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

The expansion of our Corporate Purchasing Card program for middle and large market companies is also helping to diversify our spending mix. We offer the Corporate Purchasing Card, which is used by corporations to buy everyday goods and services such as office supplies and industrial supplies and equipment, in 23 markets around the world. This type of spending by corporations is less susceptible to downturns in difficult economic times than is traditional travel and entertainment spending. 

## Sustainable Investment Funding 

The changes we have made to our business models not only allowed us to increase our level of investment spending in 2002, they also represented a change in how our investments are funded. During the mid to late 1990s, we had the benefit of a number of items that positively impacted our earnings — including preferred stock dividends based on earnings from Lehman Brothers, which the company spun off in 1994; sales of shares of First Data Corporation; and gains from our Internet portfolio, among other items. 

As we said at the time, we took advantage of these gains to fund incremental spending in parts of the business with high growth potential. In contrast, funding for virtually all of our business-building initiatives in 2002 came from ongoing operations. 

This change increases the likelihood that this higher level of spending will be sustainable. 

## IMPROVING OUR RISK PROFILE 

As we grow our business, we are also focused on pru- dently strengthening our balance sheet and improving our risk profile. 

Given the uncertain economic environment, we have maintained a conservative approach in establishing reserves. Our balance sheet positions for card receivables and merchant bankruptcies are appropriately stronger than they were a year ago. Our charge card portfolio continues to perform well, with our worldwide loss rate ending the year at an historic low. In our lending portfolio, we continue to see good credit performance overall in both the U.S. and international markets. 

