, which are addressed in Note 2, require tabular presentation of certain information regarding investment securities with gross unrealized losses. In December 2003, the FASB issued SFAS No. 132 (Revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement amends the disclosure requirements of SFAS No. 87, "Employers' Accounting for Pensions," No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The Statement does not change the recognition and measurement requirements of those Statements. See Note 15 for disclosures regarding the Company's Retirement Plans. (Note 2) INVESTMENTS The following is a summary of investments at December 31: <TABLE> <CAPTION> (Millions) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Available-for-Sale, at fair value $52,278 $49,102 Investment loans (fair value: 2003, $4,116; 2002, $4,405) 3,794 3,981 Trading 995 555 -------------------------------------------------------------------------------- Total $57,067 $53,638 ================================================================================ </TABLE> Investment loans are primarily comprised of commercial mortgage loans at AEFA. Investments classified as Available-for-Sale at December 31 are distributed by type as presented below: <TABLE> <CAPTION> 2003 2002 --------------------------------------------------------------------------------------------------------------------- Gross Gross Gross Gross Unrealized Unrealized Fair Unrealized Unrealized Fair (Millions) Cost Gains Losses Value Cost Gains Losses Value --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Corporate debt securities $20,144 $ 883 $(110) $20,917 $13,129 $ 782 $(146) $13,765 Mortgage and other asset- backed securities 16,674 279 (84) 16,869 19,463 653 (15) 20,101 State and municipal obligations 7,138 479 (5) 7,612 6,985 510 (2) 7,493 Structured investments(a) 2,828 24 (60) 2,792 3,475 10 (94) 3,391 Foreign government bonds and obligations 1,378 60 (3) 1,435 1,153 67 (4) 1,216 U.S. Government and agencies obligations 1,150 17 -- 1,167 140 14 -- 154 Other 1,474 21 (9) 1,486 2,976 25 (19) 2,982 --------------------------------------------------------------------------------------------------------------------- Total $50,786 $1,763 $(271) $52,278 $47,321 $2,061 $(280) $49,102 ===================================================================================================================== </TABLE> (a) Includes unconsolidated CDOs, SLTs and retained subordinated security interests from the Company's cardmember lending securitizations. 59

(p.86_axp_notes to consolidated financial statements) The following table provides information about Available-for-Sale investments with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2003: <TABLE> <CAPTION> (Millions) Less than 12 months 12 months or more Total -------------------------------------------------------------------------------------------------- Fair Unrealized Fair Unrealized Fair Unrealized Description of Securities Value Losses Value Losses Value Losses -------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Corporate debt securities $ 4,901 $(102) $ 90 $ (8) $ 4,991 $(110) Mortgage and other asset-backed securities 6,216 (81) 30 (3) 6,246 (84) State and municipal obligations 223 (5) 2 -- 225 (5) Foreign government bonds and obligations 164 (3) -- -- 164 (3) U.S. Government and agencies obligations 9 -- -- -- 9 -- Other 13 (6) 35 (3) 48 (9) -------------------------------------------------------------------------------------------------- Total $11,526 $(197) $157 $(14) $11,683 $(211) ================================================================================================== </TABLE> Note: Excludes structured investments that are accounted for pursuant to EITF 99-20, and are therefore outside the scope of EITF 03-1. At December 31, 2003, such investments had gross unrealized losses of $60 million. Approximately 1,176 investment positions were in an unrealized loss position as of December 31, 2003. The gross unrealized losses on these securities are attributable to a number of factors including changes in interest rates and credit spreads and specific credit events associated with individual issuers. As part of its ongoing monitoring process, management has concluded that none of these securities are other-than-temporarily impaired at December 31, 2003. The Company has the ability and intent to hold these securities for a time sufficient to recover its amortized cost. See the Investments section of Note 1 for information regarding the Company's policy for determining when an investment's decline in value is other-than-temporary. The following is a distribution of investments classified as Available-for-Sale by maturity as of December 31, 2003: <TABLE> <CAPTION> (Millions) Cost Fair Value -------------------------------------------------------------------------------- <S> <C> <C> Due within 1 year $ 2,840 $ 2,866 Due after 1 year through 5 years 10,192 10,606 Due after 5 years through 10 years 13,237 13,741 Due after 10 years 7,747 8,107 -------------------------------------------------------------------------------- 34,016 35,320 Mortgage and other asset-backed securities 16,674 16,869 Equity securities 96 89 -------------------------------------------------------------------------------- Total $50,786 $52,278 ================================================================================ </TABLE> Mortgage and other asset-backed securities primarily include GNMA, FNMA and FHLMC securities at December 31, 2003 and 2002. The table below includes purchases, sales and maturities of investments classified as Available-for-Sale for the years ended December 31: <TABLE> <CAPTION> (Millions) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Purchases $29,618 $22,692 Sales $14,743 $12,321 Maturities $11,156 $ 6,229 ================================================================================ </TABLE> 60

(p.87_axp_notes to consolidated financial statements) Gross realized gains on sales of securities classified as Available-for-Sale, using the specific identification method, were $359 million, $373 million and $322 million for the years ended December 31, 2003, 2002 and 2001, respectively. Gross realized losses on sales were ($148 million), ($171 million) and ($574 million) for the same periods. The Company also recognized losses of ($163 million), ($204 million) and ($428 million) in other-than-temporary impairments on Available-for-Sale securities for the years ended December 31, 2003, 2002 and 2001, respectively. The 2001 losses include the effect of the write down and sale of high-yield securities discussed below. As previously discussed, FIN 46 required the consolidation of a CDO which included below investment grade corporate debt securities with a fair value of $244 million which are included in the schedules above. These assets are not available for the general use of the Company as they are for the benefit of CDO debt holders as discussed in Note 1. There were $80 million, $12 million and $16 million of net gains for the years ended December 31, 2003, 2002 and 2001, respectively, related to trading securities held at each balance sheet date. During the first half of 2001, the Company recognized pretax losses of $1.01 billion ($182 million and $826 million in the first and second quarters, respectively) from the write down and sale of certain high-yield securities. These losses are included in net investment income on the Consolidated Statements of Income. The second quarter pretax charge of $826 million is comprised of: $403 million to recognize the impact of higher default rate assumptions on certain structured investments; $344 million to write down lower-rated securities (most of which were sold in the third quarter of 2001) in connection with the Company's decision to lower its risk profile by reducing the level of its high-yield portfolio, allocating holdings toward stronger credits, and reducing the concentration of exposure to individual companies and industry sectors; and $79 million to write down certain other investments to recognize losses incurred during the second quarter. Subsequently, during 2001 the Company placed a majority of its rated CDO securities and related accrued interest, as well as a relatively minor amount of other liquid securities (collectively referred to as transferred assets), having an aggregate book value of $905 million, into a securitization trust. In return, the Company received $120 million in cash (excluding transaction expenses) relating to sales to unaffiliated investors and retained interests with allocated book amounts aggregating $785 million. As of December 31, 2003, the retained interests had a carrying value of $694 million, of which $512 million is considered investment grade. The book amount is determined by allocating the previous carrying value of the transferred assets between assets sold and the retained interests based on their relative fair values. Fair values are based on the estimated present value of future cash flows. The retained interests are accounted for in accordance with EITF Issue 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets." For the year ended December 31, 2001, net investment income was reduced by a $34 million charge ($22 million after-tax) related to the cumulative effect of the adoption of EITF Issue No. 99-20, as of January 1,2001. Before this accounting change, income for the year ended December 31, 2001 was $1.3 billion, basic EPS was $1.01 and diluted EPS was $1.00. In connection with the spin-off of Lehman Brothers Holdings Inc. (Lehman) in 1994, the Company acquired 928 shares and Nippon Life Insurance Company acquired 72 shares of Lehman's redeemable voting preferred stock for a nominal dollar amount. This security entitled its holders to receive an aggregate annual dividend of 50 percent of Lehman's net income in excess of $400 million for each of eight years ending in May 2002, with a maximum dividend of $50 million in any one year. In both years ended December 31, 2002 and 2001, the Company received a pretax dividend of $46 million on these shares. In the third quarter of 2002, the Company received the final dividend of $23 million under the terms of this security based on earnings from Lehman for the six months ended May 31, 2002. The change in net unrealized securities gains (losses) recognized in other comprehensive income includes two components: (i) unrealized gains (losses) that arose from changes in market value of securities that were held during the period (holding gains (losses)), and (ii) gains (losses) that were previously unrealized, but have been recognized in current period net income due to sales of Available-for-Sale securities (reclassification for realized gains). This reclassification has no effect on total comprehensive income (loss) or shareholders' equity. 61

(p.88_axp_notes to consolidated financial statements) The following table presents these components of other comprehensive income (loss) net of tax: <TABLE> <CAPTION> (Millions, net of tax) 2003 2002 2001 -------------------------------------------------------------------------------- <S> <C> <C> <C> Holding (losses) gains $(142) $769 $ 16 Reclassification for realized (gains) losses (31) 1 463 -------------------------------------------------------------------------------- Increase in net unrealized securities (losses) gains recognized in other comprehensive income $(173) $770 $479 ================================================================================ </TABLE> (Note 3) LOANS Loans at December 31 consisted of: <TABLE> <CAPTION> (Millions) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Cardmember and consumer loans $30,672 $26,509 Commercial loans: Commercial and industrial 108 308 Loans to banks and other institutions 1,863 1,428 Mortgage and real estate 65 61 Other, principally policyholders' loans 713 742 -------------------------------------------------------------------------------- 33,421 29,048 Less: Reserves for credit losses 1,121 1,226 -------------------------------------------------------------------------------- Total $32,300 $27,822 ================================================================================ </TABLE> Note: AEFA's investment loans of $3.8 billion and $4.0 billion in 2003 and 2002, respectively, are included in Investment loans and are presented in Note 2. The following table presents changes in Reserves for Credit Losses related to loans: <TABLE> <CAPTION> (Millions) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Balance, January 1 $ 1,226 $ 993 Provision for credit losses 1,336 1,526 Write-offs (1,463) (1,361) Recoveries of amounts previously written-off 22 68 -------------------------------------------------------------------------------- Balance, December 31 $ 1,121 $ 1,226 ================================================================================ </TABLE> (Note 4) SECURITIZED LOANS The Company, through TRS, securitizes U.S. cardmember loan balances and, in large part, subsequently transfers the interests in those assets' cash flows to third-party investors. These loan balances are comprised of existing balances as of the date of the initial securitization, as well as all future charges on these accounts. The Company accounts for these transactions as sales under SFAS No. 140. The Company continues to service the accounts and receives a fee for doing so; the fair value and carrying amounts of these future servicing fees, net of related costs, are not material. Each new sale of securitized loans results in the removal of the sold assets from the balance sheet, a reduction in a previously established reserve for credit losses and the recognition of the present value of the future net cash flows (i.e., finance charge income less interest paid to investors, credit losses and servicing fees) related to the sold assets. This present value amount represents a retained interest known as an interest-only strip (I/O strip). Cash flows from I/O strips as well as servicing revenue, which is 2 percent of principal, are recorded in net securitization income. For the securitized assets whose interests are not sold, the Company retains the rights to all their related cash flows. Those assets, therefore, are not taken off the balance sheet and are known as seller's interests which are included as loans in the Consolidated Balance Sheets with related income in finance charge revenue. In some instances, the Company, through affiliates, invests in subordinated security interests issued by the securitization trust; these are recorded as Investments classified as Available-for-Sale with related interest income included in net investment income. 62

(p.89_axp_notes to consolidated financial statements) The gain or loss recorded when loans are securitized is the difference between the proceeds of sale and the book basis of the assets sold. That book basis is determined by allocating the carrying amount of the assets, net of applicable reserve for losses, between the assets sold and the retained interests based on their relative fair values. Fair values are based on market prices at date of transfer for assets sold and on the estimated present value of future cash flows for retained interests. During 2003, 2002 and 2001 the Company sold $3.5 billion, $4.6 billion and $4.3 billion, respectively, of U.S. cardmember loans, or $3.1 billion, $4.2 billion and $3.9 billion, respectively, net of investments in subordinated interests. The pretax gains on these securitizations were $124 million, $136 million and $155 million, respectively. During 2003, 2002 and 2001, $1.0 billion, $2.0 billion and $1.0 billion, respectively, of investor certificates that were previously issued by the securitization trust matured. When investor certificates mature, principal collections received from the Trust assets are used to redeem the certificates. As of December 31, 2003, $17.6 billion of U.S. cardmember loans had been sold, net of investments in subordinated interests of $1.8 billion, for a total amount securitized of $19.4 billion. The value of retained interests is primarily subject to changes in credit risk, average loan life and interest rates on the transferred financial assets. The Company generally continues to experience shorter average loan lives. Key economic assumptions used in measuring the retained interests resulting from securitizations during 2003 and 2002 were as follows (rates are per annum): <TABLE> <CAPTION> 2003 2002 -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Average loan life (months) 5 5 - 6 -------------------------------------------------------------------------------------------------------------------- Expected credit losses 4.60% - 5.52% 5.05% - 6.03% -------------------------------------------------------------------------------------------------------------------- Cash flows from subordinated security interests and I/O strips discounted at 8.3% - 12.0% 8.3% - 12.0% -------------------------------------------------------------------------------------------------------------------- Returns to investors Variable Contractual spread over Contractual spread over LIBOR ranging from .04% to 1.15% LIBOR ranging from .04% to 1.05% Fixed 1.7% - 7.4% 5.5% - 7.4% ==================================================================================================================== </TABLE> The following table presents quantitative information about delinquencies, net credit losses and components of securitized cardmember loans at December 31: <TABLE> <CAPTION> Total Principal Principal Amount of Loans Net Credit Losses (Billions) Amount of Loans 30 Days or More Past Due During the Year ---------------------------------------------------------------------------------------------------------- 2003 2002 2003 2002 2003 2002 ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Cardmember loans managed $43.6 $38.0 $1.3 $1.3 $2.2 $2.2 ---------------------------------------------------------------------------------------------------------- Less: Securitized cardmember loans sold 19.5 17.2 0.6 0.6 1.0 1.0 ---------------------------------------------------------------------------------------------------------- Cardmember loans on balance sheet $24.1 $20.8 $0.7 $0.7 $1.2 $1.2 ========================================================================================================== </TABLE> At December 31, 2003, I/O strips were $225 million and were reported as other receivables on the Consolidated Balance Sheets. The key economic assumptions and the sensitivity of the current year's fair value of the I/O strip to immediate 10 percent and 20 percent adverse changes in assumed economics are as follows: <TABLE> <CAPTION> Cash Flows from Average Loan Life Expected Credit Interest-only Strips (Millions, except rates per annum) (months) Losses Discounted at Interest Rates <S> <C> <C> <C> <C> ------------------------------------------------------------------------------------------------------------------------- Assumption 5.1 5.1% 12.0% 2.0% ------------------------------------------------------------------------------------------------------------------------- Impact on fair value of 10% adverse change $14.8 $23.6 $ 0.5 $ 0.1 ------------------------------------------------------------------------------------------------------------------------- Impact on fair value of 20% adverse change $28.6 $47.2 $ 1.1 $ 0.2 ========================================================================================================================= </TABLE> These sensitivities are hypothetical and will be different from what actually occurs in the future. Any change in fair value based on a 10 percent variation in assumptions cannot be extrapolated in part because the relationship of the change in assumption on the fair value of the retained interest is calculated independent from any change in another assumption; in reality, changes in one factor may result in changes in another, which magnify or counteract the sensitivities. 63

(p.90_axp_notes to consolidated financial statements) The table below summarizes cash flows received from securitization trusts in: <TABLE> <CAPTION> (Millions) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Proceeds from new securitizations during the period $ 3,442 $ 4,589 Proceeds from collections reinvested in revolving cardmember securitizations $45,907 $36,942 Servicing fees received $ 378 $ 331 Other cash flows received on retained interests $ 1,713 $ 1,514 ================================================================================ </TABLE> The Company also securitizes equipment lease receivables. At December 31, 2003 and 2002, the amounts sold and outstanding to third-party investors were $138 million and $254 million, respectively. These sales result in a reduction of interest expense and provisions for losses, as well as servicing revenue, all of which are insignificant to the Company's results of operations. (Note 5) GOODWILL AND OTHER INTANGIBLES Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which established new accounting and reporting standards for goodwill and other intangible assets. Under the rules, goodwill and other intangible assets deemed to have indefinite lives are not amortized but are instead subject to annual impairment tests. Management completed goodwill impairment tests as of the date of initial adoption, and again during 2002 and 2003. Such tests did not indicate impairment. As of December 31, 2003 and 2002, the Company held acquired identifiable intangible assets with definite lives of $522 million (net of accumulated amortization of $145 million) and $238 million (net of accumulated amortization of $84 million), respectively. The aggregate amortization expense for these intangible assets during the years ended December 31, 2003, 2002 and 2001 was $56 million, $42 million and $18 million, respectively. During 2003, the Company acquired $312 million of intangible assets primarily related to AEFA's acquisition of Threadneedle Asset Management Holdings LTD and TRS' acquisition of Rosenbluth International. These assets have a weighted average useful life of 14 years. Estimated amortization expense associated with intangible assets for the five years ending December 31, 2008 is as follows (millions): 2004, $77; 2005, $77; 2006, $75; 2007, $73 and 2008, $60. Net goodwill was approximately $2.1 billion and $1.3 billion at December 31, 2003 and 2002, respectively. At December 31, 2003, this consisted of approximately $1.5 billion at TRS and $0.6 billion at AEFA. At December 31, 2002, the net balance consisted of approximately $1.1 billion at TRS and $0.2 billion at AEFA. The following table presents the impact to net income and EPS of goodwill amortization for the year ended December 31, 2001: <TABLE> <CAPTION> Net Basic Diluted (Millions, except per share amounts) Income EPS EPS -------------------------------------------------------------------------------- <S> <C> <C> <C> Reported $1,311 $ 0.99 $0.98 Add back: Goodwill amortization (after-tax) 82 0.06 0.06 -------------------------------------------------------------------------------- Adjusted $1,393 $ 1.05 $1.04 ================================================================================ </TABLE> (Note 6) SHORT- AND LONG-TERM DEBT AND BORROWING AGREEMENTS Short-Term Debt At December 31, 2003 and 2002, the Company's total short-term debt outstanding, defined as debt with original maturities of less than one year, was $19.0 billion and $21.1 billion, respectively, with weighted average interest rates of 1.2% and 1.7%, respectively. At December 31, 2003 and 2002, $7.5 billion and $8.7 billion, respectively, of short-term debt outstanding was hedged by interest rate swaps. The year-end weighted average interest rates after giving effect to hedges were 2.1% and 2.4% for 2003 and 2002, respectively. The Company generally paid fixed rates of interest under the terms of interest rate swaps. Unused lines of credit to support commercial paper borrowings were approximately $9.2 billion and $10.0 billion at December 31, 2003 and 2002, respectively. 64

(p.91_axp_ notes to consolidated financial statements) Long-Term Debt <TABLE> <CAPTION> December 31, (Dollars in millions) 2003 --------------------------------------------------------------------------------------------------------- Year-End Year-End Effective Notional Stated Interest Outstanding Amount of Rate on Rate with Maturity of Balance Swaps Debt(a,b) Swaps(a,b) Swaps --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Convertible Debentures due December 1, 2033 $ 2,000 -- 1.85% -- -- Senior Global Notes due July 15, 2013 993 -- 4.88% -- -- Fixed Rate Senior Notes due May 16, 2008 998 -- 3.00% -- -- Notes due September 12, 2006 1,002 -- 5.50% -- -- Floating Rate Notes due June 15, 2006 1,000 -- 1.43% -- -- Floating Rate Medium-Term Extendible Notes due February 14, 2005(c) 2,000 -- 1.20% -- -- Floating Rate Extendible Notes due January 21, 2005(d) 1,000 -- 1.17% -- -- Fixed Rate Medium-Term Notes due 2005 258 $ 250 4.25% 1.24% 2005 Floating Rate Medium-Term Notes due 2003 - 2006 5,691 1,300 1.24% 1.76% Various Fixed Senior Notes due 2003 - 2011(e) 2,712 400 5.91% 4.98% Various Floating Senior Notes due 2003 - 2011(e) 2,307 207 1.44% 1.83% 2004 Fixed Rate Notes due 2003 - 2011(e) 210 -- 7.48% -- -- Floating Rate Notes due 2003 - 2008 263 213 5.05% 3.82% Various Subordinated Fixed Rate Notes due 2003 - 2004 17 -- 7.95% -- -- Subordinated Floating Rate Notes due 2004 - 2006 203 -- 1.71% -- -- Notes due May 15, 2003 -- -- -- -- -- Floating Rate Notes due September 15, 2003 -- -- -- -- -- --------------------------------------------------------------------------------------------------------- Total $20,654 $2,370 2.56% ========================================================================================================= <CAPTION> December 31, (Dollars in millions) 2002 --------------------------------------------------------------------------------------------------------- Year-End Year-End Effective Notional Stated Interest Outstanding Amount of Rate on Rate with Maturity of Balance Swaps Debt(a,b) Swaps(a,b) Swaps --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Convertible Debentures due December 1, 2033 -- -- -- -- -- Senior Global Notes due July 15, 2013 -- -- -- -- -- Fixed Rate Senior Notes due May 16, 2008 -- -- -- -- -- Notes due September 12, 2006 $ 1,003 -- 5.50% -- -- Floating Rate Notes due June 15, 2006 1,000 -- 1.43% -- -- Floating Rate Medium-Term Extendible Notes due February 14, 2005(c) -- -- -- -- -- Floating Rate Extendible Notes due January 21, 2005(d) -- -- -- -- -- Fixed Rate Medium-Term Notes due 2005 261 $ 250 4.25% 1.32% 2005 Floating Rate Medium-Term Notes due 2003 - 2006 6,550 6,550 6.50% 5.92% Various Fixed Senior Notes due 2003 - 2011(e) 2,655 100 5.88% 5.62% 2005 Floating Senior Notes due 2003 - 2011(e) 1,840 -- 1.53% -- -- Fixed Rate Notes due 2003 - 2011(e) 142 -- 6.73% -- -- Floating Rate Notes due 2003 - 2008 551 232 4.10% 2.98% Various Subordinated Fixed Rate Notes due 2003 - 2004 153 -- 6.90% -- -- Subordinated Floating Rate Notes due 2004 - 2006 203 -- 1.71% -- -- Notes due May 15, 2003 1,000 -- 5.90% -- -- Floating Rate Notes due September 15, 2003 950 -- 1.53% -- -- --------------------------------------------------------------------------------------------------------- Total $16,308 $7,132 4.93% ========================================================================================================= </TABLE> (a) For floating rate debt issuances, the stated and effective interest rates were based on the respective rates at December 31, 2003 and 2002; these rates are not an indication of future interest rates. (b) Weighted average rates were determined where appropriate. (c) These issuances are subject to extension by the holders through March 5, 2008. (d) These issuances are subject to extension by the holders through June 20, 2008. (e) As a result of the December 31, 2003 adoption of FIN 46, these balances include a combined $325 million of debt related to a consolidated CDO. This debt is non-recourse to the Company and will be extinguished from the cash flows of the investments held within the portfolio of the CDO. In November 2003, the Company privately placed $2 billion in Convertible Senior Debentures due 2033 (the Debentures) which are unsecured and unsubordinated obligations of the Company. The Debentures are convertible under certain conditions into shares of the Company's common stock, at a base conversion price of $69.41 or 28.8 million common shares. If at the time of conversion, the stock price exceeds the base conversion price, the holder will receive additional shares based on a formula but in no event will the number of common shares issued exceed 45.5 million. The Debentures accrue interest at an annual rate of 1.85%, payable semi-annually until December 1, 2006, after which interest will not be paid unless the Company elects to do so in connection with a remarketing of the Debentures. If interest is 65

(p.92_axp_notes to consolidated financial statements) not paid, at maturity the holder will receive the accreted principal amount, which will be equal to the original principal amount increased daily at a rate of 1.85% per annum. Unless and until a remarketing reset event occurs, the Company will pay contingent interest under certain circumstances. The contingent interest feature has been bifurcated because it is not clearly and closely related to the host contract. If the average of the closing sale prices of the Company's common stock over the 10 trading-day period ending on the trading day immediately preceding December 1, 2006, 2008, 2013, 2018, 2023 or 2028 is less than the effective conversion price on such day, the Company will no longer pay contingent interest on the Debentures; the Debentures will no longer be convertible into the Company's common stock; and the holders of the Debentures will not have the right to require the Company to repurchase the Debentures under certain circumstances. On this remarketing reset event, the yield on the Debentures will be reset to a date at least six months thereafter. The Company may also elect prior to any remarketing that following such remarketing the Debentures will bear cash interest. A holder may convert debentures into a number of shares of the Company's common stock equal to the conversion rate under various circumstances, if at any time prior to maturity, the Company's closing stock price for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of any calendar quarter is more than 125% of the base conversion price. Holders may require the Company to purchase for cash a portion of their Debentures on December 1, 2006, 2008, 2013, 2018, 2023 or 2028 at 100% of the accreted principal amount, plus accrued and unpaid interest. While the Company has the ability to settle the principal amount of the conversion rights granted in this convertible debt offering in cash, common stock or a combination, the Company intends to settle the principal amount in cash and to settle the conversion spread (the excess conversion value over the principal) in either cash or stock. The Company can also redeem all or some of the convertible debt securities for cash at any time on or after December 1, 2006 at a price equal to 100% of the accreted principal amount of the Debentures plus accrued interest, if any. If a conversion trigger is met, the Company will reflect the additional shares in diluted EPS using the treasury stock method. Certain of the above interest rate swaps require the Company to pay a floating rate, with a predominant index of LIBOR. The Company paid interest (net of amounts capitalized) of $1.7 billion, $1.7 billion and $2.8 billion in 2003, 2002 and 2001, respectively. Debt issuance costs are deferred and amortized over the term of the related instrument or, if the holder has a put option, over the put term if shorter. Aggregate annual maturities of long-term debt for the five years ending December 31, 2008 are as follows (millions): 2004, $3,452; 2005, $8,509; 2006, $3,627; 2007, $749 and 2008, $998. Other financial institutions have committed to extend lines of credit to the Company of $11.5 billion and $12.1 billion at December 31, 2003 and 2002, respectively. (Note 7) CUMULATIVE QUARTERLY INCOME PREFERRED SHARES In 1998, American Express Company Capital Trust I, a wholly-owned subsidiary of the Company, established as a Delaware statutory business trust (the Trust), completed a public offering of 20 million shares of 7.0% Cumulative Quarterly Income Preferred Shares Series I (QUIPS) (liquidation preference of $25 per share). Proceeds of the issue were invested in Junior Subordinated Debentures (the Subordinated Debentures) issued by the Company due 2028, which represent the sole assets of the Trust. The QUIPS were subject to mandatory redemption upon repayment of the Subordinated Debentures at maturity or their earlier redemption. The Company exercised its option to redeem the Subordinated Debentures, in whole, on July 16, 2003. This resulted in the redemption of all QUIPS. (Note 8) COMMON AND PREFERRED SHARES Repurchase authorizations are designed to allow the Company to purchase shares, both to offset the issuance of new shares as part of employee compensation plans and to reduce shares outstanding. In November 2002, the Company's Board of Directors authorized the Company to repurchase up to 120 million additional common shares from time to time as market conditions allow. Since the inception of repurchase programs in September 1994, the Company has repurchased 66

(p.93_axp_notes to consolidated financial statements) approximately 426.1 million shares pursuant to several authorizations. Included in the total repurchased amount are 39.3 million shares delivered to the Company during the three years ended December 31, 2003 as a result of the prepayments discussed below. Of the common shares authorized but unissued at December 31, 2003, 187.7 million shares were reserved for issuance for employee stock, employee benefit and dividend reinvestment plans, as well as convertible securities. In 1999 and 2000, the Company entered into agreements under which a financial institution purchased an aggregate 29.5 million Company common shares at an average purchase price of $50.41 per share. These agreements were entered into to partially offset the Company's exposure to the effect on diluted earnings per share of outstanding in-the-money stock options issued under the Company's stock option program. Each of the agreements provided that upon their termination, the Company was required to deliver an amount equal to the original purchase price for the shares. The Company could elect to settle this amount at any time (i) physically, by paying cash against delivery of the shares held by the financial institution or (ii) on a net cash or net share basis. During the term of the agreements, the Company, on a monthly basis, would either receive from or issue to the financial institution a quantity of shares so that the value of the remaining shares held by the financial institution was equal to the original aggregate purchase price. The contracts were initially recorded at their fair value within equity on the Company's balance sheet in accordance with EITF Issue 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock." Subsequent activity was recorded in equity as long as the contracts continued to meet the requirements of EITF Issue 00-19. Net settlements under the agreements resulted in the Company issuing 0.4 million shares in both 2003 and 2002. The Company had the right to terminate these agreements at any time upon full settlement. The Company could prepay outstanding amounts at any time prior to the end of the five-year term, and from time to time, could make such prepayments in lieu of, or in addition to, its share repurchase program, which either or together would be expected to have the same effect on outstanding shares as a purchase under the share repurchase program. During 2001 and 2002, the Company elected to prepay $950 million of the aggregate outstanding amount. In 2003, the Company elected to prepay the remaining $535 million of aggregate outstanding amount and terminated the agreements. <TABLE> <CAPTION> (Millions) 2003 2002 2001 -------------------------------------------------------------------------------- <S> <C> <C> <C> Shares outstanding at beginning of year 1,305 1,331 1,326 Repurchases of common shares: Open market/purchases from Incentive Savings Plan (21) (16) (6) Prepayments under share purchase agreements (15) (17) (8) Net settlements pursuant to share purchase agreements -- -- 12 Other, primarily employee benefit plans 15 7 7 -------------------------------------------------------------------------------- Shares outstanding at end of year 1,284 1,305 1,331 ================================================================================ </TABLE> The Board of Directors is authorized to permit the Company to issue up to 20 million preferred shares without further shareholder approval. (Note 9) DERIVATIVES AND HEDGING ACTIVITIES As prescribed by SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," derivative instruments that are designated and qualify as hedging instruments are further classified as either a cash flow hedge, a fair value hedge or a hedge of a net investment in a foreign operation, based upon the exposure being hedged. For derivative instruments that are designated and qualify as a cash flow hedge, the portion of the gain or loss on the derivative instrument effective at offsetting changes in the hedged item is reported as a component of other comprehensive income (loss) and reclassified into earnings when the hedged transaction affects earnings. Any ineffective portion of the gain or loss on the derivative instrument is recognized currently in earnings. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk is recognized in current earnings during the period of the change in fair values. For derivative 67

(p.94_axp_notes to consolidated financial statements) instruments that are designated and qualify as a hedge of a net investment in a foreign operation, the effective portion of the gain or loss on the derivative is reported in other comprehensive income (loss) as part of the cumulative translation adjustment. For derivative instruments not designated as hedging instruments, the gain or loss is recognized currently in earnings. For the years ended December 31, 2003, 2002 and 2001, there were no significant gains or losses on derivative transactions or portions thereof that were ineffective as hedges, excluded from the assessment of hedge effectiveness or reclassified into earnings as a result of the discontinuance of cash flow hedges. Cash Flow Hedges The Company uses interest rate products, primarily swaps, to manage funding costs related to TRS' charge card business, as well as AEFA's investment certificate and fixed premium product business. For its charge card products, TRS uses interest rate swaps to achieve a targeted mix of fixed and floating rate funding. These interest rate swaps are used to protect the Company from the interest rate risk that arises from short-term funding. AEFA uses interest rate products to hedge the risk of rising interest rates on investment certificates which reset at shorter intervals than the average maturity of the investment portfolio. Additionally, AEFA uses interest rate swaptions to hedge the risk of increasing interest rates on forecasted fixed annuity sales. During 2003, 2002 and 2001, the Company reclassified into earnings pretax losses of $639 million, $572 million and $660 million, respectively. At December 31, 2003, the Company expects to reclassify $718 million of net pretax losses on derivative instruments from accumulated other comprehensive income (loss) to earnings during the next twelve months. These losses will be recognized in earnings during the terms of those derivatives contracts at the same time that the Company realizes the benefits of lower market rates of interest on its funding of charge card and fixed rate lending products. Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is 15 years and relates to forecasted fixed annuity sales. In addition, for selected major overseas markets, the Company uses certain foreign currency forward contracts with maturities not exceeding 36 months to offset the effect of changes in foreign currency exchange rates on certain forecasted transactions. Fair Value Hedges The Company is exposed to interest rate risk associated with fixed rate debt and uses interest rate swaps to convert certain fixed rate debt to floating rate. The Company also uses interest rate swaps to hedge its firm commitments to transfer, at a fixed rate, receivables to trusts established in connection with its asset securitizations. AEFA is exposed to interest rate risk associated with its fixed rate corporate bond investments. AEFA enters into interest rate swaps to hedge the risk of changing interest rates as investment certificates reset at shorter intervals than the average maturity of the investment portfolio. Hedges of Net Investment in Foreign Operations The Company designates foreign currency derivatives as hedges of net investments in certain foreign operations. For these hedges, unrealized gains and losses are recorded in the cumulative translation adjustment account included in other comprehensive income (loss), whereas the related amounts due to or from counterparties are included in other liabilities or other assets. For the year ended December 31, 2003, the amount of losses related to the hedges included in the cumulative translation adjustment was $44 million. Derivatives Not Designated as Hedges The Company has economic hedges that either do not qualify or are not designated for hedge accounting treatment under SFAS No. 133. In addition, American Express Bank (AEB) enters into derivative contracts both to meet the needs of its clients and, to a limited extent, for trading purposes, including taking proprietary positions. o Foreign currency transaction exposures are economically hedged, where practical, through foreign currency contracts. Foreign currency contracts involve the purchase and sale of a designated currency at an agreed upon rate for settlement on a specified date. Such foreign currency forward contracts entered into by the Company generally mature within one year. 68

(p.95_axp_notes to consolidated financial statements) o AEFA uses interest rate caps, swaps and floors to protect the margin between the interest rates earned on investments and the interest rates credited to holders of certain investment certificates and fixed annuities. o Certain of AEFA's annuity and investment certificate products have returns tied to the performance of equity markets. These elements are considered derivatives under SFAS No. 133. AEFA manages this equity market risk by entering into options and futures with offsetting characteristics. o AEFA consolidated a derivative as a result of adopting FIN 46 as discussed in Note 1. The derivative's value is based on the interest and gains and losses related to a reference portfolio of high-yield loans. See Note 6 for further information regarding the Company's use of interest rate products related to short- and long-term debt obligations. (Note 10) GUARANTEES AND OFF-BALANCE SHEET ITEMS The Company, through its TRS operating segment, provides cardmember protection plans that cover losses associated with purchased products, as well as certain other guarantees in the ordinary course of business that are within the scope of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirement for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). In the hypothetical scenario that all claims occur within one year, the aggregate maximum amount of potential future losses associated with such guarantees would not exceed $82 billion. The total amount of related liability accrued at December 31, 2003 for such programs was $486 million, which management believes to be adequate based on actual experience. The Company has no collateral or other recourse provisions related to these guarantees. Expenses relating to claims under these guarantees were approximately $30 million in 2003. The Company, through its AEB operating segment, provides various guarantees to its customers in the ordinary course of business that are also within the scope of FIN 45, including financial letters of credit, performance guarantees and financial guarantees, among others. Generally, guarantees range in term from three months to one year. AEB receives a fee related to most of these guarantees, many of which help to facilitate customer cross-border transactions. At December 31, 2003, the Company held $761 million of collateral supporting these guarantees. The following table provides information related to such guarantees as of December 31, 2003: <TABLE> <CAPTION> (Millions) Maximum amount of undiscounted Amount of related Type of Guarantee future payments liability at 12/31/03 -------------------------------------------------------------------------------- <S> <C> <C> Financial letters of credit $207 $1.1 Performance guarantees 119 0.4 Financial guarantees 629 0.5 -------------------------------------------------------------------------------- Total $955 $2.0 ================================================================================ </TABLE> Additionally, the Company had $770 million and $1,036 million of loan commitments and other lines of credit at December 31, 2003 and 2002, respectively, as well as $544 million and $474 million of bank standby letters of credit, bank guarantees and bank commercial and other bank letters of credit at December 31, 2003 and 2002, respectively, which were outside the scope of FIN 45. The Company issues commercial and other letters of credit to facilitate the short-term trade-related needs of its banking clients, which typically mature within six months. At December 31, 2003 and 2002, the Company held $114 million and $148 million, respectively, of collateral supporting commercial and other letters of credit. The Company also has commitments aggregating $156 billion and $126 billion related to its card business in 2003 and 2002, respectively, primarily related to commitments to extend credit to certain cardmembers as part of established lending product agreements. Many of these are not expected to be drawn; therefore, total unused credit available to cardmembers does not represent future cash requirements. The Company's charge card products have no preset spending limit and are not reflected in unused credit available to cardmembers. In addition, the Company has certain contingent obligations for worldwide business arrangements. These payments relate to contractual agreements with partners entered into as part of the ongoing operation of the TRS business. The contingent obligations under such arrangements were $2.5 billion as of December 31, 2003. 69

(p.96_axp_notes to consolidated financial statements) The Company leases certain office facilities and operating equipment under noncancelable and cancelable agreements. Total rental expense amounted to $420 million, $461 million and $491 million in 2003, 2002 and 2001, respectively. At December 31, 2003, the minimum aggregate rental commitment under all noncancelable operating leases (net of subleases) was (millions): 2004, $273; 2005, $238; 2006, $208; 2007, $181; 2008, $147; and thereafter, $1,440. (Note 11) CONTINGENCIES The Company and its subsidiaries are involved in a number of legal and arbitration proceedings, including class actions, concerning matters arising in connection with the conduct of their respective business activities. The Company believes it has meritorious defenses to each of these actions and intends to defend them vigorously. The Company believes it is not a party to, nor are any of its properties the subject of, any pending legal or arbitration proceedings which would have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity. However, it is possible that the outcome of any such proceedings could have a material impact on results of operations in any particular reporting period as the proceedings are resolved. (Note 12) FAIR VALUES OF FINANCIAL INSTRUMENTS The following table discloses fair value information for financial instruments. Certain items, such as life insurance obligations, employee benefit obligations, investments accounted for under the equity method and deferred acquisition costs are excluded. The fair values of financial instruments are estimates based upon market conditions and perceived risks at December 31, 2003 and 2002 and require management judgment. These figures may not be indicative of their future fair values. Additionally, management believes the value of excluded assets and liabilities is significant. The fair value of the Company, therefore, cannot be estimated by aggregating the amounts presented. <TABLE> <CAPTION> December 31, (Millions) 2003 2002 ------------------------------------------------------------------------------------------------- Carrying Value Fair Value Carrying Value Fair Value ------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> FINANCIAL ASSETS Assets for which carrying values approximate fair values $72,953 $72,953 $64,855 $64,855 Investments $57,067 $57,389 $53,638 $54,062 Loans $32,720 $32,690 $28,398 $28,478 ================================================================================================= FINANCIAL LIABILITIES Liabilities for which carrying values approximate fair values $57,995 $57,995 $59,600 $59,600 Fixed annuity reserves $24,873 $24,113 $21,911 $21,283 Investment certificate reserves $ 9,191 $ 9,235 $ 8,647 $ 8,673 Long-term debt $20,654 $20,918 $16,308 $16,571 Separate account liabilities $27,316 $26,354 $19,392 $18,539 ================================================================================================= </TABLE> The carrying and fair values of off-balance sheet financial instruments discussed in Note 10 are not material as of December 31, 2003 and 2002. See Note 2 for carrying and fair value information regarding investments. The following methods were used to estimate the fair values of financial assets and financial liabilities. Financial Assets Assets for which carrying values approximate fair values include cash and cash equivalents, accounts receivable and accrued interest, separate account assets, certain other assets and derivative financial instruments. Generally, investments are carried at fair value on the Consolidated Balance Sheets. Gains and losses are recognized in the results of operations upon disposition of the securities. In addition, losses are recognized when management determines that a decline in value is other-than-temporary. 70

(p.97_axp_notes to consolidated financial statements) For variable rate loans that reprice within a year where there has been no significant change in counterparties' creditworthiness, fair values are based on carrying values. The fair values of all other loans (including investment loans), except those with significant credit deterioration, are estimated using discounted cash flow analysis, based on current interest rates for loans with similar terms to borrowers of similar credit quality. For loans with significant credit deterioration, fair values are based on estimates of future cash flows discounted at rates commensurate with the risk inherent in the revised cash flow projections, or for collateral dependent loans on collateral values. Financial Liabilities Liabilities for which carrying values approximate fair values include customers' deposits, Travelers Cheques outstanding, accounts payable, short-term debt, certain other liabilities and derivative financial instruments. Fair values of fixed annuities in deferral status are estimated as the accumulated value less applicable surrender charges and loans. For annuities in payout status, fair value is estimated using discounted cash flows, based on current interest rates. The fair value of these reserves excludes life insurance related elements of $1.4 billion in both 2003 and 2002. For variable rate investment certificates that reprice within a year, fair values approximate carrying values. For other investment certificates, fair value is estimated using discounted cash flows based on current interest rates. The valuations are reduced by the amount of applicable surrender charges and related loans. For variable rate long-term debt that reprices within a year, fair values approximate carrying values. For other long-term debt, fair value is estimated using either quoted market prices or discounted cash flows based on the Company's current borrowing rates for similar types of borrowing. Fair values of separate account liabilities, after excluding life insurance-related elements of $3.5 billion and $2.6 billion in 2003 and 2002, respectively, are estimated as the accumulated value less applicable surrender charges. (Note 13) SIGNIFICANT CREDIT CONCENTRATIONS A credit concentration may exist if customers are involved in similar industries. The Company's customers operate in diverse economic sectors. Therefore, management does not expect any material adverse consequences to the Company's financial position to result from credit concentrations. Certain distinctions between categories require management judgment. The following table represents the Company's maximum credit exposure by industry at December 31, 2003 and 2002: <TABLE> <CAPTION> December 31, (Dollars in millions) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Financial institutions(a) $ 20,711 $ 16,635 Individuals, including credit and charge cards(b) 216,369 181,534 U.S. Government and agencies(c) 23,988 29,604 All other 28,759 25,733 -------------------------------------------------------------------------------- Total $289,827 $253,506 ================================================================================ Composition: On-balance sheet 46% 49% Off-balance sheet 54 51 -------------------------------------------------------------------------------- Total 100% 100% ================================================================================ </TABLE> (a) Financial institutions primarily include banks, broker-dealers, insurance companies and savings and loan associations. (b) Charge card products have no preset spending limit; therefore, the quantified credit amount includes only cardmember receivables recorded on the Consolidated Balance Sheets. (c) U.S. Government and agencies represent the U.S. Government and its agencies, states and municipalities, and quasi-government agencies. The Company also uses master netting agreements which allow the Company to settle multiple contracts with a single counterparty in one net receipt or payment in the event of counterparty default. 71

(p.98_axp_ notes to consolidated financial statements) (Note 14) STOCK PLANS Under the 1998 Incentive Compensation Plan and previously under the 1989 Long-Term Incentive Plan (the Plans), awards may be granted to officers, other key employees and other key individuals who perform services for the Company and its participating subsidiaries. These awards may be in the form of stock options, stock appreciation rights, restricted stock, performance grants and similar awards designed to meet the requirements of non-U.S. jurisdictions. The Company also has options outstanding pursuant to a Directors' Stock Option Plan. Under these plans, there were a total of 78 million, 85 million and 48 million common shares available for grant at December 31, 2003, 2002 and 2001, respectively. Each option has an exercise price equal to the market price of the Company's common stock on the date of grant and with a term of no more than 10 years. Options granted in 2003 generally vest ratably at 25 percent per year beginning with the first anniversary of the grant date. Options granted prior to 1999 and in 2002 generally vest ratably at 33 1/3 percent per year beginning with the first anniversary of the grant date. Options granted in 1999, 2000 and 2001 generally vest ratably at 33 1/3 percent per year beginning with the second anniversary of the grant date. The Company also sponsors the American Express Incentive Savings Plan, under which purchases of the Company's common shares are made by or on behalf of participating U.S. employees. In 1998, the Compensation and Benefits Committee (CBC) adopted a restoration stock option program. In July 2003, the CBC approved the discontinuance of the restoration feature for new stock options granted on or after January 1, 2004. This program provides that employees who exercise options that have been outstanding at least five years by surrendering previously owned shares as payment will automatically receive a new (restoration) stock option with an exercise price equal to the market price on the date of exercise. The size of the restoration option is equal to the number of shares surrendered plus any shares surrendered or withheld to satisfy the employees' income tax requirements. The term of the restoration option, which is exercisable six months after grant, is equal to the remaining life of the original option. The fair value of each option is estimated on the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2003, 2002 and 2001: <TABLE> <CAPTION> 2003 2002 2001 -------------------------------------------------------------------------------- <S> <C> <C> <C> Dividend yield 1.0% 0.9% 0.8% Expected volatility 34% 33% 31% Risk-free interest rate 2.9% 4.3% 4.9% Expected life of stock option 4.5 years 4.5 years 5.0 years ================================================================================ </TABLE> The dividend yield reflects the assumption that the current dividend payout will continue with no anticipated increases. The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The weighted average fair value per option was $10.08, $11.68 and $14.69 for options granted during 2003, 2002 and 2001, respectively. A summary of the status of the Company's stock option plans as of December 31 and changes during each of the years then ended is presented below: <TABLE> <CAPTION> (Shares in thousands) 2003 2002 2001 ------------------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Outstanding at beginning of year 166,232 $37.54 146,069 $37.42 114,460 $34.23 Granted 12,933 $35.01 40,430 $36.59 42,883 $44.21 Exercised (13,943) $29.61 (7,934) $24.98 (5,649) $20.83 Forfeited/Expired (9,389) $40.43 (12,333) $40.93 (5,625) $40.64 ------------------------------------------------------------------------------------------------------------------- Outstanding at end of year 155,833 $37.92 166,232 $37.54 146,069 $37.42 ------------------------------------------------------------------------------------------------------------------- Options exercisable at end of year 88,263 $36.58 61,903 $32.86 49,428 $29.08 =================================================================================================================== </TABLE> 72

(p.99_axp_notes to consolidated financial statements) The following table summarizes information about the stock options outstanding at December 31, 2003: <TABLE> <CAPTION> (Shares in thousands) Options Outstanding Options Exercisable --------------------------------------------------------------------------------------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price --------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> $ 8.26-$29.99 22,710 3.2 $24.79 21,444 $24.50 $30.00-$35.99 29,371 6.6 $34.56 18,518 $35.23 $36.00-$42.99 39,357 7.7 $37.13 14,858 $37.66 $43.00-$43.99 26,804 6.1 $43.66 18,445 $43.66 $44.00-$61.44 37,591 6.7 $45.19 14,998 $45.72 --------------------------------------------------------------------------------------------------------- $ 8.26-$61.44 155,833 6.3 $37.92 88,263 $36.58 ========================================================================================================= </TABLE> The Company granted 5.3 million, 0.3 million and 3.0 million restricted stock awards (RSAs) with a weighted average grant date value of $33.88, $35.97 and $35.48 per share for 2003, 2002 and 2001, respectively. RSAs granted in 2003 generally vest ratably at 25 percent per year beginning with the first anniversary of the grant date. RSAs granted prior to 2003 generally vest four years from date of grant. The compensation cost charged against income for the Company's RSAs was $85 million, $40 million and $36 million for 2003, 2002 and 2001, respectively. (Note 15) RETIREMENT PLANS Pension Plans The Company sponsors the American Express Retirement Plan (the Plan), a noncontributory defined benefit plan which is a qualified plan under the Employee Retirement Income Security Act of 1974, as amended (ERISA), under which the cost of retirement benefits for eligible employees in the United States is measured by length of service, compensation and other factors and is currently being funded through a trust. Funding of retirement costs for the Plan complies with the applicable minimum funding requirements specified by ERISA. Employees' accrued benefits are based on recordkeeping account balances, which are maintained for each individual. Each pay period these balances are credited with an amount equal to a percentage, determined by an employee's age plus service, of compensation as defined by the Plan (which includes, but is not limited to, base pay, certain incentive pay and commissions, shift differential, overtime and transition pay). Employees' balances are also credited daily with a fixed rate of interest that is updated each January 1 and is based on the average of the daily five-year U.S. Treasury Note yields for the previous October 1 through November 30. Employees have the option to receive annuity payments or a lump sum payout at vested termination or retirement. In addition, the Company sponsors an unfunded non-qualified Supplemental Retirement Plan (the SRP) for certain highly compensated employees to replace the benefit that cannot be provided by the Plan. The SRP generally parallels the Plan but offers different payment options. Most employees outside the United States are covered by local retirement plans, some of which are funded, or receive payments at the time of retirement or termination under applicable labor laws or agreements. Plan assets consist principally of equities and fixed income securities. The Company measures the obligations and related asset values for its pension and other postretirement benefit plans as of September 30th. 73

(p.100_axp_notes to consolidated financial statements) The components of the net pension cost for all defined benefit plans accounted for under SFAS No. 87, "Employers' Accounting for Pensions," are as follows: <TABLE> <CAPTION> (Millions) 2003 2002 2001 -------------------------------------------------------------------------------- <S> <C> <C> <C> Service cost $ 115 $ 106 $ 102 Interest cost 118 112 106 Expected return on plan assets (146) (127) (122) Amortization of: Prior service cost (8) (9) (10) Transition obligation (2) (1) (1) Recognized net actuarial loss (gain) 18 6 (1) Settlement/curtailment loss (gain) 10 12 (1) -------------------------------------------------------------------------------- Net periodic pension benefit cost $ 105 $ 99 $ 73 ================================================================================ </TABLE> The following tables provide a reconciliation of the changes in the plans' benefit obligation and fair value of assets for all plans accounted for under SFAS No. 87: <TABLE> <CAPTION> RECONCILIATION OF CHANGE IN BENEFIT OBLIGATION (Millions) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Benefit obligation, October 1 prior year $1,845 $1,541 Service cost 115 106 Interest cost 118 112 Benefits paid (53) (52) Actuarial loss 72 141 Plan amendment 25 -- Settlements/curtailments (77) (66) Foreign currency exchange rate changes 88 63 -------------------------------------------------------------------------------- Benefit obligation at September 30, $2,133 $1,845 ================================================================================ </TABLE> <TABLE> <CAPTION> RECONCILIATION OF CHANGE IN FAIR VALUE OF PLAN ASSETS (Millions) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Fair value of plan assets, October 1 prior year $1,352 $1,190 Actual gain (loss) on plan assets 241 (78) Employer contributions 398 306 Benefits paid (53) (52) Settlements/curtailments (75) (65) Foreign currency exchange rate changes 81 51 -------------------------------------------------------------------------------- Fair value of plan assets at September 30, $1,944 $1,352 ================================================================================ </TABLE> The following table reconciles the plans' funded status to the amounts recognized on the Consolidated Balance Sheets: <TABLE> <CAPTION> FUNDED STATUS (Millions) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Funded status at September 30, $(189) $(493) Unrecognized net actuarial loss 553 563 Unrecognized prior service cost 4 (28) Unrecognized net transition obligation 1 -- Fourth quarter contributions 7 6 -------------------------------------------------------------------------------- Net amount recognized at December 31, $ 376 $ 48 ================================================================================ </TABLE> 74

(p.101_axp_ notes to consolidated financial statements) The following table provides the amounts recognized on the Consolidated Balance Sheets as of December 31: <TABLE> <CAPTION> (Millions) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Accrued benefit liability $(218) $(429) Prepaid benefit cost 570 400 Intangible asset 1 1 Minimum pension liability adjustment 23 76 -------------------------------------------------------------------------------- Net amount recognized at December 31, $ 376 $ 48 ================================================================================ </TABLE> The accumulated benefit obligation for all retirement plans as of September 30, 2003 and 2002 was $2.0 billion and $1.7 billion, respectively. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $247 million, $222 million and $12 million, respectively, as of December 31, 2003, and $1.2 billion, $1.1 billion and $0.7 billion, respectively, as of December 31, 2002. In 2003, the Company made a $350 million contribution to the Plan such that at the measurement date the fair market value of the plan assets exceeded the accumulated benefit obligation. The prior service costs are amortized on a straight-line basis over the average remaining service period of active participants. Gains and losses in excess of 10 percent of the greater of the benefit obligation and the market-related value of assets are amortized over the average remaining service period of active participants. The weighted average assumptions used to determine benefit obligations were: <TABLE> <CAPTION> 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Discount rates 5.7% 6.2% Rates of increase in compensation levels 4.0% 4.0% ================================================================================ </TABLE> The weighted average assumptions used to determine net periodic benefit cost were: <TABLE> <CAPTION> 2003 2002 2001 -------------------------------------------------------------------------------- <S> <C> <C> <C> Discount rates 6.2% 7.0% 7.4% Rates of increase in compensation levels 4.0% 4.2% 4.4% Expected long-term rates of return on assets(a) 8.1% 9.3% 9.5% ================================================================================ </TABLE> (a) At the September 30, 2003 measurement date, the Company reduced the weighted average return on assets actuarial assumption to be used in calculating the 2004 expense to 7.9%. For 2003, the Company assumed a long-term rate of return on assets of 8.1%. In developing the 8.1% expected long-term rate assumption, management evaluated input from an external consulting firm, including their projection of asset class return expectations, and long-term inflation assumptions. The Company also considered the historical returns on the plan assets. The asset allocation for the Company's pension plans at September 30, 2003 and 2002, and the target allocation for 2004, by asset category, are below. Actual allocations will generally be within 5 percent of these targets. <TABLE> <CAPTION> Target Allocation Percentage of Plan assets at -------------------------------------------------------------------------------- 2004 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> <C> Equity securities 70% 66% 72% Debt securities 26% 26% 22% Real estate/Other 4% 8% 6% -------------------------------------------------------------------------------- Total 100% 100% 100% ================================================================================ </TABLE> 75

(p.102_axp_notes to consolidated financial statements) The Company invests in a diversified portfolio to ensure that adverse or unexpected results from a security class will not have a detrimental impact on the entire portfolio. Diversification is interpreted to include diversification by asset type, performance and risk characteristics and number of investments. Asset classes and ranges considered appropriate for investment of the plans assets are determined by each plan's investment committee. The asset classes include U.S. and non-U.S. equities, emerging market equities, U.S. and non-U.S. investment grade and high-yield bonds and real estate. The Company's retirement plans expect to make benefit payments to retirees as follows (millions): 2004, $135; 2005, $139; 2006, $145; 2007, $151; 2008, $156; and 2009-2013, $890. In addition, the Company expects to contribute $58 million to its pension plans in 2004. The Company sponsors defined contribution retirement plans, the principal plan being a 401(k) savings plan with a profit sharing and stock bonus plan feature which covers most employees in the United States. The defined contribution plan expense was $145 million, $131 million and $86 million in 2003, 2002 and 2001, respectively. Other Postretirement Benefits The Company sponsors postretirement benefit plans that provide health care, life insurance and other postretirement benefits to retired U.S. employees. Net periodic postretirement benefit expenses were $42 million, $38 million and $25 million in 2003, 2002 and 2001, respectively. The liabilities recognized on the Consolidated Balance Sheets for the Company's defined postretirement benefit plans (other than pension plans) at December 31, 2003 and 2002 were $234 million and $223 million, respectively. On December 8, 2003, the Medicare Drug, Improvement and Modernization Act of 2003 (the "Act") was signed into law which expands Medicare to include an outpatient drug benefit beginning in 2006. The Act's Prescription Drug subsidy provided to plan sponsors will likely result in a financial benefit to the Company. The bill was signed into law subsequent to the Company's measurement valuation date of September 30, 2003; therefore, the expense and liability amounts shown in this disclosure do not reflect the potential effect of this Act. The Company is currently evaluating the impacts of the Act on its postretirement health care plan. (Note 16) INCOME TAXES The provisions (benefits) for income taxes were as follows: <TABLE> <CAPTION> (Millions) 2003 2002 2001 -------------------------------------------------------------------------------- <S> <C> <C> <C> Federal $ 844 $ 725 $(36) State and local 142 81 59 Foreign 261 250 262 -------------------------------------------------------------------------------- Total $1,247 $1,056 $285 ================================================================================ </TABLE> Accumulated net earnings of certain foreign subsidiaries, which totaled $2.9 billion at December 31, 2003, are intended to be permanently reinvested outside the United States. Accordingly, federal taxes, which would have aggregated $450 million, have not been provided on those earnings. The current and deferred components of the provision (benefit) for income taxes were as follows: <TABLE> <CAPTION> (Millions) 2003 2002 2001 -------------------------------------------------------------------------------- <S> <C> <C> <C> Current $ 860 $ 903 $ 765 Deferred 387 153 (480) -------------------------------------------------------------------------------- Total $1,247 $1,056 $ 285 ================================================================================ </TABLE> 76

(p.103_axp_notes to consolidated financial statements) The Company's net deferred tax assets at December 31 were as follows: <TABLE> <CAPTION> (Millions) 2003 2002 -------------------------------------------------------------------------------- <S> <C> <C> Deferred tax assets $4,497 $4,486 Deferred tax liabilities 3,419 2,952 -------------------------------------------------------------------------------- Net deferred tax assets $1,078 $1,534 ================================================================================ </TABLE> Deferred tax assets for 2003 and 2002 are primarily related to reserves not yet deducted for tax purposes of $2.9 billion and $2.8 billion, respectively; deferred cardmember fees of $290 million and $287 million, respectively; deferred compensation of $255 million and $337 million, respectively; and deferred taxes related to net unrealized derivatives losses of $229 million and $289 million, respectively. Deferred tax liabilities for 2003 and 2002 are mainly related to deferred acquisition costs of $1.1 billion and $1.1 billion, respectively; depreciation and amortization of $801 million and $586 million, respectively; deferred taxes related to net unrealized securities gains of $501 million and $592 million, respectively; deferred taxes related to asset securitizations of $308 million and $233 million, respectively; and deferred taxes related to deferred revenue of $210 million and $100 million, respectively. The principal reasons that the aggregate income tax provision is different from that computed by using the U.S. statutory rate of 35% are as follows: <TABLE> <CAPTION> (Millions) 2003 2002 2001 ---------------------------------------------------------------------------------- <S> <C> <C> <C> Combined tax at U.S. statutory rate $1,486 $1,304 $ 559 Changes in taxes resulting from: Tax-preferred investments, including municipal bonds (240) (237) (247) Tax-exempt element of dividend income (51) (34) (27) Foreign income taxed at rates other than U.S. statutory rate (54) (34) (27) State and local income taxes 92 52 38 All other 14 5 (11) ---------------------------------------------------------------------------------- Income tax provision $1,247 $1,056 $ 285 ================================================================================== </TABLE> Net income taxes paid by the Company during 2003, 2002 and 2001 were $1.2 billion, $0.9 billion and $0.5 billion, respectively, and include estimated tax payments and cash settlements relating to prior tax years. The items comprising comprehensive income in the Consolidated Statements of Shareholders' Equity are presented net of income tax provision (benefit). The changes in net unrealized securities gains are presented net of tax (benefit) provision of ($91 million), $415 million and $258 million for 2003, 2002 and 2001, respectively. The changes in net unrealized losses on derivatives are presented net of tax provision (benefit) of $60 million, ($130 million) and ($159 million) for 2003, 2002 and 2001, respectively. Foreign currency translation adjustments are presented net of tax (benefit) of ($5 million), ($14 million) and ($21 million) for 2003, 2002 and 2001, respectively. Minimum pension liability adjustment is presented net of tax provision (benefit) of $18 million, $29 million and ($55 million) for 2003, 2002 and 2001, respectively. 77

(p.104_axp_notes to consolidated financial statements) (Note 17) EARNINGS PER COMMON SHARE Basic EPS is computed using the average actual shares outstanding during the period. Diluted EPS is basic EPS adjusted for the dilutive effect of stock options, RSAs and other financial instruments that may be converted into common shares. The basic and diluted EPS computations are as follows: <TABLE> <CAPTION> (Millions, except per share amounts) 2003 2002 2001 -------------------------------------------------------------------------------------------- <S> <C> <C> <C> Numerator: Income before accounting change $3,000 $2,671 $1,311 Cumulative effect of accounting change, net of tax (13) -- -- -------------------------------------------------------------------------------------------- Net income $2,987 $2,671 $1,311 ============================================================================================ Denominator: Basic: Weighted-average shares outstanding during the period 1,284 1,320 1,324 Add: Dilutive effect of stock options, restricted stock awards and other dilutive securities 14 10 12 -------------------------------------------------------------------------------------------- Diluted 1,298 1,330 1,336 ============================================================================================ Basic EPS: Income before accounting change $ 2.34 $ 2.02 $ 0.99 Cumulative effect of accounting change, net of tax (0.01) -- -- -------------------------------------------------------------------------------------------- Net income $ 2.33 $ 2.02 $ 0.99 ============================================================================================ Diluted EPS: Income before accounting change $ 2.31 $ 2.01 $ 0.98 Cumulative effect of accounting change, net of tax (0.01) -- -- -------------------------------------------------------------------------------------------- Net income $ 2.30 $ 2.01 $ 0.98 ============================================================================================ </TABLE> Stock options having an exercise price greater than the average market price of the Company's common shares for each period presented are excluded from the computation of EPS because the effect would be antidilutive. The number of these excluded stock options for the years ended December 31, 2003, 2002 and 2001 was 65 million, 101 million and 72 million, respectively. The convertible debentures issued in November 2003 have been excluded from the computation of EPS because none of the criteria by which this instrument becomes convertible has been attained. (Note 18) OPERATING SEGMENTS AND GEOGRAPHIC OPERATIONS Operating Segments The Company is principally engaged in providing travel-related, financial advisory and international banking services throughout the world. TRS' products and services include, among others, charge cards, cardmember lending products, Travelers Cheques, and corporate and consumer travel services. AEFA's services and products include financial planning and advice, investment advisory services and a variety of products, including insurance and annuities, investment certificates and mutual funds. AEB's products and services include providing private, financial institution and corporate banking; personal financial services and global trading. The Company operates on a global basis, although the principal market for financial advisory services is the United States. The following table presents certain information regarding these operating segments, based on management's evaluation and internal reporting structure, at December 31, 2003, 2002 and 2001 and for each of the years then ended. The segment results have been affected by charges discussed in Notes 19 and 20. For certain income statement items that are affected by asset securitizations at TRS, data are provided on both a managed basis, which excludes the effect of securitizations, as well as on a GAAP basis. Pretax income and net income are the same under both a GAAP and managed basis. See Note 4 for further information regarding the effect of securitizations on the financial statements. In addition, net revenues (managed basis) are presented net of provisions for losses and benefits for annuities, insurance and investment certificate products of AEFA which are essentially spread businesses. 78

(p.105_axp_notes to consolidated financial statements) <TABLE> <CAPTION> American Travel Express American Adjustments Related Financial Express Corporate and (Millions) Services Advisors Bank and Other Eliminations Consolidated ------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> 2003 Revenues (GAAP basis) $19,189 $ 6,172 $ 801 $ 104 $ (400) $ 25,866 Net revenues (managed basis) 20,132 4,050 801 104 (400) 24,687 Net investment income 472 2,279 349 101 (138) 3,063 Cardmember lending net finance charge revenue: GAAP basis 2,042 -- -- -- -- 2,042 Managed basis 3,942 -- -- -- -- 3,942 Interest expense: GAAP basis 786 45 -- 214 (140) 905 Managed basis 786 45 -- 214 (140) 905 Pretax income (loss) before accounting change 3,571 859 151 (334) -- 4,247 Income tax provision (benefit) 1,141 177 49 (120) -- 1,247 ------------------------------------------------------------------------------------------------------------------- Income (loss) before accounting change 2,430 682 102 (214) -- 3,000 Cumulative effect of accounting change, net of tax(a) -- (13) -- -- -- (13) ------------------------------------------------------------------------------------------------------------------- Net income (loss)(a) 2,430 669 102 (214) -- 2,987 ------------------------------------------------------------------------------------------------------------------- Assets $79,282 $84,569 $14,232 $19,129 $(22,211) $175,001 =================================================================================================================== 2002 Revenues (GAAP basis) $17,721 $ 5,617 $ 745 $ 99 $ (375) $ 23,807 Net revenues (managed basis) 18,669 3,663 745 99 (375) 22,801 Net investment income 598 2,058 360 99 (124) 2,991 Cardmember lending net finance charge revenue: GAAP basis 1,828 -- -- -- -- 1,828 Managed basis 3,654 -- -- -- -- 3,654 Interest expense: GAAP basis 1,001 32 -- 175 (126) 1,082 Managed basis 987 32 -- 175 (126) 1,068 Pretax income (loss) 3,080 865 121 (339) -- 3,727 Income tax provision (benefit) 945 233 41 (163) -- 1,056 ------------------------------------------------------------------------------------------------------------------- Net income (loss) 2,135 632 80 (176) -- 2,671 ------------------------------------------------------------------------------------------------------------------- Assets $72,205 $73,724 $13,234 $17,014 $(18,924) $157,253 =================================================================================================================== 2001 Revenues (GAAP basis) $17,359 $ 4,791 $ 649 $ 123 $ (340) $ 22,582 Net revenues (managed basis) 18,102 2,825 649 123 (340) 21,359 Net investment income 710 1,162 302 123 (160) 2,137 Cardmember lending net finance charge revenue: GAAP basis 1,704 -- -- -- -- 1,704 Managed basis 3,138 -- -- -- -- 3,138 Interest expense: GAAP basis 1,454 26 -- 182 (161) 1,501 Managed basis 1,487 26 -- 182 (161) 1,534 Pretax income (loss) 1,979 (24) (14) (345) -- 1,596 Income tax provision (benefit) 520 (76) (1) (158) -- 285 ------------------------------------------------------------------------------------------------------------------- Net income (loss)(b) 1,459 52 (13) (187) -- 1,311 ------------------------------------------------------------------------------------------------------------------- Assets $69,384 $71,471 $11,878 $15,726 $(17,359) $151,100 =================================================================================================================== </TABLE> (a) Results for 2003 reflect a $20 million non-cash pretax charge ($13 million after-tax) related to the December 31, 2003 adoption of FIN 46, as revised. (b) 2001 results include three significant items: (1) a charge at AEFA of $1.01 billion pretax ($669 million after-tax) reflecting losses associated with high-yield securities recorded during the first half of 2001; (2) consolidated restructuring charges of $631 million pretax ($411 million after-tax); and (3) the consolidated one-time adverse impact from the September 11th terrorist attacks of $98 million pretax ($65 million after-tax). 79

(p.106_axp_notes to consolidated financial statements) Income tax provision (benefit) is calculated on a separate return basis; however, benefits from operating losses, loss carrybacks and tax credits (principally foreign tax credits) recognizable for the Company's consolidated reporting purposes are allocated based upon the tax sharing agreement among members of the American Express Company consolidated U.S. tax group. Assets are those that are used or generated exclusively by each industry segment. The adjustments and eliminations required to determine the consolidated amounts shown above consist principally of the elimination of inter-segment amounts. Geographic Operations The following table presents the Company's revenues and pretax income in different geographic regions: <TABLE> <CAPTION> Adjustments United and (Millions) States Europe Asia/Pacific All Other Eliminations Consolidated --------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> 2003 Revenues $20,859 $2,303 $1,992 $1,852 $(1,140) $25,866 Pretax income before accounting change(a) $ 3,385 $ 396 $ 216 $ 250 -- $ 4,247 --------------------------------------------------------------------------------------------------- 2002 Revenues $19,286 $1,943 $1,685 $1,586 $ (693) $23,807 Pretax income $ 2,983 $ 310 $ 181 $ 253 -- $ 3,727 --------------------------------------------------------------------------------------------------- 2001 Revenues $17,522 $2,556 $1,523 $1,667 $ (686) $22,582 Pretax income $ 1,177 $ 101 $ 159 $ 159 -- $ 1,596 =================================================================================================== </TABLE> (a) 2003 results reflect a $20 million non-cash pretax charge ($13 million after-tax) related to the December 31, 2003 adoption of FIN 46, as revised. Net foreign currency transaction (losses) gains amounted to ($183 million), ($77 million) and $16 million in 2003, 2002 and 2001, respectively. Most services of the Company are provided on an integrated worldwide basis. Therefore, it is not practicable to separate precisely the U.S. and international services. Accordingly, the data in the above table are, in part, based upon internal allocations, which necessarily involve management's judgment. (Note 19) RESTRUCTURING CHARGES In the third and fourth quarters of 2001, the Company recorded aggregate restructuring charges of $631 million ($411 million after-tax). The aggregate restructuring charges consisted of $369 million for severance related to the original plans to eliminate approximately 12,900 jobs and $262 million of exit costs primarily consisting of $138 million of charges related to the consolidation of real estate facilities, $35 million of asset impairment charges, $26 million recorded in loss provisions, $25 million in contract termination costs and $24 million of currency translation losses. During the year ended December 31, 2002, the Company adjusted the prior year's aggregate restructuring charge liability by taking back into income a net pretax amount of $31 million ($20 million after-tax). This was comprised of the reversal of severance and related benefits of $62 million, primarily caused by voluntary attrition or redeployment into open jobs of approximately 4,100 employees whose jobs were eliminated, partially offset by additional net exit costs of $31 million. These net exit costs included $46 million of additional costs relating to certain domestic and international office facilities, a $20 million reduction primarily due to revisions to plans relating to certain travel office locations and a $5 million additional charge for write-offs of building and related costs in facilities affected by the restructuring plan. During the second half of 2002, the Company recorded new restructuring charges of $19 million ($12 million after-tax) at TRS and, due to additional reviews of operations, $5 million ($3 million after-tax) at AEB. The TRS charge consists of $14 million of severance, relating to the elimination of approximately 500 jobs, and $5 million of other costs primarily 80

(p.107_axp_notes to consolidated financial statements) related to the relocation of certain international operations. AEB's $5 million charge consisted of $3 million of severance costs and $2 million of other costs. As of December 31, 2003, other liabilities include $57 million for the expected future cash outlays related to aggregate restructuring charges recorded. In addition to employee attrition or redeployment, approximately 10,000 employees have been terminated since the inception of the restructuring plans in 2001. The following table summarizes by category the Company's restructuring charges, cash payments, balance sheet charge-offs, liability reductions and resulting liability balance as of December 31, 2001, 2002 and 2003: <TABLE> <CAPTION> (Millions) Severance Other Total -------------------------------------------------------------------------------- <S> <C> <C> <C> Restructuring charges $ 369 $ 262 $ 631 Cash paid (37) (14) (51) Balance sheet charge-offs -- (120) (120) -------------------------------------------------------------------------------- Liability balance at December 31, 2001 332 128 460 -------------------------------------------------------------------------------- Cash paid (226) (65) (291) Balance sheet charge-offs -- (10) (10) Net adjustments due to revisions to 2001 plans (62) 31 (31) Additional charges 17 7 24 -------------------------------------------------------------------------------- Liability balance at December 31, 2002 61 91 152 -------------------------------------------------------------------------------- Cash paid (60) (33) (93) Net adjustments due to revisions to 2002 plans (1) (1) (2) -------------------------------------------------------------------------------- Liability balance at December 31, 2003 $ -- $ 57 $ 57 ================================================================================ </TABLE> (Note 20) DISASTER RECOVERY CHARGE As a result of the terrorist attacks on September 11, 2001, the Company incurred a $90 million ($59 million after-tax) disaster recovery charge. This charge mainly included provisions for credit exposures to travel industry service establishments and insurance claims. $79 million of the pretax charge was incurred by TRS, while $11 million was incurred by AEFA. In addition to the pretax charge, the Company waived approximately $8 million of finance charges and late fees. During 2002, $7 million ($4 million after-tax) of the original AEFA charge was reversed due to lower than anticipated insured loss claims. As of December 31, 2003, the Company has incurred costs of approximately $239 million related to the terrorist attacks of September 11th, which are expected to be substantially covered by insurance and, consequently, did not impact results. These include the cost of duplicate facilities and equipment associated with the relocation of the Company's offices in lower Manhattan and certain other business recovery expenses. (Note 21) TRANSFER OF FUNDS FROM SUBSIDIARIES Restrictions on the transfer of funds exist under debt agreements and regulatory requirements of certain of the Company's subsidiaries. These restrictions have not had any effect on the Company's shareholder dividend policy and management does not anticipate any effect in the future. At December 31, 2003, the aggregate amount of net assets of subsidiaries that may be transferred to the Parent Company was approximately $11.8 billion. Should specific additional needs arise, procedures exist to permit immediate transfer of short-term funds between the Company and its subsidiaries, while complying with the various contractual and regulatory constraints on the internal transfer of funds. 81

(p.108_axp_notes to consolidated financial statements) (Note 22) QUARTERLY FINANCIAL DATA (Unaudited) <TABLE> <CAPTION> (Millions, except per share amounts) 2003 2002 ------------------------------------------------------------------------------------------------------------ Quarters Ended 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31 ------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> <C> Revenues $7,068 $6,419 $6,356 $6,023 $6,196 $5,907 $5,945 $5,759 Pretax income before accounting change 1,090 1,064 1,097 996 949 959 961 858 Net income(a) 763 770 762 692 683 687 683 618 Earnings per common share:(a) Income before accounting change: Basic 0.61 0.60 0.59 0.53 0.52 0.52 0.52 0.47 Diluted 0.60 0.59 0.59 0.53 0.52 0.52 0.51 0.46 Net income: Basic 0.60 0.60 0.59 0.53 0.52 0.52 0.52 0.47 Diluted 0.59 0.59 0.59 0.53 0.52 0.52 0.51 0.46 Cash dividends declared per common share 0.10 0.10 0.10 0.08 0.08 0.08 0.08 0.08 Common share price: High 49.11 47.45 44.84 38.95 39.84 38.47 44.91 42.70 Low 43.53 41.04 32.86 30.90 26.55 26.92 34.53 32.52 ============================================================================================================ </TABLE> (a) Fourth quarter 2003 results reflect a $20 million non-cash pretax charge ($13 million after-tax) related to the December 31, 2003 adoption of FIN 46, as revised. 82

(p.110_axp_report of independent auditors) Report of Ernst & Young LLP Independent Auditors The Shareholders and Board of Directors of American Express Company We have audited the accompanying consolidated balance sheets of American Express Company as of December 31, 2003 and 2002, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the management of American Express Company. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Express Company at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. As discussed in Note 1 to the consolidated financial statements, in 2003 the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities," and the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," prospectively for all stock options granted after December 31, 2002. Additionally, as discussed in Note 5 to the consolidated financial statements, in 2002 the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." /s/ Ernst & Young LLP New York, New York January 26, 2004 83

(p.111_axp_consolidated five-year summary of selected financial data) Consolidated Five-Year Summary of Selected Financial Data <TABLE> <CAPTION> (Millions, except per share amounts and percentages) 2003 2002 2001 2000 1999 ----------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Operating Results Revenues $ 25,866 $ 23,807 $ 22,582 $ 23,675 $ 21,278 Percent increase (decrease) 9% 5% (5)% 11% 11% Expenses 21,619 20,080 20,986 19,767 17,840 Income before accounting change 3,000 2,671 1,311 2,810 2,475 Net income(a) 2,987 2,671 1,311 2,810 2,475 Return on average shareholders' equity(b) 20.6% 20.2% 10.8% 26.3% 25.2% ----------------------------------------------------------------------------------------------------------- Balance Sheet Cash and cash equivalents $ 5,726 $ 10,288 $ 7,222 $ 8,487 $ 7,471 Accounts receivable and accrued interest, net 31,269 29,087 29,498 30,543 26,467 Investments 57,067 53,638 46,488 43,747 43,052 Loans, net 32,300 27,822 26,440 26,088 23,582 Total assets 175,001 157,253 151,100 154,423 148,517 Customers' deposits 21,250 18,317 14,557 13,870 13,139 Travelers Cheques outstanding 6,819 6,623 6,190 6,127 6,213 Insurance and annuity reserves 31,969 28,683 24,536 24,098 25,011 Short-term debt 19,046 21,103 31,569 36,030 30,627 Long-term debt 20,654 16,308 7,788 4,711 5,995 Shareholders' equity 15,323 13,861 12,037 11,684 10,095 ----------------------------------------------------------------------------------------------------------- Common Share Statistics Earnings per share:(a) Income before accounting change: Basic $ 2.34 $ 2.02 $ 0.99 $ 2.12 $ 1.85 Diluted $ 2.31 $ 2.01 $ 0.98 $ 2.07 $ 1.81 Percent increase (decrease): Basic 16% ++ (53)% 15% 18% Diluted 15% ++ (53)% 14% 18% Net income: Basic $ 2.33 $ 2.02 $ 0.99 $ 2.12 $ 1.85 Diluted $ 2.30 $ 2.01 $ 0.98 $ 2.07 $ 1.81 Cash dividends declared per share $ 0.38 $ 0.32 $ 0.32 $ 0.32 $ 0.30 Book value per share: Actual $ 11.93 $ 10.63 $ 9.05 $ 8.81 $ 7.52 Market price per share: High $ 49.11 $ 44.91 $ 57.06 $ 63.00 $ 56.29 Low $ 30.90 $ 26.55 $ 24.20 $ 39.83 $ 31.63 Close $ 48.23 $ 35.35 $ 35.69 $ 54.94 $ 55.42 Average common shares outstanding for earnings per share: Basic 1,284 1,320 1,324 1,327 1,340 Diluted 1,298 1,330 1,336 1,360 1,369 Shares outstanding at year end 1,284 1,305 1,331 1,326 1,341 ----------------------------------------------------------------------------------------------------------- Other Statistics Number of employees at year end: United States 41,823 41,093 48,698 53,352 52,858 Outside United States 36,413 34,366 35,719 35,498 35,520 Total 78,236 75,459 84,417 88,850 88,378 ----------------------------------------------------------------------------------------------------------- Number of shareholders of record 47,967 51,061 52,041 53,884 56,020 =========================================================================================================== </TABLE> (a) Results for 2003 reflect a $20 million non-cash pretax charge ($13 million after-tax) related to the December 31, 2003 adoption of FIN 46, as revised. Results for 2001 include three significant items: (1) a charge of $1.01 billion pretax ($669 million after-tax) reflecting losses associated with high-yield securities recorded during the first half of 2001; (2) restructuring charges of $631 million pretax ($411 million after-tax); and (3) the one-time adverse impact from the September 11th terrorist attacks of $98 million pretax ($65 million after-tax). (b) Computed on a trailing 12-month basis using total shareholders' equity as included in the Consolidated Financial Statements prepared in accordance with GAAP. Prior period amounts have been revised to conform to current year presentation. ++ - Denotes a variance of more than 100%. 84


EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Unless otherwise indicated, all of the voting securities of these subsidiaries are directly or indirectly owned by the registrant. Where the name of the subsidiary is indented, the voting securities of such subsidiary are owned directly by the company under which its name is indented. <TABLE> <CAPTION> Jurisdiction of Name of Subsidiary Incorporation <S> <C> I. American Express Travel Related Services Company, Inc. and its Subsidiaries American Express Travel Related Services Company, Inc. New York Amex Canada Inc. Canada 1001675 Ontario Inc. Canada 1001674 Ontario Inc. Canada Rexport, Inc. Canada Amex Bank of Canada Canada Sourcing Innovation, Inc. Canada American Express Company (Mexico) S.A. de C.V. Mexico American Express Servicios Profesionales, S.A. de C.V. Mexico American Express Bank, FSB Utah American Express Centurion Bank Utah American Express Centurion Services Corporation Delaware American Express Credit Corporation Delaware American Express Overseas Credit Corporation Limited Jersey, Channel Islands AEOCC Finance Ltd. Jersey, Channel Islands Amex Alberta Limited Partnership Canada, Jersey Channel Islands Amex Finance (Luxembourg) Sarl Luxembourg AEOCC Management Company, Ltd. Jersey, Channel Islands American Express Overseas Credit Corporation N.V. Netherlands Antilles Credco Receivables Corp. Delaware Credco Finance, Inc. Delaware American Express Receivables Financing Corporation Delaware American Express Receivables Financing Corporation II Delaware American Express Tax and Business Services Inc. Minnesota American Express TBS Investment Advisors, Inc. Delaware American Express do Brasil Tempo & Cia, Inc. Delaware Amex Latin American Holdings S.L. Spain GFS Brasil Ltda Brazil Banco American Express S/A Brazil American Express do Brasil Tempo & Cia Brazil American Express Administradora de Cartao e Corretagen de Seguros Ltda. Brazil American Express Viagens e Turismo Ltda. Brazil Optimo Brazilco L.L.C. Delaware Optimo Partners Delaware Maximo Partners Delaware Swiss Branch Switzerland American Express Limited Delaware American Express (Malaysia) Sdn. Bhd. Malaysia American Express (Thai) Co. Ltd. (78% owned) Thailand TRS Card International Inc. (75% owned) Delaware American Express de Espana, S.A.U. Spain American Express Asesores de Seguros S.A.U. Spain Amex Establecimiento Financiero de Credito, S.A.U. Spain American Express Foreign Exchange S.A.U. Spain -1-

American Express Viajes, S.A.U. Spain American Express International (B) SDN.BHD. Brunei American Express International Holdings, LLC Delaware South Pacific Credit Card Ltd. New Zealand Centurion Finance, Ltd. New Zealand American Express Argentina, S.A. Argentina American Express Holdings (France) SAS France Societe Francaise du Cheque de Voyage SA France American Express France SAS France American Express Carte France, S.A. France American Express Paris SAS France American Express Assurances France American Express Services S. A. France Havas Voyages American Express SAS France American Express Change SAS France American Express International, Inc. Delaware American Express Services Europe Limited England & Wales Uvet American Express Corporate Travel S.p. (35% owned) Italy ICONCARD S.p.a. (50% owned) Italy Immobiliare Spagna & Mignanelli S.r.l. (11.42% owned) Italy Amex Travel Advisors, Limited Hong Kong American Express Hungary KFT Hungary American Express Hungary Rt. Hungary American Express Company A/S Norway American Express Locazioni Finanziarie, S.r.l. Italy Amex Broker Assicurativo S.r.l. Italy American Express International A.E.(Greece)(99% owned) Greece American Express International (Taiwan), Inc. Taiwan American Express of Egypt, Ltd. (34% owned) Delaware American Express Travel Holdings (Hong Kong) Limited Hong Kong ACS AllCard Service GmbH Germany American Express Bureau de Change S.A. Greece AE Exposure Management Limited Jersey, Channel Islands American Express Poland Sp z o.o. Poland American Express Poland S.A. Poland Sociedad Internacional de Servicios de Panama, S.A. Panama Amex Card Services Co. Ltd. Japan American Express International Services Limited Russia American Express Card Services Limited (95% owned) Russia Amex Marketing Japan Limited Delaware American Express (India) Private Ltd. India P.T. American Express Travel Indonesia (80% owned) Indonesia American Express spol. s.r.o. Czech Republic Amex Travel Holding Co. Ltd. Japan American Express Nippon Travel Agency, Inc. (35% owned) Japan Schenker Rhenus Reisen Verwaltungsgesellschaft mbH Germany American Express Holding AB Sweden Resespecialisterna Syd AB Sweden Forsakringsaktiebolaget Viator Sweden Nyman & Schultz AB Sweden Nyman & Schultz Corporate Card AB Sweden Profil Reiser A/S (50% owned) Denmark American Express Corporate Travel AS Norway American Express Corporate Travel A/S Denmark American Express Services India Limited (99.99% owned) India American Express Foreign Exchange Services India Limited India Mackinnons American Express Travel (Private) Limited (30% owned) Singapore American Express Superannuation Pty Limited Australia American Express Wholesale Currency Services Pty. Limited Australia Agentura Alex s.r.o. Slovakia American Express Corporate Travel SA Belgium American Express Corporate Travel SA Luxembourg Amex Insurance Marketing, Inc. Taiwan American Express Publishing Corporation New York Travellers Cheque Associates, Limited (54% owned) England & Wales -2-

Bansamex S.A. (50% owned) Spain Amex (Middle East) E.C. (50% owned) Bahrain ASAL (American Express Saudi Arabia) (25% owned) Bahrain American Express Europe Limited Delaware American Express France Holdings I LLC Delaware American Express Management SNC France American Express France Finance SNC France American Express France Holdings II LLC Delaware American Express Group & Incentive Services, Inc. (90% owned) Michigan American Express Insurance Services, Ltd. England & Wales Cardmember Financial Services, Ltd. Jersey, Channel Islands Integrated Travel Systems, Inc. Texas Amex General Insurance Agency Taiwan American Express Bank (Mexico), S.A. Mexico Amex Bank Services, S.A. de C.V. Mexico American Express Incentive Services, Inc. Delaware American Express Incentive Services, LLC (50% owned) Missouri American Express International (NZ), Inc. Delaware Cavendish Holdings, Inc. Delaware American Express Business Finance Corporation Utah Business Equipment Capital Corporation Delaware Business Equipment Financing Corporation Delaware First Sierra Receivables III, Inc. Delaware Heritage Credit Services, Inc. Delaware Independent Capital Corporation New Jersey The Republic Group, Inc. California Servicing Solutions, Inc. Delaware Golden Bear Travel, Inc. Delaware Travel Impressions, Ltd. Delaware American Express ATM Holdings, Inc. Delaware Americash L.L.C. Delaware Americash, Inc. Delaware ATM One, L.L.C. Delaware Rosper, Inc. Delaware American Express Global Financial Services, Inc. Delaware Sharepeople Group Limited England American Express Financial Services Europe Limited England American Express Travel Holdings (M) Company SDN Malaysia Mayflower American Express Travel Services SDN BHD Malaysia Ketera Technologies, Inc. (20% owned) Delaware Amex Card Services Company Delaware Belgium Travel Belgium Alpha Card SCRL (50% owned) Belgium Alpha Card Merchant Services SCRL (12.5% owned) Belgium Swisscard AECS AG (50% owned) Switzerland South African Travellers Cheque Company (Pty) Ltd. South Africa BOA Finance Company, Ltd. Thailand American Express (China) Ltd. Delaware Farrington American Express Travel Services Limited (37% owned) Hong Kong Rosenbluth International, Inc. Pennsylvania Rosenbluth International Holdings, Inc. Delaware Rosenbluth International Travel (Singapore) PTE Ltd. Singapore Rosenbluth International Management Canada Canada Eclipse Advisors, Inc. Delaware Rosenbluth International (Russian) Ltd. Russia Rosenbluth France Holdings, S.A.R.I. France Rosenbluth International France, S.A.R.I. France Travel Management Investments Ltd. U.K. England Rosenbluth International U.K. Limited England Travel Elite Limited U.K. England Rosenbluth International Hong Kong Ltd. Hong Kong Rosenbluth International Mexico Mexico Rosenbluth International Netherlands B.V. The Netherlands Rosenbluth International B.V. The Netherlands Rosenbluth Germany GMBH Germany Rosenbluth International GMBH Germany Rosenbluth International Reisebur GMBH Austria Austria Rosenbluth International Limited Pennsylvania Rosenbluth International Ireland Limited Ireland Rosenbluth International Asia Pacific Private Limited Singapore Rosenbluth International (Israel) Ltd. Israel -3-

II. American Express Financial Corporation and its Subsidiaries American Express Financial Corporation Delaware American Express Financial Advisors Inc. Delaware American Express Financial Advisors Japan Inc. Delaware American Express Management Company S.A. Luxembourg American Express Trust Company Minnesota IDS Life Insurance Company Minnesota IDS REO 1, LLC Minnesota IDS REO 2, LLC Minnesota American Partners Life Insurance Company Arizona IDS Life Insurance Company of New York New York American Enterprise Life Insurance Company Indiana American Enterprise REO 1, LLC Minnesota American Centurion Life Assurance Company New York American Express Corporation Delaware AExp Affordable Housing LLC Delaware American Express Certificate Company Delaware Investors Syndicate Development Corp. Delaware American Express Insurance Agency of Alabama Inc. Alabama IDS Insurance Agency of Arkansas Inc. Arkansas American Express Insurance Agency of Massachusetts Inc. Massachusetts American Express Insurance Agency of New Mexico Inc. New Mexico American Express Insurance Agency of Texas Inc. Texas IDS Insurance Agency of Utah Inc. Utah American Express Insurance Agency of Wyoming Inc. Wyoming American Express Insurance Agency of Maryland Inc. Maryland American Express Insurance Agency of Oklahoma Inc. Oklahoma American Express Insurance Agency of Nevada Inc. Nevada American Express Asset Management Group Inc. Minnesota Advisory Capital Strategies Group Inc. Minnesota Advisory Capital Partners LLC Delaware Advisory Select LLC Delaware Boston Equity General Partner LLC Delaware Advisory Quantitative Equity (General Partner) LLC Delaware Advisory Credit Opportunities GP LLC Delaware Advisory European (General Partner) Inc. Cayman Islands Advisory Convertible Arbitrage LLC Delaware Kenwood Capitol Management LLC (51.1% owned) Delaware Northwinds Marketing Group LLC (50.1% owned) Delaware American Express Asset Management International (Japan) Ltd. Japan IDS Capital Holdings Inc. Minnesota American Express Asset Management International Inc. Delaware American Express Asset Management Ltd. England IDS Management Corporation Minnesota IDS Partnership Services Corporation Minnesota IDS Cable Corporation Minnesota IDS Futures Corporation Minnesota IDS Realty Corporation Minnesota IDS Cable II Corporation Minnesota IDS Property Casualty Insurance Company Wisconsin Amex Assurance Company Illinois American Express Property Casualty Insurance Agency Inc. California American Enterprise Investment Services Inc. Minnesota American Express Insurance Agency of Arizona Inc. Arizona American Express Insurance Agency of Idaho Inc. Idaho American Express Property Casualty Insurance Agency of Kentucky Inc. Kentucky American Express Client Service Corporation Minnesota American Express Property Casualty Insurance Agency of Maryland Inc. Maryland American Express Property Casualty Insurance Agency of Mississippi Inc. Mississippi American Express Property Casualty Insurance Agency of Pennsylvania Inc. Pennsylvania Securities America Financial Corporation Nebraska Realty Assets, Inc. Nebraska Securities America Advisors, Inc. Nebraska Securities America, Inc. Nebraska Securities America Insurance Agency of Alabama Alabama -4-

Securities America Insurance Agency of Massachusetts Massachusetts Securities America Insurance Agency of New Mexico New Mexico Securities America Insurance Agency of Ohio Ohio Securities America Insurance Agency of Wyoming Wyoming American Express International Deposit Corp. (50% owned and 50% owned by AEBL) Cayman Islands American Express Asset Management (Australia) Limited Australia Threadneedle Asset Management Holdings Ltd. England Threadneedle Investments (Channel Islands) Ltd. Jersey, Channel Islands Threadneedle Jersey Funds Ltd. Jersey, Channel Islands Threadneedle Asset Management Ltd. England Crescendo European Fund Ltd. Cayman Islands Crescendo UK Fund Ltd. Cayman Islands Crescendo Credit Fund Ltd. Cayman Islands Threadneedle Portfolio Services Ltd. England Threadneedle Investment Services Ltd. England Threadneedle Investment Funds ICVC England Threadneedle Specialist Investment Funds ICVC England Threadneedle Asset Management (Nominees) Ltd. England Threadneedle Liquid Assets Fund plc Ireland Threadneedle Investment Services GMbH Germany Threadneedle International Fund Management Ltd. England EMX company Ltd. (12% owned) England Cofunds Holdings Ltd. (19.2% owned) England Threadneedle International Ltd. England Threadneedle India Fund Ltd. India Attica Asset Management Ltd. England Eagle Star ISA Manager Ltd. England Eagle Star Unit Managers Ltd. England ADT Nominees Ltd. (20% owned) England Threadneedle Management Services Ltd. England Threadneedle Rural Property Services Ltd. England Threadneedle Property Services Ltd. England Threadneedle Pensions Ltd. England ZSP (Foxbridge Way) Nominee Ltd. Jersey, Channel Islands ZSP (High Road) Ilford Nominee Ltd. Jersey, Channel Islands ZSP (Premier House) Nominee Ltd. Jersey, Channel Islands ZSP (Ramsden House) Nominee Ltd. Jersey, Channel Islands Threadneedle Property GP Holdings Ltd. England Sackville TCI Property (GP) Ltd. England Sackville Property (GP) Ltd. England Sackville Tandem Property (GP) Ltd. England Threadneedle Property Investments Ltd. England Castlepoint General Partner Ltd. (20% owned) England III. American Express Banking Corp. and its Subsidiaries American Express Banking Corp. New York American Express Bank Ltd. Connecticut Amex Holdings, Inc. Delaware Amex Cyber International Ltd. British Virgin Islands American Express Bank GmbH Germany American Express Finanzmanagement GmbH Germany AEB - International Portfolios Management Company Luxembourg Egyptian American Bank (41% owned) Egypt American Express Bank (Switzerland) S.A. Switzerland International Trade Services Pte Ltd. Singapore Amex International Trust (Guernsey) Limited Guernsey, Channel Islands American Express Bank Asset Management (Cayman) Limited Cayman Islands American Express Bank (Luxembourg) S.A. Luxembourg Amex International Trust (Cayman) Ltd. Cayman Islands OLP Investments Ltd. Cayman Islands Rilanex Participations N.V. Netherlands Antilles -5-

American Express Bank (France) S.A. France American Express Bank International United States Argentamex S.A. Argentina Amex Nominees (S) Pte Ltd. Singapore Amex Bank Nominee Hong Kong Limited Hong Kong First International Investment Bank Ltd. (20% owned) Pakistan Inveramex Chile Ltda. Chile Amex Immobiliaria Ltda.(99% owned) Chile American Express Bank Ltd., S.A. Argentina American Express Bank Philippines (A Savings Bank), Inc. Philippines American Express Bank (Brazil) Brazil AEB Global Trading Investments, Ltd. British Virgin Islands Amex NLG Holdings, LLC Delaware American Express International Deposit Company Cayman Islands Bankpar Participacoes Ltda. Brazil Banco Inter American Express S.A. Brazil Inter American Express Arrendamento Mercantil S.A. Brazil MS Trading S.A. Brazil Mercantil, S.A. (95% owned) Brazil Inter American Express Consultoria E Servicos Ltda. Brazil MS Representacoes E Participacoes Ltda. Brazil Inter American Express Overseas Ltd. Brazil Imagra Imobiliaria E Agricola S.A. Brazil Capital Promotora de Vendas Ltda. Brazil The American Express Nominees Limited (98% owned) England & Wales Amexnet Limited England American Express Nominees Pvt. Ltd. India IV. Other Subsidiaries of the Registrant Acuma Financial Services Ltd. Delaware Acuma Ltd. Delaware Ainwick Corporation Texas American Express Asset Management Holdings, Inc. Delaware Amexco Insurance Company Vermont Amexco Risk Financing Holding Co. Delaware Amex Assurance Company Illinois checks-on-line, Inc. Delaware National Express Company, Inc. New York The Balcor Company Holdings, Inc. Delaware The Balcor Company Delaware Balcor Securities Company Illinois Balcor Management Services, Inc. Illinois International Capital Corp. Delaware Intercapital Comercio e Participacoes Ltda. Brazil Conepar Compania Nordestina de Participacoes S.A. (37% owned) Brazil Acamex Holdings, Inc. Cayman Islands Etisa Holdings Ltd. Cayman Islands Empresas Turisticas Integradas, S.A. de C.V. (98% owned) Mexico Floriano Representacoes Ltda. Brazil International Capital Corp. (Ltd.) Cayman Cayman Islands Rexport, Inc. Delaware Drillamex, Inc. Delaware UMPAWAUG I Corporation Delaware UMPAWAUG II Corporation Delaware UMPAWAUG III Corporation Delaware UMPAWAUG IV Corporation Delaware Daedalus Leasing Corp. New York Dash 200 + Ltd. (50% owned) Cayman Islands Nora Leasing, Inc. New York Gemini Leasing Ltd. Cayman Islands Far East Leasing Ltd. Cayman Islands 56th Street AXP Campus LLC (AZ) Arizona FRC West Property L.L.C. Arizona </TABLE> -6-

EXHIBIT 31.1 CERTIFICATION I, Kenneth I. Chenault, certify that: 1. I have reviewed this annual report on Form 10-K of American Express Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 12, 2004 /s/ Kenneth I. Chenault ------------------------------- Kenneth I. Chenault Chief Executive Officer

EXHIBIT 31.2 CERTIFICATION I, Gary L. Crittenden, certify that: 1. I have reviewed this annual report on Form 10-K of American Express Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 12, 2004 /s/ Gary L. Crittenden ------------------------------- Gary L. Crittenden Chief Financial Officer

EXHIBIT 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 10-K of American Express Company (the "Company") for the fiscal year ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Kenneth I. Chenault, as Chief Executive Officer of the Company, and Gary L. Crittenden, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Kenneth I. Chenault ------------------------------- Name: Kenneth I. Chenault Title: Chief Executive Officer Date: March 12, 2004 /s/ Gary L. Crittenden ------------------------------- Name: Gary L. Crittenden Title: Chief Financial Officer Date: March 12, 2004 The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not being "filed" as part of the Form 10-K or as a separate disclosure document for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to liability under that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act except to the extent that this Exhibit 32.1 is expressly and specifically incorporated by reference in any such filing.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.