Foundation for Growth

Recharged With Rewards_ We expanded our industry-leading rewards-based products and programs — key drivers of spending, loyalty and profitability. New Rewards Green and Rewards Gold cards in the U.S. have Membership Rewards built in and offer double points for purchases at supermarkets and other "everyday" locations.

INVESTING IN BUSINESS-BUILDING ACTIVITIES

Despite the difficult economic and market conditions, we were able to invest heavily in the areas of our core businesses that can provide growth for the company over the short, moderate and long term. Here is a look at some of our progress in key areas of our business.

Growing Our Global Payments Businesses

American Express is a world leader in providing charge and credit cards to consumers, small businesses and corporations. During 2002, we moved aggressively to expand our portfolio of proprietary, co-branded and affinity cards in the United States and internationally, as well as to grow our Global Network Services business in our international markets.

New and Enhanced Rewards Products in the U.S.

In the U.S. consumer market, we focused on offering customers more compelling products and value propositions. In particular, we expanded our industry-leading rewards-based products and programs, and added new partnerships to benefit cardmembers. We know that rewards are an important driver of cardmember spending, loyalty and profitability.

In one major move, we enhanced our classic charge card line-up by introducing the American Express Rewards Green and Rewards Gold cards for U.S. consumers. These cards offer automatic enrollment in Membership Rewards and double points for everyday purchases at supermarkets, gas stations, drugstores, home improvement stores and other locations. In addition to revitalizing our U.S. consumer charge card offerings, these new cards provide cardmembers with enhanced opportunities to earn rewards and support our efforts to drive spending at everyday locations.

We also launched the American Express Cash Rebate Card for U.S. consumers. This product carries no annual fee and offers up to 5 percent cash back, based on a cardmember's annual spending and payment activity.

Following their launch, the new American Express Rewards Green and Gold cards and the Cash Rebate Card had good early performance, together accounting for almost 500,000 new cards in 2002, with most coming in the fourth quarter.

Rewards-based products not only drive higher spending, they also have very favorable economics in terms of cardmember attrition, credit and payment performance. In addition to these new product launches, we continued to grow our existing rewards-based lending products in the U.S., such as our highly successful co-brand portfolios with Delta Air Lines and Costco.

We also focused on expanding our industry leading Membership Rewards program — the largest program of its kind, with more than 9 million cardmembers enrolled worldwide. About 1,200 redemption partners now participate in Membership Rewards, which offers the broadest range of redemption options of any card-based rewards program. We continued to expand the array of choices in Membership Rewards in 2002, signing new partners in retail and entertainment categories including Banana Republic, Blockbuster, Broadway.com, Cingular Wireless, Staples, Ticketmaster, The Home Depot and Toys "R" Us.

New Brand, Products and Services for Small Business Customers

In the small business arena, where American Express is the leading card provider and one of the top lenders, we moved to strengthen our business model by re-launching our small business services organization.

We introduced OPEN: The Small Business Network from American Express. This network provides a robust new set of products, services, online account management tools and partnerships that offer everyday savings to small businesses. A nationwide advertising campaign supported this effort, reinforcing American Express' commitment to serving small business owners. New card products launched for small business owners in 2002 included the Business Purchase Account (charge), the Business Management Account (credit), and the Platinum Delta SkyMiles Business Credit Card.

OPEN for Small Business_ We deepened our commitment to small business owners with the launch of OPEN: The Small Business Network, a rebranding and enhancement of our small business offerings. Enhanced products and services include new charge and lending cards and an expansion of the Everyday Savings program, which added partners such as Staples and Kinko's

We also added several new merchants to the Everyday Savings program for small business cardmembers, including Cingular Wireless, Kinko's, Nextel and Staples.

New Proprietary Products in International Markets

Internationally, we introduced more than 100 new proprietary card products in 17 countries during 2002. These are cards that American Express issued, either on our own or co-branded with partnering institutions.

Global Payments Growth_ The Shinsei American Express Card in Japan, Blue from American Express in Mexico, the American Express Tiger Woods Credit Card in Canada and the American Express-Société Générale Gold Card in France were some of the more than 100 new proprietary card products launched in 2002 in international markets.

The wide array of innovative new products included Blue from American Express in Mexico, the American Express Tiger Woods Credit Card in Canada, and co-branded cards with such high-value partners as Costco in Puerto Rico, Alitalia in Italy, Shinsei Bank in Japan, and Société Générale in France. We also acquired a credit card portfolio from AMP Bank, one of Australia's leading financial services companies.

As in the United States, the Membership Rewards program is a powerful driver of cardmember loyalty in the international consumer business. We now offer Membership Rewards in 30 countries. In 2002, we enhanced our rewards programs in several markets, offering richer and more flexible choices that enable cardmembers to earn points more quickly.

Expanded GNS Partnerships in our International Markets

We also continued to expand our Global Network Services (GNS) business in our international markets. In this business, we partner with third-party financial institutions who issue American Express-branded charge or credit cards that are accepted on our merchant network. We signed eight new GNS partners in 2002, including Toyota Finance Corporation in Japan and Samsung Card Company, Ltd. in Korea.

Since 1996, American Express has been pursuing a strategy of opening its merchant network to third-party issuers around the world. Our GNS partnerships increase our market presence, drive more transaction volume onto our merchant network, and significantly increase the number of merchants accepting the American Express Card in selected markets. At the same time, our partners benefit from association with the American Express brand and access to our network services. We currently have network partnerships with 77 financial institutions in the same number of countries. Together, these GNS partners launched 40 new products during the past year.

We look forward to launching this business in the United States once the appeals of the Department of Justice lawsuit against Visa and MasterCard are completed.

New Products and Relationships in Global Corporate Services

American Express is also the leading provider of card, travel and purchasing management services to large and middle market companies around the world. In particular, the corporate middle market is a rapidly expanding segment that offers great opportunity for growth. In 2002, we invested heavily in the middle market, expanding marketing efforts and adding sales staff in 13 countries. We also launched the Savings at Work program, which provides U.S. mid-sized firms with significant discounts on everyday products and services such as office supplies and a range of business services, and we enhanced our product offerings to mid-sized firms in other parts of the world.

We continued to provide innovative online tools that enable both large and middle market clients to better plan and manage travel and T&E spending. New U.S. offerings in 2002 included additional applications in TravelBahn, our proprietary corporate travel infrastructure that streamlines the reservations process and provides access to webfares. In addition, we enhanced the American Express @ Work travel expense management system with two new tools — first, an application for filing expense reports and reconciling everyday purchases, and second, a searchable database that corporate travel managers can access to keep track of employees' travel reservations.

During the year, we added or expanded multiple Corporate Card and Corporate Purchasing Card relationships around the world including those with Accenture, Halliburton, Hilton Hotels, PepsiCo, Procter & Gamble, Seagate Technology and Unisys Corporation. We also won the corporate travel business of companies including Monsanto Company; Nestle USA; Nokia, Inc.; Panasonic; and The Shell Company of Australia Limited.

In addition, since establishing the first corporate travel joint venture in the People's Republic of China just one year ago, we opened two new offices in China and began providing corporate travel services to more than 30 multinational and local corporations there.

New and Enhanced Prepaid Products

American Express also acted to expand our business in the growing market for prepaid payment products. Last year's launch of the American Express Gift Card was the latest major addition to the company's portfolio of prepaid services. The Gift Card can be used at all retailers in the United States that accept the American Express Card. We also improved one of our original prepaid products, the 111-year-old American Express Travelers Cheque. In 2002, we launched enhanced services for Travelers Cheque customers, including passport and credit replacement assistance.

Growing Retail Financial Services

American Express Financial Advisors is one of the premier financial planning companies in the United States, serving clients through a field force of more than 11,600 financial advisors. While 2002 was a tough year for AEFA in terms of financial results, we made progress in a number of important areas to strengthen our platform for moderate to long-term growth. AEFA launched 34 new products across our asset management, insurance and annuity businesses — a major increase over prior years. For example, to broaden offerings in our mutual fund family, we launched 10 new sub-advised funds in the value, international and small cap categories, partnering with successful fund managers.

Among our efforts to attract more affluent clients and to capture more assets from our best existing clients, two notable developments were the launch of the American Express ONE Financial Account and the rollout of American Express Platinum Financial Services across the United States.

ONE Account_ Launched in 2002, the American Express ONE Financial Account, which merges investments, banking, lending and other financial services offerings into a single account, proved to be a strong asset-gathering tool for American Express Financial Advisors (AEFA). Average assets for ONE clients were four times higher than for other AEFA clients.

The American Express ONE Financial Account is an integrated financial management tool that combines our clients' investing, banking, lending and card relationships into a single account. Since its launch, we acquired $2.2 billion in new assets. Average assets for ONE clients are four times higher than for other AEFA clients.

Platinum Financial Services is a personalized, premium financial services program targeting customers with more than $500,000 in assets. Existing AEFA clients who enrolled in Platinum Financial Services invested significantly more of their assets with us, and Platinum portfolios for new clients averaged nearly $1 million.

Another priority at AEFA has been improving the performance of our proprietary mutual funds. We made major changes to the leadership of our investment group and strengthened talent across the board. Steps taken included the hiring of several strong portfolio managers and analysts; the restructuring of our U.S. equity investment operation by establishing satellite offices in New York, San Diego and Boston; the reorganization of our fixed income group in Minneapolis; and the acquisition of Dynamic Ideas, a respected quantitative analysis firm.

We are encouraged by the early progress that is being made in improving investment performance at AEFA. Many of our equity portfolios have seen significant performance improvement compared to their Lipper peer groups over the past year. Of course, investment track records are established over three to five years, not in a single year. However, the initial signs suggest we are on the right path to achieve consistent, superior investment results.

In international retail financial services, we increased our business volumes in Private Banking, and launched several investment and insurance products in key markets. For example, American Express Bank expanded its distribution partnerships with financial institutions to bring new investment products to clients. During 2002, AEB launched several mutual fund portfolios, including some sub-advised by AEFA. In insurance, we introduced a variety of new products including credit insurance in Mexico, hospital cash in Japan and Global Assist® Travel Medical Insurance in Canada. Additionally, to help better coordinate our efforts in marketing to and serving customers, we more closely integrated our non-card lending and deposit business with our card businesses.