BUSINESS RESULTS

The Global Financial Services Group includes AEFA, AEB and our online banking and brokerage businesses. It also includes our TRS international consumer card business and Global Network Services, the business that enables banks and other qualified financial institutions to issue cards on the American Express network.

American Express Financial Advisors

One of our stated goals is to make American Express as well known and successful in financial services as it is in the card and travel businesses. AEFA is a strong starting point for achieving this goal. We have a large and growing number of personal financial advisors, proprietary product development and asset management capabilities, and a large institutional business. Over the last decade, we have grown these businesses significantly within the United States, where AEFA maintains a competitive advantage. In the years ahead, we aim to increase growth on a global basis.

For 2000, net income at AEFA grew 10 percent to $1.03 billion and net revenue grew 13 percent. Assets owned, managed or administered increased during the year to $275 billion, despite substantial market depreciation during the fourth quarter. Mutual fund sales, including proprietary and nonproprietary funds, increased 29 percent and sales of our annuity products rose 51 percent, with variable annuity sales particularly strong as a result of new product offerings. The impact of weak market conditions was cushioned by a $58 million net year-over-year benefit from equity fee hedges that we put in place to minimize the negative effect of a market downturn on management and distribution fees.

Nevertheless, AEFA's overall performance was disappointing. Higher expenses from implementing the new relationships we have structured with our advisors; the performance of some of our owned and managed investments, particularly high-yield securities; narrower investment spreads; and declining equity markets negatively affected AEFA's results.

While its financial performance was clearly below our expectations, AEFA had a number of notable business accomplishments. The number of advisors serving our clients grew by a record amount to 12,663. That growth reflects the greater flexibility we are now providing to current and prospective advisors as part of a multiple platform strategy that offers a greater choice of how they work with us. We believe this will help us attract and retain financial advisors, which is critical to our continuing success in this business.

Advisors can now work with us as employees, branded independent contractors, or nonbranded independent contractors affiliated with our Securities America subsidiary, a business we acquired in 1998. Their compensation, expenses and headquarters support vary according to the relationship they select. This is a strategic advantage for us, and to date, no other U.S. company offers three different career tracks for its financial advisors. The effort required to implement this structure throughout the United States was a huge task, and one that we executed well.

In addition to the work we have undertaken with the platform expansion, we also continued to focus on cross-selling opportunities, which are another important way to grow our business. Approximately 30 percent of new AEFA clients again came from within the American Express Cardmember base. In addition, the volume of AEFA-managed investment certificates and mutual funds sold through American Express Bank to our international clients continued to grow.

American Express Financial Advisors Assets Owned, Managed or Administered

Assets owned, managed or administered by American Express Financial Advisors increased to $275 billion in 2000, up from $270 billion at year-end 1999. Providing a variety of products and services allows financial advisors to enhance relationships with clients, the majority of whom have a long-term financial plan with the company.

The American Express Mortgage Center provides financial tools and information that help customers manage the home-buying process; find competitive rates, terms and other mortgage features; and decide which mortgage is right for them. Like Membership B@nking and American Express Brokerage, the Mortgage Center is another way the company is helping its customers use the Internet to simplify their financial transactions.

Known for much of its lengthy history as Investors Syndicate - later IDS - American Express Financial Advisors has been working with customers to help them realize their financial goals since its founding in 1894.