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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-6366

FleetBoston Financial Corporation

(Exact name of Registrant as specified in its charter)

617 / 434-2200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES x     NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES x    NO ¨

As of June 30, 2003, the aggregate market value of the voting stock held by nonaffiliates of the Registrant was $31.1 billion.

The number of shares of common stock of the Registrant outstanding as of January 31, 2004 was 1,069,873,753.

Table of Contents and Cross-Reference Index

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PART I.

Item 1.  Business

General

FleetBoston Financial Corporation is a diversified financial services company organized under the laws of the State of Rhode Island. Unless otherwise indicated or unless the context requires otherwise, all references in this Report to “FleetBoston,” “we,” “us,” “our” or similar references mean FleetBoston Financial Corporation. We are a legal entity separate and distinct from our subsidiaries, assisting those subsidiaries by providing financial resources and management. At December 31, 2003, we had total assets of $200.2 billion, total deposits of $137.8 billion, total stockholders’ equity of $18.3 billion and approximately 47,500 employees. Our principal executive offices are located at 100 Federal Street, Boston, Massachusetts, 02110 (telephone (617) 434-2200).

On October 27, 2003, we announced a definitive agreement to merge with Bank of America Corporation, or “Bank of America,” a global financial services company headquartered in Charlotte, North Carolina, with Bank of America the surviving company. Bank of America had consolidated total assets of approximately $736 billion at December 31, 2003. The acquisition will be accounted for using the purchase method of accounting and each share of FleetBoston common stock will be exchanged for .5553 shares of Bank of America common stock. The merger is expected to close during the second quarter of 2004, and is subject to FleetBoston and Bank of America shareholder, as well as regulatory, approvals. More information about the merger is provided in Note 2 of the “Notes to Consolidated Financial Statements” included under Item 8 of this Report.

We make available free of charge through our website at www.fleet.com all reports we electronically file with, or furnish to, the Securities and Exchange Commission, or “SEC,” including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments to those reports, as soon as reasonably practicable after those documents are filed with, or furnished to, the SEC. These filings are also accessible on the SEC’s website at www.sec.gov. We have included the web addresses of FleetBoston and the SEC as inactive textual references only. Except as specifically incorporated by reference into this Report, information on those websites is not part of this Report.

Our businesses include consumer and small business banking; commercial banking, including middle-market lending, asset-based lending, leasing, cash management, trade finance and government banking; commercial real estate lending; international banking; principal investing; securities brokerage, market-making and clearing services; investment services, including asset management, mutual funds and retirement planning; and credit card services. We own three national banking subsidiaries, including our principal banking subsidiary, Fleet National Bank, or “FNB.” FNB is a member of the Federal Reserve System, and its domestic deposits are insured by the Federal Deposit Insurance Corporation, or “FDIC,” to the extent provided by law.

Our business lines, including their operating results and other key financial measures, are more fully discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in this Report under Item 7, and in Note 18 of the “Notes to Consolidated Financial Statements” included under Item 8 of this Report. For discussions of our business activities, including our lending activities, our cross-border outstandings and our management of credit risk, liquidity risk and other risks inherent in our businesses, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included under Item 7 of this Report.

This Report contains statements (including, without limitation, statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in this Report under Item 7), that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. In addition, FleetBoston may make other written or oral communications from time to time that contain such statements. Forward-looking statements, including statements as to industry trends, future expectations of FleetBoston and other matters that do not relate strictly to historical facts, are based on certain assumptions by management, and are often identified by words or phrases such as “anticipate,” “believe,” “expect,” “intend,” “seek,” “plan,” “objective,” “trend” and “goal.” Forward-looking statements are subject to various assumptions, risks and uncertainties, which change over time, and speak only as of the date they are made.

FleetBoston undertakes no obligation to update any forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance. In addition to factors mentioned elsewhere in this Report or previously disclosed in our SEC reports (accessible on the SEC’s website at www.sec.gov or on our website at www.fleet.com), the following factors, among others, could cause actual results to differ materially from forward-looking statements, and future results could differ materially from historical performance:

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Competition

Our banking and non-banking subsidiaries compete with other major financial institutions, including commercial banks, investment banks, mutual savings banks, savings and loan associations, credit unions, consumer finance companies and other non-bank institutions, such as insurance companies, major retailers, brokerage firms, and investment companies in the Northeast, throughout the United States and internationally. The principal methods of competing effectively in the financial services industry include improving customer service through the quality and range of services provided, improving efficiencies and pricing services competitively.

One outgrowth of the competitive environment discussed above has been significant consolidation within the financial services industry on a global, national and regional level. We continue to implement strategic initiatives focused on expanding our core businesses and to explore divestiture, joint venture and other similar business opportunities. We analyze each of our businesses in the context of customer demands, competitive advantages, industry dynamics and growth potential.

For additional information regarding our merger, acquisition and divestiture activities, refer to Note 2 of the “Notes to Consolidated Financial Statements” included under Item 8 of this Report.

Supervision and Regulation

The businesses in which FleetBoston and its subsidiaries are engaged are subject to extensive supervision, regulation and examination by various bank regulatory authorities and other governmental agencies in the states and countries where

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FleetBoston and its subsidiaries operate. The supervision, regulation and examination to which FleetBoston and its subsidiaries are subject are intended primarily for the protection of depositors and the deposit insurance funds that insure the deposits of banks, rather than for the protection of security holders.

Several of the more significant regulatory provisions applicable to banks and financial holding companies to which FleetBoston and its subsidiaries are subject are discussed below, along with certain regulatory matters concerning FleetBoston and its subsidiaries. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory provisions. Any change in applicable law or regulation may have a material effect on the businesses and prospects of FleetBoston and its subsidiaries.

Regulatory Agencies

Financial Holding Company.    As a registered bank holding company and financial holding company, we are subject to regulation under the Bank Holding Company Act of 1956, or “Bank Holding Company Act,” and to inspection, examination and supervision by the Board of Governors of the Federal Reserve System, or “Federal Reserve Board.”

Subsidiary Banks.    FNB and FleetBoston’s other national banking subsidiaries are subject to regulation, supervision and examination primarily by the Office of the Comptroller of the Currency, or “OCC,” and secondarily by the Federal Reserve Board and the FDIC. FNB’s and FleetBoston’s operations in other countries are also subject to various restrictions imposed by the laws of those countries.

Non-bank Subsidiaries.    Many of our non-banking subsidiaries also are subject to regulation by the Federal Reserve Board and other applicable federal and state agencies. Our brokerage subsidiaries are regulated by the SEC, the New York Stock Exchange, or “NYSE,” the National Association of Securities Dealers, Inc., or “NASD,” and state securities regulators. Our insurance subsidiaries are subject to regulation by applicable state insurance regulatory agencies. Other non-banking subsidiaries of FleetBoston are subject to the laws and regulations of both the federal government and the various states and countries in which they conduct business.

Other Requirements and Regulations.    FleetBoston and its subsidiaries are also affected by the fiscal and monetary policies of the U.S. federal government and the Federal Reserve Board, and by various other governmental requirements and regulations in the states and countries where FleetBoston and its subsidiaries operate.

Financial and Bank Holding Company Activities

“Financial in Nature” Requirement.    As a financial holding company, we may engage in, and acquire companies engaged in, activities that are considered “financial in nature,” as defined by the Gramm-Leach-Bliley Act and Federal Reserve Board interpretations. These activities include, among other things, securities underwriting, dealing and market-making, sponsoring mutual funds and investment companies, insurance underwriting and agency activities, and merchant banking. If any banking subsidiary of FleetBoston ceases to be “well capitalized” or “well managed” under applicable regulatory standards, the Federal Reserve Board may: (1) place limitations on FleetBoston’s ability to conduct the broader financial activities permissible for financial holding companies; or (2) impose any limitations or conditions on the conduct or activities of FleetBoston or any of its affiliates as the Federal Reserve Board finds to be appropriate and consistent with the purposes of the Bank Holding Company Act. If the deficiencies persist, the Federal Reserve Board may require us to divest any banking subsidiary or cease to engage in any activities permissible for financial holding companies that are not permissible for bank holding companies. In addition, if any banking subsidiary of FleetBoston receives a Community Reinvestment Act rating of less than satisfactory, FleetBoston would be prohibited from engaging in any additional activities, other than those permissible for bank holding companies that are not financial holding companies. We may engage directly or indirectly in activities considered financial in nature, either de novo or by acquisition, as long as we give the Federal Reserve Board after-the-fact notice of the new activities. The Gramm-Leach-Bliley Act also permits national banks, such as FNB, to engage in activities considered financial in nature through a financial subsidiary, subject to certain conditions and limitations and with the approval of the OCC.

Interstate Banking and Branching.    As a bank holding company, we are required to obtain prior Federal Reserve Board approval before acquiring more than 5% of the voting shares, or substantially all of the assets, of a bank holding company, bank or savings association. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act, or “Riegle-Neal,” subject to certain concentration limits and other requirements, bank holding companies such as FleetBoston may acquire banks and bank holding companies located in any state without regard to state law. Riegle-Neal also permits banks to acquire branch offices outside their home states by merging with out-of-state banks, purchasing branches in other states and establishing de novo branch offices in other states. The ability of banks to acquire branch offices is contingent, however, on the host state having adopted legislation “opting in” to those provisions of Riegle-Neal. In addition, the ability of a bank to merge with a bank located in another state is contingent on the host state not having adopted legislation “opting out” of that provision of Riegle-Neal.

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Control Acquisitions.    The Change in Bank Control Act prohibits a person or group of persons from acquiring “control” of a bank holding company, unless the Federal Reserve Board has been notified and has not objected to the transaction. Under a rebuttable presumption established by the Federal Reserve Board, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as FleetBoston, would, under the circumstances set forth in the presumption, constitute acquisition of control of the bank holding company. In addition, a company is required to obtain the approval of the Federal Reserve Board under the Bank Holding Company Act before acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of any class of outstanding voting stock of a bank holding company, or otherwise obtaining control or a “controlling influence” over that bank holding company.

Liability for Banking Subsidiaries

Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial and managerial strength to each of its subsidiary banks and to commit resources to their support. This support may be required at times when the bank holding company may not have the resources to provide it. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Act, the FDIC can hold any FDIC-insured depository institution liable for any loss suffered or anticipated by the FDIC in connection with (1) the “default” of a commonly controlled FDIC-insured depository institution; or (2) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution “in danger of default.” All of our subsidiary banks are FDIC-insured depository institutions.

Capital Requirements

Information concerning FleetBoston and its subsidiaries with respect to capital requirements is incorporated by reference from the “Capital Management” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included under Item 7 of this Report, and from Note 12 of the “Notes to Consolidated Financial Statements” included under Item 8 of this Report.

FDICIA

The Federal Deposit Insurance Corporation Improvement Act of 1991, or “FDICIA,” and the regulations promulgated under FDICIA, among other things, established five capital categories for insured depository institutions – well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized – and requires federal bank regulatory agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements based on these categories. Unless a bank is well capitalized, it is subject to restrictions on its ability to offer brokered deposits and on certain other aspects of its operations. An undercapitalized bank must develop a capital restoration plan and its parent bank holding company must guarantee the bank’s compliance with the plan up to the lesser of 5% of the bank’s assets at the time it became undercapitalized and the amount needed to comply with the plan. As of December 31, 2003, each of our banking subsidiaries was considered well capitalized based on the guidelines implemented by the bank regulatory agencies.

Dividend Restrictions

FleetBoston’s funds for cash distributions to its stockholders are derived from a variety of sources, including cash and temporary investments. One of the principal sources of those funds and funds used to pay principal and interest on our indebtedness is dividends received from our subsidiary banks. Various federal laws limit the amount of dividends our banking subsidiaries can pay to us without regulatory approval. In addition, federal bank regulatory agencies have authority to prohibit our banking subsidiaries from engaging in an unsafe or unsound practice in conducting their business. The payment of dividends, depending upon the financial condition of the bank in question, could be deemed to constitute an unsafe or unsound practice. The ability of our banking subsidiaries to pay dividends in the future is currently, and could be further, influenced by bank regulatory policies and capital guidelines. Also, bank regulatory authorities have the authority to prohibit bank holding companies from paying dividends if they deem such payment to be an unsafe or unsound practice. Additional information concerning FleetBoston and its banking subsidiaries with respect to dividends is incorporated by reference from the “Liquidity Risk Management” and “Capital Management” sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included under Item 7 of this Report, and Note 12 of the “Notes to Consolidated Financial Statements” included under Item 8 of this Report.

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Deposit Insurance Assessments

The deposits of our banking subsidiaries are insured up to regulatory limits by the FDIC and, accordingly, are subject to deposit insurance assessments to maintain the Bank Insurance Fund, or “BIF,” and/or the Savings Association Insurance Fund, or “SAIF,” administered by the FDIC. As of December 31, 2003, our banking subsidiaries held approximately $114 billion and $11 billion, respectively, of BIF- and SAIF-assessable deposits. We currently pay no insurance assessments on these deposits under the FDIC’s risk-related assessment system.

Depositor Preference Statute

In the “liquidation or other resolution” of an institution by any receiver, U.S. federal legislation provides that deposits and certain claims for administrative expenses and employee compensation against the insured depository institution would be afforded a priority over other general unsecured claims against that institution, including federal funds and letters of credit.

Future Legislation

Changes to the laws and regulations in the states and countries where FleetBoston and its subsidiaries do business can affect the operating environment of financial holding companies and their subsidiaries in substantial and unpredictable ways. We cannot accurately predict whether those changes in laws and regulations will occur, and, if those changes occur, the ultimate effect they would have upon the financial condition or results of operations of FleetBoston.

Statistical Disclosure by Bank Holding Companies

The following information, provided under Items 6, 7 and 8 of this Report, is incorporated by reference herein:

“Consolidated Average Balances/Interest Earned-Paid/Rates 2001-2003” table – presents average balance sheet amounts, related taxable equivalent interest earned or paid, and related average yields and rates paid.

“Rate/Volume Analysis” table – presents changes in the taxable equivalent interest income and expense for each major category of interest earning assets and interest bearing liabilities.

Note 3, “Securities,” of the “Notes to Consolidated Financial Statements” – discloses information regarding book values, market values, maturities, and weighted average yields of securities (by category).

Note 4, “Loans and Leases,” of the “Notes to Consolidated Financial Statements” and “Loans and Leases” table included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” – discloses distribution of loans of FleetBoston.

“Loans and Leases Maturity” table and “Interest Sensitivity of Loans and Leases Over One Year” table – presents maturities and sensitivities of loans to changes in interest rates.

Note 1, “Summary of Significant Accounting Policies – Nonperforming Assets” of the “Notes to Consolidated Financial Statements” and “Nonperforming Assets” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” – discloses information on nonaccrual and past due loans and leases and our policy for placing loans and leases on nonaccrual status.

“Loans and Leases” and “Country Risk” sections of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” – discloses information regarding cross-border outstandings and other loan concentrations of FleetBoston.

“Reserve for Credit Losses” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” – presents an analysis of loss experience, the allocation of the reserve for credit losses, and a description of factors which influenced management’s judgment in determining the amount of additions to the reserve charged to operating expense.

“Consolidated Average Balances/Interest Earned-Paid/Rates 2001-2003” table and the “Components of Funding Sources” table included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” – discloses deposit information.

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“Selected Financial Highlights” table – presents return on average assets, return on average common equity, common dividend payout and equity-to-assets ratios.

Note 7, “Short-Term Borrowings,” of the “Notes to Consolidated Financial Statements” – discloses information on short-term borrowings of FleetBoston.

Item 2.  Properties

FleetBoston maintains its corporate headquarters at 100 Federal Street, Boston, Massachusetts. FleetBoston or its domestic subsidiaries also maintain principal offices at 111 Westminster Street and One Financial Plaza, Providence, Rhode Island; 777 Main Street, Hartford, Connecticut; 1185 Avenue of the Americas and 26 Broadway, New York, New York; 680 Blair Mill Road, Horsham, Pennsylvania; 4 Penn Center, Philadelphia, Pennsylvania and 301 Carnegie Center, Princeton, New Jersey. FleetBoston or its domestic subsidiaries also maintain administration and operations centers located in New York, Massachusetts, Pennsylvania, Rhode Island, Connecticut, Colorado, Illinois, Delaware and New Jersey.

In Latin America, where FNB operates under the corporate name “BankBoston, N.A.,” BankBoston, N.A. maintains banking headquarters in Buenos Aires, Argentina and Sao Paulo, Brazil.

None of these properties are subject to any material encumbrance. Our subsidiaries also own or lease numerous other premises used in their domestic and foreign operations.

Item 3.  Legal Proceedings

We are involved in various legal proceedings arising out of, and incidental to, our respective businesses, including the following matters:

Robertson Stephens Securities Law Actions and Investigations.     During 2001, Robertson Stephens, our investment banking subsidiary which ceased operations during 2002, and many other underwriters, as well as various issuers and their officers and directors, were named as defendants in approximately 230 class action lawsuits alleging violations of federal securities laws in connection with the underwriting of initial public offerings, or “IPOs.” The plaintiffs contend that the defendants violated the securities laws by failing to make certain required disclosures in prospectuses, by manipulating the prices of IPO securities in the aftermarkets through, among other things, alleged agreements with companies receiving allocations to purchase additional shares in the aftermarket, and by false and misleading analyst reports. Robertson Stephens and other leading underwriters have also been named as defendants in class action lawsuits under the antitrust laws alleging that the underwriters conspired to manipulate the aftermarkets for the IPO securities and to extract anticompetitive fees in connection with the IPOs. Those antitrust lawsuits have been dismissed by the New York federal district court, although that decision has been appealed. Robertson Stephens believes that it acted lawfully in respect to the foregoing allegations and is contesting these suits.

Robertson Stephens Employee-Related and Customer Claims.    In connection with our decision during 2002 to wind down the operations of Robertson Stephens, numerous former employees of Robertson Stephens have filed or threatened to file actions or claims regarding their entitlement to additional compensation and benefits from Robertson Stephens and FleetBoston. In addition, a number of former customers of Robertson Stephens have filed or threatened actions or claims regarding alleged improper practices at Robertson Stephens. Robertson Stephens and FleetBoston believe that they acted lawfully in respect to the foregoing claims and intend to defend such actions and claims vigorously.

Argentina Corralito Litigation and Related Matters.    Information regarding this matter is incorporated by reference from the discussion of the Argentine corralito litigation and related matters, under the caption Argentina – Recent Events, in the “Country Risk” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included under Item 7 of this Report.

Summit Bancorp Shareholders Litigation.    Four class action lawsuits have been filed and consolidated in the New Jersey federal district court against FleetBoston and certain of its current and former directors and officers on behalf of former shareholders of Summit Bancorp, or “Summit.” The lawsuits allege violations of the federal securities laws in connection with our January 25, 2001 registration statement and merger proxy statement/prospectus (and incorporated prior SEC filings) for our acquisition of Summit. In particular, the complaints allege that we made false or misleading statements or omitted material facts regarding operations in Argentina and our loan loss provisioning regarding Argentina, and that we omitted material facts regarding our alleged knowledge of improper practices at Robertson Stephens. FleetBoston and the defendant directors and officers deny the allegations of the complaint and intend to defend the action vigorously.

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Fleet Specialist, Inc.    As previously disclosed, the NYSE and the SEC have been conducting an investigation of whether trading practices by specialist firms, including Fleet Specialist, Inc., violated certain NYSE rules and associated securities laws and regulations. Fleet Specialist has been cooperating with the SEC and NYSE and has been in discussion with the staffs of both organizations to try to resolve the issues raised by this investigation. On February 17, 2004, Fleet Specialist and certain other specialist firms reached an agreement in principle with the SEC and NYSE to settle charges that the firms violated certain federal securities laws and NYSE rules in the course of their specialist trading activity. The settlement, which would involve no admission or denial of wrongdoing, is subject to, among other things, approval by the SEC and NYSE and negotiation of definitive documentation. The settlement, if consummated, would involve relief ordered as part of an administrative proceeding that is expected to include restitution and penalties for Fleet Specialist totaling approximately $59.4 million, a censure, cease and desist order, and an undetermined form of undertaking. The settlement would not resolve potential regulatory charges against individuals. Separately, putative class action complaints have been filed in New York federal district court against Fleet Specialist, FleetBoston and other specialist firms (and their parent companies) on behalf of investors who traded stock on the NYSE between 1998 and 2003 and were allegedly disadvantaged by the improper practices of the specialist firms. Also, a putative class action complaint has been filed in California state court against certain specialist firms and individuals, including Fleet Specialist and certain of its officers, alleging violation of California state law in connection with the same alleged practices. The settlement with the SEC and NYSE, described above, would not resolve the putative class actions, although a significant portion of the payment is expected to be allocated to restitution for allegedly disadvantaged customers.

Mutual Funds.    As previously disclosed, in September 2003, FleetBoston subsidiaries began receiving subpoenas and information requests from the New York Attorney General, the SEC, the NASD and the Massachusetts Securities Division for documents and information regarding late trading and market timing activity in mutual funds. FleetBoston and its subsidiaries have been cooperating with these investigations, while at the same time continuing their own examination of these matters, reviewing policies, processes and personnel, and taking appropriate remedial action when called for. On February 24, 2004, the SEC filed a civil action in the Massachusetts federal district court against two FleetBoston subsidiaries, Columbia Management Advisors, Inc. and Columbia Funds Distributor, Inc., alleging that these two entities allowed certain customers to engage in short-term or excessive trading without disclosing this fact in the relevant fund prospectuses. The complaint alleges violations of federal securities laws in relation to at least nine trading arrangements pertaining to these customers during the period 1998-2003, and requests injunctive and monetary relief. A similar action was filed the same day in New York state court by the New York Attorney General, claiming relief under New York state statutes. The subsidiaries are engaged in discussions with the SEC and the New York Attorney General in an effort to reach a satisfactory resolution of these matters. In addition, FleetBoston subsidiaries are responding to subpoenas and requests for information from banking and other regulatory and law enforcement agencies. Separately, putative class actions have been filed in the Massachusetts federal district court on behalf of those persons who acquired shares in the Columbia funds between February 13, 1999 and January 14, 2004, alleging violations of federal securities laws in relation to unspecified “market timing” arrangements.

Management of FleetBoston, based on its review with counsel of all actions and proceedings pending against FleetBoston and its subsidiaries, considers that the aggregate loss, if any, resulting from the final outcome of these proceedings should not be material to FleetBoston’s financial condition or annual results of operations. However, the outcome of a particular proceeding may be material to FleetBoston’s results of operations for a particular quarterly period depending on the size of the loss or liability relative to FleetBoston’s earnings for that quarterly period.

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Item 3A.  Executive Officers of FleetBoston

The names, positions, ages and business experience during the past five years of the “executive officers” of FleetBoston, as defined in the Securities Exchange Act of 1934, as of February 27, 2004 are set forth below. The term of office of each executive officer extends until the meeting of the Board of Directors immediately following the Annual Meeting of Stockholders, and until a successor is chosen and qualified, unless they sooner resign, retire, die or are removed.

Charles K. Gifford became President and Chief Operating Officer of FleetBoston following the merger of BankBoston Corporation, or “BankBoston,” with Fleet Financial Group, Inc. in 1999 (the “BankBoston merger”), President and Chief Executive Officer in 2001, and Chairman and Chief Executive Officer in 2002. Prior to the BankBoston merger, Mr. Gifford had served as Chairman, President and Chief Executive Officer of BankBoston from 1995 to 1996, Chief Executive Officer from 1996 to 1997 and Chairman and Chief Executive Officer from 1997 to 1999. Mr. Gifford has been a Director of FleetBoston since 1999.

Eugene M. McQuade was named Executive Vice President and Chief Financial Officer of FleetBoston in 1993, Vice Chairman and Chief Financial Officer in 1997, and President and Chief Operating Officer in 2002. Mr. McQuade has been a Director of FleetBoston since December 2003.

H. Jay Sarles became Vice Chairman of FleetBoston in 1993 and was named Chief Administrative Officer in 2002, a capacity in which he also served from 1997 to 2001. From 2001 to 2002, Mr. Sarles served as Vice Chairman, Wholesale Banking, of FleetBoston.

Norman J. DeLuca was named Managing Director, Business and Entrepreneurial Services Group, of FNB in 1997, Managing Director, Small Business Services, in 1999, and Managing Director, Business Financial Services, in 2002.

Anne M. Finucane has served as Senior Vice President and Director of Corporate Marketing and Corporate Communications of FleetBoston from 1995 to 1999 and Executive Vice President since 1999.

Richard A. Higginbotham served as head of FNB’s Commercial Finance businesses from 1996 to 2002, Managing Director of FNB’s Commercial Finance and Corporate Banking groups from 2002 to June 2003 and Executive Vice President of FleetBoston with responsibility for National Commercial Financial Services since June 2003.

Robert C. Lamb, Jr. rejoined FleetBoston in 2002 as Executive Vice President and Chief Financial Officer, after having served as Executive Vice President and Chief Financial Officer of BearingPoint, Inc. (formerly KPMG Consulting) from 2000 to 2002. From 1993 to 2000, Mr. Lamb served as Controller of FleetBoston.

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Terrence P. Laughlin was named Director of Corporate Development of FleetBoston in 1993, Managing Director of Strategic Planning in 2000 and Senior Vice President in 2001, and also assumed responsibility for overseeing FleetBoston’s Latin American Banking operations in 2003.

Brian T. Moynihan was named Managing Director, Corporate Strategy and Development, of FleetBoston in 1994, Senior Vice President in 1998 and Executive Vice President in 1999 with responsibility for Brokerage and Wealth Management since 2000, and Regional Commercial Financial Services and Investment Management since May 2003.

Kenneth J. Sax became Vice President, Operational Assurance, of FleetBoston following the BankBoston merger, Chief Credit Officer in 2002, Senior Vice President in June 2003 and Chief Risk Officer in September 2003. Prior to the BankBoston merger, Mr. Sax had served as General Auditor of BankBoston from 1998 to 1999.

Mary Etta Schneider became Group Executive of FNB’s Industry Banking Group following the BankBoston merger, and Managing Director, Capital Markets, in 2002. Prior to the BankBoston merger, Ms. Schneider had served as Executive Vice President, Specialized Finance, of BankBoston and Managing Director, Loan Syndications, of BancBoston Securities Inc. from 1998 to 1999.

Joseph A. Smialowski became Vice Chairman, Technology and Operations, of FleetBoston following the BankBoston merger and Executive Vice President in 2002. Prior to the BankBoston merger, Mr. Smialowski had served as Executive Vice President, Technology and Operations, of BankBoston from 1998 to 1999.

M. Anne Szostak was named Senior Vice President, Human Resources, of FleetBoston in 1994 and has served as Executive Vice President since 1998.

Bradford H. Warner became Vice Chairman, Investment Services, of FleetBoston following the BankBoston merger, Vice Chairman, Consumer Business Group, in 2000, Vice Chairman, Consumer Financial Services, in January 2002 and Executive Vice President in December 2002 with responsibility for Personal Financial Services. Prior to the BankBoston merger, Mr. Warner had served as Vice Chairman, Regional Banking, of BankBoston from 1998 to 1999.

Gary A. Spiess was named Senior Vice President, Senior Deputy General Counsel and Assistant Secretary of FleetBoston following the BankBoston merger and became Executive Vice President, General Counsel and Secretary in 2002. Prior to the BankBoston merger, Mr. Spiess had served as General Counsel and Clerk of BankBoston from 1987 to 1999 and as Executive Vice President from 1998 to 1999.

Joseph R. Dewhirst has served as Treasury ALCCCO Group Manager of FleetBoston from 1996 to 1999, Treasury Senior Group Manager of Asset Liability Management from 1999 to October 2003 and Senior Vice President and Treasurer since October 2003.

Ernest L. Puschaver was named Chief Accounting Officer of FleetBoston in 2000. Prior to joining FleetBoston, Mr. Puschaver had been a partner at PricewaterhouseCoopers LLP since 1983.

Item 4.  Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders in the fourth quarter of 2003.

PART II.

Item 5.  Market for the Registrant’s Common Equity and Related Stockholder Matters

Our common stock is listed on the New York and Boston Stock Exchanges. At December 31, 2003 we had 80,547 stockholders of record. For information regarding high and low quarterly intraday sales prices and quarterly dividends declared and paid, in each case on our common stock, see the “Quarterly Summarized Financial Information” table included under Item 8 of this Report, which is incorporated by reference herein.

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Item 6.  Selected Financial Data

SELECTED FINANCIAL HIGHLIGHTS

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

The following discussion and analysis of our financial condition and results of operations is part of our Annual Report on Form 10-K to the Securities and Exchange Commission, or “SEC,” and should be read in conjunction with our Consolidated Financial Statements and Notes to Consolidated Financial Statements included under Item 8 of this Report. Certain prior period amounts presented in this discussion and analysis have been reclassified to conform to current period classifications.

This discussion and analysis may contain statements with respect to our financial condition, results of operations, future performance and business that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those anticipated as a result of certain risks, uncertainties and other factors, which are more fully discussed under Item 1 of this Report.

The preparation of consolidated financial statements requires management to make judgments in the application of certain of its accounting policies that involve significant estimates and assumptions about the effect of matters that are inherently uncertain. These estimates and assumptions, which are based on information available as of the date of the financial statements, may materially impact the reported amounts of certain assets, liabilities, revenues and expenses as the information changes over time. Accordingly, different amounts could be reported as a result of the use of revised estimates and assumptions in the application of these accounting policies. The accounting policies considered relatively more significant in this respect are the determination of the reserve for credit losses, the valuation of principal investing securities, accounting for goodwill and accounting for income taxes. These accounting policies are discussed in the Significant Accounting Estimates section of this discussion and analysis, as well as in Note 1 of the “Notes to Consolidated Financial Statements” included under Item 8 of this Report.

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Unless otherwise indicated or unless the context requires otherwise, all references in this discussion and analysis to “FleetBoston,” “we,” “us,” “our” or similar references mean FleetBoston Financial Corporation. Headquartered in Boston, Massachusetts, we are a diversified financial services company with approximately $200 billion in assets. Our principal domestic lines of business are Personal Financial Services, Regional Commercial Financial Services and Investment Management, and National Commercial Financial Services. Our other business lines include Capital Markets, composed of brokerage market-making, execution and clearing, as well as principal investing, and International Banking. You can read more about these business lines and their supporting business units in the Line of Business Information section of this discussion and analysis. There have been recent regulatory developments related to our mutual funds and specialist businesses. In addition, in February 2004, we reached an agreement in principle with respect to one of these matters. Our discussion of these matters is provided under Item 3 of this Report.

In October 2003, we announced a definitive agreement to merge with Bank of America Corporation, or “Bank of America,” a global financial services company headquartered in Charlotte, North Carolina, with Bank of America the surviving company. The acquisition will be accounted for using the purchase method of accounting, with each share of our common stock to be exchanged for .5553 shares of Bank of America common stock. The merger is expected to close during the second quarter of 2004, and is subject to FleetBoston and Bank of America shareholder, as well as regulatory, approvals. Respective shareholder meetings will be held on March 17, 2004. For more information about this merger, see Note 2 of the “Notes to Consolidated Financial Statements” included under Item 8 of this Report.

Net income for 2003 was $2.6 billion, or $2.45 per diluted share, compared to $1.2 billion, or $1.12 per diluted share, for 2002. Return on average assets and return on average common equity were 1.34% and 15.04%, respectively, in 2003, compared to .63% and 6.87%, respectively, in 2002.

Included in 2003 and 2002 results was net income from discontinued operations of $43 million and a net loss from discontinued operations of $336 million, respectively. The 2003 amount included an after-tax gain of $57 million from the April 2003 sale of Interpay, Inc., our payroll and human resource services business. The 2002 net loss was related to winding down the operations of Robertson Stephens, the disposition of our fixed income business in Asia, the discontinuance of Fleet Trading, our NASDAQ market-making business, and the sale of our student loan processing subsidiary, AFSA Data Corporation. For more financial information regarding these discontinued businesses, refer to Note 2 of the “Notes to Consolidated Financial Statements” included under Item 8 of this 10-K.

The remainder of this discussion and analysis reflects results from continuing operations, unless otherwise noted. On this basis, income from continuing operations for 2003 was $2.6 billion, or $2.41 per diluted share, compared to $1.5 billion, or $1.44 per diluted share, for 2002. Return on average assets and return on average common equity were 1.32% and 14.78%, respectively, in 2003, compared to ..82% and 8.84%, respectively, in 2002.

Overall higher earnings and earnings per share in 2003 were mainly driven by improvements in credit costs, reflecting the impact of improving credit quality in the domestic and Argentine lending portfolios. In addition, 2003 results were positively impacted by improved private equity revenues and by the recognition of higher net securities gains compared to 2002. Partially offsetting these improvements were declines in net interest income and revenues from market-making and credit card, and an increase in employee compensation and benefits expense. In addition, foreign exchange revenues declined as a result of a $100 million charge recorded in 2003 for the estimated impact of ongoing court-ordered reimbursements related to Argentine deposits.

Changes from the prior year on both a line of business and consolidated basis are discussed in more detail later in this discussion and analysis.

LINE OF BUSINESS INFORMATION

Our customer-focused organizational structure includes three principal domestic lines of business: Personal Financial Services, National Commercial Financial Services, and Regional Commercial Financial Services and Investment Management. Our other business lines include International Banking and Capital Markets.

We may periodically reclassify business line results based on modifications to our management reporting and profitability measurement methodologies and changes in organizational alignment. We have reclassified certain information for the year ended December 31, 2002 presented throughout this section to reflect the revised organizational structure implemented during 2003. The information appearing throughout this section is presented on a fully taxable equivalent, or “FTE,” basis and, unless otherwise noted, a continuing operations basis. For more financial information about these business lines, refer to Note 18 of the “Notes to Consolidated Financial Statements” included under Item 8 of this Report.

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Line of Business Earnings Summary

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The following discussion focuses on the components of each of our business lines, and explains results in terms of their underlying businesses.

Personal Financial Services

Personal Financial Services provides consumer retail and small business banking services to nearly 5.4 million households and over 500,000 small businesses. Our customers can access our products and services through a variety of distribution channels including a network of over 1,400 branches and over 3,400 ATMs, electronic banking products, Internet banking (HomeLink), and customer call centers. HomeLink continues to grow at a rapid pace with 3.8 million customers, up from 3.1 million last year. Retail brokerage services are provided through Quick & Reilly, a leading provider of these services. We now operate 85 Quick & Reilly Investor Centers with over 900 financial consultants.

Personal Financial Services earned $1 billion in 2003, a decline of $31 million, or 3%, from the prior year. This decrease in earnings was influenced by three major factors. First, we reported significantly lower portfolio sale gains related to the credit card business. Second, growth in loan volumes, particularly home equity loans, and strong growth in low-cost core deposits overcame reduced deposit spreads caused by declining domestic interest rates. Third, the increased loan volumes required higher credit loss provisions under our business line allocation methodologies. Average low-cost core deposit balances increased 11%, or $6.7 billion, while average higher-cost time deposits decreased $4 billion, when compared to 2002, reflecting the impact of our pricing strategy for time deposits. In addition, average loan and lease balances increased $10.4 billion, or 28%, over 2002, due to a higher level of home equity loans, reflective of our increased emphasis on cross-selling this product, coupled with favorable market conditions.

National Commercial Financial Services

Our National Commercial Financial Services unit provides financial expertise in industry specialties, commercial real estate, leasing, asset-based lending, and debt capital. Our extensive range of products and services includes cash management, loan syndications, global trade services, foreign exchange, interest rate risk management and mergers and acquisitions, which allows us to have an even broader role in our customers’ financial strategies.

National Commercial Financial Services earned $826 million in 2003, an increase of $60 million, or 8%, from the prior year. The increase in earnings reflected lower credit loss provision allocations, which resulted from improved credit quality due to our strategic reduction of certain credit exposures, and lower loan volumes due to continued weak demand for commercial lending products. The negative impact of reduced loan volumes on net interest income was partially offset by higher deposit balances and a lower level of nonperforming assets. Noninterest income increased as a result of a higher level of investment banking, trade services and derivative product sales due, in part, to increased cross-selling activities. Average loan and lease balances decreased $7.3 billion to $47.4 billion, while average deposits grew approximately $1.4 billion to $8.6 billion, when compared to 2002.

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Regional Commercial Financial Services and Investment Management

Regional Commercial Financial Services and Investment Management is composed of two main segments, Regional Commercial Financial Services and Investment Management. Regional Commercial Financial Services provides financial solutions to support the growth of large, middle-market and multinational corporations, as well as institutional and government banking businesses and public sector clients. Products and services include foreign exchange, interest rate risk management, mergers and acquisitions, global trade services and cash management. Cash management services continues to be an area of strength and growth for us. We are the fifth-largest provider of cash management services in the U.S. and provide more than 500,000 customers with the tools necessary to manage their treasury operations.

Investment Management offers a wide range of services, including specialized asset management, estate settlement, and deposit and credit products to high-net-worth customers. We sell proprietary and third-party mutual funds along with an array of investment products to retail and institutional customers. We offer retirement planning, large institutional asset management and not-for-profit investment services. There have been recent regulatory developments related to our mutual funds business. Our discussion of these matters is provided under Item 3 of this Report.

Regional Commercial Financial Services earned $282 million in 2003 compared to $312 million in the prior year. Earnings were affected by declining loan volumes, the result of continued weakness in demand for credit-related products, and by the impact of declining domestic interest rates. However, higher deposit balances, cash management fees and tax processing revenue, due to increased sales and cross-selling activities and to new business with federal and state governments, helped to moderate the impact of the declines. Average loan and lease balances decreased $2.9 billion to $14.6 billion, while average deposits grew approximately $4.7 billion to $24.2 billion, when compared to the prior year.

Investment Management earned $162 million in 2003 compared to $180 million in the prior year. Earnings reflected lower fee income, resulting from difficult market conditions experienced in the first half of the year. The market value of domestic assets under management, which reflected the higher valuation of the stock market experienced in the second half of the year and net inflows into mutual funds, was approximately $160 billion as of December 31, 2003 compared to $143 billion as of December 31, 2002.

International Banking

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International Banking includes our overseas operations, the largest of which are in Brazil and Argentina, where we have been in business since 1947 and 1917, respectively. This business line also includes operations in other Latin American countries. We currently operate 66 branches in Brazil and total average assets were $8.8 billion for 2003, down from $10.3 billion for 2002. In Argentina, we currently operate 90 branches, down from 135 at the beginning of 2002, with total average assets of $3.1 billion for 2003, down 39% from $5 billion for 2002.

International Banking earned $112 million in 2003, compared to a net loss of $381 million in 2002. The improvement in earnings, which reflected stabilizing conditions in Argentina, was driven by lower expenses associated with the court-ordered payouts of deposits at pre-devaluation values, a lower level of credit loss provi - -

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sion allocations, significantly reduced securities writedowns recorded in 2003, mainly in Argentina, and a decline in both nonperforming loans and inflation indexation expense.

Argentina’s net loss for 2003 was $69 million, compared to a net loss of $559 million for 2002. Results for 2003 included net costs totaling $44 million after-tax, composed of a charge for establishing a deposit re-dollarization reserve, securities writedowns, costs related to additional streamlining of operations, and a gain from the sale of our investment in an Argentine pension company. The net loss of $559 million in the prior year reflected significant credit loss provision allocations and securities writedowns, as well as the impact of dramatic changes in the Argentine government’s monetary and fiscal policies.

Brazil had earnings of $119 million in 2003, down $1 million compared to 2002. We continued to reduce our Brazilian risk exposure in 2003, and total assets were reduced to $8.1 billion at December 31, 2003 from $9.1 billion at December 31, 2002. You can read more detailed information about Argentina and Brazil in the Country Risk section of this discussion and analysis.

Capital Markets

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Our Fleet Specialist, Execution and Clearing businesses earned $53 million in 2003 compared to $129 million in 2002, a decrease of $76 million, due to extremely difficult market conditions which continued to affect the specialist industry and limit profit opportunities. There have been recent regulatory developments related to our specialist business. Our discussion of these matters is provided under Item 3 of this Report.

Principal Investing provides equity capital and debt financing to business ventures that are predominantly privately or closely held companies, and also invests in investment fund partnerships. Principal Investing recorded a net loss of $64 million in 2003, compared to a net loss of $188 million in 2002, an improvement of $124 million over the prior year due to higher investment gains and lower writedowns. This business unit reported profits for the third and fourth quarters of 2003. After-tax writedowns were $123 million in 2003 versus $216 million in 2002.

All Other

All Other includes the business activities of our Treasury unit, as well as transactions not allocated to our principal business lines, the residual impact of methodology allocations, such as the provision for credit losses, reserve for credit losses and equity, and funds transfer pricing offsets.

Funds transfer pricing is used to assign interest income and interest expense to each line of business on a matched funding concept based on each business’s net asset or liability position. The provision for credit losses is generally allocated to business lines on an “expected loss” basis over an economic cycle. The consolidated provision for credit losses for any given period is based on management’s assessment of the adequacy of the reserve for credit losses considering the risk characteristics of the lending and leasing portfolio at a point in time. The difference between the sum of the provisions for each line of business using the expected loss methodology and the consolidated provision is included in All Other.

You can find more information about our consolidated reserve methodology in the Reserve for Credit Losses section of this discussion and analysis and in Note 1 of the “Notes to Consolidated Financial Statements” included in Item 8 of this Report.

The Treasury unit is responsible for the balance sheet management function, which consists of three principal activities – managing our wholesale funding needs; managing the structural non-trading interest rate risk inherent in our banking franchise; and managing our capital levels. To manage interest rate risk, Treasury utilizes a variety of financial instruments, including debt securities, residential mortgages and derivatives. Other business units have responsibility for associated operations, accounting and credit risk management.

For 2003, All Other recorded earnings of $168 million, compared to a net loss of $341 million for 2002. Net income from our Treasury unit was $342 million in 2003 versus $551 million in 2002, with the decrease resulting primarily from lower net gains from sales of domestic debt securities. As mentioned above, All Other also includes the residual impact of methodology allocations, with the most significant item related to the consolidated provision for credit losses. In 2003, All Other included $59 million of after-tax credit loss provisions in excess of that allocated to our various business lines, compared to $895 million in the prior year. The higher 2002 charge reflected the impact of U.S. economic conditions on commercial credit at that time. In addition, 2003 results were reduced by $133 million as a result of a higher

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corporate effective tax rate (35.5% in 2003 versus 33.5% in 2002).

SIGNIFICANT ACCOUNTING ESTIMATES

FleetBoston’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, or “GAAP,” including prevailing practices within the financial services industry. The preparation of consolidated financial statements requires management to make judgments, involving significant estimates and assumptions, in the application of certain of its accounting policies about the effects of matters that are inherently uncertain. These estimates and assumptions, which may materially affect the reported amounts of certain assets, liabilities, revenues and expenses, are based on information available as of the date of the financial statements, and changes in this information over time could materially impact amounts reported in subsequent financial statements as a result of the use of revised estimates and assumptions. Certain accounting policies, by their nature, have a greater reliance on the use of estimates and assumptions, and could produce results materially different from those originally reported.

Based on the sensitivity of financial statement amounts to the policies, estimates and assumptions underlying reported amounts, the relatively more significant accounting policies applied by FleetBoston have been identified by management as the determination of the reserve for credit losses; the valuation of principal investing securities; accounting for goodwill; and accounting for income taxes. These policies require the most subjective or complex judgments, and related estimates and assumptions could be most subject to revision as new information becomes available.

The following is a brief discussion of the above-mentioned significant accounting policies. An understanding of the judgments, estimates and assumptions underlying these accounting policies is essential in order to understand our reported financial condition and results of operations. These accounting policies are described in more detail in Note 1 of the “Notes to Consolidated Financial Statements” included under Item 8 of this Report.

Reserve for Credit Losses

The reserve for credit losses represents the amount available for estimated probable credit losses existing in our lending and leasing portfolio and certain off-balance sheet financial instruments. The methodology used to assess the appropriate level of reserve is inherently subjective, and involves many complex estimates and assumptions.

We perform periodic, systematic reviews of our credit portfolios to identify inherent losses and assess the overall probability of collection. These reviews include an analysis of historical default and loss experience which results in the identification and quantification of loss factors. These loss factors are used in determining the appropriate level of reserve to cover the estimated probable losses existing in each lending category. Management judgment involving the estimates of loss factors can be impacted by many variables, such as the number of years of actual default and loss history included in the evaluation, the volatility of forecasted net credit losses, and the financial models used in the forecasting process.

The methodology used to determine the appropriate level of the reserve for credit losses and related provisions differs for commercial versus consumer loans, and involves other overall evaluations, such as a “sovereign risk” analysis, which is performed as part of our review of our international commercial and consumer loan and lease portfolios, and assesses the cross-border risk of credit loss. In addition, significant estimates are involved in the determination of the appropriate level of reserve related to impaired loans, which are commercial and industrial and commercial real estate loans on nonaccrual status and troubled debt restructurings. The portion of the reserve related to impaired loans is based on discounted cash flows using the loan’s effective interest rate, or the fair value of the collateral for collateral-dependent loans, or the observable market price of the impaired loan. Each of these variables involves judgment and the use of estimates. For instance, discounted cash flows are based on estimates of the amount and timing of expected future cash flows.

In addition to periodic estimation and testing of loss factors, we periodically evaluate prevailing economic, business and, in some cases, political conditions, including emerging markets risks and the impact of currency devaluation on cross-border exposures, industry concentrations, changes in the size and characteristics of the portfolio, recent loss experience and other pertinent factors, including peer comparisons. Management judgment is involved at many levels of these evaluations.

An integral aspect of our risk management process is allocating the reserve for credit losses to various components of the lending and leasing portfolio based upon an analysis of risk characteristics, demonstrated losses, industry and other segmentations, and other more judgmental factors, as well as providing an appropriate unallocated component. The unallocated component represents management’s view that, given the complexities of the lending portfolio and the assessment process, including the inherent imprecision in the financial models used in the loss forecasting process, there are estimable losses that have been incurred but not yet specifically identified, and as a result not fully provided for in the allocated portion of the reserve.

The relative level of the unallocated component may change periodically after evaluating factors impacting assumptions utilized in the allocated reserve calculation, such as recent loss experience, industry concentrations,

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and the impact of current economic conditions on historical or forecasted net credit losses. Although the unallocated portion of the reserve is provided to absorb losses in excess of the amounts allocated to specific lending and leasing categories, both allocated and unallocated components are available to absorb losses in any lending and leasing category.

For more information about the methodology used in the determination of the reserve for credit losses, refer to the Financial Condition – Reserve for Credit Losses section of this discussion and analysis.

Principal Investing Securities

Investments in private companies are generally accounted for using the cost method and are carried in the consolidated balance sheet at cost less declines in value deemed other than temporary. These investments do not trade on established exchanges and, accordingly, their fair value is not readily determinable. Gains and losses related to these investments are recorded in capital markets-related revenue when they are sold or otherwise exchanged, or when declines in value are deemed other than temporary. Certain equity investments in private companies are accounted for using the equity method of accounting, with changes in carrying value recognized currently in capital markets-related revenue. A determination to use the equity method is generally based on the level of our ownership interest and whether we have the ability to influence the operating or financial decisions of the company in which we have invested.

Investments in public companies are carried in securities available for sale at fair value, based on quoted market prices, with unrealized gains and losses recorded, net of tax, as a component of stockholders’ equity. When those investments are liquidated or deemed impaired, gains and losses are recorded in capital markets-related revenue. Investments in investment fund partnerships are accounted for under the equity method, using financial information for the partnerships provided by the respective investment fund managers, with changes in carrying value recognized currently in capital markets-related revenue.

Significant management judgment is involved in the evaluation of declines in value of individual investments. Declines that are deemed other than temporary are recognized currently in the income statement through write-downs of the investments. The estimates and assumptions used by management to evaluate declines in value can be impacted by many factors, such as the financial condition, earnings capacity and near-term prospects of the company in which we have invested and, for publicly-traded securities, the length of time and the extent to which fair value has been less than cost. The evaluation of these investments is also subject to the overall condition of the economy and its impact on the capital markets. If sufficient evidence does not exist to support a realizable value equal to or greater than the carrying value of the investment, an impairment loss is recorded.

For more information about our principal investing portfolio, refer to the Noninterest Income – Capital Markets-Related Revenue section of this discussion and analysis. Information about our management of market risk in the principal investing portfolio is included in the Market Risk Management – Principal Investing section of this discussion and analysis.

Goodwill

Goodwill arises from the purchase price exceeding the assigned value of net assets of acquired businesses, and represents the value attributable to unidentifiable intangible elements being acquired. The majority of our goodwill resulted from business acquisitions, and its value is inherent primarily in our banking, credit card and asset management businesses. Of the total goodwill included in our consolidated balance sheet, about 42% is recorded in our Personal Financial Services business line; 35% in Regional Commercial Financial Services and Investment Management; 14% in National Commercial Financial Services; 7% in Capital Markets; and 2% in International Banking.

The sustained value of the majority of this goodwill is supported ultimately by revenue from our banking and credit card businesses and the market value of the assets under management. A decline in earnings as a result of a lack of growth, or our inability to deliver cost-effective services over sustained periods, could lead to a perceived impairment of goodwill, which would be evaluated and, if necessary, be recorded as a writedown in our consolidated income statement.

On an annual basis, or as circumstances dictate, management reviews goodwill and evaluates events or other developments that may indicate impairment in the carrying amount. The evaluation methodology for potential impairment is inherently complex, and involves significant management judgment in the use of estimates and assumptions.

We evaluate impairment using a two-step process. First, we compare the aggregate fair value of the reporting unit to its carrying amount, including goodwill. If the fair value exceeds the carrying amount, no impairment exists. If the carrying amount of the reporting unit exceeds the fair value, then we compare the “implied” fair value, defined below, of the reporting unit’s goodwill with its carrying amount. If the carrying amount of the goodwill exceeds the implied fair value, then goodwill impairment is recognized by writing the goodwill down to the implied fair value.

To determine the fair value of the reporting unit being evaluated for goodwill impairment, we use one of two principal methodologies – external or independent valuation, using quoted market prices in active markets; or an analysis of comparable recent external sales or market data, such as multiples of earnings or similar performance measures. If these methodologies are not available, we estimate future cash flows using present value techniques.

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These estimates involve many assumptions, including expected results of the reporting unit, an assumed discount rate and an assumed growth rate for the reporting unit. In some cases, expected results are normalized to adjust for material nonrecurring transactions if considered necessary for a more meaningful estimate. The discount rate used is the rate we use in evaluating external acquisitions. The implied fair value of the goodwill is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit, as if the unit had been acquired in a business combination and the overall fair value of the unit was the purchase price.

Events that may indicate goodwill impairment include significant or adverse changes in the business, economic or political climate; an adverse action or assessment by a regulator; unanticipated competition; and a more-likely-than-not expectation that a business of FleetBoston will be sold or otherwise disposed of.

More information about goodwill is provided in Note 6 of the “Notes to Consolidated Financial Statements” included under Item 8 of this Report.

Income Taxes

Our overall tax position is fundamentally complex, and management judgment is involved in the analysis of income tax assets and liabilities. An integral aspect of this analysis involves estimating the expected realization of deferred tax assets and liabilities. Management’s determination of the likelihood that deferred tax assets can be realized is subjective, and involves estimates and assumptions about matters that are inherently uncertain. The realization of deferred tax assets, including foreign tax credits, arises from carrybacks to prior taxable periods, levels of future taxable income, including net foreign source income in certain periods, and the achievement of tax planning strategies. Underlying estimates and assumptions can change over time, influencing our overall tax positions, as a result of unanticipated events or circumstances, in particular the level of foreign source earnings.

Management continually monitors and evaluates the worldwide impact of tax decisions, rulings and current developments on the estimates and assumptions underlying our analysis of the expected realization of deferred tax assets and valuation reserves. More information about our income taxes is provided in Note 16 of the “Notes to Consolidated Financial Statements” included under Item 8 of this Report.

CONSOLIDATED RESULTS OF OPERATIONS

Net Interest Income

Net interest income decreased $36 million, or less than 1%, in 2003 when compared to 2002, mainly due to the impact of domestic interest rate declines and lower commercial loan volumes. Partially offsetting these decreases were growth in home equity loans, purchases of residential mortgages, and a favorable shift in our deposit mix from higher-yielding time deposits to low-cost core deposits, which are primarily demand, money market and savings and NOW deposits.

Net Interest Margin and Interest Rate Spread

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Net interest margin represents the relationship between net interest income and average earning assets. Changes in the components of interest earning assets, as well as interest bearing liabilities, are discussed in more detail below.

Net interest margin for 2003 declined 20 basis points to 3.81%, compared to 4.01% in 2002, mainly due to lower commercial loan levels and lower yielding assets, the latter the result of the overall decline in the domestic interest rate environment which led to, among other things, higher amortization of premiums on mortgage-related assets. Partially offsetting these declines were lower overall funding costs.

Net interest margin is impacted by several factors, including fluctuations in the overall interest rate environment, funding strategies, capital structure, and the mix of interest earning assets, interest bearing liabilities and noninterest bearing liabilities, as well as the use of derivative instruments in managing interest rate risk. We utilize derivative instruments which qualify for hedge accounting under current accounting standards as an interest rate risk management tool. These derivatives serve to stabilize net interest income and net interest margin when interest rates fluctuate. Accordingly, the impact of derivatives on net interest income and net interest margin should be viewed in the overall context of our risk management strategy. For both 2003 and 2002, net interest margin would have been approximately 3.45% if hedges had not been used to mitigate interest rate fluctuations. More information about our use of derivative instruments to manage interest rate risk is provided in the Market Risk Management – Balance Sheet Management Activities section of this discussion and analysis, and in Note 13 of the “Notes to Consolidated Financial Statements” included under Item 8 of this Report.

Average securities increased $4.3 billion to $32.5 billion due to net purchases of domestic debt securities, mainly mortgage-backed securities. The decrease in yield was due to a higher level of prepayments coinciding with the low domestic interest rate environment and the reinvestment of proceeds from securities sales and maturities into lower-yielding securities.

Average domestic loans and leases increased $7.9 billion to $109.4 billion in 2003, driven primarily by higher average levels of domestic home equity and purchased residential mortgage loans, partially offset by lower average domestic commercial loan levels, mainly the result of our strategic credit risk reduction efforts and continued weak commercial loan demand.

Average international loans and leases decreased $3.5 billion, partly due to a $1.7 billion decline in Argentina, reflecting charge-offs, risk reduction efforts and the economic environment in that country, and a $1.2 billion decline in Brazil resulting from our desire to reduce cross-border exposure.

Average other interest earning assets decreased $2.2 billion to $7.3 billion in 2003, mainly the result of a decrease in domestic securities purchased under agreements to resell.

The $4.6 billion increase in average interest bearing deposit liabilities from 2002 was mainly due to growth in lower-yielding interest bearing core deposits partially offset by a decline in higher-yielding time deposits, as a result of our consumer banking strategy. During 2003, average lower-yielding domestic interest bearing core deposits increased $8.9 billion, mainly the result of improved customer satisfaction which resulted in lower attrition levels, as well as pricing promotions resulting in new deposit growth. Average total domestic time deposits declined $4.6 billion when compared to 2002.

Average long-term debt decreased $4.4 billion to $18.3 billion in 2003, reflecting our favorable liquidity position, due to increases in core deposits, which reduced the need for issuances to offset debt maturities. The increase in yield was mainly due to maturities of lower-yielding debt.

Provision for Credit Losses

The provision for credit losses for 2003 amounted to $1 billion compared to $2.8 billion for 2002. The significantly lower 2003 provision primarily reflected the impact of gradual improvements in the U.S. economy and the perceived credit risk profile of the domestic lending and leasing portfolio, as well as some stabilizing of economic conditions in Argentina.

The provision for credit losses reflects management’s assessment of the adequacy of the reserve for credit losses, considering the current risk characteristics of the lending portfolio and economic conditions at a point in time. Levels of future provisions will continue to be a function of management’s assessment of credit risk based upon periodic reviews of the reserve for credit losses, including assessments of the potential impact of domestic and international economic conditions.

As a result of our lending to domestic corporate borrowers, we have been significantly impacted by the depressed portions of the economic cycle. In addition, economic problems in Argentina have significantly affected our charge-off and nonperforming asset levels. However, as the domestic and Argentine economies stabilize and begin to improve, our exposure to loss typically declines and, accordingly, our provision would be expected to decline. During 2003, the provision was less than the level of net charge-offs. As a result, the overall level of the reserve for credit losses was reduced by approximately 20%.

Additional information about commercial credit and the reserve for credit losses can be found in the Loans and Leases and Reserve for Credit Losses sections, respectively, of this discussion and analysis. Information about Latin America is included in the Country Risk section of this discussion and analysis.

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Noninterest Income

Noninterest income increased $55 million in 2003, resulting mainly from improvements in capital markets-related revenue, most notably private equity revenue and securities gains, partially offset by a decline in credit card revenue.

Banking Fees and Commissions