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TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.           )

The AES Corporation
1001 North 19th Street
Arlington, Virginia 22209

NOTICE OF 20032004 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MAY 1, 2003WEDNESDAY APRIL 28, 2004

March 26, 200315, 2004

TO THE HOLDERS OF COMMON STOCK OF THE AES CORPORATION:

         The 20032004 Annual Meeting of Stockholders of The AES Corporation will be held on Thursday, May 1, 2003,Wednesday, April 28, 2004, at 9:30 a.m. at the Company's corporate offices at 1001 North 19th Street, Arlington, Virginia. Doors to the meeting will open at 8:30 a.m.

         The meeting will be conducted:

1.

To elect a board of ten12 directors;



2.

To consider and vote on a proposal to approve The AES Corporation 2003 Long-Term Compensation Planratify the appointment of Deloitte & Touche LLP as independent auditors of the Company for the year 2004 (approved by the Board of Directors, described in the following Proxy Statement);



3.

To consider and vote on a proposal to amend The AES Corporation 2001 Stock Option Plan for Outside Directors (approved by the Board of Directors, describedset forth in the following Proxy Statement);

         And, to transact such other business as may properly come before the meeting.

         Stockholders of record at the close of business on March 3, 20032004 will be entitled to notice of and to vote at this meeting.

Brian A. Miller Secretary andVice President, Deputy General Counsel and Secretary

 EACH STOCKHOLDER IS REQUESTED TO EXECUTE AND PROMPTLY RETURN THE ENCLOSED PROXY. A PREPAID ENVELOPE IS ENCLOSED FOR RETURNING PROXIES. YOU MAY ALSO VOTE THROUGH THEBY TELEPHONE OR INTERNET.INTERNET (SEE DIRECTIONS ON PROXY CARD.)CARD). ANY PERSON GIVING A PROXY HAS THE POWER TO REVOKE IT AT ANY TIME, AND STOCKHOLDERS WHO ARE PRESENT AT THE MEETING MAY WITHDRAW THEIR PROXIES AND VOTE IN PERSON.

DIRECTIONS TO MEETING LOCATION (1001 N. 19^TH STREET, ARLINGTON, VA 22209):

From Points North—US-40 E toward I-270. Take I-270 SPUR South toward I-495 South/Northern Virginia. Merge onto Capital Beltway I-495 South. Take the VA-193 Exit (Exit 43-44) toward George Washington Memorial Parkway. Merge via Exit 43. Merge onto Arlington Boulevard/US-50 West toward Rosslyn. Take Rosslyn Exit. Turn right onto North Lynn Street, and right onto 19^th Street. There is limited parking in the building.

From Points South—I-95 North. Merge onto I-395 North via Exit 170A toward Washington, DC. Merge onto Washington Boulevard/VA-27 via Exit number 8B toward Pentagon/Arlington Cemetery/Rosslyn/Memorial Bridge. Merge onto Jefferson Davis Highway/VA-110 North toward Pentagon North Parking Entrance. Turn slight left to take the Wilson Boulevard ramp toward Rosslyn. Turn slight right onto Arlington Ridge Road. Arlington Ridge Road becomes North 19^th Street. There is limited parking in the building.

From Points West—I-66 East toward Washington, DC. Take Iwo Jima Exit merging onto Lee Highway. Turn right onto Fort Myer Drive, and then a left onto 19^th Street. Proceed on 19^th Street to office; 1001 North 19^th Street, Arlington, VA 22209. There is limited parking in the building.

TABLE OF CONTENTS

PROXY STATEMENT

March 26, 2003

15, 2004 The accompanying proxy is solicited by the Board of Directors of The AES Corporation (the "Company" or "AES"). The proxy is solicited for use at the Annual Meeting of Stockholders of the Company to be held at 9:30 a.m. on Thursday, May 1, 2003Wednesday, April 28, 2004. The Annual Meeting will be held at the Company's corporate offices, 1001 North 19th Street, Arlington, Virginia, or at any adjournment of such meeting.Meeting. This Proxy Statement and accompanying proxy are first being sent or givenprovided to stockholders on or about March 26, 2003.25, 2004.

If the proxy is properly executed, the shares it represents will be voted at the meeting in accordance with the instructions noted thereon. If no instructions are specified with respect to the matters to be acted upon, the shares will be voted in accordance with the Board of Directors' recommendations for each proposal as set forth herein. Any stockholder executing a proxy has the power to revoke it at any time before it is voted at the meeting by filingmeeting. To revoke a proxy, a stockholder must file a written notice of revocation with the Company, by deliveringor deliver a duly executed proxy bearing a later date, or by attendingattend the Annual Meeting of Stockholders and votingvote in person. Proxies marked as abstentions, or to withhold a vote from a nominee as a director in the case of the election of directors, will have the effect of a negative vote. Broker non-votes (wherewill be considered as present at the Annual Meeting, but will not be entitled to vote and therefore will have no effect. A broker non-vote occurs when a nominee holdingholds shares for a beneficial owner, but has not received voting instructions from the beneficial owner with respect to a particular matter, and suchthe nominee does not possess or choose to exercise his discretionary authority with respect thereto) will be considered as present at the meeting but not entitled to vote with respect tothe shares for the particular matter and will therefore have no effect.matter.

The only securities of the Company entitled to be voted are shares of Common Stock, and onlyStock. Only holders of record of Common Stock at the close of business on March 3, 20032004 are entitled to notice of and to vote at the meeting. Holders of Common Stock are entitled to one vote per share. There were 564,542,183628,775,109 shares of Common Stock outstanding at the close of business on March 3, 2003.2004. The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 20022003 is being delivered concurrently with this Proxy Statement.

ProposalSHAREHOLDER PROPOSAL 1

ELECTION OF DIRECTORSElection Of Directors

The Board of Directors presently submits the names of ten12 persons ("Nominees") for election to Director. Only one of the Nominees, Paul T. Hanrahan, is also an employee of the Company. In 2002,2003, the Board of Directors met 2613 times, including 157 telephonic meetings. Pursuant to the Company's Corporate Governance Guidelines, non-management Directors meet after each in-person meeting of the Board of Directors. Non-management Directors met 6 times in 2003 with Mr. Darman presiding as Lead Independent Director. Directors are elected to hold office until the next Annual Meeting of Stockholders and until their respective successors have been elected and qualified. Directors shallmust be elected by a majority of the votes of the shares of Common Stock present in person or represented by proxy and entitled to vote at the Annual Meeting of Stockholders, at which a quorum is present.

Roger W. Sant co-founded the Company in 1981. HeThe Board has been Chairmandetermined that each of the Boarddirectors and a director ofnominees standing for election, except Paul T. Hanrahan, the Registrant since its inception, and he held the office of President through 1986 and Chief Executive Officer through December 31, 1993. He currently is Chairman of the BoardCompany, and Roger W. Sant, a co-founder of The Summit Foundation, is a Regent of the Smithsonian Institution, and serves on the Board of Directors of Marriott International, Inc., the World Wildlife Fund (US), and the National Symphony Orchestra. He was Assistant Administrator for Energy Conservation and the Environment of the Federal Energy

1

Administration ("FEA") from 1974 to 1976Company, has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company) and is independent within the Directormeaning of the Energy Productivity Center, an energy research organization affiliated with The Mellon Institute at Carnegie-Mellon University, from 1977 to 1981.New York Stock Exchange ("NYSE") director independence standards, as currently in effect.

Richard Darman has been a director of AES since July 2002 andJune 2002. He served as Vice Chairman from December 2002 until May 2003, and was elected Chairman of the Board on May 1, 2003. In addition to his service as Chairman, Mr. Darman serves as Lead Independent Director of the board since December 2002.Board. He is a Partner and Managing Director of The Carlyle Group ("Carlyle"), one of the world's largest private equity firms. He joined Carlyle in February 1993, after serving in the cabinet of the first Bush administration as Director of the U.S. Office of Management and Budget (from 1989 to 1993). Prior to joining the Bush cabinet, he was a Managing Director of Shearson Lehman Brothers, Deputy Secretary of the U.S. Treasury, and Assistant to the President of the United States. He graduated with honors from Harvard College in 1964 and from the Harvard Graduate School of Business Administration in 1967. He has served on the boards of several Carlyle portfolio companies, is a Trustee of the publicly traded CDC Nvest Funds and the AEW Real Estate Income Fund,Loomis-Sayles Funds, and is Vice Chairman of the Board of the Smithsonian National Museum of American History. Mr. Darman serves on the Financial Audit Committee and chairs the Special Committee of the Board and serves as an ex-officio member of each committee of the Board. The Board has determined that Mr. Darman meets the standards of "independence" established by the New York Stock Exchange ("NYSE") and the Sarbanes-Oxley Act.

Alice F. Emerson has been a director of AES since 1993. She was a Senior Advisor at The Andrew W. Mellon Foundation from 1991-2002, was President of Wheaton College in Massachusetts from 1975 to 1991, and prior to that served as Dean of Students at the University of Pennsylvania. Ms. Emerson has retired from full-time employment, but continues to serve as a consultant. She is a member of the BoardsBoard of Directors of the World Resources Institute, Salzburg Seminar, and the MGH Institute of Health Professions. Ms. Emerson chairs the Environment, Safety, and Social Responsibility and Technology Committee and serves on the Compensation Committee of the Board. The Board has determined that Ms. Emerson meets the standards of "independence" established by the NYSE and the Sarbanes-Oxley Act.

Paul T. Hanrahan has been a director of AES since June 2002. At that time he was also appointed President and CEO. Prior to assuming this position, he was responsible for AES businesses in Asia, Latin America and Europe at various times. Prior to joining AES, Mr. Hanrahan served as a line officer on a fast attack nuclear submarine in the U.S. Navy from 1980-1984. He received an MBA from Harvard University Business School (May 1986) and an engineering degreegraduated with honors from the U.S.United States Naval Academy (June 1979). Mr. Hanrahan serves onin 1979 and from the Harvard Graduate School of Business in 1986.

 Kristina M. Johnson is being nominated for election to the Board of Directors of Electricidad de Caracas, an AES subsidiary.

Robert F. Hemphill, Jr. has beenDirectors. She was recommended by a director of AES since June 1996. He served as Executive Vice President of AES from 1982 to June 1996. He currentlynon-management director. Dr. Johnson is the Managingchief academic and administrative officer (Dean) of the Edmund T. Pratt, Jr., School of Engineering at Duke University ("Duke"). She joined Duke in July 1999. Prior to joining Duke, Dr. Johnson served on the faculty at the University of Colorado from 1985-1999 as a Professor of Electrical and Computer Engineering, and as a co-founder and Director (1993-1997) of Toucan Capital Corporation (a venture capital firm). He alsothe National Science Foundation Engineering Research Center for Optoelectronic Computing Systems Center. Dr. Johnson received her BS with distinction, MS and PhD from Stanford University in Electrical Engineering. She is an expert in liquid crystal electro-optics and has over forty patents or patents pending in this

2

field. Dr. Johnson currently serves on the Boards of the National MuseumDirectors of American History, ServiceWareDycom Industries, Inc., TrophogenMinerals Technologies, Inc., and Optiglobe,Guidant Corporation. The Board has determined that Ms. Johnson meets the standards of "independence" established by the NYSE and Chameleon Technologies.the Sarbanes-Oxley Act.

 John A. Koskinen is being nominated for election to the Board of Directors. He was recommended by a non-management director. Mr. HemphillKoskinen served as Deputy Mayor and City Administrator for the District of Columbia from January 2000 to August of 2003. Since 2001, Mr. Koskinen has served as a Director of the US Soccer Foundation and serves on the NominatingFoundation's audit committee. Prior to his election as Deputy Mayor, he occupied several positions with the U.S. Government, including service from 1994 through 1997 as Deputy Director for Management, Office of Management and Corporate Governance CommitteeBudget. From 1998 to 2000, he served as Assistant to the President (President Clinton) and Special CommitteeChaired the President's Council on Year 2000 Conversion. Prior to his most recent service with the U.S. Government, in 1973, Mr. Koskinen joined the Palmieri Company, which specialized in turnaround management, as Vice President and later served as President and CEO from 1979 through 1993. Mr. Koskinen graduated with a JD from Yale University School of Law and a BA in physics from Duke University. The Board has determined that Mr. Koskinen meets the Board.standards of "independence" established by the NYSE and the Sarbanes-Oxley Act.

Philip Lader has been a director of AES since April 2001. The former U.S. Ambassador to the Court of St. James's, he is Chairman of WPP Group plc, the global advertising and communications services company which includes J. Walter Thompson, Young & Rubicam, and Ogilvy & Mather. A lawyer and founder of Renaissance Weekends, he is also a Senior Advisor to Morgan Stanley, International, a director of Lloyd's of London, WPP Group plc, RAND and Marathon Oil Corporations, and a trustee of the British Museum. Formerly White House Deputy Chief of Staff, Assistant to the President, Deputy Director of the Office of Management and Budget, and Administrator of the U.S. Small Business Administration, he also was President of Sea Pines Company, Executive Vice President of the U.S. holdings of the late Sir James Goldsmith, and president of universities in South Carolina and Australia.

2

He was educated at Duke University (BA, Phi Beta Kappa, 1966), the University of Michigan (MA, 1967), Oxford University, and Harvard Law School (JD, 1972). Mr. Lader chairs the Nominating and Corporate Governance Committee and also serves on the Environment, Safety, Social Responsibility and Technology Committee of the Board. The Board has determined that Mr. Lader meets the standards of "independence" established by the NYSE and the Sarbanes-Oxley Act.

John H. McArthur has been a director of AES since January 1997. He is the retired Dean of the Harvard Business School, and has been a private business consultant and active investor in various companies since prior to 1994. He serves as Senior Advisor to the President of the World Bank Group. He is also a member of the Boards of Directors of BCE Emergis Inc., BCE Inc., Bell Canada, Cabot Corporation, GlaxoSmithKline plc, HCA Corporation, KOC Holdings, A.S., Reuters Founders Share Company plc, Rohm & Haas Corporation, and Telsat Canada. Mr. McArthur chairs the Financial Audit Committee and serves on the Special Committee of the Board. Mr. McArthur also serves on the audit committees of three other public companies. The independent members of the Board have determined that Mr. McArthur's service on the other identified companies' audit committees will not impair his performing the necessary and expected service as a member of the Company's Financial Audit Committee. Mr. McArthur has been designated

3

an Audit Committee Financial Expert pursuant to Section 407 of the Sarbanes-Oxley Act. The Board has determined that Mr. McArthur meets the standards of "independence" established by the NYSE and the Sarbanes-Oxley Act.

Philip A. Odeen Sandra O. Moose is being nominated for election to the Board of Directors. She was recommended by a non-management director. Dr. Moose is President of Strategic Advisory Services and previously was a Senior Vice President of The Boston Consulting Group ("BCG"). She joined BCG in 1968, was a director since 1975, and a Senior Vice President through 2003. She managed BCG's New York Office from 1988-1998 and was appointed Chair of the East Coast. Dr. Moose received her PhD and MA in economics from Harvard University and BA summa cum laude in economics from Wheaton College. Dr. Moose serves on the Boards of Directors of Verizon Communications, Rohm and Haas Company, the Alfred P. Sloan Foundation and CDC Nvest Funds. The Board has determined that Dr. Moose meets the standards of "independence" established by the NYSE and the Sarbanes-Oxley Act.

 Philip A. Odeen has been a director of AES since May 1, 2003. He currently serves as the non-Executive Chairman of ITS Services, a privately held information technology company providing services to civil and Federal agencies. Mr. Odeen retired as Chairman of TRW Inc. in December 2002. Prior to joining TRW in 1997, Mr. Odeen was President and Chief Executive Officer of BDM, which TRW acquired in 1997. From 1978 to 1992, Mr. Odeen was a Senior Consulting Partner with Coopers & Lybrand and served as Vice Chairman, management consulting services, from 1991 to 1992. From 1972 to 1978, he was Vice President of the Wilson Sporting Goods Company. Mr. Odeen has served in senior positions with the Office of the Secretary of Defense and the National Security Council staff. Mr. Odeen graduated Phi Beta Kappa with a B.A.BA in government from the University of South Dakota. He was a Fulbright Scholar to the United Kingdom and earned a master's degree from the University of Wisconsin. He is a member of the Boards of Directors of Avaya, Convergys Corporation, Northrop Grumman Corporation, Reynolds and Reynolds Company, and WGL Holdings, Inc.Holdings. Mr. Odeen chairs the Compensation Committee and also serves on the Special Committee of the Board. The Board has determined that Mr. Odeen meets the standards of "independence" established by the NYSE and the Sarbanes-Oxley Act.

Charles O. Rossotti was elected to the Board onhas been a director of AES since March 13, 2003. Mr. Rossotti is a Senior Advisor with the Carlyle Group, one of the world's largest private equity firms. From November 1997 until November 2002, Mr. Rossotti was the Commissioner of Internal Revenue at the United States Internal Revenue Service ("IRS"). Mr. Rossotti held that position since November 1997. Prior to joining the IRS, Mr. Rossotti was a founder of American Management Systems, Inc., where he held the position of President from 1970-1989, CEO from 1981 to 1993 and Chairman from 1989 to 1997. From 1965 to 1969, he held various positions in the Office of Systems Analysis within the Office of the Secretary of Defense. Mr. Rossotti graduated Magna cum laude from Georgetown University and received an MBA with high distinction from Harvard Business School. Mr. Rossotti serves on the Financial Audit Committee and the Compensation Committee of the Board. Mr. Rossotti has been designated an Audit Committee Financial Expert pursuant to Section 407 of the Sarbanes-Oxley Act. The Board has determined that Mr. Rossotti meets the standards of "independence" established by the NYSE and the Sarbanes-Oxley Act.

Sven Sandstrom has been a director of AES since October 2002. He is the former Managing Director of the World Bank, retiring from the Bank in December 2001. During his 30-year career withMr. Sandstrom currently serves as Director, Secretariat of the

4

International Task Force on Global Public Goods sponsored by, inter alia, France, Sweden, Germany, and the United Kingdom. He is also Special Advisor (Development) to the European Commission, and Advisor to the World Bank he initially worked in the transport, water and sanitation, and urban development sectors, and subsequently held management positions in all of the Bank's operational regions.African Development Bank. He serves on the Board of Directors of Hifabgruppen AB in Sweden and works as a consultant and advisor to several European government ministries and private companies.Sweden. Mr. Sandstrom serves on the Financial Audit Committee and the Nominating and Corporate Governance Committee of the Board. Mr. Sandstrom has been designated an Audit Committee Financial Expert pursuant to Section 407 of the Sarbanes-Oxley Act. The Board has determined that Mr. Sandstrom meets the standards of "independence" established by the NYSE and the Sarbanes-Oxley Act.

 Roger W. Sant co-founded the Company in 1981. In May 2003, the Board elected Mr. Sant to the position of Chairman Emeritus of the Board. He has been a director of the Company since its inception, and held the office of President through 1986 and Chief Executive Officer through December 31, 1993, and Chairman of the Board through May 1, 2003. He currently is Chairman of the Board of The Summit Foundation, is a Regent of the Smithsonian Institution, and serves on the Board of Directors of Marriott International, Inc., the World Wildlife Fund (US), and the National Symphony Orchestra. He was Assistant Administrator for Energy Conservation and the Environment of the Federal Energy Administration ("FEA") from 1974 to 1976 and the Director of the Energy Productivity Center, an energy research organization affiliated with The Mellon Institute at Carnegie-Mellon University, from 1977 to 1981. Mr. Sant serves on the Environment, Safety, Social Responsibility and Technology Committee and the Special Committee of the Board.

3THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE ELECTION OF THE 12 DIRECTORS DISCUSSED ABOVE AND AS SET FORTH ON THE PROXY BALLOT.

5

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS, AND EXECUTIVE OFFICERS

The following table sets forth the beneficial ownership of the Company's Common Stock by (a) each director and named executive officer, (b) all directors and executive officers as a group and (c) all persons who own more than five percent (5%) of the Company's Common Stock as of December 31, 2002.2003. Unless otherwise indicated, each of the persons and group listed below has sole voting and dispositive power with respect to the shares shown.

*

Shares held represent less than 1% of the total number of outstanding shares of Common Stock of the Company.

**

Mr. Hemphill served as a Director of the Company for Year 2003. He resigned his position as Director on February 4, 2004 and was elected Executive Vice President of the Company on the same day.

(1)

Shares beneficially owned and deemed to be outstanding include Common Stock of the Company issued or issuable, on or before March 1, 2003,February 29, 2004, (a) upon exercise of outstanding options, (b) upon exercise of warrants, (c) under the Deferred Compensation Plan for Executive Officers, (d) under the Deferred Compensation Plan for Directors, (e) under The AES Corporation Profit Sharing and Stock Ownership Plan, and (f) under the Supplemental Retirement Plan. No charitable contributions were made by the Company to any charitable organization for which an AES Director served as an executive

46

officer of that organization in an amount greater than $1 million or 2% of such charitable organization's consolidated gross revenues for year 2003, 2002, or 2001.

(2)

Includes (a) the following shares issuable upon exercise of options:option within the 60 days proceeding December 31, 2003s: Mr. Sant – 904,786Darman—163,448 shares; Ms. Emerson—28,317 shares; Mr. Bakke- 2,644,808Hanrahan—1,517,423 shares; Mr. Hanrahan – 860,180Lader—11,663 shares; Mr. Sharp – 703,249McArthur—23,205 shares; Mr. Ruggirello – 689,073 shares; Mr. Luraschi – 190,918 shares; Mr. Ryan – 945,136 shares; Mr. Darman – 0 shares; Ms. Emerson – 68,792 shares; Mr. Hemphill – 5,395 shares; Mr. Jungers – 27,396 shares; Mr. McArthur – 17,340 shares; Ms. O'Leary – 32,340 shares; Mr. Rossotti – Odeen—0 shares; Mr. Sandstrom – Rossotti—0 shares; Mr. Unterberg – 25,957Sandstrom—45,830 shares; Mr. Sant—850,866 shares; Mr. Sharp—827,218 shares; Mr. Ruggirello—805,181 shares; Mr. Hemphill—11,260 shares; Mr. Brandt—132,574 shares; and Mr. Luraschi—312,410 shares; all directors and executive officers as a group – 8,369,305group—4,729,395 shares; (b) the following units issuable under the Deferred Compensation Plan for Executive Officers: Mr. Sant – Sant—59,286 shares; all executive officers as a group – group—59,286 shares; (c) the following units issuable under the Deferred Compensation Plan for Directors: Mr. Sant – 6,188; Ms. Emerson – Emerson—14,373; Mr. Jungers – 173,173;Lader—4,402; Mr. Lader – 1,478;McArthur—7,329; Mr. McArthur – 7,329; Ms. O'Leary – 7,037;Rossotti—1,040; Mr. Unterberg – 256,302;Sant—11,226; all directors as a group 706,996;38,370; (d) the following shares held in The AES Corporation Profit Sharing and Stock Ownership Plan and the Employee Stock Ownership Plan: Mr. Sant – 585,850Hanrahan—38,529 shares; Mr. Bakke – 561,294 shares;; Mr. Hanrahan – 34,288Sharp—106,867 shares; Mr. Hemphill – Ruggirello—89,901 shares; Mr. Hemphill—396,988 shares; Mr. Sharp – 102,717 shares; Mr. Ruggirello – 78,425 shares; Mr. Luraschi – 22,955Brandt—12,470 shares; and Mr. Ryan – 78,425Luraschi—41,833 shares; all directors and executive officers as a group – 2,694,572686,588 shares; and (e) the following units issuable under the Supplemental Retirement Plan: Mr. Sant – 8,684;Hanrahan—25,285; Mr. Bakke – 12,912;Sharp—13,412; Mr. Hemphill – 2,596;Ruggirello—10,949; Mr. Sharp – 10,068; Mr. Ruggirello – 8,162; Mr. Hanrahan – 18,485; Mr. Luraschi – 5,515;Brandt—2,169; and Mr. Ryan – 7,675;Luraschi—7,745; all directors and executive officers as a group – 91,012group—59,560 units.

(3)

Includes 259,484 shares held in an IRA for the benefit of Mrs. Sant, 226,111 shares in an IRA for the benefit of Mr. Sant, 27,160,948 shares in trusts for the benefit of Mr. and Mrs. Sant, and 35,000 shares held in trust. Mr. and Mrs. Sant can be reached c/o The AES Corporation, 1001 N. 19th Street, Arlington, Virginia 22209.

(4)

Includes 16,708,694 shares held jointly by Mr. Bakke and his wife, 127,044 shares held by his children, 1,754,680 shares held by his wife, 10,000 underlying shares of convertible securities, and 225,682 shares held by the Mustard Seed Foundation, of which Mr. Bakke disclaims beneficial ownership. Mr. Bakke has entered into variable forward sale commitments with respect to a maximum of 7 million shares reported above. Mr. and Mrs. Bakke can be reached at 1655 North Fort Myer Drive Suite 700, Arlington, VA 22209.

(5)

Includes 75,000160,000 shares held in a sub-chapter S corporation of which Mr. Darman has beneficial interest.

(6)(4)

Includes 24517,348 shares held in an IRAIRAs for Ms. Emerson.

(7)(5)

Includes 110 shares held by Mr. Hanrahan's wife and 5,500 underlying shares of convertible securities.

(8)

Includes 21,304 shares held in an IRA for the benefit of Mr. Hemphill.

(9)

Includes 106,206 shares held by Mr. Jungers's wife, and 12,500 shares held as underlying shares of convertible securities.

(10)(6)

Includes 7,086 shares heldowned jointly by Mr. Lader and his wife, 25 shares held by his wife,daughter, 89,380 shares held in a family-established private foundation, of which Mr. Lader disclaims beneficial ownership, and 5,160 shares held in an IRA for the benefit of Mr. Lader.

(11)(7)

Includes 12,000 shares held jointly by Mr. Odeen and his wife.

(8)

Includes 90,000 shares held jointly by Mr. Rossotti purchased theseand his wife.

(9)

Includes 259,484 shares held in an IRA for the benefit of Mrs. Sant, 222,860 shares in March 2003.an IRA for the benefit of Mr. Sant, 25,472,934 shares in trusts for the benefit of Mr. and Mrs. Sant, and 35,000 shares held in another trust.

(12)

Includes 15,304 shares held by Mr. Unterberg's wife, of which Mr. Unterberg disclaims beneficial ownership.

(13)(10)

Includes 440 shares held in beneficial ownership for Mr. Sharp's daughter.

(14)(11)

Includes 15,086 shares held by Mr. Ruggirello's wife.

(15)(12)

Includes 12,670 shares held for the benefit of Mr. Ryan's children.

(16)

Includes 875,001 shares in Trusts for a former director. Includes 4,908,013 shares held jointly by another executive officer and his wife, 31,524 shares held by his wife, 476,804 shares held in trusts for his children, and 1,148,400 shares held in a family trust. Includes 1,572,621 shares held jointly by another executive officer and his wife. Includes 8,000 shares held jointly by another executive officer and his wife, 7,95221,304 shares held in an IRA for the benefit of the executive officer, and 5,024 shares held in an IRA for the benefit of his wife.Mr. Hemphill.

(17)

Of this aggregate number, FMR Corporation reported on SEC Schedule-13G filed with the Securities and Exchange Commission dated February 13, 2003, that it had (a) sole voting power on 8,391,136 shares, (b) shared voting power on no shares, (c) sole dispositive power on 42,330,344 shares and (d) shared dispositive power on no shares.

(18)(13)

Of this aggregate number, Legg Mason Inc. reported on SEC Schedule -13G filed with the Securities and Exchange Commission dated February 13, 2003, that it had (a) sole voting power on no shares, (b) shared voting power on 90,884,813110,255,098 shares, (c) sole dispositive power on no shares, and (d) shared dispositive power on 90,884,813110,255,098 shares.

(19)(14)

Of this aggregate number, FMR Corporation reported on SEC Schedule-13G filed with the Securities and Exchange Commission dated February 16, 2004, that it had (a) sole voting power on 14,168,220 shares, (b) shared voting power on no shares, (c) sole dispositive power on 53,296,782 shares and (d) shared dispositive power on no shares.

(15)

Of this aggregate number, Capital Group International reported on SEC Schedule -13G filed with the Securities and Exchange Commission dated February 11,10, 2003, that it had (a) sole voting power on 37,264,14035,080,910 shares, (b) shared voting power on no shares, (c) sole dispositive power on 48,069,07044,317,810 shares, and (d) shared dispositive power on no shares.

57

COMPENSATION OF DIRECTORS

Directors who are also officers of AES are not paid any fees or additional compensation for service as members of AES's Board of Directors or any committee thereof. As set forth below, a revised compensation structure for outside directors has been instituted for outside directors elected at the 2004 Annual Meeting. The revised structure is intended by the Board to meet the following goals: promote the recruitment of talented and experienced Directors to the Board; compensate outside Directors for the increased workload and risk inherent in the Director position; simplify the compensation structure by removing Board and committee meeting fees and thereby improve the clarity of the compensation structure for shareholders and other stakeholders of the Company; and decrease the emphasis on option grants as compensation, while retaining a strong financial incentive for Directors to maintain and promote the long-term health and viability of the Company.

Compensation of the Board for 2003

Each Director who iswas not employed by AES received $33,000 as annual cash compensation for service on the Board of Directors for 2002, and $2,000 for each Board meeting attended in person and $750 for each Board meeting in which he or she participated by telephone conference. AThe non-executive Chairman receivesreceived $82,500 as annual cash compensation for service on the Board of Directors, and $5,000 for each Board meeting attended in person and $1,875 for each Board meeting in which he or she participated by telephone conference. In 2002, the Board did not have a non-executive Chairman. The Directors maywere permitted to elect to defer this compensation pursuant to theThe AES Corporation Deferred Compensation Plan for Directors in the form of stock units. All Directors arewere reimbursed for travel and other related expenses incurred in attending Board and committee meetings. Directors who arewere not employed by AES arewere not eligible to participate in AES's employee benefit plans but were entitled to participate in The AES Corporation 2001 Stock Option Plan for Outside Directors.Directors ("Outside Director Plan"). Under the terms of the plan,Outside Director Plan, the Company issuesissued options to purchase shares of the Company's Common Stock at a price equal to the quoted market price on the date the option iswas granted. Directors eligible to participate in the plan receiveOutside Director Plan received options annually to purchase Common Stock valued on the grant date at $40,000, with a non-executive Chairman entitled to receive options annually to purchase Common Stock valued on the grant date at $100,000. These options become eligible for exercise in installments of 50% at the end of each of the first two years.years after the grant date. Directors maywere entitled to elect to take their annual compensation consisting of the annual fee plus four regular meeting fees in the form of a stock option award. For each Director and/or non-executive Chairman so electing, they will receivereceived stock options equal to 1.50 times the cash value, and such stock option grants shall vest within one year of grant.

The Board has granted, subject to shareholder approval of a proposed amendment to The AES Corporation 2001 Stock Option Plan for Outside Directors (see Proposal 3), a one-time option to Lead Independent Director and Vice Chairman Richard Darman to purchase up to 300,000 shares of Common Stock at $2.75, the quoted market price on December 3, 2002, the date on which Mr. Darman was appointed Lead Independent Director. Mr. Darman's one-time grant shall vest and become exercisable at the rate of 25% per year. If Mr. Darman is elected by the AES shareholders to serve as a Director of AES, the Board expects to vote to elect Mr. Darman to serve as the Chairman of the Board. Mr. Sant, if elected by the shareholders, will continue to serve as a director and Chairman Emeritus after the election of Mr. Darman as Chairman.

Directors are also were compensated for their service on AES committees. If serving as Chairman of a committee of the Board, the following compensation schedule applies:applied: Chairman of the Financial Audit and Special Committees – $20,000Committees—$20,000 per year; Chairman of the Compensation and Nominating and Corporate Governance Committees – $10,000Committees—$10,000 per year; and Chairman of the Environment, Safety, and Social Responsibility Committee – $5,000and Technology Committee—$5,000 per year. Financial Audit Committee members receivereceived an annual retainer of $10,000 per year, and Special Committee members receivereceived an annual retainer of $10,000 per year. A Director receivesreceived $1,000 for each committee meeting attended in person, and $500 for each

8

committee meeting in which he or she participated by telephone conference. Mr. Sant did

Compensation of the Board for 2004

 Under the 2004 compensation structure, each outside Director will receive a $50,000 annual retainer with a requirement that 34% of such retainer will be deferred in the form of stock units pursuant to the existing AES Corporation Deferred Compensation Plan for Directors ("Director Plan"). Directors will no longer receive Board meeting attendance fees as Board members are expected to attend and participate fully in all Board meetings. Directors may elect, but are not required, to defer more than the 34% mandatory deferral. Any amount of the annual retainer that is elected to be deferred by a Director above the mandatory deferral will be credited to such Director in stock units valued at 1.3 times the elected deferred amount. Directors will receive a $10,000 committee retainer for each Board committee on which they serve. If a Director serves as Chair of a committee, the Director will receive the applicable Committee Chair fee (as noted below), but will not receive anythe committee retainer. Directors will no longer receive committee meeting attendance fees as Board members are expected to attend and participate fully in all meetings of committees on which they serve. Directors may elect to defer some or all of the committee retainer in the form of stock units pursuant to the Director Plan. A Director serving as a Committee Chair will be compensated as follows: the Financial Audit Committee Chair and the Special Committee Chair will receive $25,000 per year; the remaining Committee Chairs will receive $15,000 per year. Directors will also receive an annual Deferred Incentive Compensation grant valued at $80,000. Directors may elect to take the Deferred Incentive Compensation grant in the form of stock units, an option grant or a mix of stock units and options. To the extent a Director elects to receive options, such options will have a three-year vesting schedule. The Chairman of the Board, who is required to be a non-executive, will receive compensation in an amount equal to 2.5 times the annual retainer and the Deferred Incentive Compensation grant. In addition to the multiple duties of the Chairman related to the planning and structure of Board meetings and oversight of Board responsibilities, the Chairman, although not an officer or employee of the Company, serves as a member of the Company's Executive Office and attends the weekly meetings of the Executive Office. The Chairman also attends scheduled meetings of the Company's Development Office, attends all major investor conferences scheduled by the Company and, when possible, attends the Company's quarterly business review meetings. As with other Board members, the Chairman is required to defer 34% of the annual retainer in the form of stock units, but is permitted to elect to defer more than the mandatory 34% deferral. Any amount of the annual retainer above the mandatory deferral amount that is deferred by the Chairman will be valued at 1.3 times the elected deferred amount. The Chairman also is required to serve as an ex-officio member of all Board committees and therefore is expected to attend all committee meetings. The Chairman will receive in total $25,000 for the variousrequired service as an ex-officio member of the committees of the Board. If a Chairman of the Board serves as the Chairman of a committee, meetings that he attendedthe Chairman will receive the Chairman fee applicable to such committee.

6

COMMITTEES OF THE BOARD

The Board has four standing committees and a Special Committee, which met regularly in 2002.2003. The four standing committees are the Financial Audit Committee, the Environment, Safety, and Social Responsibility and Technology Committee, the Nominating and Corporate Governance Committee, and the Compensation Committee. Each of the members of the Financial Audit

9

Committee, the Nominating and Corporate Governance Committee, and the Compensation Committee meet the standards of "independence" established by the NYSE and the Sarbanes-Oxley Act.

The Board has a separately designated standing Financial Audit Committee (the "Audit("Audit Committee") established in accordance with Section 3(a)(58)A of the Exchange Act. The Audit Committee of the Board of Directors is responsible for the review and oversight of the Company's performance with respect to its financial responsibilities and the integrity of the Company's accounting and reporting practices. The Audit Committee also selects and recommends to the Board of Directors the Company's independent auditors. The Audit Committee is composed of three non-employee directors and operates under a written charterthe Charter of the Financial Audit Committee of the Board of Directors of The AES Corporation adopted and approved by the BoardBoard. A copy of Directors.the charter appears on the Company's web site (www.aes.com). Each Audit Committee member is independent as defined by NYSE listing standards.standards and the Sarbanes-Oxley Act, and Messrs. McArthur, Rossotti and Sandstrom have been designated as Audit Committee Financial Experts under Section 407 of the Sarbanes-Oxley Act and determined to be "financially literate" as required by the NYSE. The Audit Committee met eleven14 times in 2002.2003.

The Environment, Safety, and Social Responsibility, and Technology Committee ("ESST") monitors the environmental and safety compliance, respectively, of the Company and its subsidiaries and reviews and approves the scope of the Company's internal environmental and safety compliance audit programs to consider the adequacy and appropriateness of the programs being planned and performed, as well as periodically reviews the Company's commitment to, and implementation of, its principle to act in a socially responsible way.way, and reviews and considers technology developments applicable to the industry and the Company's businesses. The ESST Committee is composed of three non-employee directors and operates under the Charter of the Environment, Safety, and Social Responsibility and Technology Committee of the Board of Directors of The AES Corporation adopted and approved by the Board. A copy of the charter appears on the Company's web site (www.aes.com). The ESST Committee met twice4 times in 2002.2003.

The Nominating and Corporate Governance Committee provides recommendations for potential nomination for election of new members of the Board of Directors, establishes compensation for directors, and also considers governance issues relating to the Board of Directors. Nominees for Director are selected on the basis of, among other things, experience, knowledge, skills, expertise, integrity, ability to make independent analytical inquiries, understanding of the Company's global business environment and willingness to devote adequate time and effort to Board responsibilities so as to enhance the Board's ability to oversee and direct the affairs and business of the Company. The Nominating and Corporate Governance Committee operates under the Charter of the Nominating and Corporate Governance Committee of the Board of Directors of The AES Corporation adopted and approved by the Board. A copy of the charter appears on the Company's web site (www.aes.com). In certain instances, the Company engages a third party to assist in identifying potential nominees. The Nominating and Corporate Governance Committee also considers potential nominations provided by stockholders and submits suggested nominations, when appropriate, to the Board of Directors for approval. Stockholders wishing to recommend persons for consideration by thisthe Committee as nominees for election to the Company's Board of Directors can do so by writing to the Secretary of the Company at 1001 North 19th Street, Arlington, Virginia 22209, giving each such person's name, biographical

10

data and qualifications. Any such recommendation should be accompanied by a written statement from the person recommended of his or her consent to be named as a nominee and, if nominated and elected, to serve as a director. The Company's By-Laws also contain a procedure for stockholder nomination of directors. (See "Submission of Stockholder Proposals and Nominations" below.) The Nominating and Corporate Governance Committee met five8 times in 2002.2003.

The Compensation Committee establishes rates of salary, bonuses, profit sharing contributions, grants of stock options, Restricted Stock Units, Performance Units, retirement and other compensation for officers of AES and for such other people as the Board may designate. The Compensation Committee's principal objective in establishing compensation policies is to develop and administer a comprehensive program designed to attract and retain outstanding people. The Compensation Committee is composedspecifically acts to evaluate the performance and set the total compensation for executive officers of three non-employee Directors.the Company, including the CEO, in accordance with the guidelines discussed in the Compensation Committee report set forth below. The Compensation Committee has delegated to the CEO, subject to review by the Committee and the Board, the power to set compensation for non-executive officers. All of the members of this committeethe Compensation Committee are "disinterested persons" under the provisions of Rule 16b-3 adopted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Compensation Committee's primary responsibility is to formulate and maintainCommittee operates under the compensation programCharter of the Company in order to develop, retain (and attract, when necessary) people important toCompensation Committee of the Board of Directors of The AES Corporation adopted and approved by the Board of Directors. A copy of the charter appears on the Company's performance. This committee specifically acts to evaluate the performance and set the total compensation for

7

the executive officers of the Company, including the CEO, in accordance with the guidelines discussed below. This committee has delegated to the CEO the power to set compensation for the non-executive officers.web site (www.aes.com). The Compensation Committee met four7 times in 2002.2003.

The Special Committee was formed on September 4, 2002 to facilitate communications between the Board and management of the Company in connection with the turnaround efforts faced at that time by the CompanyCompany. The Committee remains active and is available to provide advice and assistance to Company management on a more frequent basis than the regularly scheduled meetings of the Board. The Special Committee met seven15 times in 2002.2003.

FINANCIAL AUDIT COMMITTEE REPORT

The Company, not the Financial Audit Committee ("Audit Committee") nor the independent auditor, is responsible for the preparation of its financial statements and its operating results and for the appropriate safekeeping of the Company's assets. The independent auditor's responsibility is to attest to the fair presentation of the financial statements. The independent auditor is accountable to the Audit Committee, and the Audit Committee havehas the ultimate authority and responsibility to select, evaluate and, where appropriate, replace the independent auditor. The role of the Audit Committee is to be satisfied that both the Company and the independent auditor discharge their respective responsibilities effectively.

The Audit Committee held eleven14 meetings during fiscal 2002.2003. The meetings were designed, among other things, to facilitate and encourage communication among the Audit Committee, the Company, and the Company's independent auditors, Deloitte & Touche LLP. The Audit Committee discussed with the Company's independent auditors the overall scope and plans for their respective audits, and met with the independent auditors, with and without management present, to discuss the results of their examinations and their evaluations of the Company's internal controls.

The Audit Committee has reviewed and discussed the audited consolidated financial statements for the fiscal year ended

11

December 31, 20022003 with management and Deloitte & Touche LLP.

The Audit Committee also discussed with the independent auditors matters required to be discussed with audit committees under generally accepted auditing standards, including, among other things, matters related to the conduct of the audit of the Company's consolidated financial statements and the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended by Statement on Auditing Standards No. 90, Audit Committee Communications.

The Company's independent auditors also provided to the Audit Committee the written disclosures and the letter required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, andCommittees. The independent auditors also discussed with the Audit Committee their independence from the Company. When considering Deloitte & Touche LLP's independence, the Audit Committee considered whether their provision of services to the Company beyond those rendered in connection with their audit and review of the Company's consolidated financial statements was compatible with maintaining their independence. The Audit Committee also reviewed and approved, among other things, the amount of fees paid to Deloitte & Touche LLP for audit and non-audit services. (Please see Principal Accounting Firm Fees chart located in the section of the Proxy marked, "General".)

Based on its review and these meetings, discussions and reports, and subject to the limitations on its role and responsibilities referred to above and in the Audit Committee

8

Charter, (amended on October 4, 2002 and included as Appendix A), the Audit Committee recommended to the Board of Directors that the Company's audited consolidated financial statements for the fiscal year ended December 31, 20022003 be included in the Company's Annual Report on Form 10-K.10-K for the year ended December 31, 2003. The Audit Committee also selected Deloitte & Touche LLP, subject to ratification by the shareholders at the Annual meeting, as the Company's independent auditors for the fiscal year ended December 31, 2003.2004.

The Audit Committee:

John H. McArthur, Chairman
Richard DarmanCharles O. Rossotti
Sven Sandstrom

REPORT OF THE
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Responsibilities of the Compensation Committee (the "Committee") of the Board of Directors include establishing policies governing the compensation of officers of AES. The Compensation Committee is composed of three non-employee Directors.Directors that satisfy the "independence" standards of the NYSE and the Sarbanes-Oxley Act.

The Compensation Committee's principal objective in establishing compensation policies is to develop and administer a comprehensive program designed to attract, motivate and retain outstanding managers.people. The policies are designed to encourage such managerspeople to make career commitments to AES and to accomplish AES's short and long-term business objectives.

The Compensation Committee's guidelines for compensation of executive officers are designed to provide fair and competitive levels of total compensation, while integrating pay with performance. Executive officers are evaluated annually for performance according to individual responsibilities and contributions, as well as broader measures related to corporate performance.

There are three elements of AES executive officer compensation (these elements are the same for most employees in the company): Base Salary, Annual Bonus, and Long-Term Compensation.

12

The Compensation Committee's guideline for each component of compensation is to provide compensation that is generally consistent with the Compensation Committee's interpretation of competitive compensation averages for individuals with similar responsibilities at companies with similar financial and operating characteristics. Comparisons are made with published amounts, where available, and, from time to time, the Company also participates in various industry-sponsored compensation surveys in addition to the 2002periodic consultant review described below.reviews of our benchmark data. Because individual compensation is determined in part by experience and performance, actual compensation may vary from industry averages.

Base Salary is adjusted annually by the Compensation Committee to account for general economic and cost of living changes. Also, adjustments are made periodically to recognize significant new or additional responsibilities of individual executive officers. In 2002, the Committee engaged an independent compensation consultant to review the level and mix of executive officer compensation and to assist the Company in the redesign of the Company's Long-Term Compensation policy. Based in part on this review, the Committee established guidelines for suggested ranges of Base Salary,

 For 2003, Annual Bonus, and Long-Term Compensation for eligible participants between the 25^th to 75^th percentiles of similar companies. Based on these guidelines, the Committee adjusted Base Salaries to be competitive with the information contained in the review performed (in 2002) by the independent consultant.

Annual Bonuses were reevaluated in 2002 to emphasize specific corporate performance targets. In 2002, bonuses were based 50 percent

9

on meeting business or corporate cash flow targets, 25 percent on meeting cost-cuttingperformance improvement targets, and 25 percent on other goalsachievement of individual objectives such as leadership, values, or an officer's business performance with respect to his or her functional area.leadership. Targeted ranges for the Annual Bonus for different officer job categories or functions were determined fromusing benchmark industry data.

Executive officers also participate in the Company's profit sharing plan (or deferred compensation plan for executive officers) on the same terms as all other people in the Company, subject to any legal limitations on amounts that may be contributed or benefits that may be payable under the plan. Matching contributions and annual profit sharing contributions are made with the Common Stock of the Company to furtherbetter align the recipients' interests with that of the stockholders and encourage long-term performance. In addition, certain individuals of the Company participate in the Company's supplemental retirement plan, which provides supplemental retirement benefits to "highly compensated employees" (as defined in the Internal Revenue Code) of an amount which would be contributed on such individual's behalf under the profit sharing plan (or the deferred compensation plan for executive officers) but is not so contributed because of the limitations contained in the Internal Revenue Code.

In most cases, the Compensation Committee has taken steps to qualify income paid to any executive officer as a deductible business expense pursuant to regulations issued by the Internal Revenue Service under Section 162(m) of the Internal Revenue Code with respect to qualifying compensation paid to executive officers in excess of $1 million. The Compensation Committee will continue to consider the implications to the Company of qualifying all compensation as a deductible expense under Section 162 (m), but retains the discretion to pay bonuses commensurate with an executive officer's contributions to the success of the Company, irrespective of whether such amounts are entirelyfully deductible.

NEW LONG-TERM COMPENSATION PLAN


The Company's proposed 2003 Long-Term Compensation Plan ("2003 LTC Plan") is intended to replace the award of stock options provided under previous AES compensation programs.

 For 2003,2004, long-term compensation awards ("LTCA") under the 2003 LTC Plan ("LTC Plan") are proposed to be a mix of stock options, Restricted Stock Units and "Performance Units" (cash bonuses with payout tied to long-term company performance). Payout under the Performance Units granted for 2003 will not be made until the year 2005. Payout will be made at that time only if certain business targets have been reached for the period 2003-2005. This proposed changeThe purpose of this design is designed to create a balanced long-term compensation plan by tying a portion of the long-term compensation to stock performance and a portion to AES business performance, thereby providing individuals with incentives that have a more comprehensive link to long-term value creation.

Targeted long-term compensation levels under the 2003 LTC Plan for each individual will be

13

awarded annually based on competitive market pay levels for each job category and an individual's specific job performance. LTCA under the 2003 LTC Plan will contain stock-based awards and Performance Units, in percentages based on the Compensation Committee's recommendations. The Committee is considering introducing restricted stock to the stock portion for LTCA awarded in the year

 For 2004, and years thereafter.

UnderRestricted Stock Units are being granted under the terms of the 2003LTC Plan. Payment will be made at that time only if certain performance targets have been reached for the period 2004-2006. Specifically, these units will vest if the Total Shareholder Return ("TSR") of AES Stock exceeds the TSR of the S&P 500 over the measurement period, 2004-2006. If this criterion were met, the actual payout of the Restricted Stock Units would occur in 2008. The Compensation Committee has the discretion, but is not required, to waive the requirement that the TSR of AES stock exceed the TSR of the S&P 500 in situations where the TSR of both AES and the S&P exhibit a gain over the measurement period.

 For 2004, Stock Options are being granted under the terms of the LTC Plan. These options vest in equal amounts over three years. This vesting schedule extends the vesting period by one year over awards made in prior years.

 For 2004, Performance Units granted under the terms of the LTC Plan Performance Units will have an initial value of $1, and will be valued at the end of the performance period (three years) from $0 to $2.00, depending on performance.the achievement of stated performance goals. (If the participant achieves target performance, each performance unit is worth $1.00; if the participant achieves less than 90% of the target performance, each performance unit will be worth $0; if the participant achieves 120% or

10

more of the target performance, each performance unit will be worth $2.00.) The 20032004 Performance Units will be tied to the Company's performance as measured by "Cash Value Added" ("CVA"). CVA is equal to AES operating cash flow minus a charge for incremental (new) capital used by AES businesses. The Company has calculated a target CVA for AES as a whole based on budget and corporate model forecasts. A participant's receipt of the LTCA will be dependent upon actual performance compared to this CVA target over a three-year period (2003-2005)(2004-2006). Payout under the Performance Units granted for 2004 will not be made until the year 2006. Using CVA as a performance measure is consistent with the Company's focus on increasing operating cash flow of AES businesses.

2004 Long Term Compensation Award Components

The Company anticipates that a newit will continue to award of Performance Units, will be granted annually.Restricted Stock Units and Stock Options each year. Any payout under such annual Performance Units will occur three years after the date of the grant and will be contingent upon a specific three year business target being met at the end of the three year performance period with that(the three year target being set at the time of the grant of the annual Performance Units award.) Any payout under such annual Restricted Stock Units will occur five years after the date of grant and will be contingent upon a specific business target being met.

CHIEF EXECUTIVE OFFICER COMPENSATION FOR 2002
Chief Executive Officer Compensation

Mr. Bakke'sHanrahan's compensation for 2002 was reviewed and approved by the Committee. Mr. Bakke received no cash compensation for 2002, and was compensated solely by the grant of stock options (in lieu of a cash salary and cash bonus). The following positive factors were considered in setting Mr. Bakke's compensation:

•

The successful execution of an agreement to sell Cilcorp Inc. to Ameren Corporation in a transaction valued at $1.4 billion;



•

The successful $215 million financing of AES Guayama Holdings, BV, the AES subsidiary that indirectly owns a 454 MW clean coal-fired AES Puerto Rico power plant in Guayama, Puerto Rico;



•

The successful completion of a $45 million financing at AES (NI) Ltd, the AES subsidiary that owns a 520 MW dual-fuel Kilroot Power Station in Northern Ireland; and



•

Strong adherence to understanding and awareness by the people in the Company of its shared principles of integrity, fairness, fun and social responsibility.

        The following negative factors considered were:

•

A decline in the price of the Company's common stock of approximately 66.85% between December 31, 2001 and June 18, 2002;



•

Failure by the Company to meet its budgeted earnings for 2002;



•

A reduction in the Company's expected long-term earnings growth rates; and



•

Severe liquidity constraints experienced by the Company during 2002.

        Mr. Bakke retired as President and Chief Executive Officer on June 18, 2002, and Mr. Hanrahan was elected to serve as President and Chief Executive Officer on the same day. Mr. Bakke received a retirement package, the primary terms of which are referenced in the section below titled, "Employment Agreements and Separation Agreements".

        Mr. Hanrahan's compensation for 2002 was reviewed and approved by theCompensation Committee utilizing the guidelines discussed above. Mr. Hanrahan also entered into an Employment Agreement with the Company, the primary terms of which are referenced in the section below titled, "Employment Agreements and Separation Agreements".

1114

 The following positive factors were considered in setting Mr. Hanrahan's compensation:

•

The successful completionrefinancing of a $2.1 billion bond exchange and bank refinancing that improvedall near term debt maturities,



•

An increase in the Company's liquidity by substantially eliminating parent maturities through November 2004;prices of various debt securities;



•

The successful cost cutting efforts throughout the Company, surpassing it'sits targeted goal of $200$160 million by approximately 50%45%;



•

Achieving Parent Operating Cash Flow of $1.095 billion;



•

The successful execution and closing of the sale of New Energy, Inc. for approximately $260 million;



•

The successful execution of an agreement to sell two Australian generating businesses in transactions valued at approximately $165 million;



•

The successful completion of a $145 million nonrecourse financing$1.25 billion of asset sales;



•

The successful achievement of subsidiary cash distributions to fund the completionparent and holding companies of $1.054 billion;



•

The successful restructuring of the construction of a $400 million natural gas terminal, re-gasification facility, pipeline and a 300 MW dual fuel-fired power plant in the Dominican Republic;Brazilian assets;



•

The successful completion of a $275 millionproject financing of AES Panama to fund$890 million for the constructionbuilding of two hydroelectrica wholly owned 1200MW combined cycle plant gas fired power facilitiesplant in Panama;Cartagena, Spain;



•

An increase in the company stock price of 213.6% during 2003;



•

The successful completion of a $38 million financing in South Africacontinuation of the 600MW Kelvin coal-fired power facility;



•

The successful execution of an agreement to sell two African businesses in transactions valued at $329 million;



•

The successful completion of a $98 million financing agreement for the AES Tisza Power Plant Ltd, in Hungry;



•

Shiftingshift to a performance-based culture which is consistent with the values of the Company;



•

The introduction of a new code of conduct and a Company-wide compliance program to enforce it; and



•

The redesigncompletion of management reorganization and the Company's organizational structure to better accommodate the Company's renewed emphasis on performance and increasing shareholder value.introduction of a new people review process.

 The following negative factors considered were:

•

A decline in the priceThe completion of the Company's common stock of approximately 39.84% between June 18, 2002 and December 31, 2002;



•

Continuation of instability and lack of resolution regarding the problems facing the Company's investments427MW Barka combined cycle gas fired power plant in Brazil;Oman two months behind schedule; and



•

A decline in the prices of the Company's various debt securities.The insufficient progress towards targeted safety goals.

 Based on the factors listed above, the Committee determined that Mr. Hanrahan should receive a base salary of $525,000,$810,000 and a cash bonus of $880,875$1,352,000 for 2002.2003.

The Compensation Committee:

Frank Jungers,Philip A. Odeen, Chairman
Alice F. Emerson
Hazel R. O'LearyCharles O. Rossotti

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COMPENSATION OF EXECUTIVE OFFICERS

The following table discloses compensation received by the sixfive most highly compensated executive officers for the three years ended December 31, 2002.2003.

SUMMARY COMPENSATION TABLESummary Compensation Table

(1)

Mr. Bakke served as President and CEO through June 18, 2002. Mr. Hanrahan become President and CEO on the same date.

(2)

The executive officers included in this Summary Compensation Table (other than Mr. Bakke and Mr. Ryan) received stock option grants effective February 12, 2003. Pursuant to the Company's new compensation program, however, such stock option grants are intended as an incentive for future performance, rather than as a reward for past performance. As a result, the February 12, 2003 stock option grants will be reflected in next year's Proxy Statement as 2003 grants as follows: Mr. Hanrahan 731,418; Mr. Sharp 299,627; Mr. Ruggirello 269,664; and Mr. Luraschi 242,985.

(3)

This column constitutes Company contributions to The AES Corporation Profit Sharing and Stock Ownership Plan of the Company, and allocations to the Company's Supplemental Retirement Plan. Specifically for 2002,2003, (a) amounts contributed to The AES Profit Sharing and Stock Ownership Plan: Mr. Bakke – $0; Mr. Hanrahan – $15,000;$20,000; Mr. Brandt – $20,000; Mr. Sharp – $15,000;$20,000; Mr. Ruggirello – $15,000;$20,000; and Mr. Luraschi – $15,000; and Mr. Ryan – $15,000;$ 20,000; and (b) amounts allocated to the Supplemental Retirement Plan: Mr. Bakke – $0; Mr. Hanrahan – $24,375;$61,000; Mr. Sharp – $18,775;$30,000; Mr. Ruggirello – $17,187;$25,000; Mr. Brandt – $19,458; and Mr. Luraschi – $13,719; and Mr. Ryan – $14,487.$20,000. In addition, it constitutes loan forgiveness in July 2002 for Mr. Sharp in an amount of $2,767,528, which includes a gross-up for federal and state taxes. In addition, it includes Mr. Hanrahan's personal use of company vehicles and drivers in an amount of $1,083.

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Performance Unit Awards in 2003

        There were no performance units granted for 2002. The Company, however, has granted for fiscal year 2003 Performance Units pursuant to a proposed new Long-Term Compensation plan which is tied to the actual future performance of the Company. The proposed new Long-Term Compensation plan is discussed in the Report of the Compensation Committee on Executive Compensation set forth above. To further explain the shift in compensation philosophy regarding long-term compensation, the table set forth below is included for illustrative purposes to show the target performance units granted to named executive officers for 2003. The awards cover the 2003-2005 performance period and were granted under the proposed 2003 Long-Term Compensation Plan. Payout under the Performance Units granted for 2003 will not be made until the year 2005. Payout will be made at that time only if certain business targets have been reached for the period 2003-2005. The 2003 Performance Units are tied to the Company's performance as measured by "Cash Value Added" ("CVA"). CVA is equal to AES operating cash flow minus a charge for incremental (new) capital used by AES businesses. Participants will be paid for actual performance compared to these targets over a three-year period.

        The Company anticipates that a new award of Performance Units will be granted annually. Any payout under such annual Performance Units will occur three years after the date of the grant and will be contingent upon a specific three year business target being met at the end of the three year performance period, with that three year target being set at the time of the grant of the annual Performance Units award.

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Option Grants in Last Fiscal Year

The following table provides information on options granted for 20022003 to the named executive officers.

(1)

All options are for shares of Common Stock of the Company.

(2)

Percentages are based on the total number of participants awarded options in 2002.2003.

(3)

The Company's assumptions used to calculate this award include an expected volatility of 51.88%67.56%, a 4.84%3.98% risk free rate of return, no dividends, a 68.08%76.83% Black-Scholes ratio, and three year ratable vesting to create a 64.08%71.06% post-vested Black-Scholes ratio and a $1.4097$2.01 post-vested Black-Scholes value. No adjustments were made for non-transferability or risk of forfeiture. The grant has a 10-year term and Options vest over two year vesting.

years in two equal installments: 50% on the first anniversary of the date of the grant and 50% on the second anniversary date of the grant. The use of such amounts and assumptions is not intended to forecast any possible future appreciation of the Company's stock price or dividend policy.

(4)

Mr. Hanrahan's option grant was awarded in June 2002 to acknowledge his new responsibilities as President and CEO of the Company.

The Board of Directors approved Long-Term Compensation Awards effective February 12, 2003, which included stock option grants subject to shareholder approval as part of the Company's newly revised Long-Term Compensation Plan. Such stock option grants will be reflected in next year's Proxy Statement as 2003 compensation.

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Aggregated Option Exercises in Last Fiscal Year, and Fiscal Year-End Option Value

The following table provides information on option exercises in 20022003 by the named executive officers and the value of such officers' unexercised options at December 31, 2002.2003.

(1)

The amounts in this column have been calculated based on the difference between the quoted market closing price of the Company's Common Stock on December 31, 20022003 of $3.02per$9.44 per share for each security underlying such stock option and the per share exercise price.

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Securities Authorized for Issuance under Equity Compensation Plans (As of December 31, 2002)EMPLOYMENT AGREEMENTS, SEPARATION AGREEMENTS, AND CHANGE IN CONTROL AGREEMENTS

(1)

The AES Corporation 2001 Non-officer Stock Option Plan was adopted by our Board of Directors on October 18, 2001. This plan did not require approval under either the SEC or NYSE rules and/or regulations. Eligible participants under the plan include all of our non-officer employees. As of the end of December 31, 2002, approximately 13,500 employees held options under the plan. The exercise price of each option awarded under the plan is equal to the fair market value of our common stock on the grant date of the option. Options under the plan generally vest as to 50% of their underlying shares on each anniversary of the option grant date, however, grants dated October 25, 2001 vest in one year. The plan shall expire on October 25, 2011. The Board may amend, modify or terminate the plan at any time.

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Employment Agreements and Separation Agreements

Officer Employment Agreements:


The Company entered intohas individual employment agreements with Mr. Hanrahan, Mr. Ruggirello, Mr. Sharp, Mr. Luraschi, Mr. Hemphill and Mr. LuraschiBrandt (the "Employment Agreements").

Each of the Employment Agreements shall end on December 31, 2005, provided, however, that commencing on January 1, 2005, and on each subsequent January 1, the term of the Employment Agreements shall automatically be extended for one additional year unless, no later than the date which is six (6) months prior to the renewal date, the Company or the individual provides notice of an intent not to extend the term. Each of the Employment Agreements provides a respective base salary amount. Mr. Hanrahan also is eligible for an annual bonus with a target of (150%) of his base salary; Mr. Ruggirello, Mr. Sharp, Mr. Hemphill and Mr. SharpBrandt are eligible for an annual bonus with a target of (105%) of their respective base salary; and Mr. Luraschi is eligible for an annual bonus with a target of (90%) of his base salary. The annual bonus amounts are payable based on achievement of corporate performance goals and/or other conditions that are established by the Compensation Committee of the Board. Each of the individuals also is eligible to participate in the Company's long-term compensation plans.

The Employment Agreements provide that, if the Company terminates an executive's employment other than for Disability or Cause or if an individual terminates his employment for Good Reason, as each such term is defined in the Employment Agreements, then the Company will be obligated to pay the terminated individual a pro rata bonus for the year of termination and (a), if the terminated individual is Mr. Sharp, Mr. Ruggirello, Mr. Luraschi, Mr. Hemphill or Mr. Luraschi,Brandt, an amount equal to the product of one (1) and the sum of the annual Base Salary rate in effect for the individual immediately preceding the date of termination and the individual's target bonus for the year in which the date of termination occurs or (b), if the terminated individual is Mr. Hanrahan, an amount equal to the product of two (2) and the sum of (i) the annual Base Salary rate in effect for Mr. Hanrahan immediately preceding the date of termination and (ii) his target bonus for the year in which the date of termination occurs. In addition, Mr. Sharp, Mr. Ruggirello, Mr. Luraschi, Mr. Hemphill and Mr. LuraschiBrandt would be entitled, for a twelve (12) month period immediately following the date of termination, with Mr. Hanrahan entitled to a twenty-four (24) month period, to continue to participate in all medical, dental, hospitalization, life insurance and other welfare, fringe benefit and perquisite plans and programs, in each case in which he was participating on the date of termination. Each option to acquire common stock of the Company granted under a Company incentive plan or other arrangement that is held by the individual on the date of termination would remain outstanding, and continue to vest according to its terms as if the individual remained employed by the Company, until the earlier of (i) the end of the original term of such option or (ii), if the terminated individual is Mr. Sharp, Mr. Ruggirello, Mr. Luraschi, Mr. Hemphill and Mr. Luraschi,Brandt, the second anniversary of the date of termination, or (iii), if the terminated individual is Mr. Hanrahan, the third anniversary of the date of termination.

If an Executive's Employment Agreement is terminated by the Company other than for Cause or Disability or if the Executive terminates his Employment for Good Reason, in either case within two years following a Change in Control, the terminated individual shall receive the payments and benefits set forth above regarding termination by an individual for

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Good Reason or by the Company other than for Disability or Cause, except that (i) the multiplier regarding the product of the sum of the annual

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base salary and annual target bonus shall be increased to three (3), (ii) the benefit continuation period shall be extended to thirty-six (36) months and (iii) each option described above held by the employee shall vest and become immediately exercisable in full on the date of termination and shall remain exercisable until the earlier of (a) the end of the original term of such option or (b) the fourth anniversary of the date of termination of the respective Employment Agreement.

For purposes of the Employment Agreements, "Change in Control" shall mean the occurrence of any one of the following events: (a) any Person is or becomes the Beneficial Owner of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; (b) the following individuals cease for any reason to constitute a majority of directors then serving: individuals who, on the date hereof, constitute the Board and any new director whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (²/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (c) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the Board of the entity surviving such merger or consolidation or any parent thereof, or (ii) a merger or consolidation effected to implement a recapitalization of the Company; or (d) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets.

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Separation Agreements:

In June 2002, in connection with Mr. Bakke's retirement from the Company and resignation as President and Chief Executive Officer, the Company entered into a Retirement Agreement with Mr. Bakke, whereby the Company agreed to pay Mr. Bakke a monthly retirement benefit equal to $110,830, which monthly benefit shall continue to be paid through the earlier of his death or June 2016. Pursuant to the terms of the Retirement Agreement, Mr. Bakke agreed to certain restrictive covenants regarding non-competition and non-solicitation. Mr. Bakke also agreed to provide reasonable cooperation and assistance to the Company regarding issues related to the transition of management and other legal matters. In addition, in February 2003, Mr. Bakke agreed to restrict all AES stock owned or controlled by Mr. Bakke, except for the following possible sales: (a) in 2003, up to 5 million shares; (b) in 2004, up to an additional 5 million shares; and (c) in 2005, up to an additional 10 million shares. In return for this agreement to restrict the sale of AES stock owned by Mr. Bakke, the Company agreed that (a) any unvested AES stock options owned by Mr. Bakke would vest immediately and all options do not expire until ten years from the respective option grant date; (b) Mr. Bakke would retain the office furnishings that he is currently utilizing; and (c) the Company through 2003 would pay the costs to maintain an office for Mr. Bakke, including payment of the compensation of his administrative assistant. Also, in connection with Mr. Bakke's retirement from the Board of Directors, the Company has decided to make a charitable donation of approximately 660,000 shares of AES Common Stock to the Mustard Seed Foundation, a charitable foundation founded by Mr. Bakke, to recognize the lifetime contributions made by Mr. Bakke on behalf of the Company as a co-founder of the Company.

In February 2003, in connection with Mr. Ryan's resignation as Executive Vice-President and Chief Operating Officer, the Company entered into a Separation Agreement with Mr. Ryan. Pursuant to the terms of Mr. Ryan's Separation Agreement, the Company provided Mr. Ryan with a pro-rata bonus for 2003 equal to $52,500, a severance payment equal to $765,000, and a consulting payment of $200,000 in return for his availability and commitment to provide reasonable consulting services for six months to the Company, and the Company agreed to immediately vest upon the execution of the Separation Agreement any stock options of the Company owned by Mr. Ryan, which options will expire on the tenth anniversary of their grant dates. Mr. Ryan's Separation Agreement contains non-competition, non-disparagement and non-solicitation provisions.

Related Party Transactions

In July 2002, the Company forgave a $1.5 million loan to Mr. Sharp. Including a gross-up for federal and state tax purposes relating to this loan, the total loan forgiveness for Mr. Sharp totals $2,767,528. As part of Mr. Sharp's Employment Agreement, he has agreed that if he voluntarily leaves the Company's employ within the two years following the forgiveness of the loan, he would be responsible to pay to the Company liquidated damages for an amount up to the original loan amount.

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THE AES CORPORATION STOCK PRICE PERFORMANCE


Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100




Peer Group Index*


The Peer Group consists of the following publicly traded companies in the global power generation industry:industry: Edison International, CMS Energy Corporation, and International Power, PLC.

The 20022003 Peer Group Index reflects the weighted average total return for the entire Peer Group calculated for the period in which the Company's equity securities were registered with the Securities and Exchange Commission pursuant to the Exchange Act, from a base of 100. In compliance with Securities and Exchange Commission regulations, the returns of each company in the Peer Group Index have been weighted according to their market capitalization as of the beginning of the period.

The Report of the Compensation Committee on Executive Compensation and The AES Corporation Stock Price Performance Graph shall not be deemed to be "soliciting material" or to be "filed" with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Exchange Act.

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* Excludes The AES Corporation

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SHAREHOLDER PROPOSAL 2


Proposal 2 Appointment of Auditors


APPROVAL OF THE AES CORPORATION 2003 LONG-TERM COMPENSATION PLAN

The Board of Directors has unanimously adopted The AES Corporation 2003 Long-Term Compensation Plan (the "2003 LTC Plan"), subjectappointed Deloitte & Touche LLP, a firm of independent public accountants, as auditors to shareholder approval. To this end, the 2003 LTC Plan is being submittedexamine and report to shareholders for approval so that certain awards granted under the 2003 LTC Plan may qualify as "performance-based" compensation under Section 162(m) of the Internal Revenue Code ("Section 162(m)"), and to comply with certain New York Stock Exchange Requirements. Section 162(m) generally limits to $1 million the annual corporate federal income tax deduction for compensation paid to the chief executive officer or any of the four other highest paid officers of a publicly held corporation, unless such compensation is performance-based.

Summary of the 2003 LTC Plan

The following summary description of the 2003 LTC Plan is qualified in its entirety by reference to the full text of the 2003 LTC Plan, which is attached to this proxy statement as Appendix B. The parenthetical section references that follow refer to sections of the 2003 LTC Plan that relate to the summary description provided.

Purpose. The purpose of the 2003 LTC Plan is to (i) reward full-time or part-time employees of AES or its affiliates, including those individuals to whom an offer of employment has been extended (each an "Employee"), by means of appropriate incentives for achieving long-range Company goals; (ii) to provide incentive compensation opportunities that are competitive with those of other similar companies; (iii) to further match Employees' financial interests with those of the Company's other shareholders through compensation that is basedstockholders on the Company's common stock and thereby enhance the long-termconsolidated financial interest ofstatements for the Company and its Affiliates, including throughsubsidiaries for the growth incalendar year ended 2004. Deloitte and Touche LLP has acted as the valueCompany's independent auditors since 1981. The appointment was made upon the recommendation of the Company's equity and enhancement of long-term shareholder return; and (iv) to facilitate recruitment and retention of outstanding personnel eligible to participate in the 2003 LTC Plan. (Section 1)

Administration. The 2003 LTC Plan will be administered by the CompensationAudit Committee of the Board, or any successor committee thereto, or another committee of the Board appointed or designated by the Board (the "Committee"). Subject to the terms of the 2003 LTC Plan, the Committee may make awards under the 2003 LTC Plan; determine when and to whom awards will be granted, the types of awards and the number of shares of Common Stock ("Shares") covered by the awards; establish the terms, conditions, performance criteria, restrictions, and other provisions of such awards and cancel or suspend awards. The Committee may delegate its authority subject to certain limitations. (Section 3(a) and (i))

Settlement of Awards.    The Committee shall have authority under the 2003 LTC Plan to determine whether, to what extent and under what circumstances awards under the 2003 LTC Plan may be settled, paid or exercised in cash, Shares or other awards under the 2003 LTC Plan or other property, or canceled, forfeited or suspended. (Section 3(d))

Interpretation and Operation.    The Committee shall have the authority to interpret the 2003 LTC Plan and any award or agreement made under the 2003 LTC Plan, to establish, amend, waive and rescind any rules and regulations relating to the administration of the 2003 LTC Plan, to determine the terms and provisions of any agreements entered under the 2003 LTC Plan (not inconsistent with the 2003 LTC Plan), and to make all other determinations necessary or advisable for the administration of the 2003 LTC Plan. The Committee may correct any

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defect, supply any omission or reconcile any inconsistency in the 2003 LTC Plan or in any award agreement under the 2003 LTC Plan in the manner and to the extent it shall deem desirable. The determinations of the Committee in the administration of the 2003 LTC Plan shall be final, binding and conclusive. (Section 3(e) and (g))

Deferral of Awards.    The Committee shall determine whether, to what extent, and under what circumstances cash, Shares, other securities, other awards under the 2003 LTC Plan, other property, and other amounts payable with respect to an award under the 2003 LTC Plan shall be deferred either automatically, or at the election of the holder thereof, or of the Committee. (Section 3(f))

Section 162(m).    Subject to the terms of the 2003 LTC Plan, the Committee will have the authority and discretion to determine the extent to which awards under the 2003 LTC Plan will be structured to conform to the requirements applicable to performance-based compensation as described in Section 162(m), and to take such action, establish such procedures, and impose such restrictions at the time such awards are granted as the Committee determines to be necessary or appropriate to conform to such requirements. (Section 3(b))

Shares Available.    Subject to adjustment, the maximum number of Shares that may be delivered pursuant to awards granted under the 2003 LTC Plan is 17,000,000. Notwithstanding the foregoing and subject to the 2003 LTC Plan's adjustments provision (as described below), no eligible 2003 LTC Plan participant may receive stock options and stock appreciation rights under the 2003 LTC Plan in any calendar year that relate to more than 1,000,000. (Section 4(a))

Shares to be issued under the 2003 LTC Plan may be made available from authorized but unissued Common Stock, Common Stock held by the Company in its treasury, or Common Stock purchased by the Company on the open market or otherwise. During the term of the 2003 LTC Plan, the Company will at all times reserve and keep available the number of shares of Common Stock that shall be sufficient to satisfy the requirements of the 2003 LTC Plan. (Section 4(b))

If any Shares covered by an award (other than a Substitute Award as defined below), or to which such an award relates, terminate, lapse or are forfeited or cancelled, or such an award is otherwise settled without the delivery of the full number of Shares underlying the award, then the Shares covered by such award, or to which such award relates, to the extent of any such forfeiture, termination, lapse, cancellation,etc., shall again be, or shall become available for issuance under the 2003 LTC Plan. Shares underlying Substitute Awards shall not reduce the number of Shares available for delivery under the 2003 LTC Plan. A "Substitute Award" under the 2003 LTC Plan is any award granted in assumption of, or in substitution for, an outstanding award previously granted by a company acquired by the Company or with which the Company combines (Sections 2 and 4(c) and (d))

Adjustments.    In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, share split, reverse share split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the 2003 LTC Plan, then the Committee shall, in such manner as it may

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deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or property) which thereafter may be made the subject of awards under the 2003 LTC Plan, including without limitation the limit set forth in the 2003 LTC Plan relating to grants of options and stock appreciation rights to any individual, (ii) the number and type of Shares (or other securities or property) subject to outstanding awards under the 2003 LTC Plan, and (iii) the grant, purchase, or exercise price with respect to any award under the 2003 LTC Plan or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding award;provided, however, that the number of Shares subject to any award under the 2003 LTC Plan shall always be a whole number. (Section 4(e))

Eligibility.    All full-time or part-time employees (including an officer or director who is also an employee) of the Company or an affiliate of the Company are eligible to participate in the 2003 LTC Plan. Other than for awards of Incentive Stock Options (as described below), any individual or individuals to whom an offer of employment has been extended may also receive awards under the 2003 LTC Plan at the discretion of the Committee. Holders of equity-based awards issued by a company acquired by the Company or with which the Company combines are eligible to receive Substitute Awards under the 2003 LTC Plan. Currently, approximately 30,150 employees are eligible for awards under the 2003 LTC Plan. (Sections 2 and 5)

Grant of Awards.    The Committee may grant the following four types of awards under the 2003 LTC Plan: (i) Options, (i) Restricted Stock Awards or Restricted Stock Units, (iii) Other Stock-Based Awards and (iv) Performance Awards (each an "Award"). (Sections 6, 7, 8 and 9)

Options.    An Option is an option to purchase one share of Common Stock. The Committee may grant either an Incentive Stock Option or a Non-Qualified Stock Option. An Incentive Stock Option is an Option that meets the requirements of Section 422 of the Code, or any successor provision thereto. A Non-Qualified Stock Option is an Option that is not an Incentive Stock Option. The Committee may grant Options with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the 2003 LTC Plan, as the Committee may determine:

        (a)  The purchase price per Share under an Option shall be determined by the Committee;provided,however, that, except in the case of Substitute Awards, such purchase price shall not be less than the fair market value of a Share on the date of grant of such Option.

        (b)  The term of each Option shall be fixed by the Committee and the effect thereon, if any, of the termination of employment by the holder of such Option shall be determined by the Committee and set forth in the applicable agreement under the 2003 LTC Plan.

        (c)  Any Option may be exercised at any time during the period commencing with either the date that Option is granted or the first date permitted under a vesting schedule established by the Committee and ending with the expiration date of the Option. A 2003 LTC Plan participant may exercise his Option for all or part of the number of Shares which he is eligible to exercise under terms of the Option. The Committee shall determine the method or methods by which, and the form or forms in which, including, without limitation, cash, Shares, other Awards, or other property, or any combination thereof, having a fair market value on the exercise date equal to the relevant exercise price, payment of the exercise price with respect thereto may be made or deemed to have been made.

        (d)  The terms of any Incentive Stock Option granted under the 2003 LTC Plan shall

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comply in all respects with the provisions of Section 422 of the IRS Code, or any successor provision thereto, and any regulations promulgated thereunder. (Sections 2 and 6)

Restricted Stock.    An Award of Restricted Stock consists of Shares and an Award of Restricted Stock Units consists of contractual rights denominated in Shares, each of which represents a right to receive the value of a Share (or a percentage of such value, which percentage may be higher than 100%). Shares and Restricted Stock Units underlying such Awards are subject to restrictions and such other terms and conditions as the Committee may determine, which restrictions and such other terms and conditions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate. If the vesting conditions applicable to an Award of Restricted Stock or Restricted Stock Units relate exclusively to the passage of time and continued employment or provision of services, or refraining therefrom, such time period shall consist of not less than 36 months, except that the foregoing restriction shall not apply to such Awards if they are made in satisfaction of Company obligations to employees that would otherwise be paid in cash, are issued in connection with the exercise of a stock option or other award under the 2003 LTC Plan or are Substitute Awards. (7(a))

Other Stock-Based Awards.    The Committee may from time to time grant to eligible participants of the 2003 LTC Plan such other Awards (including, without limitation, stock appreciation rights and rights to dividends and dividend equivalents) that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares) as are deemed by the Committee to be consistent with the purposes of the 2003 LTC Plan. Subject to the terms of the 2003 LTC Plan, the Committee shall determine the terms and conditions of such Awards. Shares or other securities delivered pursuant to a purchase right granted as Other Stock-Based Awards shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, as the Committee shall determine, the value of which consideration, as established by the Committee, shall, except in the case of substitute Awards, not be less than the fair market value of such Shares or other securities as of the date such purchase right is granted. (Section 8)

Performance Awards.    A Performance Award (also known as a Performance Unit) is an Award under the 2003 LTC Plan that the Committee intends to qualify as "qualified performance based compensation" under Section 162(m), and which Award is made to an individual who is expected by the Committee to be both (i) a "covered employee" as defined in Section 162(m) for the tax year of the Company with regard to which a deduction in respect of such person's Award would be allowed and (ii) the recipient of compensation (other than "qualified performance based compensation" as defined in Section 162(m)) in excess of $1,000,000 for such tax year. Performance Awards shall become earned and payable if preestablished targets relating to one or more of the following performance measures are achieved during a performance period or periods, as determined by the Committee: (i) Cash Value Added, (ii) Total Shareholder Return, (iii) Return on Equity, (iv) Revenue Growth, (v) Return on Net Assets, (vi) Earnings Per Share, (vii) EBITDA, (viii) Return on Invested Capital, (ix) Parent Operating Cash Flow, (x) Consolidated Free Cash Flow or (xi) Cash Return on Investment (CRI) (each as defined). Such targets may relate to the Company as a whole, or to one or more units thereof, and may be measured over such periods, as the Committee shall determine. The

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maximum value of any Performance Award which may be earned under the 2003 LTC Plan is $10,000,000.

Termination of Employment.    Except as otherwise determined by the Committee or provided by the Committee in an applicable agreement under the 2003 LTC Plan, in case of termination of employment:

        (a)  for reason of death or Disability (as defined), any unvested Award then held by such employee shall be immediately accelerated and become fully vested, exercisable and payable and any such Award that is an Option shall automatically expire on the earlier of (i) the date the Option would have expired had the Employee continued in such employment and (ii) one year after the date such Employee's service ceases;

        (b)  for reason of Retirement (as defined), (i) any unvested Award (other than Options) then held by such employee shall be immediately accelerated and become fully vested, exercisable and payable and (ii) any Option then held by such employee shall automatically expire on the earlier of (A) the date the Option would have expired had the Employee continued in such employment and (B) one hundred and eighty days after the date such Employee's service ceases, except that any incentive stock option shall automatically expire on the earlier of the date set forth in clause (A) above and three months after the date that such employee's service ceases; and

        (c)  by the Company for cause (as determined by the Committee in its sole discretion), (i) any Award then held by such employee whose restrictions have not lapsed, which is not exercisable or which is not payable will automatically be forfeited in full and canceled by the Company upon such termination of employment and (ii) any Option then held by such Employee to the extent exercisable shall automatically expire on the earlier of (A) the date the Option would have expired had the employee continued in such service and (B) and three months after the date that such employee's service ceases.

        (d)  for any reason other than death, Disability, Retirement, or cause (as determined by the Committee in its sole discretion):

        (i)    any Award (other than Performance Awards) then held by such employee whose restrictions have not lapsed, which is not exercisable or which is not payable will automatically be forfeited in full and canceled by the Company upon such termination of employment,

        (ii)  any Option then held by such Employee to the extent exercisable shall automatically expire on the earlier of (A) the date the Option would have expired had the employee continued in such service and (B) one hundred and eighty days (180) days after the date that such employee's service ceases, except that any incentive stock option shall automatically expire on the earlier of the date set forth in clause (A) above and three months after the date that such employee's service ceases, and

        (iii)  any Performance Award then held by such Employee which is not then payable will be paid in accordance with its terms at the time the Performance Award would have been payable if the termination of employment had not occurred, and the payment shall be prorated based on the number of days in the performance period that occurred prior to the termination of employment. (Section 10)

Duration of the 2003 LTC Plan.    The 2003 LTC Plan shall be effective as of February 12, 2003, subject to its approval by the stockholders of the Company. No Award shall be granted under the 2003 LTC Plan after the tenth anniversary of the effective date. However, unless otherwise expressly provided in the Plan or in an

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applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee to administer the Plan and to amend, alter, adjust, suspend, discontinue, or terminate any such Award, or to waive any conditions or rights under any such Award, and the authority of the Board to amend the Plan, shall extend beyond such date. (Section 11)

Amendment, Modification and Termination of the 2003 LTC Plan.    Except to the extent prohibited by applicable law and unless otherwise expressly provided in the applicable agreement under the 2003 LTC Plan or in the 2003 LTC Plan, the Board may amend, alter, suspend, discontinue, or terminate the 2003 LTC Plan or any portion thereof at any time;provided, however, that no such amendment, alteration, suspension, discontinuation or termination shall be made without (i) shareholder approval if such approval is necessary to comply with any tax or regulatory requirement for which or with which the Board deems it necessary or desirable to qualify or comply or (ii) the consent of the affected Participant, if such action would adversely affect the rights of such Participant under any outstanding Award. Notwithstanding anything to the contrary herein, the Committee may amend the 2003 LTC Plan in such manner as may be necessary to enable the 2003 LTC Plan to achieve its stated purposes in any jurisdiction outside the United States in a tax-efficient manner and in compliance with local rules and regulations. (Section 12(a))

Change in Control.    Except as otherwise provided in the applicable agreement under the 2003 LTC Plan, upon the occurrence of a Change in Control, all outstanding Options under the 2003 LTC Plan shall become fully exercisable and all outstanding Awards (other than Options) under the 2003 LTC Plan shall become fully vested and payable. (Section 13)

Change in Control is defined as the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company to any person or group (as that term is used in Section 13(d) (3) of the Exchange Act) of persons, (ii) a person or group (as so defined) of persons (other than management of the Company on the date of the adoption of the 2003 LTC Plan or their affiliates) shall have become the beneficial owner of more than 35% of the outstanding voting stock of the Company, or (iii) during any one-year period, individuals who at the beginning of such period constitute the Board of Directors (together with any new director whose election or nomination was approved by a majority of the directors then in office who were either directors at the beginning of such period or who were previously so approved, but excluding under all circumstances any such new director whose initial assumption of office occurs as a result of an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of any individual, corporation, partnership or other entity or group) cease to constitute a majority of the Board of Directors. (Section 2)

Transferability.    Except as the Committee may otherwise determine from time to time, no Award and no right under any such Award, shall be assignable, alienable, saleable or transferable by a Participant otherwise than by will or by the lawsRepresentatives of descent and distribution;provided,however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant, and to receive any property distributable, with respect to any Award upon the death of the Participant. (Section 14(d))

Other Benefit and Compensation Programs. Awards received by a Participant under the 2003 LTC Plan shall not be deemed a part of a Participant's regular, recurring compensation for purposes of any termination, indemnity or

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severance pay laws and shall not be included in, nor have any effect on, the determination of benefits under any other employee benefit plan, contract or similar arrangement provided by the Company or an affiliate, unless expressly so provided by such other plan, contract or arrangement, or the Committee determines that an award or portion of an award should be included to reflect competitive compensation practices or to recognize that an award has been made in lieu of a portion of competitive cash compensation. Nothing contained in the 2003 LTC Plan shall prevent the Company from adopting or continuing in effect other or additional compensation arrangements, including incentive arrangements providing for the issuance of options and stock, and awards that do not qualify under Section 162(m), and such arrangements may be either generally applicable or applicable only in specific cases. (Section 14(c))

Summary of Tax Aspects of 2003 LTC Plan

The following discussion is a brief summary of the principal United States Federal income tax consequences under current Federal income tax laws relating to awards under the 2003 LTC Plan. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign income and other tax consequences.

Non-Qualified Stock Options ("NQSO").    An optionee will not recognize any taxable income upon the grant of an NQSO and the Company will not be entitled to a tax deduction with respect to the grant of an NQSO. Upon exercise of an NQSO, the excess of the fair market value of the Stock on the exercise date over the option exercise priceDeloitte & Touche LLP will be taxable as compensation income topresent at the optioneeAnnual Meeting and will be subjectgiven an opportunity to applicable withholding taxes.make a statement. They also will be available to respond to appropriate questions.

 The Company will generally be entitledBoard of Directors recommends that the stockholders ratify the appointment of Deloitte & Touche LLP, and intends to a tax deductionintroduce at such time in the amountforthcoming Annual Meeting the following resolution (designated herein as Proposal 2):

"RESOLVED, that the appointment by the Board of such compensation income. The optionee's tax basisDirectors of Deloitte & Touche LLP as independent auditors of this Company for the Stock received pursuant to the exercise of an NQSO will equal the sumyear 2004 is hereby approved, ratified and confirmed."

 Ratification is confirmed if a majority of the compensation income recognized and the exercise price.

In the event of a sale of Stock received upon the exercise of an NQSO, any appreciation or depreciation after the exercise date generally will be taxed as capital gain or loss and will be long-term capital gain or loss if the holding period for such Stock is more than one year.

Incentive Stock Options ("ISO").    An optionee will not recognize any taxable income at the time of grant or timely exercise of an ISO and the Company will not be entitled to a tax deduction with respect to such grant or exercise. Exercise of an ISO may, however, give rise to taxable compensation income subject to applicable withholding taxes, and a tax deduction to the Company, if the ISO is not exercised on a timely basis (generally, while the optionee is employed by the Company or within 90 days after termination of employment) or if the optionee subsequently engages in a "disqualifying disposition," as described below.

A sale or exchange by an optionee of shares acquired upon the exercise of an ISO more than one year after the transfervotes of the shares of common stock present in person or represented by proxy and entitled to such optionee and more than two years after the date of grant of the ISO will result in any difference between the net sale proceeds and the exercise price being treated as long-term capital gain (or loss) to the optionee. If such sale or exchange takes place within two years after the date of grant of the ISO or within one year from the date of transfer of the ISO shares to the optionee, such sale or exchange will generally constitute a "disqualifying disposition" of such shares that will have the following results: any excess of (i) the lesser of (a) the fair market value of the sharesvote at the timeAnnual Meeting of exercise of the ISO and (b) the amount realized on such disqualifying disposition of the shares over (ii) the option exercise price of such shares, will be ordinary income to the optionee, subject to applicable withholding taxes, and the Company will be entitled toShareholders, at which a tax deduction in the amountquorum is present, are received.

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of such income. Any further gain or loss after the date of exercise generally will qualify as capital gain or loss and will not result in any deduction by the Company.

Restricted Stock.THE BOARD OF DIRECTORS RECOMMENDS A grantee will not recognize any income upon the receipt of restricted stock unless the holder elects under Section 83(b) of the Code, within thirty days of such receipt, to recognize ordinary income in an amount equal to the fair market value of the restricted stock at the time of receipt, less any amount paid for the shares. If the election is made, the holder will not be allowed a deduction for amounts subsequently required to be returned to the Company. If the election is not made, the holder will generally recognize ordinary income, on the date that the restrictions to which the restricted stock is subject are removed, in an amount equal to the fair market value of such shares on such date, less any amount paid for the shares. At the time the holder recognizes ordinary income, the Company generally will be entitled to a deduction in the same amount.VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS OF THE COMPANY.

Generally, upon a sale or other disposition of restricted stock with respect to which the holder has recognized ordinary income (i.e., a Section 83(b) election was previously made or the restrictions were previously removed), the holder will recognize capital gain or loss in an amount equal to the difference between the amount realized on such sale or other disposition and the holder's basis in such shares. Such gain or loss will be long-term capital gain or loss if the holding period for such shares is more than one year.22

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Restricted Stock Units and Performance Awards.    The grant of an Award of Restricted Stock Units or a Performance Award will not result in income for the grantee or in a tax deduction for the Company. Upon the settlement of such an Award, the grantee will recognize ordinary income equal to the aggregate value of the payment received, and the Company generally will be entitled to a tax deduction in the same amount.

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Other Matters


NEW PLAN BENEFITS

2003 Long-Term Compensation PlanGENERAL


Name and Position		Number of Performance Units		Value of Performance Units(1)		Number of Securities Underlying Options
Dennis W. Bakke Chief Executive Officer and President		N/A		N/A		N/A
Paul T. Hanrahan Chief Executive Officer and President		2,984,850		(1	)	N/A
Barry J. Sharp Executive Vice President and Chief Financial Officer		1,222,750		(1	)	N/A
John R. Ruggirello Executive Vice President and Chief Operating Officer		1,065,476		(1	)	N/A
William R. Luraschi Senior Vice President and General Counsel		991,600		(1	)	N/A
J. Stuart Ryan Executive Vice President and Chief Operating Officer		N/A		N/A		N/A
Executive Group		8,014,045		(1	)	N/A
Non-Executive Director Group		N/A		N/A		N/A
Non-Executive Officer Group		8,996,000		(1	)	3,300,000

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⁽¹⁾

Payout under Performance Units granted for 2003 will not be made until the year 2005. Payout will be made at that time only if certain business targets have been reached for the period 2003-2005. Each Performance Unit will be worth from $0 to $2.00 depending upon Company performance during the years 2003-2005. If the participant achieves target performance, each performance unit is worth $1.00; if the participant achieves less than 90% of the target performance, each performance unit will be worth $0; if the participant achieves 120% or more of the target performance, each performance unit will be worth $2.00.

The Committee has discretion to determine the type, terms and conditions and recipients of awards granted under the 2003 LTC Plan. Accordingly, it is not possible at this time to determine the awards that may be granted to any officer or other employee of AES during a given future year of the Plan. The Committee, however, has granted options under the 2003 LTC Plan to eligible employees who are non-executive officers of AES. Subject to shareholder approval, such option grants will become effective as of February 12, 2003. The total number of Shares underlying such option grants is set forth in the table above. The exercise price of the options is $2.83, which was the fair market value of a Share on the date of grant. The fair market value of a Share as of March 14, 2003 was $3.12.

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Principal Accounting Firm Fees


For information on option grants to named executive officers in 2003, please see footnote 2 of the Summary Compensation Table on page 13 of this proxy statement which sets forth the option awards to each of the named executive officers for fiscal 2003 under The AES Corporation 2001 Stock Option Plan. Also, all executive officers as a group (9 persons) received options relating to a total number of 3,964,455 Shares under The AES Corporation 2001 Stock Option plan for fiscal 2003. Other than option awards, our executives and employees have not previously received awards of restricted stock or restricted stock units, other stock-based awards or performance awards.

The Board adopted the 2003 LTC Plan subject to shareholder approval. Absent such approval, the 2003 LTC Plan will not become effective; no awards will be made under the 2003 LTC Plan. In these circumstances, the Board intends to review and reconsider AES's compensation program in light of such vote, its need to retain key employees and the other principles described in the Compensation Committee Report on Executive Compensation included elsewhere in this proxy statement.

THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE 2003 LONG-TERM COMPENSATION PLAN.

Proposal 3

APPROVAL OF CERTAIN AMENDMENTS TO THE 2001 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS

The AES Corporation 2001 Stock Option Plan for Outside Directors (the "2001 Director Plan"), eligible participants being any director of the Company who is not an employee of AES or any of its affiliates, encourages and promotes the growth and prosperity of AES by helping to attract, retain and reward outside directors or AES with equitable and competitive compensation opportunities and by sharing in the stock ownership of AES. The Board of DirectorsDeloitte & Touche LLP has adopted certain amendments to the 2001 Director Plan, subject to stockholder approval at the forthcoming Annual Meeting. The stockholders will vote at the forthcoming Annual Meeting on a proposal to (i) permit the Board of Directors at its sole discretion to grant a one-time option to each outside director elected or appointed lead outside director and/or non-executive Chairman of the Board of Directors as of the date of such election or appointment to purchase up to 300,000 shares of Common Stock and (ii) increase the maximum aggregate number of shares for which options may be granted under the 2001 Director Plan from 750,000 shares of Common Stock to 2,750,000 shares of Common Stock.

There follows a brief description of the principal features of the 2001 Director Plan.

Shares Available for Future Grants.    On February 12, 2003, the Board of Directors approved and adopted an amendment to the 2001 Director Plan, subject to stockholder approval at the forthcoming Annual Meeting, to provide for the grant of options to purchase up to a total number of 2,750,000 shares of Common Stock pursuant to the 2001 Director Plan, subject to adjustment for any merger or other corporation transaction or event as described below under "Recapitalization". Prior to such amendment, the maximum number of shares underlying the options available for grant under the 2001 Director Plan was 750,000.

AES will reserve, either from authorized but unissued Common Stock or from Common Stock reacquired by AES and held in its treasury, the full number of shares of Common Stock necessary to satisfy all options that may be granted under the 2001 Director Plan.

Administration.    The Board of Directors will administer the 2001 Director Plan. Subject to the provisions of the 2001 Director Plan and such restrictions, if any,been engaged as the Board of Directors

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may make, the Board of Directors will have authority to modify, prescribe, amend and rescind rules and regulations relating to the 2001 Director Plan, to construe all plan provisions and to determine any and all questions arising under the 2001 Director Plan. The determination of the Board of Directors will be binding and conclusive on all persons.

Eligibility.    Any director of AES who is not an employee of AES or any of its affiliates will be eligible to participate in the 2001 Director Plan. Currently, eleven directors are eligibleCompany's independent auditors for awards under the 2001 Director Plan and only one director is eligible to receive a Lead Option (as defined below).

Awards.    Options may be granted under the 2001 Director Plan in accordance with the policies established by the Board of Directors from time to time. Currently, AES's policies provide that each outside director of the Company receive:

•

an initial option as of the date of his or her initial election or appointment to the Board of Directors, the grant date value of which is discretionary and determined by the Board of Directors at the time of such election or appointment ("Initial Option"), and



•

an annual option with a grant date value of $40,000 ("Annual Option").

In addition, on February 12, 2003, the Board of Directors approved an amendment to the 2001 Director Plan,2004, subject to approval by the Company's stockholders at the forthcomingAnnual Meeting. Representatives of Deloitte & Touche LLP will be present at the Annual Meeting and will be given an opportunity to permitmake a statement. They also will be available to respond to appropriate questions.

 The following chart outlines the Boardaggregate fees billed to the Company for the fiscal years ending December 31, 2003 and 2002 by the Company's principal accounting firm, Deloitte & Touche LLP, the member firms of DirectorsDeloitte Touche Tohmatsu, and their respective affiliates (collectively, "Deloitte & Touche"), which includes Deloitte Consulting:

		2003			2002
Audit Fees:		$	8,485,771		$	7,664,291
Audit Related Fees (a):			665,362			443,433
Total audit and audit-related fees:			9,151,133			8,107,724
Tax Fees (b):			4,745,824			5,785,067
All Other Fees (c):			19,289			164,265
Total Fees (d)(e):		$	13,916,246		$	14,057,056

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(a)

Includes fees for accounting consultations, internal control testing, and audits of employee benefit plans.



(b)

Includes fees for corporate and subsidiary tax return preparation services, corporate tax consultation, expatriate tax return preparation services and consultations.



(c)

Other includes fees for miscellaneous projects.



(d)

Fee information excludes fees billed to equity method investees in its sole discretionboth years.



(e)

The Company desires to grantmaintain an optionindependent relationship between itself and Deloitte and Touche LLP, and to purchase up to 300,000 sharesensure that level of Common Stock to any outside director elected or appointed lead outside director and/or non-executive Chairmanindependence during 2003, the Financial Audit Committee of the BoardCompany maintained its policy established in 2002 within which to judge if Deloitte and Touche LLP may be eligible to provide certain services outside of Directorsit's main role as outside auditor. Services within the established framework include audit and related services and certain tax services. Services outside of the dateframework require Financial Audit Committee approval prior to the performance of such election or appointment (a "Lead Option"the service. The Sarbanes-Oxley Act of 2002 addresses auditor independence, and this framework is consistent with the provisions of the Act. No services (0%). were approved after the fact by the Financial Audit Committee pursuant to paragraph (c)(7)(i)(c) of Rule 2.01 of Regulation S-X of the Securities Exchange Act of 1934, as amended. The Board of Directors subjectand the Audit Committee have resolved to stockholder approval ofphase out the immediately above referenced amendment to the 2001 Director Plan, has granted to Richard Darman a Lead Option effective as of February 12, 2003 to purchase 300,000 shares of Common Stock with an exercise price per share of Common Stock equal to $2.75 per share, the quoted market priceuse of the Company's Common Stock on December 3, 2002, the date on which Mr. Darman accepted the position of Lead Independent Director. If the amendment is approved, Mr. Darman's one-time grant shall vest and become exercisable at the rate of 25% per year. If Mr. Darman is elected by the AES stockholders to serve as a Director of AES, the Board expects to vote to elect Mr. Darman to serve as the Chairman of the Board. Mr. Sant, if elected by the shareholders, will continue to serve as a director and Chairman Emeritus after the election of Mr. Darman as Chairman.

Each option granted under the 2001 Director Plan will be in writing, and such writing will specify the number of shares of Common Stock that may be purchased pursuant to the option and any conditions under which the option has been granted. In addition, unless otherwise specified, each option will be subject to the following terms and conditions:

•

The exercise price per share of Common Stock that may be purchased pursuant to an Initial Option or an Annual Option will equal 100% of the quoted market price of the Common Stock on the date of grant of the option.



•

Each option will expire 10 years after the date of grant of the option, or such earlier date as it may no longer be exercised and cannot, by its terms, become exercisable.



•

Unless otherwise determined by the Board of Directors, the Initial Option shall vest and become exercisable at theindependent auditor for Company tax services.

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rate of 20% per year (upon the anniversary date of the grant).

•

Unless otherwise determined by the Board of Directors, the Annual Option will become fully vested and exercisable as to 100% of the number of Shares underlying any such Annual Option one year from the date of grant of such option.



•

Unless otherwise determined by the Board of Directors, the Lead Option shall vest and become exercisable at the rate of 25% per year (upon the anniversary date of the grant).



•

Notwithstanding the foregoing, upon a change of control (as defined below), all options will become fully vested and exercisable.



•

Unless otherwise determined by the Board of Directors, the portion of an option that has not vested and become exercisable at the time of the termination of an optionee's service with AES prior to a change in control shall be forfeited.

For purposes of the 2001 Director Plan, "Change of Control" shall mean the first to occur of:

        (i)    an individual, corporation, partnership, group, associate or other entity or "person", as such term is defined in Section 14(d) of the Exchange Act of 1934, other than AES or any employee benefit plan(s) sponsored by AES, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of the combined voting power of AES's outstanding securities ordinarily having the right to vote at elections of directors;

        (ii)    individuals who constitute the Board of Directors on the effective date of the 2001 Director Plan (the "Incumbent Board") cease for any reason to constitute at least a majority thereof;provided that any Approved Director (as defined below) shall be, for purposes of this definition of "Change of Control", considered as though such person were a member of the Incumbent Board. An "Approved Director", for purposes of this definition of "Change of Control", shall mean any person becoming a director subsequent to the effective date of the 2001 Director Plan whose election, or nomination for election by the AES's stockholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of AES in which such person is named as a nominee of the AES for director), but shall not include any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or "person" other than the Board of Directors; or

        (iii)    the approval by the stockholders of AES of a plan or agreement providing for a merger or consolidation of AES other than with a wholly-owned subsidiary and other than a merger or consolidation that would result in the voting securities of AES outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of the combined voting power of the voting securities of AES or such surviving entity outstanding immediately after such merger or

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consolidation, or for a sale, exchange or other disposition of all or substantially all of the assets of AES. If any of the events enumerated in this subsection (iii) occurs, the Board of Directors shall determine the effective date of the Change of Control resulting therefrom for purposes of the 2001 Director Plan.

In addition, each outside director may elect to forgo his or her cash compensation and be granted an alternative option ("Alternative Option"). The estimated fair value (used for determining the grant) of an Alternative Option may be greater than the sum of the fees and the estimated fair value of the Annual Option. Each outside director who has elected to receive such an Alternative Option will be granted an Alternative Option to purchase the number of whole shares of Common Stock which will have an estimated fair value equal to the product of (i) the sum of his or her annual fees and the fees for the four quarterly meetings multiplied by (ii) 1.50. For example, it was decided for 2002 that each outside director will receive $33,000 in annual fees and four regular meeting fees equal to $8,000 for a total of $41,000. If a director elects the alternative option, such director would receive an Alternative Option equal to $61,500 ($41,000 × 1.50 = $61,500).

Each Alternative Option will be in writing, and such writing will specify the number of shares of Common Stock that may be purchased pursuant to the Alternative Option and any conditions under which it has been granted. In addition, each Alternative Option will be subject to the following terms and conditions:

•

Unless otherwise determined by the Board of Directors, the exercise price per share of Common Stock that may be purchased pursuant to an Alternative Option will equal 100% of the fair market value of the Common Stock on its date of grant.



•

Each Alternative Option will expire 10 years after its date of grant, or such earlier date as it may no longer be exercised and cannot, by its terms, become exercisable.



•

Unless otherwise determined by the Board of Directors, an Alternative Options will fully vest upon the completion of the outside director's one-year term.



•

Notwithstanding the foregoing, upon a change in control, any Alternative Option will become fully vested and exercisable.



•

Unless otherwise determined by the Board of Directors, the portion of an option that has not vested and become exercisable at the time of the termination of an optionee's service prior to a change in control shall be forfeited.

The number of shares which may be purchased pursuant to an Initial Option, an Annual Option, a Lead Option or an Alternative Option will be determined by the Board of Directors by applying the option valuation methodology. The 2001 Director Plan defines option valuation methodology as the method specified by the Board of Directors from time to time for determining the number of shares of Common Stock to be subject to an option and, if applicable, the exercise price thereof. The option valuation methodology may be the Black-Scholes option valuation methodology or such other methodology as may be deemed reasonable by the Board of Directors.

Recapitalization.    In the event of any merger, consolidation, split-up, spin-off, combination or exchange of shares, or other recapitalization or change in capitalization or other similar corporate transaction or event that affects AES's Common Stock or other securities of AES and the Board of Directors determines that an adjustment is appropriate in order to prevent

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dilution or enlargement of the benefits or potential benefits under the 2001 Director Plan, the Board of Directors will, as it deems equitable, adjust any or all of:

•

the number of shares of Common Stock (or number and kind of other securities or property) which may be made the subject of options, including the aggregate limits described above under "Shares Available for Future Grants,"



•

the number of shares of Common Stock (or number and kind of other securities or property) subject to outstanding options, and



•

the grant, purchase or exercise price with respect to any option.

In the alternative, if deemed appropriate, the Board of Directors will make provision for a cash payment to an optionee.

In the event of any stock split, reverse stock split, stock dividend or other subdivision or combination of the Common Stock or other securities of the Company, the items above will be adjusted automatically.

Transferability.    No option granted under the 2001 Director Plan will be sold, transferred or otherwise disposed of by any optionee or by any other person having any rights to the option, other than by will or by the laws of descent and distribution.

Nonexclusivity.    Nothing contained in the 2001 Director Plan will preclude the Company from adopting or continuing in effect other or additional compensation arrangements, and any such arrangements may be generally applicable, or applicable only in specific cases.

Termination; Amendment.    The 2001 Director Plan will terminate no later than January 1, 2011. Notwithstanding this, the Company reserves the right to change, amend, modify or terminate the 2001 Director Plan (or any portion of the 2001 Director Plan), including without limitation the amount of an Initial, Annual, Lead or Alternative Option to be granted to an outside director under the 2001 Director Plan at any time;provided, however, that the Company will not amend the 2001 Director Plan to increase the aggregate shares available for future grants, other than as provided for above in "Recapitalization," without also seeking stockholder approval.

In addition, subject to the terms of the 2001 Director Plan and applicable law, the Board of Directors may waive any conditions or rights under or change, amend, modify or terminate any option, prospectively or retroactively.

Summary of Tax Aspects of the
2001 Director Plan.

All options granted under the 2001 Director Plan are nonqualified stock options. The tax consequences of such options are described above under the description of Proposal 2, "Summary of Tax Aspects of 2003 LTC Plan."

Other Matters.

The chart below sets forth the projected option grants that would have been made under the 2001 Director Plan if the proposed amendment had been effective in 2002.


New Plan BenefitsSection 16(a) Beneficial Ownership Reporting Compliance


2001 Director Plan
Name and Position		Number of Securities Underlying Options
Richard Darman, Non-Executive Director Chairman		300,000 (Lead Option)
Non-Executive Director Group		169,468 (Annual Options, including Initial Options)
Non-Executive Director Group		36,552 (Alternative Options)

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Effective as of February 12, 2003, subject to shareholder approval, the Board of Directors granted to Richard Darman a Lead Option to purchase 300,000 shares of Common Stock with an exercise price per share of Common Stock at $2.75 per share, the quoted market price of the Company's Common Stock on December 3, 2002, the date on which Mr. Darman was appointed Lead Independent Director. Mr. Darman's Lead Option will vest and become exercisable at the rate of 25% per year. Mr. Darman's Lead Option will expire on February 11, 2013, ten years from its grant date. The fair market value of a share of AES Common Stock as of March 14, 2003 was $3.12.

As discussed above in the section titled "Awards", each outside director may elect to receive an Alternative Option in lieu of his or her Annual Option and cash compensation. Accordingly, it is not possible to determine the number of Annual Options or Alternative Options that may be granted to directors under the 2001 Director Plan. For 2002, the director group received (i) Annual Option grants totaling 35,190 shares, with an exercise price per share of Common Stock equal to $7.91 per share, (ii) Alternative Option grants totaling 36,552 shares, with an exercise price per share of Common Stock equal to $7.91per share, and (iii) two Initial Option Grants totaling 134,278 shares, with exercise price per share of Common Stock equal to $2.20 and $0.95.

Stockholder approval of the amendments to the 2001 Director Plan is not required under Delaware law or under the charter and bylaws of the Company, but is required pursuant to the terms of the 2001 Director Plan and is also being sought in order to qualify for certain regulatory benefits under New York Stock Exchange rules. If stockholders do not approve the amendments to the 2001 Director Plan, they will not be adopted.

The affirmative vote of holders representing a majority of the outstanding shares of Common Stock present or represented at the forthcoming Annual Meeting is necessary for the adoption of Proposal 3.

THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF THE AMENDMENTS TO THE AES CORPORATION 2001 PLAN FOR OUTSIDE DIRECTORS.

Section 16(a)Beneficial Ownership
Reporting Compliance

Based solely on the Company's review of reports filed under Section 16(a) of the Securities Exchange Act of 1934 and certain written representations (as allowed by Item 405(b)(2)(i) of Regulation S-K, the Company believes that in 2002 there were no reports that were not reportedperson subject to Section 16(a) of the Exchange Act with respect to the registrant failed to file on a timely basis the reports required by Section 16(a) of the Exchange Act during the most recent fiscal year.

Submission Of Stockholder Proposals, Nominations and no known failure to file a required form, except that Mr. Woodcock did not timely file on Form 4 transfers of AES stock from a charitable remainder trust on March 29, 2002, June 28, 2002, October 2, 2002, and December 31, 2002 in order to satisfyCommunications with the trusts' obligation.

SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONSBoard

Any stockholder entitled to vote in the election of directors and who meets the requirements of the proxy rules under the Exchange Act may submit to the Board of Directors proposals to be considered by the Board of Directors for submission to the stockholders at the Year 20042005 Annual Meeting. Any such proposal should be submitted in writing by notice delivered or mailed by first-class United States mail, postage prepaid to the Secretary, The AES Corporation, 1001 North 19th Street, Arlington, Virginia 22209 and must be received no later than

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