<DOCUMENT>
<TYPE>EX-13
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<FILENAME>ex13.txt
<DESCRIPTION>EXHIBIT 13
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                                                                    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).


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(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



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                                                     (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


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(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



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                                                     (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-


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(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.


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                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                    (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                    (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



<PAGE>


(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



<PAGE>


                                                    (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                                     (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



<PAGE>


(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



<PAGE>


                                    (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



<PAGE>


(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



<PAGE>


                                    (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



<PAGE>


(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



<PAGE>


                           (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



<PAGE>


(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



<PAGE>


                           (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



<PAGE>


(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



<PAGE>


                           (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



<PAGE>


(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



<PAGE>


                           (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



<PAGE>


(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



<PAGE>


                           (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



<PAGE>


(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



<PAGE>


                           (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



<PAGE>


(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



<PAGE>


                          (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



<PAGE>


(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



<PAGE>


                           (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



<PAGE>


(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



<PAGE>


                           (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



<PAGE>


(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



<PAGE>


                           (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



<PAGE>


(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



<PAGE>


                           (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



<PAGE>


(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



<PAGE>


                         (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



<PAGE>


(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



<PAGE>


                          (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



<PAGE>


(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



<PAGE>


                          (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



<PAGE>


(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



<PAGE>


                          (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



<PAGE>


(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




<PAGE>


(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



<PAGE>


           (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

</TEXT>
</DOCUMENT>
