MORGAN J P & CO INC, 10-K, 1997-03-24

MORGAN J P & CO INC
10-K, 1997-03-24
STATE COMMERCIAL BANKS

Previous: MONSANTO CO, 10-K405, 1997-03-24

Next: MORTON INTERNATIONAL INC, DEFS14A, 1997-03-24

<PAGE> 1
FORM 10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

-----------------------

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

For the fiscal year ended December 31, 1996

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

Commission file number: 1-5885

J.P. MORGAN & CO. INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware 13-2625764
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

60 Wall Street, New York, NY 10260-0060
(Address of principal (Zip Code)
executive offices)

Registrant's telephone number, including area code: (212) 483-2323
------------------------------------------------------------------

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

<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
<S> <C>
Common Stock, $2.50 Par Value New York Stock Exchange

Adjustable Rate Cumulative Preferred New York Stock Exchange
Stock, Series A, No Par Value,
Stated Value $100

Depositary shares representing a one- New York Stock Exchange
tenth interest in 6 5/8% Cumulative
Preferred Stock, Series H, No Par
Value, Stated Value $500

4 3/4% Convertible Debentures due 1998 New York Stock Exchange
</TABLE>

Securities registered pursuant to Section 12(g) of the Act: NONE
<PAGE> 2
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---

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

The aggregate market value of the voting stock held by nonaffiliates of
J.P. Morgan totaled $19,344,804,150 at February 28, 1997.

The number of shares outstanding of J.P. Morgan's Common Stock, $2.50
Par Value, at February 28, 1997, totaled 184,236,230 shares.

DOCUMENTS INCORPORATED BY REFERENCE

J.P. Morgan's Annual report to Stockholders for the year ended December
31, 1996, is incorporated by reference in response to Part I, Items 1, 2, 3, and
4; Part II, Items 5, 6, 7, 8, and 9; and Part IV, Item 14 of Form 10-K.

J.P. Morgan's definitive Proxy Statement dated March 24, 1997, is
incorporated by reference in response to Part III, Items 10, 11, 12, and 13 of
Form 10-K.
<PAGE> 3
FORM 10-K CROSS-REFERENCE INDEX
-------------------------------

<TABLE>
<CAPTION>
Part I Page No. *
<S> <C>
Item 1. Business
Description of business 2-10, 97-100
Number of employees 78
Financial information about foreign and domestic
operations 73, 86-88
Distribution of assets, liabilities, and
stockholders' equity; interest rates and
interest differential 80-82
Investment portfolio 46-49
Loan portfolio 41,56-57,83-88
Summary of loan loss experience 85-87
Deposits 80-82,91
Return on equity and assets 78-79
Short-term borrowings 92

Item 2. Properties 100

Item 3. Legal proceedings (a)

Item 4. Submission of matters to a vote of security holders (a)

Part II

Item 5. Market for registrant's common equity and related
stockholder matters 77-79,93

Item 6. Selected financial data 78-79

Item 7. Management's discussion and analysis of financial
condition and results of operations 2-32

Item 8. Financial statements and supplementary data
Report of independent accountants 34
J.P. Morgan & Co. Incorporated
Consolidated statement of income 35
Consolidated balance sheet 36
Consolidated statement of changes in
stockholders' equity 37
Consolidated statement of cash flows 38
Morgan Guaranty Trust Company of New York -
Consolidated statement of condition 39
Notes to financial statements 40-77
Selected consolidated quarterly financial data (b)93

Item 9. Changes in and disagreements with accountants
on accounting and financial disclosure (a)
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Part III Page No. *
<S> <C>
Item 10. Directors and executive officers of the registrant (c)

Item 11. Executive compensation (c)

Item 12. Security ownership of certain beneficial owners
and management (c)

Item 13. Certain relationships and related transactions (c)

Part IV

Item 14. Exhibits, financial statement schedules, and reports on Form 8-K

1. Financial statements have been
included in Item 8.

2. Financial statement schedules
Schedule III - Condensed financial information
of J.P. Morgan & Co. Incorporated (parent) 74-76
</TABLE>

Exhibits

3a. Restated certificate of incorporation, as amended
(incorporated by reference to Exhibit 3a to J.P. Morgan's
post-effective amendment No. 1 to Form S-3, Registration
No. 33-55851)

3b. By-laws of J.P. Morgan as amended through April 10, 1996
(incorporated by reference to Exhibit 3b to J.P. Morgan's
report on Form 8-K, dated April 11, 1996)

4. Instruments defining the rights of security holders,
including indentures. J.P. Morgan hereby agrees to furnish
to the Commission, upon request, a copy of any unfiled
agreements defining the rights of holders of long-term debt
of J.P. Morgan and of all subsidiaries of J.P. Morgan for
which consolidated or unconsolidated financial statements
are required to be filed.

10a. 1992 stock incentive plan, as amended (incorporated by
reference to Exhibit 10a to J.P. Morgan's annual report on
Form 10-K for the year ended December 31, 1994, File No.
1-5885)

10b. Director stock plan, as amended (incorporated by reference
to Exhibit 10b to J.P. Morgan's annual report on Form 10-K
for the year ended December 31, 1994, File No. 1-5885)

10c. Deferred compensation plan for directors' fees, as amended
(incorporated by reference to Exhibit 10c to J.P. Morgan's
annual report on Form 10-K for the year ended December 31,
1992, File No, 1-5885)

10d. 1989 stock incentive plan, as amended (incorporated by
reference to Exhibit 10d to J.P. Morgan's annual report on
Form 10-K for the year ended December 31, 1994, File No.
1-5885)

10e. 1987 stock incentive plan, as amended (incorporated by
reference to Exhibit 10e to J.P. Morgan's annual report on
Form 10-K for the year ended December 31, 1994, File No.
1-5885)
<PAGE> 5
10f. Stock option plan, as amended (incorporated by reference to
Exhibit 10f to J.P. Morgan's annual report on Form 10-K for
the year ended December 31, 1994, File No. 1-5885)

10g. Incentive compensation plan, as amended (incorporated by
reference to Exhibit 10g to J.P. Morgan's annual report on
Form 10-K for the year ended December 31, 1994, File No.
1-5885)

10h. Stock option award (incorporated by reference to Exhibit
10h to J.P. Morgan's quarterly report on Form 10-Q for the
quarter ended March 31, 1995, File No. 1-5885)

10i. 1995 stock incentive plan, as amended

10j. 1995 executive officer performance plan (incorporated by
reference to Exhibit 10j to J.P. Morgan's annual report on
Form 10-K for the year ended December 31, 1995, File No.
1-5885)

12. Statements re computation of ratios

13. Annual report to stockholders. Only those sections of the
annual report to stockholders referenced in the
cross-reference index above are incorporated in the report
on Form 10-K.

21. Subsidiaries of J.P. Morgan

23. Consent of independent accountants

24. Powers of attorney

27. Financial data schedule

Other schedules and exhibits are omitted because the required
information either is not applicable or is shown in the consolidated
financial statements or the notes thereto.

Reports on Form 8-K

Report on Form 8-K dated October 10, 1996, was filed with the
Securities and Exchange Commission during the quarter ended
December 31, 1996, which reported the issuance by J.P. Morgan of
a press release reporting its earnings for the three- and
nine-month periods ended September 30, 1996. In addition, Form
8-K dated December 11, 1996, was filed announcing a dividend
increase, a stock repurchase program, and that John A. Krol had
been elected a director of both J.P. Morgan and Morgan Guaranty
effective January 1, 1997.

*Refers to pages appearing in the J.P. Morgan & Co. Incorporated
annual report to stockholders for the year ended December 31, 1996.
Such annual report was mailed to stockholders and a copy is attached
hereto as Exhibit 13. The aforementioned pages are incorporated
herein by reference in accordance with General Instruction G to Form
10-K. This document shall be deemed to have been "filed" only to the
extent of the material incorporated herein by reference.

<PAGE> 6

(a) Nothing to report.

(b) Fourth quarter 1996 results are incorporated by reference to the
report on Form 8-K dated January 13, 1997, filed with the Securities
and Exchange Commission.

<PAGE> 7
SIGNATURES

----------

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on March
24, 1997, on its behalf by the undersigned, thereunto duly authorized.

(Registrant) J.P. MORGAN & CO. INCORPORATED

By (SIGNATURE) /s/ RACHEL F. ROBBINS
-----------------------------
(Name and Title) Rachel F. Robbins
Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 24, 1997, by the following persons on behalf of
the registrant in the capacities indicated.

By (SIGNATURE) /s/ JOHN A. MAYER JR.
-----------------------------
(Name and Title) John A. Mayer Jr.
Chief Financial Officer
(Principal financial officer)

By (SIGNATURE) /s/ DAVID H. SIDWELL
-----------------------------
(Name and Title) David H. Sidwell
Managing Director and Controller
(Principal accounting officer)

By (SIGNATURE) /s/ DOUGLAS A. WARNER III *
-----------------------------
(Name and Title) Douglas A. Warner III
Chairman of the Board and Director
(Principal executive officer)

By (SIGNATURE) /s/ RILEY P. BECHTEL *
-----------------------------
(Name and Title) Riley P. Bechtel, Director

By (SIGNATURE) /s/ MARTIN FELDSTEIN *
-----------------------------
(Name and Title) Martin Feldstein, Director

By (SIGNATURE) /s/ HANNA H. GRAY *
-----------------------------
(Name and Title) Hanna H. Gray, Director

By (SIGNATURE) /s/ JAMES R. HOUGHTON *
-----------------------------
(Name and Title) James R. Houghton, Director

By (SIGNATURE) /s/ JAMES L. KETELSEN *
-----------------------------
(Name and Title) James L. Ketelsen, Director
<PAGE> 8
By (SIGNATURE) /s/ JOHN A. KROL *
-----------------------------
(Name and Title) John A. Krol, Director

By (SIGNATURE) /s/ ROBERTO G. MENDOZA *
-----------------------------
(Name and Title) Roberto G. Mendoza
Vice Chairman of the Board and Director

By (SIGNATURE) /s/ MICHAEL E. PATTERSON *
-----------------------------
(Name and Title) Michael E. Patterson
Vice Chairman of the Board and Director

By (SIGNATURE) /s/ LEE R. RAYMOND *
-----------------------------
(Name and Title) Lee R. Raymond, Director

By (SIGNATURE) /s/ RICHARD D. SIMMONS *
-----------------------------
(Name and Title) Richard D. Simmons, Director

By (SIGNATURE) /s/ KURT F. VIERMETZ *
-----------------------------
(Name and Title) Kurt F. Viermetz
Vice Chairman of the Board and Director

By (SIGNATURE) /s/ DENNIS WEATHERSTONE *
-----------------------------
(Name and Title) Dennis Weatherstone, Director

By (SIGNATURE) /s/ DOUGLAS C. YEARLEY *
-----------------------------
(Name and Title) Douglas C. Yearley, Director

* By /s/ JAMES C.P. BERRY
--------------------------
James C.P. Berry
(Attorney-in-fact)
<PAGE> 9
LIST OF EXHIBITS

3a. Restated certificate of incorporation, as amended (incorporated
by reference to Exhibit 3a to J.P. Morgan's post-effective
amendment No. 1 to Form S-3, Registration No. 33-55851)

3b. By-laws of J.P. Morgan as amended through April 10, 1996
(incorporated by reference to Exhibit 3b to J.P. Morgan's report
on Form 8-K, dated April 11, 1996)

4. Instruments defining the rights of security holders, including
indentures. J.P. Morgan hereby agrees to furnish to the
Commission, upon request, a copy of any unfiled agreements
defining the rights of holders of long-term debt of J.P. Morgan
and of all subsidiaries of J.P. Morgan for which consolidated or
unconsolidated financial statements are required to be filed.

10a. 1992 stock incentive plan, as amended (incorporated by reference
to Exhibit 10a to J.P. Morgan's annual report on Form 10-K for
the year ended December 31, 1994, File No. 1-5885)

10b. Director stock plan, as amended (incorporated by reference to
Exhibit 10b to J.P. Morgan's annual report on Form 10-K for the
year ended December 31, 1994, File No. 1-5885)

10c. Deferred compensation plan for directors' fees, as amended
(incorporated by reference to Exhibit 10c to J.P. Morgan's annual
report on Form 10-K for the year ended December 31, 1992, File
No, 1-5885)

10d. 1989 stock incentive plan, as amended (incorporated by reference
to Exhibit 10d to J.P. Morgan's annual report on Form 10-K for
the year ended December 31, 1994, File No. 1-5885)

10e. 1987 stock incentive plan, as amended (incorporated by reference
to Exhibit 10e to J.P. Morgan's annual report on Form 10-K for
the year ended December 31, 1994, File No. 1-5885)

10f. Stock option plan, as amended (incorporated by reference to
Exhibit 10f to J.P. Morgan's annual report on Form 10-K for the
year ended December 31, 1994, File No. 1-5885)

10g. Incentive compensation plan, as amended (incorporated by
reference to Exhibit 10g to J.P. Morgan's annual report on Form
10-K for the year ended December 31, 1994, File No. 1-5885)

10h. Stock option award (incorporated by reference to Exhibit 10h to
J.P. Morgan's quarterly report on Form 10-Q for the quarter ended
March 31, 1995, File No. 1-5885)

10i. 1995 stock incentive plan, as amended

10j. 1995 executive officer performance plan (incorporated by
reference to Exhibit 10j to J.P. Morgan's annual report on Form
10-K for the year ended December 31, 1995, File No. 1-5885)

12. Statements re computation of ratios
<PAGE> 10
13. Annual report to stockholders. Only those sections of the annual
report to stockholders referenced in the cross-reference index
above are incorporated in the report on Form 10-K.

21. Subsidiaries of J.P. Morgan

23. Consent of independent accountants

24. Powers of attorney

27. Financial data schedule

<PAGE> 1
EXHIBIT 10(i)

As Amended
December 11, 1996

1995 Stock Incentive Plan of
J.P. Morgan & Co. Incorporated and Affiliated Companies

Article I

Purpose

The purpose of the 1995 Stock Incentive Plan (the "Plan") is to afford
an incentive to key employees of J.P. Morgan & Co. Incorporated (the "Company")
and its affiliates to acquire a proprietary interest in the Company, to
encourage such employees to increase their efforts on behalf of the Company and
remain in its employ, and to more closely align the interests of such key
employees with those of the Company's stockholders.

Article II

Definitions

2.1. The following terms shall have the meanings described below when used in
the Plan:

(a) "Award" shall refer to a Restricted Stock Award granted under
Article VIII or a Stock Unit Award granted under Article IX.

(b) "Board of Directors" shall mean the Board of Directors of the
Company.

(d ) "Committee" shall mean the committee appointed by the Board of
Directors to administer the Plan pursuant to Article III.

(e) "Common Stock" shall mean common stock, par value $2.50, of the
Company.

1
<PAGE> 2
(f) "Company" shall mean J.P. Morgan & Co. Incorporated or any
successor to it in ownership of all or substantially all of its assets.

(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.

(h) "Fair Market Value" of Common Stock on any day shall mean the
average of the highest and lowest price of Common Stock as reported on the
composite tape for such day, unless the Committee determines that another
procedure for determining Fair Market Value would be more appropriate.

(i) "Incentive Stock Option" shall mean a stock option granted under
Article VI which is intended to meet the requirements of Section 422 of the
Code.

(j) "Nonqualified Stock Option" shall mean a stock option granted under
Article VI which is not intended to be an Incentive Stock Option.

(k) "Option" shall mean an Incentive Stock Option or a Nonqualified
Stock Option.

(l) "Optionee" shall mean a Participant who is granted an Option.

(m) "Participant" shall mean an eligible employee who has been granted
an Option, Stock Appreciation Right or Award under the Plan.

(n) "Participating Company" shall mean the Company, the Trust Company
or any subsidiary or other affiliated entity (whether or not incorporated).

(o) "Plan" shall mean this 1995 Stock Incentive Plan of J.P. Morgan &
Co. Incorporated and Affiliated Companies.

(p) "Related Right" shall mean a Stock Appreciation Right described in
Section 7.2.

(q) "Restricted Period" shall mean the period during which a Restricted
Stock Award is being earned in accordance with Section 8.3.

(r) "Restricted Stock Award" shall mean an award granted under Article
VIII.

(s) "Stand Alone Right" shall mean a Stock Appreciation Right described
in Section 7.3.

(t) "Stock Appreciation Right" shall mean a right granted under Article
VII.

(u) "Stock Unit Award" shall mean an award granted under Article IX.

2
<PAGE> 3
(v) "Trust Company" shall mean Morgan Guaranty Trust Company of New
York or any successor to it in ownership of all or substantially all of its
assets.

Article III

3.1. (a) The Board of Directors shall appoint not less than three
Directors to the Committee which shall administer the Plan. With respect to
determinations regarding the grant, amount, acceleration or forfeiture of
Options, Stock Appreciation Rights or awards with respect to an eligible
employee who is a member of the Board of Directors, the Committee shall be
composed of all directors of the Company who are not employees of the Company or
any other Participating Company. No individual shall be a member of the
Committee unless such individual is disinterested within the meaning of Rule
16b-3 under the Exchange Act. The Committee shall have full power and authority,
subject to such orders or resolutions not inconsistent with the provisions of
the Plan as may from time to time be issued or adopted by the Board of
Directors, to grant to eligible persons Options, Stock Appreciation Rights and
Awards under the Plan; to waive any restrictions or limitations, or impose
additional limitations or restrictions, on previously granted Options, Stock
Appreciation Rights, or Awards (within the parameters of the Plan); to interpret
the provisions of the Plan and any agreements relating to Options, Stock
Appreciation Rights or Awards granted under the Plan; to supervise the
administration of the Plan and to delegate to senior officers of the Company or
the Trust Company the power to act for the Committee as the Committee shall
specify.

(b) All decisions made by the Committee (or such persons acting under a
delegation by the Committee pursuant to subsection 3.1 (a) ) pursuant to the
provisions of the Plan and related orders of the Board of Directors shall be
within the absolute discretion of the Committee or its delegate, as the case may
be, and shall be conclusive and binding on all persons, including the Company,
stockholders, employees and beneficiaries of employees.

Article IV

Shares Subject To The Plan

4.1. (a) Subject to adjustment pursuant to subsection 4.1 (d), the
maximum number of shares of Common Stock with respect to which Options, Stock
Appreciation Rights and Awards may be granted shall be 28,000,000 shares of
Common Stock. Shares of Common Stock may be made available from the authorized
but unissued shares of the Company or from shares reacquired by the Company,
including shares purchased in the open market. If an Option, Stock Appreciation
Right or Award granted under the Plan shall expire or terminate for any reason
other than the exercise of a Related Right (to the extent set forth in
subsection 7.2(c) ), the shares subject to such Option, Stock Appreciation Right
or Award shall be

<PAGE> 4
available for other Options, Stock Appreciation Rights and Awards to the same
Participant or other eligible employees. Any shares delivered in payment of the
exercise price of an Option shall be available for other Options, Stock
Appreciation Rights and Awards to the same Participant or other eligible
employees.

(b) Subject to adjustment pursuant to subsection 4.1 (d), of the total
shares of Common Stock referred to in subsection 4.1 (a), the number of shares
of Common Stock with respect to which Awards may be granted shall not exceed
7,000,000 shares of Common Stock.

(c) Subject to adjustment pursuant to subsection 4.1 (d), of the total
shares of Common Stock referred to in subsection 4.1 (a), the number of shares
of Common Stock with respect to which Options or Stock Appreciation Rights may
be granted to any Participant during the term of the Plan shall not exceed
2,800,000 shares of Common Stock.

(d) In the event that the Committee shall determine that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Stock at a price substantially below fair
market value, or other similar corporate event affects the Common Stock such
that an adjustment is required in order to preserve the benefits or potential
benefits intended to be made available under this Plan, then the Committee
shall, in its sole discretion, and in such manner as the Committee may deem
equitable, adjust any or all of ( 1 ) the number and kind of shares which
thereafter may be awarded or optioned and sold or made the subject of Stock
Appreciation Rights under the Plan, (2) the number and kind of shares subject to
outstanding Options, Stock Appreciation Rights and Awards, and (3) the option
price with respect to any of the foregoing and/or, if deemed appropriate, make
provision for a cash payment to a Participant. The number of shares subject to
any Option, Stock Appreciation Right or Award shall always be a whole number.

Article V

Eligibility

5.1. The employees eligible to participate in the Plan and receive
Options, Stock Appreciation Rights and Awards under the Plan shall consist of
key employees of the Company and other Participating Companies.

4
<PAGE> 5
Article VI

Stock Options

6.1. Grant of Options. Subject to the limitations of the Plan, the
Committee shall, after such consultation with and consideration of the
recommendations of management as the Committee considers desirable, select from
eligible employees those Participants to be granted Options and determine the
time when each Option shall be granted and the number of shares subject to each
Option. Options may be either Incentive Stock Options or Nonqualified Stock
Options and more than one Option may be granted to the same person. Options
shall be evidenced in such manner as may be approved by the Committee. Options
may be amended or supplemented from time to time as approved by the Committee,
provided that the terms of such Options after being amended or supplemented
conform to the terms of the Plan.

6.2. Option Price. The price at which shares may be purchased upon
exercise of a particular Option shall be not less than 100% of the Fair Market
Value of such shares on the date such Option is granted.

6.3. Medium and Time of Payment. No shares shall be delivered pursuant
to any exercise of an Option until payment in full of the Option price therefor
is received by the Company. Such payment shall be made in cash or, unless
prohibited by the Committee, through the delivery of shares of Common Stock of
the Company with a Fair Market Value equal to the total Option price or a
combination of cash and shares. The Committee may prescribe additional methods
of payment to the extent permitted by applicable law. Any shares so delivered
shall be valued at their Fair Market Value on the exercise date, or on such
other date as determined by the Committee for administrative convenience. No
Optionee, transferee, legal representative, legatee or distributee of any
Optionee shall be deemed to be a holder of any shares subject to any Option
prior to the issuance of such shares upon exercise of such Option or any related
Stock Appreciation Right.

6.4. Term and Exercisability of Options. An Option shall be exercisable
ratably on each of the first three anniversaries of the date of grant of such
Option or as otherwise determined by the Committee, but in no event shall such
Option be exercised earlier than one year or later than ten years from the date
the Option is granted. The Committee may require that an Option only be
exercised upon the achievement of such performance objectives as the Committee
shall designate. An Option shall be subject to earlier termination as provided
in Section 6.6 with respect to death, retirement and termination of employment
or as provided in Section 10.6.

6.5. Transferability of Options. (a) Except as provided in subsection
(b) below, an Option may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of, except by will or the laws of descent and
distribution and, during the lifetime of the

5
<PAGE> 6
Optionee, may be exercised only by such Optionee.

(b) Notwithstanding subsection (a) above, the Committee may determine
that an Option may be transferred by the Optionee to one or more members of the
Optionee's immediate family, to a partnership of which the only partners are
members of the Optionee's immediate family, or to a trust established by the
Optionee for the benefit of one or more members of the Optionee's immediate
family. For this purpose immediate family means the Optionee's spouse, parents,
children, grandchildren and the spouses of such parents, children and
grandchildren. A transferee described in this subsection may not further
transfer an Option. An Option transferred pursuant to this subsection shall
remain subject to the provisions of the Plan, including, but not limited to, the
provisions of Section 6.6 relating to the exercise of the Option upon the death,
retirement or termination of employment of the Optionee, and shall be subject to
such other rules as the Committee shall determine.

6.6. Death, Retirement and Termination of Employment. Subject to the
condition that no Option be exercised in whole or in part after the expiration
of the Option period specified by the Committee, and subject to the Committee's
right to cancel any Option in accordance with Section 10.6, unless otherwise
determined by the Committee:

(a) Upon termination of employment prior to an Optionee's attainment of
age 55 but after the Optionee is eligible for retirement pursuant to a
retirement plan of the Company or any of its subsidiaries, an Optionee or a
transferee described in subsection 6.5(b), may, within three years after the
date of such termination, purchase any or all of the shares subject to an Option
granted at least one year prior to such termination of employment, at or after
the time or times the Optionee would have been entitled to purchase such shares
had the Optionee not terminated employment;

(b) Upon termination of employment on or after an Optionee's attainment
of age 55 and after the Optionee is eligible for retirement pursuant to a
retirement plan of the Company or any of its subsidiaries, an Optionee or a
transferee described in subsection 6.5(b), may, at any time prior to the
expiration of the Option period, purchase any or all of the shares subject to an
Option granted at least one year prior to such termination of employment, at or
after the time or times the Optionee would have been entitled to purchase such
shares had the Optionee not terminated employment;

(c) Upon the death of an Optionee after a termination of employment
described in subsections (a) or (b) above, the Optionee's designated
beneficiary, or if none, the person or persons to whom such Optionee's rights
under the Option are transferred by will or the laws of descent and
distribution, or a transferee described in subsection 6.5(b), may, at any time
prior to the expiration of the Option period determined under subsection (a) or
(b), as the case may be, purchase any or all of the shares subject to an Option
at or after the time the Optionee would have been entitled to purchase such
shares had the Optionee survived;

<PAGE> 7
(d) Upon the death of an Optionee while employed, the Optionee's
designated beneficiary, or if none, the person or persons to whom such
Optionee's rights under the Option are transferred by will or the laws of
descent and distribution, or a transferee described in subsection 6.5(b), may,
within three years after the date of such death, but no later than the
expiration of the Option period, purchase any or all of the shares subject to an
Option at or after the time the Optionee would have been entitled to purchase
such shares had the Optionee survived; and

(e) Upon termination of employment for any reason other than death or
retirement as aforesaid, an Optionee's Options, including any Options
transferred pursuant to subsection 6.5(b), shall be cancelled to the extent not
theretofore exercised. In addition, the Optionee shall repay to the Company the
value of the difference between the Fair Market Value on the date of exercise
over the Option price of any Options exercised within the six month period
preceding the date of such termination and the value of any Related Right
described in Section 7.2 exercised during such period.

Article VII

Stock Appreciation Rights

7.1. Grant of Stock Appreciation Rights. Subject to the limitations of
the Plan, the Committee shall, after such consultation with and consideration of
the recommendations of management as the Committee considers desirable, select
from eligible employees those Participants to be granted Stock Appreciation
Rights and determine the time when each Stock Appreciation Right shall be
granted and such other terms of each Stock Appreciation Right pursuant to this
Article VII. Stock Appreciation Rights may be granted either alone ("Stand Alone
Rights") or in conjunction with all or part of any Option granted under the Plan
( "Related Rights" ) . In the case of a Nonqualified Stock Option, Related
Rights may be granted either at or after the time of the grant of the
Nonqualified Stock Option. In the case of an Incentive Stock Option, Related
Rights may be granted only at the time of the grant of the Incentive Stock
Option.

7.2. Related Rights. (a) A Related Right shall be exercisable only at
such time or times and to the extent that the Option to which it relates shall
be exercisable in accordance with Article 6, provided that the Committee may,
for administrative convenience, determine that, for any Related Right which can
only be exercised during a limited period of time in order to satisfy rules
imposed by the Securities and Exchange Commission, the exercise of any such
Related Right for cash during such limited period shall be deemed to occur for
all purposes hereunder on the day during such limited period on which the Fair
Market Value of the Common Stock is the highest. A Related Right granted with
respect to an Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Option, provided that, unless otherwise
provided by the Committee, a Related Right granted with

7
<PAGE> 8
respect to less than the full number of shares covered by a related Option shall
only be reduced if and to the extent that the number of shares covered by the
exercise or termination of the related Option exceeds the number of shares not
covered by the Related Right, provided further that, in the event of the death
of the Participant, the Related Right shall be cancelled to the extent not
theretofore exercised, whether or not the related Option is cancelled.

(b) Upon the exercise of a Related Right, a Participant shall be
entitled to receive up to, but not more than, an amount in cash or shares of
Common Stock equal in value to the excess of the Fair Market Value of one share
of Common Stock over the Option price per share of Common Stock of the related
Option multiplied by the number of shares of Common Stock in respect of which
the Related Right shall have been exercised. The Committee shall have the right
to determine the form of payment. Any shares delivered in payment shall be
valued at their Fair Market Value on the date of exercise. No fractional shares
shall be issued and the Participant shall receive cash in lieu thereof.

(c) Upon the exercise of a Related Right, the Option or part thereof to
which such Related Right is related shall be deemed to have been exercised for
the purpose of the limitations set forth in Section 4.1 on the number of shares
of Common Stock to be issued under the Plan, but only to the extent of the
number of shares of Common Stock issued under the Related Right.

7.3. Stand Alone Rights. (a) A Stand Alone Right shall be exercisable
ratably on each of the first three anniversaries of the grant of such Stand
Alone Right or as otherwise determined by the Committee, but in no event shall
such Stand Alone Right be exercised earlier than one year or later than ten
years from the date the Stand Alone Right is granted. The Committee may require
that a Stand Alone Right only be exercised upon the achievement of such
performance objectives as the Committee shall designate. The Committee may, for
administrative convenience, determine that, for any Stand Alone Right which can
only be exercised during a limited period of time in order to satisfy rules
imposed by the Securities and Exchange Commission, the exercise of any such
Stand Alone Right for cash during such limited period shall be deemed to occur
for all purposes hereunder on the day during such limited period on which the
Fair Market Value of the Common Stock is the highest. A Stand Alone Right shall
be subject to earlier termination as provided in subsection 7.3(c) with respect
to death, retirement and termination of employment.

(b) Upon the exercise of a Stand Alone Right, a Participant shall be
entitled to receive up to, but not more than, an amount in cash or shares of
Common Stock equal in value to the excess of the Fair Market Value of one share
of Common Stock on the date of exercise over the Fair Market Value of one share
of Common Stock on the date of grant multiplied by the number of shares in
respect of which the right is being exercised. The Committee shall have the
right to determine the form of payment. Any shares delivered in payment shall be
valued at their Fair Market Value on the date of exercise. No fractional shares
shall be issued and the

<PAGE> 9
Participant shall receive cash in lieu thereof.

(c) Subject to the condition that no Stand Alone Right may be exercised
in whole or in part after the expiration of the period specified by the
Committee, and subject to the Committee's right to cancel any Stock Appreciation
Right in accordance with Section 10.6, unless otherwise determined by the
Committee:

(i) Upon termination of employment prior to a Participant's attainment
of age 55 but after the Participant is eligible for retirement pursuant to a
retirement plan of the Company or any of its subsidiaries, a Participant may,
within three years after the date of such termination, exercise any or all of
the Stand Alone Right granted at least one year prior to such termination of
employment, at or after the time or times the Participant would have been
entitled to exercise such Stand Alone Right had the Participant not terminated
employment;

(ii) Upon termination of employment on or after a Participant's
attainment of age 55 and after the Participant is eligible for retirement
pursuant to a retirement plan of the Company or any of its subsidiaries, a
Participant may, at any time prior to the expiration of the Stock Appreciation
Right exercise period, exercise any or all of the Stand Alone Right granted at
least one year prior to such termination of employment, at or after the time or
times the Participant would have been entitled to exercise such Stand Alone
Right had the Participant not terminated employment; and

(iii) Upon termination of employment for any reason other than
retirement as aforesaid, a Participant's Stand Alone Rights shall be cancelled
to the extent not theretofore exercised. In addition, except in the event of
death, the Participant shall repay to the Company the value of any Stand Alone
Right exercised within the six month period preceding the date of such
termination.

7.4. Transfer of Stock Appreciation Rights. A Stock Appreciation Right
may not be transferred to anyone and may only be exercised by the Participant to
whom it is granted

Article VIII

Restricted Stock Awards

8.1. Grant of Restricted Stock Awards. Subject to the limitations of
the Plan, the Committee shall, after such consultation with and consideration of
the recommendations of management as the Committee considers desirable, select
from eligible employees those Participants to be granted Restricted Stock Awards
and determine the time when each Award shall be granted, the vesting date or
vesting dates for each Award, the time or times as of which vested Awards shall
be paid and the number of share credits (each of which shall be equivalent to
one share of Common Stock) subject to each Award. Restricted Stock Awards

9
<PAGE> 10
shall be evidenced in such manner as may be approved by the Committee.
Restricted Stock Awards may be amended or supplemented from time to time as
approved by the Committee, provided that the terms of such Awards after being
amended or supplemented conform to the terms of the Plan. No provision of this
Plan shall be interpreted to prohibit the grant of a Restricted Stock Award
hereunder in connection with awards granted pursuant to the 1995 Executive
Officer Performance Plan of J.P. Morgan & Co. Incorporated and Affiliated
Companies or any other plan of the Company, provided that any such Award
conforms to the terms of this Plan.

8.2. Number of Share Credits. Each Restricted Stock Award shall state
the number of share credits to be subject to the Award.

8.3. Restrictions. A Restricted Stock Award may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by will or
the laws of descent and distribution, for a period of five years from the date
of grant of the Award or such other period as the Committee shall determine, and
for such further period as the payment of Awards may be deferred pursuant to
Section 8.5. The Committee may define the Restricted Period in terms of the
passage of time, the satisfaction of performance criteria, a combination of time
and performance, or in any other manner it deems appropriate. Restricted Stock
Awards shall not be paid until the successful completion of the Restricted
Period except as may be otherwise provided in circumstances of death or
retirement pursuant to Section 8.4, or until the end of any deferral period
described in subsection 8.5(b).

8.4. Death, Retirement and Termination of Employment. Unless otherwise
determined by the Committee:

(a) Upon termination of a Participant's employment prior to the end of
the Restricted Period for any reason except for death, as described below, the
Participant's Awards shall be forfeited and the Participant shall have no right
with respect to such Award.

(b) Upon the death of a Participant, an Award granted to such
Participant shall be (i) 100% (or such other percentage as the Committee shall
have determined at the time of grant of such Award) vested and nonforfeitable
and (ii) shall be payable to the Participant's beneficiary, or if none, the
person or persons to whom such Participant's rights under the Award are
transferred by will or the laws of descent and distribution, subject to any
further deferral of the Award in accordance with subsection 8.5(b), provided
that with respect to an Award subject to performance restrictions, the Committee
shall make such determination with respect to such Award as it deems
appropriate.

8.5. Payment of Awards. (a) Subject to the provisions of subsection (b)
hereof, as soon as practicable after the successful completion of the Restricted
Period, such Award shall be paid to the Participant or, in the case of the death
of the Participant, the Participant's beneficiary, or if none, the person or
persons to whom such Participant's rights under the

10
<PAGE> 11
Award are transferred by will or the laws of descent and distribution.

(b) The Committee may, in its discretion, provide that payment of
Awards be deferred until such time or times as the Committee shall specify, or
such time or times as the Participant may elect. Any election of a Participant
pursuant to the preceding sentence shall be filed with the Committee in
accordance with such rules and regulations, including any deadline for the
making of such an election, as the Committee may provide.

(c) Except as otherwise determined pursuant to subsection 8.6(c),
payments pursuant to this Section 8.5, including any dividend equivalents
determined under subsection 8.6(b), shall be made in shares of Common Stock,
except there may be paid in cash the value of any partial shares of Common Stock
and that part of the total payment determined by the Company to be necessary to
satisfy tax withholding requirements.

8.6. Dividend Equivalents. (a) Except as may be otherwise determined by
the Committee, in addition to the payment provided for in Section 8.5, each
Participant (or beneficiary) entitled to payment under Section 8.5 shall receive
the dividend equivalent amount calculated under subsection (b) hereof.

(b) The dividend equivalent amount is the number of additional share
credits attributable to the number of share credits awarded plus additional
share credits calculated hereunder. Such additional share credits shall be
determined and credited as of the end of each calendar year by dividing (1) the
aggregate cash dividends which would have been paid had the share credits
awarded or credited under this subsection (b), as the case may be, been actual
shares of Common Stock on the record date for each such dividend during such
calendar year by (2) the average market prices per shares of Common Stock on the
last trading day of each calendar month during the 12 months ending on the
November 30 preceding the date such determination is being made. For this
purpose, the market price on any day shall be the average of the highest and
lowest price of a share of Common Stock as reported on the composite tape for
such day. The Committee may designate any other manner for determining and
crediting dividend equivalents as it deems appropriate.

(c) In such cases as the Committee may deem advisable, the Committee
may, in lieu of the crediting provided for in subsection (b), determine to pay
all or part of the dividend equivalent amount in cash or stock as dividends are
actually paid on Common Stock, or at such other time or times as the Committee
may otherwise determine.

11
<PAGE> 12
Article IX

Stock Unit Awards

9.1. Grant of Stock Unit Awards. The Committee shall have authority to
grant to eligible employees Stock Unit Awards which can be in the form of Common
Stock or units, the value of which is based, in whole or in part, on the value
of Common Stock. Subject to the provisions of the Plan, including Section 9.2
below, Stock Unit Awards shall be subject to such terms, restrictions,
conditions, vesting requirements and payment rules (all of which are sometimes
hereinafter collectively referred to as "rules" ) as the Committee may determine
in its sole discretion, all such rules applicable to a particular Stock Unit
Award to be reflected in writing and furnished to the Participant. In no event
shall any Award vest less than one year from the date of grant. The rules need
not be identical for each Stock Unit Award. No provision of this Plan shall be
interpreted to prohibit the grant of a Stock Unit Award hereunder in connection
with awards granted pursuant to the 1995 Executive Officer Performance Plan or
any other plan of the Company, provided that any such Award conforms to the
terms of the Plan.

9.2. Rules. In the sole discretion of the Committee, a Stock Unit Award
shall be granted subject to the following rules

(a) Any shares of Common Stock which are part of a Stock Unit Award may
not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed
of, except by will or the laws of descent and distribution, prior to the date
on which the shares are issued or such other date provided by the Committee at
the time of grant of the Award or thereafter.

(b) Stock Unit Awards may provide for the payment of cash consideration
by the person to whom such Award is granted or provide that the Award, and
Common Stock to be issued in connection therewith, if applicable, shall be
delivered without the payment of cash consideration.

(c) Stock Unit Awards may relate in whole or in part to performance
criteria established by the Committee at the time of grant.

(d) Stock Unit Awards may provide for deferred payment schedules,
vesting over a specified period of employment, the payment (on a current or
deferred basis) of dividend equivalent amounts, with respect to the number of
shares of Common Stock covered by the Award, and elections by the Participant to
defer payment of the Award or the lifting of restrictions on the Award, if any.

12
<PAGE> 13
Article X

General Provisions

10.1. Change in Control. (a) (i) In the case of a Change in Control (as
defined below) of the Company, each Option and Stock Appreciation Right then
outstanding shall (unless the Committee determines otherwise) immediately be
nonforfeitable and exercisable in full;

(ii) In the case of a Change in Control (as defined below) of the
Company, each Award shall (unless the Committee determines otherwise)
immediately be fully vested and nonforfeitable and shall thereupon be paid as
soon as practicable.

(b) Any determination by the Committee made pursuant to this Section
10.1 may be made as to all outstanding Options, Stock Appreciation Rights or
Awards or only as to certain Options, Stock Appreciation Rights or Awards
specified by the Committee, and all such determinations shall be made in cases
covered by paragraphs (c) (i) or (ii) below, prior to or as soon as practicable
after the occurrence of such event and in the cases covered by paragraphs (c)
(iii) and (iv) below, prior to the occurrence of such event.

(i) any "person" or "group of persons" as such terms are used in
Section 13(d) and 14(d) of the Exchange Act directly or indirectly purchases or
otherwise becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) or has the right to acquire such beneficial ownership (whether or
not such right is exercisable immediately, with the passage of time, or subject
to any condition), of voting securities representing 25% or more of the combined
voting power of all outstanding voting securities of the Company;

(ii) during any period of two consecutive years, the individuals who at
the beginning of such period constitute the Board of Directors cease for any
reason to constitute at least a majority of the members thereof, unless ( 1 )
there are seven or more directors then still in office who were directors at the
beginning of the period, and (2) the election, or the nomination for election by
the Company's stockholders, of each new director was approved by at least
two-thirds of the directors then still in office who were directors at the
beginning of the period;

(iii) the stockholders of the Company shall approve an agreement to
merge or consolidate the Company with or into another corporation as a result of
which less than 50% of the outstanding voting securities of the surviving or
resulting entity are or are to be owned by the former shareholders of the
Company (excluding from former shareholders, a shareholder who is or, as a
result of the transaction in question, becomes an "affiliate," as defined in
Rule 12b-2 under the Exchange Act, of any party to such consolidation or
merger); or

<PAGE> 14
(iv) the stockholders of the Company shall approve the sale of all or
substantially all of the Company's business and/or assets to a person or entity
which is not a wholly-owned subsidiary of the Company.

10.2. Designation of Beneficiary. Subject to such rules and regulations
as the Committee may prescribe, including the right of the Committee to limit
the types of designations which are acceptable for purposes of the Plan, each
Participant who shall be granted an Option or Award under the Plan may designate
a beneficiary or beneficiaries and may change such designation from time to time
by filing a written designation of beneficiaries with the Committee on a form to
be prescribed by it, provided that no such designation shall be effective unless
so filed prior to the death of such Participant.

10.3. No Right of Continued Employment. Neither the establishment of
the Plan, the granting of Options, Stock Appreciation Rights or Awards, nor the
payment of any benefits hereunder nor any action of the Company or of the Board
of Directors or of the Committee shall be held or construed to confer upon any
person any legal right to be continued in the employ of the Company or its
subsidiaries, each of which expressly reserves the right to discharge any
employee whenever the interest of any such company in its sole discretion may so
require without liability to such company, the Board of Directors or the
Committee except as to any rights which may be expressly conferred upon such
employee under the Plan.

10.4. No Segregation of Cash or Shares. The Company shall not be
required to segregate any cash or any shares of Common Stock which may at any
time be represented by Options, Stock Appreciation Rights, Awards, share credits
or dividend equivalent amounts and the Plan shall constitute an "unfunded" plan
of the Company. No employee shall have voting or other rights with respect to
shares of Common Stock prior to the delivery of such shares. The Company shall
not, by any provisions of the Plan, be deemed to be a trustee of any Common
Stock or any other property, and the liabilities of the Company to any employee
pursuant to the Plan shall be those of a debtor pursuant to such contract
obligations as are created by or pursuant to the Plan, and the rights of any
employee, former employee or beneficiary under the Plan shall be limited to
those of a general creditor of the Company. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet the
obligations of the Company and each other Participating Company under the Plan,
provided, however, that existence of such trusts or other arrangements is
consistent with the unfunded status of the Plan.

10.5. Delivery of Shares. No shares shall be delivered pursuant to any
exercise of an Option or Stock Appreciation Right or pursuant to the payment of
any Award until the requirements of such laws and regulations as may be deemed
by the Committee to be applicable thereto are satisfied.

10.6. Cancellation of Options, Stock Appreciation Rights and Awards.

14
<PAGE> 15
(a) Prior to the occurrence of a Change in Control, but not thereafter,
the Committee may, in its sole discretion and with or without cause, cancel any
Option, Stock Appreciation Right or Award in whole or in part to the extent it
has not theretofore been exercised or, in the case of Awards, become vested.
Such cancellation shall be effective as of the date specified by the Committee.

(b) Notwithstanding subsection (a) above, prior to payment of any
Award, the Committee may, in its sole discretion, in cases involving a serious
breach of conduct by an employee or former employee, or activity of a former
employee in competition with the business of a Participating Company, cancel any
Award, whether or not vested, in whole or in part. Such cancellation shall be
effective as of the date specified by the Committee. The determination of
whether an employee or former employee has engaged in a serious breach of
conduct or activity in competition with the business of a Participating Company
shall be determined by the Committee in good faith and in its sole discretion.

10.7. Transfer, Leave of Absence, etc. For purposes of the Plan: (1 ) a
transfer of a Participant from a Participating Company to an affiliated company,
(2) a leave of absence, duly authorized in writing by the Participating Company,
for military service or sickness, or for any other purpose approved by the
Participating Company H the period of such leave does not exceed ninety days,
and (3) a leave of absence in excess of ninety days, duly authorized in writing
by the Participating Company, provided the Participant's right to reemployment
is guaranteed either by a statute or by contract, shall not be deemed a
termination of employment.

10.8. New York Law to Govern. All questions pertaining to the
construction, regulation, validity and effect of the provisions of the Plan
shall be determined in accordance with the laws of the State of New York.

10.9. Payments and Tax Withholding. The delivery of any shares of
Common Stock and the payment of any amount in respect of a Stock Appreciation
Right or Award shall be of the account of the applicable Participating Company
and any such delivery or payment shall not be made until the recipient shall
have made satisfactory arrangements for the payment of any applicable
withholding taxes.

Article XI

Amendment and Termination

11.1. Amendments, Suspension or Discontinuance. The Board of Directors
may amend, suspend or discontinue the Plan, provided, however, that the Board of
Directors may not, without the prior approval of the stockholders of the
Company, make any amendment for which stockholder approval is necessary to
comply with any applicable tax

15
<PAGE> 16
or regulatory requirement, including for these purposes any approval requirement
which is a prerequisite for exemptive relief under Section 16(b) of the Exchange
Act, and provided, further, that upon or following the occurrence of a Change in
Control no amendment may adversely affect the rights of any person in connection
with any Option, Stock Appreciation Right or Award previously granted.

11.2. Termination. No Option, Stock Appreciation Right or Award shall
be granted under the Plan after expiration of ten years from the date upon which
the Plan is approved by vote of the stockholders of the Company.

<PAGE> 1
EXHIBIT 12

Computation of Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends
J.P. Morgan & Co. Incorporated
Consolidated
- --------------------------------------------------------------------------------
Dollars in millions

<TABLE>
<CAPTION>
Twelve months ended December 31
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Net income $ 1 574 $1 296 $1 215 $1 723 $1 130
Add: income taxes 758 610 610 968 619
Less: equity in undistributed income
of all affiliates accounted for by
the equity method 25 16 21 50 3
Add: fixed charges, excluding interest
on deposits and preferred stock
dividends 6 502 5 452 4 483 3 781 3 292
- -------------------------------------------------------------------------------------------------------------------------------
Earnings available for fixed charges,
excluding interest on deposits 8 809 7 342 6 287 6 422 5 038
Add: interest on deposits 2 541 2 520 1 946 1 917 2 306
- -------------------------------------------------------------------------------------------------------------------------------
Earnings available for fixed charges,
including interest on deposits 11 350 9 862 8 233 8 339 7 344
- -------------------------------------------------------------------------------------------------------------------------------
Fixed charges:
Interest expense, excluding interest on
deposits 6 470 5 414 4 452 3 753 3 267
Interest factor in net rental expense 32 38 31 28 25
Preferred stock dividends 49 35 30 28 29
- -------------------------------------------------------------------------------------------------------------------------------
Total fixed charges, excluding interest
on deposits 6,551 5 487 4 513 3 809 3 321
Add: interest on deposits 2,541 2 520 1 946 1 917 2 306
- -------------------------------------------------------------------------------------------------------------------------------
Total fixed charges, including interest
on deposits 9,092 8 007 6 459 5 726 5 627
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Excluding interest on deposits 1.34 1.34 1.39 1.69(a) 1.52(b)
Including interest on deposits 1.25 1.23 1.27 1.46(a) 1.31(b)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the year ended December 31, 1993, the ratio of earnings to combined
fixed charges and preferred stock dividends, including the cumulative effect of
a change in the method of accounting for postretirement benefits other than
pensions, was 1.63 excluding interest on deposits and 1.42 including interest on
deposits.

(b) For the year ended December 31, 1992, the ratio of earnings to combined
fixed charges and preferred stock dividends, including the cumulative effect of
a change in the method of accounting for income taxes, was 1.65 excluding
interest on deposits and 1.39 including interest on deposits.
<PAGE> 2
EXHIBIT 12

Computation of Ratio of Earnings to Fixed Charges
J.P. Morgan & Co. Incorporated
Consolidated

- --------------------------------------------------------------------------------
Dollars in millions

<TABLE>
<CAPTION>
Twelve months ended December 31
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Net income $ 1 574 $ 1 296 $ 1 215 $ 1 723 $ 1 130
Add: income taxes 758 610 610 968 619
Less: equity in undistributed income
of all affiliates accounted for by
the equity method 25 16 21 50 3
Add: fixed charges, excluding interest
on deposits 6 502 5 452 4 483 3 781 3 292
- ---------------------------------------------------------------------------------------------------------------------------
Earnings available for fixed charges,
excluding interest on deposits 8 809 7 342 6 287 6 422 5 038
Add: interest on deposits 2 541 2 520 1 946 1 917 2 306
- ---------------------------------------------------------------------------------------------------------------------------
Earnings available for fixed charges,
including interest on deposits 11 350 9 862 8 233 8 339 7 344
- ---------------------------------------------------------------------------------------------------------------------------
Fixed charges:
Interest expense, excluding interest on
deposits 6 470 5 414 4 452 3 753 3 267
Interest factor in net rental expense 32 38 31 28 25
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed charges, excluding interest
on deposits 6 502 5 452 4 483 3 781 3 292
Add: interest on deposits 2 541 2 520 1 946 1 917 2 306
- ---------------------------------------------------------------------------------------------------------------------------
Total fixed charges, including interest
on deposits 9 043 7 972 6 429 5 698 5 598
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Excluding interest on deposits 1.35 1.35 1.40 1.70(a) 1.53(b)
Including interest on deposits 1.26 1.24 1.28 1.46(a) 1.31(b)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the year ended December 31, 1993, the ratio of earnings to fixed
charges, including the cumulative effect of a change in the method of accounting
for postretirement benefits other than pensions, was 1.64 excluding interest on
deposits and 1.43 including interest on deposits.

(b) For the year ended December 31, 1992, the ratio of earnings to fixed
charges, including the cumulative effect of a change in the method of accounting
for income taxes, was 1.67 excluding interest on deposits and 1.39 including
interest on deposits.

<PAGE> 1
J.P. Morgan & Co. Incorporated

1 9 9 6

Annual report

[J.P. Morgan LOGO]
<PAGE> 2
J.P. Morgan is a leading global financial firm that meets critical
financial needs for business enterprises, governments, financial
institutions, and individuals worldwide. We advise on corporate
strategy and structure, raise capital, make markets in a range of
financial instruments, and manage investment assets. Morgan also
commits its own capital to promising enterprises and invests and trades
to capture market opportunities.

We are committed to offering advice and execution of the
highest quality, conducting our business in a principled way, and
maintaining the global market power that helps our clients succeed
while enhancing returns for our stockholders.

FINANCIAL HIGHLIGHTS
J.P. Morgan & Co. Incorporated

<TABLE>
<CAPTION>
In millions, except per share data 1996 1995
--------------------------------------------------------------------------------------
<S> <C> <C>
FOR THE YEAR
Pretax income ......................................... $ 2 332 $ 1 906
Net income ............................................ 1 574 1 296
Dividends declared on common stock .................... 617 574
--------------------------------------------------------------------------------------
PRIMARY EARNINGS PER SHARE ............................ $ 7.63 $ 6.42
--------------------------------------------------------------------------------------
PER COMMON SHARE
Dividends declared .................................... $ 3.31 $ 3.06
Book value ............................................ 54.43 50.71
--------------------------------------------------------------------------------------
AT YEAR-END
Total stockholders' equity ............................ $ 11 432 $ 10 451
Total assets .......................................... 222 026 184 879
--------------------------------------------------------------------------------------
SELECTED RATIOS
Return on average common stockholders' equity ......... 14.9% 13.6%
Common stockholders' equity as % of year-end assets ... 4.8 5.4
Total stockholders' equity as % of year-end assets .... 5.2 5.7
Tier 1 risk-based capital ratio ....................... 8.8 8.8
Total risk-based capital ratio ........................ 12.2 13.0
--------------------------------------------------------------------------------------
</TABLE>

CONTENTS
<TABLE>
<S> <C>
1 Introduction
2 Business sector analysis
11 Risk management
18 Financial review
33 Responsibility for financial reporting
34 Report of independent accountants
35 Consolidated statement of income
36 Consolidated balance sheet
37 Consolidated statement of changes in
stockholders' equity
38 Consolidated statement of cash flows
39 Consolidated statement of condition --
Morgan Guaranty Trust Company
of New York
40 Notes to consolidated financial statements
78 Additional selected data
80 Consolidated average balances and
taxable-equivalent net interest
earnings
83 Asset-quality analysis
89 Derivatives used for purposes
other-than-trading
90 Capital and funding analysis
93 Selected consolidated quarterly
financial data
95 Form 10-K cross-reference index
97 Description of business
101 Management and Senior officers
104 J.P. Morgan directory
109 Corporate information
</TABLE>
<PAGE> 3
INTRODUCTION

We are proud to report vigorous, diversified growth in J.P. Morgan's
earnings last year. Net income rose to $1.6 billion, up 21 percent.
Per share, earnings were $7.63 compared with $6.42 in 1995.

In December 1996, the Board of Directors approved an 8.6% increase
in the quarterly dividend on common stock to 88 cents per share, the
twenty-first consecutive annual increase. The Board also authorized
the repurchase of up to $750 million of J.P. Morgan common stock,
which is expected to be completed in 1997. In addition, the Board
approved the purchase of up to 7 million shares of common stock to
lessen the dilutive impact on earnings per share of the firm's
employee benefit plans.

Growth in earnings generated by our activities for clients, and a
shift in the mix of earnings toward client-related income, were
notable achievements last year. They reflect more than a decade of
investment in an expanded set of core capabilities and success in
putting more of those capabilities to work for our clients.

In this Annual report, we explain the firm's results for 1996 in
detail, starting with a discussion of performance in five sectors of
business activity and continuing with a presentation of our approach
to risk management and an extensive financial review. Consolidated
financial statements for the firm follow.

To complement the detailed presentation of results provided here,
we publish a companion Annual review that offers my added perspective
on our strategy and performance, a visual and textual review of our
work for clients around the world, information on our history, and a
summary of the year's financial results. We encourage you to read
these two publications in tandem for a rounded view of our firm and
its business.

/s/ Douglas A. Warner III

Douglas A. Warner III
Chairman of the Board
Chief Executive Officer

March 7, 1997

For a copy of J.P. Morgan's Annual review, the companion publication
to this Annual report, please write to Corporate Communication -
Publications, J.P. Morgan & Co. Incorporated, 60 Wall Street, New
York, NY 10260-0060, or call our publications request line at
1-212-648-9607.

1
<PAGE> 4
BUSINESS SECTOR ANALYSIS

J.P. Morgan produced strong earnings growth in 1996, as our business
around the world expanded across the range of the firm's advisory,
capital raising, asset management, risk management, and market-making
activities. Pretax income rose 22% to $2.3 billion, benefiting, in
part, from favorable global markets.

The environment for our business in 1996 featured active
markets and opportunities that increased client demand for the firm's
array of global capabilities. In the U.S., the logic of strategic
business consolidation and the low cost of capital contributed to
record levels of merger and acquisition activity and continued strength
in capital raising activities. Elsewhere in the world,
decentralization, deregulation, and a continuing trend toward more open
markets generated investor interest in emerging markets and a greater
demand for risk management strategies and tools.

Revenues rose 16% to $6.9 billion and reflected a significant
shift in revenue mix, with a greater proportion of total revenues - 82%
versus 72% in 1995 - generated by client-focused activities, more than
offsetting the decline in revenues from proprietary activities
undertaken solely for Morgan's own account. Roughly 60% of pretax
income, compared with 40% last year, was earned from services we
provide for clients. Pretax income from client-focused business rose to
$1.7 billion from $1.0 billion in 1995, and proprietary activities
generated pretax income of $1.0 billion, compared with $1.5 billion in
1995.

Expenses for the year rose 13%. Continued allocation of
resources to areas of strategic importance, including investment
banking, equities, asset management, and private client services, more
than offset the reduction in expenses achieved through Morgan's exit
from securities custody and cash processing activities. Employee
compensation and benefits costs increased as a result of higher
incentive compensation. The growth of earnings, the increasing
proportion of revenues earned in client-focused activities (more people
intensive than proprietary activities), and more competitive market
conditions accounted for this rise. The growth of client-focused
activities was also an important factor in the rise of the firm's other
expenses.

While presenting our results in sector format helps simplify
the complexity of Morgan's business, it is also important to understand
the shared benefits of our strategy: our focus on building long-term
client relationships; the synergy we create by acting as one firm with
singular dedication to clients, not a collection of separate
businesses; the global diversification of activities across a range of
products and locations; our comprehensive approach to risk management;
the integration of global capabilities to capitalize on opportunities;
and commitment to high standards of business conduct, for which J.P.
Morgan has been known throughout its 150-year history.

2
<PAGE> 5
SUMMARY OF SECTOR RESULTS

<TABLE>
<CAPTION>
Asset TOTAL
Finance Manage- CLIENT- Equity Proprietary TOTAL
and Market ment and FOCUSED Invest- Investing PROPRIETARY Corporate CONSOL-
In millions Advisory Making Servicing ACTIVITIES ments and Trading ACTIVITIES Items IDATED
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Total revenues $1 620 $2 622 $1 413 $5 655 $296 $ 904 $1 200 $ -- $6 855
Total expenses 1 108 1 739 1 140 3 987 34 153 187 349 4 523
---------------------------------------------------------------------------------------------------------------------------
Pretax income 512 883 273 1 668 262 751 1 013 (349) 2 332
---------------------------------------------------------------------------------------------------------------------------
1995
Total revenues 1 296 1 661 1 304 4 261 512 1 120 1 632 11 5 904
Total expenses 872 1 462 920 3 254 24 129 153 591 3 998
---------------------------------------------------------------------------------------------------------------------------
Pretax income 424 199 384 1 007 488 991 1 479 (580) 1 906
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

The firm's management reporting system and policies were used to
determine the revenues and expenses directly attributable to each
business sector. Earnings on stockholders' equity were allocated based
on management's assessment of the inherent risk of the components of
each sector. In addition, certain overhead expenses not allocated for
management reporting purposes were allocated to each business sector.
Overhead expenses were allocated based primarily on staff levels and
represent costs associated with various support functions that exist
for the benefit of the firm as a whole. Certain prior-year amounts have
been reclassified to conform with the 1996 presentation. See
Description of business on page 97 for further information.

Intensive efforts to expand our business with existing clients and to
add new clients produced substantial gains in the client-focused
sectors of our business in 1996. Market Making reported the biggest
gain, with pretax income rising to $883 million from a relatively low
$199 million in 1995, as client demand increased for securities and
derivatives products in highly active developed and emerging markets.
Finance and Advisory pretax income was up 21% to $512 million, as J.P.
Morgan increased its share of merger and acquisition and debt and
equity capital raising activity. Asset Management and Servicing
contributed $273 million, less than in 1995; higher revenues were more
than offset by costs associated with further development of our global
capabilities.

Equity Investments produced lower pretax income than in 1995,
when gains on a highly profitable investment were recognized. In
Proprietary Investing and Trading, revenues declined as higher-yielding
instruments continued to mature. However, on a total return basis,
which combines reported revenues and the change in net unrealized
appreciation, results from these proprietary activities were
essentially level with a year ago.

The advances of the past year represent significant progress
toward J.P. Morgan's strategic goal: to be the leading global financial
services firm meeting the critical needs of the world's most active and
sophisticated financial markets participants. We will continue our
investment in strategic areas such as investment banking, equities,
asset management, and private client services in 1997 to complement our
strong capabilities in fixed income, emerging markets, and other areas.
We will also continue to strengthen our presence in Eastern Europe and
Asia, as economic growth and deregulation in those areas continue. Our
own risk-taking activities continue to be integral to our global
business. Success in committing our own capital makes a critical
contribution to producing superior returns over time for stockholders.
In all our activities and in management of resources, we strive to
continue to improve our return on equity to a target level of 15% to
20%.

Discussion of the 1996 results of the client-focused and
proprietary sectors of J.P.Morgan's business follows. More detailed
information on the activities conducted within the sectors is included
in the Description of business beginning on page 97.

3
<PAGE> 6
CLIENT-FOCUSED ACTIVITIES

J.P. Morgan's clients are an increasingly global and diverse group of
growing and established companies, governments and their agencies, and
privately held firms, entrepreneurs, families, and individuals. We
continue to broaden and deepen client relationships in North America;
Latin America; Europe, Middle East, and Africa; and Asia Pacific.
Regional results can be analyzed in a number of ways. In the table
below, combined results for our client-focused business sectors are
broken down by region responsible for managing the client relationship.

<TABLE>
<CAPTION>
EUROPE TOTAL
NORTH LATIN MIDDLE EAST ASIA CLIENT-
In millions AMERICA AMERICA AND AFRICA PACIFIC FOCUSED
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Revenues ........ $2 750 $ 523 $1 809 $ 573 $5 655
Expenses ........ 2 063 213 1 273 438 3 987
--------------------------------------------------------------------------------------
Pretax income ... 687 310 536 135 1 668
--------------------------------------------------------------------------------------
1995
Revenues ........ 2 091 438 1 327 405 4 261
Expenses ........ 1 655 173 1 023 403 3 254
--------------------------------------------------------------------------------------
Pretax income ... 436 265 304 2 1 007
--------------------------------------------------------------------------------------
</TABLE>

The firm's management reporting system was used to determine the
revenues and expenses attributable to each region. For finance and
advisory products, this is the location of the client's head office;
for most other products, it is based on the location where activity is
transacted. Market-making revenues that cannot be specifically
attributed to individual clients (i.e., gains/losses arising from
client-related positions) and earnings on stockholders' equity are
generally allocated based on the proportion of other regional revenues.
Expenses are allocated based on the estimated cost associated with
servicing the client base in the region.

Client revenues in North America increased 32% in 1996, reflecting
strong performance in investment banking and fixed income market-making
activities. We captured increased market share in mergers and
acquisitions, and equities underwriting revenue doubled over the prior
year. Fixed income revenues in 1996 were boosted by a greater volume of
business with clients and gains on positions taken to facilitate client
transactions; year to year comparisons were also made more favorable
because of losses related to mortgage-backed securities activities in
1995. Revenues from asset management and private client services also
increased.

Revenues from our business with Latin American clients were up
19%, as economic activity across the region rebounded from the impact
of the December 1994 Mexican peso devaluation. Demand for financing in
both credit and capital markets by governments, financial institutions,
and corporations was brisk. Morgan's strategic advice continues to be
sought throughout the region, where we are the market leader in mergers
and acquisitions and debt and equity underwriting. Results from local
market-making activities benefited from increased client demand for
risk management and investment products but were offset by narrowing
spreads between emerging and developed markets.

European client revenues increased 36% in 1996, spurred by
growth in our investment banking franchise and strong market activity
across the region, largely driven by client demand for fixed income and
foreign exchange products. Merger and acquisition assignments were up
significantly as we benefited from our leading market position and the
quick pace of European restructuring activity. Increased market share
resulting from advances in our equities capabilities led to substantial
growth in underwriting revenues. Results also benefited from our
growing asset management client base and private client services.

Asia Pacific client revenues increased 41% in 1996, driven by
significant growth in activity across the full spectrum of our
capabilities. Momentum was particularly strong in emerging Asia,
reflecting rapid economic development and growing sophistication of the
client base.

Following is a discussion of the results of the sectors that
cover services we provide globally to clients - Finance and Advisory,
Market Making, and Asset Management and Servicing.

4
<PAGE> 7
FINANCE AND ADVISORY (Advisory, Debt and Equity Underwriting, and
Credit)

<TABLE>
<CAPTION>
In millions 1996 1995
-----------------------------------------------------------------------
<S> <C> <C>
Investment banking revenue .................. $ 880 $ 559
Net interest revenue ........................ 488 505
Fees and commissions ........................ 152 141
Other sector revenues ....................... 100 91
-----------------------------------------------------------------------
Total revenues .............................. 1 620 1 296
Total expenses .............................. 1 108 872
-----------------------------------------------------------------------
Pretax income ............................... 512 424
-----------------------------------------------------------------------
</TABLE>

Fueled by the availability of low cost funds, record levels of merger
and acquisition activity, strength in most equities markets, and
improving economies in emerging countries, investment banking activity
surged in 1996. New debt and equity issues surpassed the record levels
of 1993.

In 1996, J.P. Morgan continued to benefit from its strategic
development of investment banking expertise. Revenues rose for the
sector as business with new and existing clients expanded worldwide and
we participated in some of the most noteworthy transactions of the
year.

Advisory revenue increased over 70%. Morgan advised on 141
merger and acquisition transactions with a value of $123 billion,
including seven of the 15 largest transactions announced in 1996, and
in a number of the most active industries, including
telecommunications, defense, and health care. Transactions completed
for clients enabled Morgan to remain the leading merger and acquisition
advisor in Latin America for the third consecutive year and, for the
second year, ranked second in Europe. We advanced to sixth in the U.S.
and were fifth in completed mergers and acquisitions globally.

Revenues from debt and equity underwriting, in both developed
and emerging markets, increased more than 75% in 1996 as a growing
number of issuers took advantage of favorable market conditions. Morgan
ranked as the sixth largest underwriter of U.S. debt and equity issues,
up from seventh a year ago. As an underwriter of non-U.S. securities,
Morgan ranked seventh in both 1996 and 1995.

Revenues from global credit activities accounted for
approximately one-half of total Finance and Advisory revenues and were
flat compared with 1995. Increased demand for credit products,
particularly in the U.S. and Latin America, was offset by tighter
pricing, reflecting increasingly competitive market conditions. Morgan
ranked as the second largest arranger of syndicated loans in 1996, up
from third a year ago.

This sector includes all of the costs associated with our
global network of senior client relationship managers who market the
full spectrum of our capabilities and provide the link between our
clients' needs and J.P. Morgan's financing, advisory, asset management,
market-making, and risk management products and services.

Total Finance and Advisory revenues increased $324 million to
$1,620 million in 1996. Expenses increased to $1,108 million from $872
million in 1995, due to higher employee compensation and benefits,
largely incentive compensation in line with higher earnings.

5
<PAGE> 8
MARKET MAKING (Fixed Income, Equities, Foreign Exchange, and
Commodities)

<TABLE>
<CAPTION>
In millions 1996 1995
-----------------------------------------------------------------------
<S> <C> <C>
Trading revenue ........................... $2 088 $1 111
Net interest revenue ...................... 378 424
Fees and commissions ...................... 95 61
Other sector revenues ..................... 61 65
-----------------------------------------------------------------------
Total revenues ............................ 2 622 1 661
Total expenses ............................ 1 739 1 462
-----------------------------------------------------------------------
Pretax income ............................. 883 199
-----------------------------------------------------------------------
</TABLE>

Market Making results grew significantly in 1996, reflecting the
continuation of favorable market conditions and increased demand by a
wide variety of clients for our fixed income, equity, and foreign
exchange products, including related derivatives. Expansion into new
markets, for example in Eastern Europe, and new products, such as
credit derivatives, continued. In making markets, we also take
positions to facilitate client transactions and to benefit from our
role as an intermediary.

Fixed income revenues in developed markets rose dramatically
in 1996, accounting for more than 75% of the total sector increase and
approximately one-half of the sector's total revenues. An increase in
demand for swaps and swap derivatives, including more complex,
customized transactions, fueled the rise, and volumes increased across
most of our fixed income products. Revenues included gains on
client-related positions. In addition, 1995 included losses recorded
when we curtailed mortgage-backed activities in a strategic realignment
of resources.

J.P. Morgan continued to be a leading participant in emerging
markets, with revenues growing 12% for the year and accounting for
about a fifth of total sector revenues. Client demand was strong for
external and local country debt and derivatives across Latin America,
Eastern Europe, and Asia. Gains on positions taken to capitalize on
short-term trading opportunities also added to revenues.

Most major equity markets continued to rally throughout 1996.
J.P. Morgan benefited from this trend, with equities revenues
increasing 50% as our client base in both the cash and derivative
markets broadened. Market Making revenues from equities accounted for
approximately 15% of the sector's revenues. Equity derivative revenues
were up 50%, reflecting increased client demand. Equity commissions
increased more than 30% on higher volumes, primarily on U.S. exchanges.

Foreign exchange revenue rose 19%, as client demand and
transaction volumes grew, primarily in developed markets; commodities
revenues were 30% lower, reflecting declines in base metal trading.

Total Market Making revenues increased $961 million to $2,622
million in 1996. Expenses increased $277 million from $1,462 million in
1995, reflecting increased incentive compensation in line with higher
earnings and expansion of our equities capabilities as part of our
strategic objectives.

6
<PAGE> 9
ASSET MANAGEMENT AND SERVICING (Asset Management, Private Client
Services, Futures and Options Brokerage, and Euroclear System)

<TABLE>
<CAPTION>
In millions 1996 1995
-----------------------------------------------------------------------
<S> <C> <C>
Investment management revenue ............. $ 681 $ 580
Fees and commissions ...................... 405 397
Net interest revenue ...................... 312 329
Other sector revenues ..................... 15 (2)
-----------------------------------------------------------------------
Total revenues ............................ 1 413 1 304
Total expenses ............................ 1 140 920
-----------------------------------------------------------------------
Pretax income ............................. 273 384
-----------------------------------------------------------------------
</TABLE>

This was a year of continued growth in our asset management and private
client activities. We continued to invest in people and technology to
expand our global platform, develop additional distribution channels,
and broaden our core investment capabilities. Assets under management
for both private and institutional clients grew 16% to $208 billion in
1996 and are widely diversified by asset class among money market,
fixed income, equity, and real estate products and across markets
globally.

Revenues generated by asset management and services for
private clients increased 14% in 1996, providing over 60% of the
sector's revenues. J.P. Morgan won a record level of new business from
institutional clients around the world. More than 40% of new assets
were awarded to manage international portfolios.

J.P. Morgan assists individuals, families, and privately held
enterprises worldwide in structuring and managing wealth through a
range of advisory, investment, and liquidity products. We manage $49
billion of private client assets, up approximately 20% in 1996. Our
full service brokerage unit, which offers investors who manage their
own portfolios access to a complete range of global securities,
generated sharply higher revenues due to significant growth in volume
from both new and existing clients. While most of the revenues from our
private client business are reported in this sector, approximately $100
million are included in our Finance and Advisory and Market Making
sectors, reflecting transactions undertaken for private clients in
other business areas. Private clients accounted for approximately $500
million of our revenues from all client-focused activities, up 20% from
the prior year.

Our futures and options brokerage unit experienced volume
growth of approximately 20% in 1996 as we increased our market share on
most major exchanges. Revenues earned increased slightly from the prior
year as revenue gains from increased volume were offset by competitive
pricing pressures. As a futures and options broker, we are active
dealers on 53 exchanges around the world, establishing a presence on 12
exchanges in 1996.

Morgan operates the Euroclear System, the world's largest
clearance and settlement house for internationally traded securities,
and provides credit and deposit services to Euroclear System
participants. Euroclear-related revenues, primarily included in Net
interest revenue and Fees and commissions, were essentially unchanged
from the prior year.

Total Asset Management and Servicing revenues increased $109
million to $1,413 million. Expenses increased $220 million from $920
million in 1995 due to strategic investments in our private client and
institutional asset management businesses.

7
<PAGE> 10
PROPRIETARY ACTIVITIES

J.P. Morgan employs a small group of professionals who use their
expertise and Morgan's resources, within clearly established risk
parameters, to enter into proprietary transactions for our own account.
The results of these activities, which complement our client-focused
activities, are provided below.

EQUITY INVESTMENTS (Equity Investment Portfolio Management)

<TABLE>
<CAPTION>
In millions 1996 1995
-----------------------------------------------------------------------
<S> <C> <C>
Investment securities revenue ........... $293 $503
Other sector revenues ................... 3 9
-----------------------------------------------------------------------
Total revenues .......................... 296 512
Total expenses .......................... 34 24
-----------------------------------------------------------------------
Pretax income ........................... 262 488
-----------------------------------------------------------------------
Total return ............................ 363 365
-----------------------------------------------------------------------
</TABLE>

J.P. Morgan invests globally in privately held growth companies,
management buyouts, privatizations, and recapitalizations. Investments
are made and managed with the objective of maximizing total return,
which is a measure of both long term appreciation and recognized gains.
Our $842 million portfolio, at cost, consists of approximately 90
investments diversified by industry, geographic area, and stage of
investment. Approximately 25% of our investments are committed to
opportunities in Latin America, Europe, and Asia.

In 1996, we invested a record $356 million globally in the
private equity of 34 companies in the insurance, retail,
telecommunications, health care, and technology industries. Our largest
investment was $200 million in Travelers/Aetna Property Casualty Corp.

We expanded the team dedicated to private equity investing in
1996, with particular emphasis on increasing our presence in Latin
America, Asia, and Europe -- regions where we see increasingly
attractive investment opportunities. In addition, the team worked
closely with other areas of the firm to capture the competitive
advantage of Morgan's global presence and expertise in sourcing,
evaluating, and managing investments. Opportunities often develop
through relationships with clients. We have also managed initial public
offerings and high yield debt issues, arranged credit facilities, and
provided mergers and acquisitions advice to portfolio companies at
later stages of their development.

Reported revenues of $296 million in 1996 were down from the
high level attained in 1995 when significant gains were harvested from
a large position in Columbia/HCA Healthcare Corporation. Total return,
which equals reported revenues plus the change in net unrealized
appreciation, was $363 million in 1996, essentially level with 1995.

Net unrealized appreciation as of December 31 is presented below.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C>
Marketable equity investment securities ....... $477 $440 $576
Nonmarketable equity investment securities .... 115 85 96
-----------------------------------------------------------------------
Total net unrealized appreciation ............. 592 525 672
-----------------------------------------------------------------------
</TABLE>

8
<PAGE> 11
PROPRIETARY INVESTING AND TRADING (Market Risk Positioning and Capital
and Liquidity Management)

<TABLE>
<CAPTION>
In millions 1996 1995
-----------------------------------------------------------------------
<S> <C> <C>
Net interest revenue ...................... $ 623 $ 868
Trading revenue ........................... 241 154
Investment securities revenue ............. 12 20
Other sector revenues ..................... 28 78
-----------------------------------------------------------------------
Total revenues ............................ 904 1 120
Total expenses ............................ 153 129
-----------------------------------------------------------------------
Pretax income ............................. 751 991
-----------------------------------------------------------------------
Total return .............................. 594 601
-----------------------------------------------------------------------
</TABLE>

J.P. Morgan actively takes market risk positions for its own account,
employing directional and relative value risk-taking strategies,
diversified across markets and instruments.

Directional strategies anticipate changes in absolute rate and
price levels, while relative value strategies anticipate changes in
relationships between markets and classes of instruments. These
strategies are conducted across many currencies and types of
instruments, both on- and off-balance-sheet, where we perceive
opportunities exist to generate value for the firm. Instruments
typically used in these positioning activities include fixed income
securities, foreign exchange, equity securities, commodity products,
and related derivative instruments. Positions may be held for short or
long periods of time, depending on our strategy and actual market
performance. Certain longer-term strategies are considered to be
investment activities and primarily utilize government and
mortgage-backed fixed income securities and interest rate swaps. The
securities and interest rate swaps used in these investment activities
are classified as "available-for-sale" and "risk-adjusting"
respectively.

In addition to these risk-taking activities, and included in
this sector's results, are the firm's capital and liquidity management
activities.

Revenues declined 19% in 1996 to $904 million, primarily due
to lower net interest earnings as higher-yielding investments,
principally interest rate swaps, continue to mature. Expenses increased
19% to $153 million, primarily as a result of higher employee
compensation and benefits.

Total return, which combines reported revenues and the change
in net unrealized appreciation, is the more meaningful measure of
performance for this sector. Total return for 1996 of $594 million was
essentially unchanged from the $601 million reported in 1995. Returns
from activities in Asia were strong in 1996, but were down from the
particularly high levels of 1995. This decline was offset primarily by
higher returns in most activities in the U.S.

The following table represents the components of net
unrealized appreciation for this sector. Net unrealized appreciation
declined to $243 million in 1996, mainly as a result of the recognition
of net interest revenue.

UNREALIZED APPRECIATION (DEPRECIATION)

<TABLE>
<CAPTION>
In millions 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C>
Debt investment securities ........... $ 255 $ 484 $ 154
Risk-adjusting swaps ................. 123 389 776
Long-term repurchase agreements ...... (80) (152) 46
Other financial instruments .......... (55) (168) 96
-----------------------------------------------------------------------
Total net unrealized appreciation .... 243 553 1 072
-----------------------------------------------------------------------
</TABLE>

9
<PAGE> 12
CORPORATE ITEMS

Corporate Items include revenues and expenses that have not been
allocated to the five business sectors, intercompany eliminations, and
the taxable-equivalent adjustment, which is calculated to gross-up tax
exempt interest to a taxable basis. Corporate Items also include the
results of sold or discontinued businesses.

In line with strategic steps begun in 1995, we completed the
sale of our institutional U.S. cash processing business in December.
The sale did not have a material impact on earnings. This disposition
was made in addition to the sale of our securities custody and clearing
activities and the discontinuance of certain cash services during 1995.
Revenues and expenses included in Corporate Items for 1996 and 1995
related to these businesses were as follows: Total revenues were $144
million in 1996, down from $397 million in 1995; total expenses were
$149 million in 1996, down from $433 million in 1995. Our role as
operator of the Euroclear System and the cash management and processing
services we offer private clients were not affected by these sales.

Revenues reported in Corporate Items in 1996 also included a
gain of $77 million related to the partial sale of a minority
investment. Expenses in 1996 included a $71 million technology-related
special charge.

Revenues in 1995 included a $40 million gain related to the
sale of the firm's global and local custody and U.S. commercial paper
issuing and paying agency businesses. Expenses included a $55 million
charge related to expense management efforts.

10
<PAGE> 13
RISK MANAGEMENT

The major risks inherent in J.P. Morgan's businesses are market,
liquidity, credit, and operating risk. Comprehensive risk management
processes have been established to facilitate, control, and monitor
risk-taking. These processes are built on a foundation of early
identification and analytically rigorous measurement of risks by each
of our businesses. Control mechanisms are in place at different levels
throughout the organization. The Corporate Risk Management Group and
individual businesses, as well as the audit, legal, financial, and
operations groups, are all involved in monitoring risks from a variety
of perspectives with the objective of determining whether the
businesses are operating within established corporate policies and
limits. New businesses and material changes to existing businesses are
subjected to reviews to assure management that significant risks are
identified and appropriate control procedures are in place.

Morgan's business managers are responsible for managing risks
in the activities and markets in which they do business. These
managers, located in markets around the world, have firsthand knowledge
of changes in market, industry, credit, economic, and political
conditions in their host countries and use their experience and
insights, supported by various risk management tools, to adjust
positions and revise strategies in an efficient and timely manner. Our
business managers protect against losses from unexpected events by
limiting the magnitude of the risks they take and diversifying
exposures and activities across a variety of instruments, markets,
clients, and geographic regions.

The Corporate Risk Management Group oversees our firmwide risk
management processes. The primary objective of the group is to preserve
our capital base by developing, communicating, and implementing an
institutional view of and process for managing risk across Morgan. The
Corporate Risk Management Group also supports the firm in efforts to
identify and implement opportunities to optimize return on capital.
This unit, which is independent of our business groups, is managed by
the head of the Market Risk and Credit Policy committees.

The Corporate Risk Management Group performs independent
reviews of significant risk concentrations and has the authority to
challenge any risk position. The group establishes and controls market
risk limits and concentration limits for credit risk by considering
exposure to particular products, counterparties, industries, and
geographic regions. The Corporate Risk Management Group maintains a
common risk management framework by developing, communicating, and
assisting business groups in implementing corporate risk management
policies, information systems, and methodologies. The group also
supports Morgan's professionals with training related to risk
management policies and methodologies.

The Market Risk and Credit Policy committees, along with the
Operating Risk and Investment committees, are composed of members of
senior management. The Market Risk Committee reviews trends in the
firm's market and liquidity risk profiles, and the Credit Policy
Committee reviews credit risk developments. The Operating Risk
Committee is primarily responsible for monitoring Morgan's overall
operating environment and anticipating future operating trends in the
marketplace. The Investment Committee provides oversight for our Equity
Investments activities, approving all investments made in excess of
defined limits, advising on portfolio strategy, and monitoring
portfolio issues. The Board of Directors periodically reviews trends in
our risk profiles and performance as well as any significant
developments in risk management policies and controls.

The processes and procedures by which we manage our risk
profile continually evolve as our business activities change in
response to market, credit, product, and other developments. We are
always seeking to strengthen the risk management process through
continuous investments in technology and training. Periodic reviews
performed by internal auditors, regulators, and independent accountants
subject our practices to additional scrutiny and further strengthen our
processes.

11
<PAGE> 14
MARKET RISK

Market risk is the uncertainty to which future earnings are exposed as
a result of changes in the value of portfolios of financial
instruments. This risk is a consequence of our trading and investing
activities in the interest rate, foreign exchange, equity, and
commodity markets.

The estimation of potential losses that could arise from
adverse changes in market conditions is a key element of managing
market risk. J.P. Morgan generally employs a value at risk methodology
to estimate such potential losses; our Equity Investments activities
are monitored separately by the Investment Committee as discussed
earlier. The firm's primary measure of value at risk is referred to as
"Daily Earnings at Risk" (DEaR). This measure takes into account
numerous variables that may cause a change in the value of our
portfolios, including interest rates, foreign exchange rates,
securities and commodities prices, and their volatilities, as well as
correlations among these variables. Option risks are measured using
simulation analysis and other analytical techniques. These methods
produce risk measures that are comparable to those generated for
nonoption positions in trading and investing activities assuming normal
market conditions and market liquidity. These estimates also take into
account the potential diversification effect of the different positions
in each of our portfolios.

On a regular basis, the Corporate Risk Management Group, with
support from the financial group, calculates, reviews, and updates the
historic volatilities and correlations that serve as the basis for
these estimates.

DEaR's one-day horizon allows for a consistent and uniform
measure of market risk across all applicable products and activities.
It also facilitates regular comparison of risk estimates to daily
trading results, providing an indication of the quality of these
estimates as well as opportunities to enhance our risk measurement
processes. DEaR measures potential losses that are expected to occur
within a 95% confidence level, implying that a loss might exceed DEaR
approximately 5% of the time. In estimating DEaR, it is necessary to
make assumptions about market behavior. The standard forecast used by
J.P. Morgan assumes normal distributions and an adverse market movement
of 1.65 standard deviations.

Morgan utilizes DEaR as one tool to estimate potential market
risk related to our trading and investing activities. In addition, the
Corporate Risk Management Group sets DEaR limits for each trading
activity, as well as firmwide limits for all trading activities
combined, and for investing and trading activities combined (aggregate
market risk). The level of risk to be assumed by a business is based on
our overall objectives, business manager experience, client
requirements, market liquidity, and volatility. Within these limits,
business managers set regional, local, product, currency, and trader
limits as appropriate.

On a daily basis, we estimate DEaR for each trading activity,
as well as for firmwide trading and aggregate market risk. Management
reviews daily reports of profit and loss, aggregate positions, and the
firm's market risk profile. These reports compare estimated DEaR for
the above-mentioned activities by individual business and by principal
market with relevant DEaR limits, and include a description of
significant positions and a discussion of market conditions. Risk
managers meet daily to discuss the firm's global market risk profile
and trading and investing strategies.

The DEaR methodology is a uniform measure to communicate and
evaluate the relative level of market risk within and across businesses
and major markets. However, since no single measure can capture all the
dimensions of market risk, we supplement DEaR with additional market
risk information and tools such as stress testing. Stress tests measure
the effect on portfolio values of unusual market movements and are
performed on a portfolio and firmwide basis to help identify potential
sensitivities to abnormal events. Stress testing can take several
forms, including simulation analysis; sensitivity analysis, for moves
in values of specific key variables such as volatilities and shifts in
yield curves; and specific event analysis, for measuring the impact of
abnormal market conditions associated with a specific market event. In
selective cases, we supplement DEaR with "tail risk" limits (i.e., risk
of loss beyond the expected confidence level) for portfolios that are
particularly susceptible to extreme market-related valuation losses.

12
<PAGE> 15
MARKET RISK PROFILES

The following presents the market risk profiles for the firm as of and
for the years ended December 31, 1996 and 1995. The level of market
risk, which is measured on a diversified basis, will vary with market
factors, the level of client activity, and our expectations of price
and market movements.

AGGREGATE MARKET RISK ACTIVITIES

DEaR for our aggregate trading and investing activities across all
market risks averaged approximately $31 million and ranged from $24
million to $44 million in 1996. This compares with average DEaR of
approximately $26 million and a range from $20 million to $38 million
in 1995. Aggregate market risk levels increased in 1996, primarily as a
result of higher risk levels in our proprietary investing activities.

Trading market risk activities

The market risk profiles as measured by DEaR for our trading activities
combined for each business day in 1996 and 1995 are presented in the
table below.

[GRAPH]

In 1996, average DEaR for our trading activities across all market
risks was approximately $21 million, as compared with approximately $19
million in 1995. The modest increase reflects higher risk levels in
most trading businesses offset by lower risk levels in emerging markets
activities. The primary sources of market risk associated with our
trading activities relate to movements in interest rates, foreign
exchange rates, and equity and commodity prices, each of which is
measured on a diversified basis. For 1996, average DEaR of
approximately $21 million represented the combination of interest rate
risk of approximately $14 million, foreign exchange rate risk of
approximately $6 million, equities risk of approximately $5 million,
commodity risk of approximately $4 million and all other market risks
of approximately $6 million, offset by approximately ($14) million
reflecting additional diversification among these risks.

13
<PAGE> 16
The frequency distribution of our 1996 daily trading-related
revenues, generated by our trading businesses, is presented below.

[GRAPH]

The above distribution around average daily revenue of $12.6 million
(which includes trading, trading-related net interest revenue, and
other related sources of revenue) reflects the diversified and
client-oriented nature of our global trading market risk activities.
Average daily revenue was $7.6 million in 1995.

J.P. Morgan evaluates the reasonableness of DEaR estimates by
comparing DEaR to actual trading results. In 1996, the quality of our
risk estimates remained strong. The number of occurrences where daily
revenue fell short of expected daily results by amounts greater than
related DEaR estimates was consistent with statistical expectations. In
addition, the confidence bands depicted in the above histogram, which
represent 1.65 standard deviations around average daily revenue, would
imply an average DEaR of $19 million, compared to our actual average
DEaR estimate of $21 million for 1996.

We also evaluate various downside risk indicators. For
example, average daily revenue, for the nine days that fell short of
the downside confidence band, was a loss of ($12) million in 1996,
compared with a loss of ($15) million for 10 days in 1995.

Proprietary investing activities

The primary sources of market risk associated with our proprietary
investing activities relate to interest rate risk associated with fixed
income securities and interest rate swaps and spread risk associated
with our mortgage-backed securities portfolio. Average DEaR for
proprietary investing activities was approximately $22 million and
ranged from $10 million to $37 million in 1996 as compared with
approximately $17 million and a range from $12 million to $25 million
in 1995. The increase in average DEaR is primarily related to the
mortgage-backed securities portfolio.

Due to the longer-term nature of our investing activities, we
use a weekly time horizon to evaluate our risk estimates relative to
total return. In 1996, the number of occurrences where weekly total
return fell short of expected weekly results by amounts greater than
related weekly risk estimates was consistent with statistical
expectations.

14
<PAGE> 17
LIQUIDITY RISK

Liquidity risk arises in the general funding of the firm's activities
and in the management of positions. It includes both the risk of being
unable to fund our portfolio of assets at appropriate maturities and
rates and the risk of being unable to liquidate a position in a timely
manner at a reasonable price.

The Global Liquidity Management Group is responsible for the
identification, measurement, and monitoring of Morgan's liquidity
risks, for maintaining an adequate liquidity surplus, and for long-term
liquidity planning. Funds are raised globally from a broad range of
instruments including deposits, commercial paper, bank notes,
repurchase agreements, federal funds purchased, long-term debt, capital
securities and stockholders' equity. A strong capital position is
integral to our ability to manage liquidity.

Morgan's liquidity policy is to maintain sufficient capital
plus long-term debt and capital securities in order to maintain the
capacity to be funded on a fully collateralized basis. The strategy
ensures that, even under adverse conditions, we have access to funds
necessary to cover client needs, maturing liabilities, and the capital
requirements of our subsidiaries. In addition, stress tests are
performed to monitor future funding requirements under various market
conditions that might adversely impact our ability to liquidate
investment and trading positions or our ability to access the markets.

The Liquidity Risk Committee, which is composed of senior
business, financial, and credit risk management officers, meets monthly
to review trends in the firm's overall liquidity risk profile and
communicates any significant changes to the Market Risk Committee.

The liquidity of trading asset inventories is monitored
continuously by the appropriate business managers. On a periodic basis
the Corporate Risk Management Group reviews the liquidity and turnover
of inventories as part of its overall business risk review.

CREDIT RISK

Credit risk arises from the possibility that counterparties may default
on their obligations to the firm. These obligations arise from our
lending activities, the extension of credit in our trading and
investment activities, and participation in payment and securities
settlement transactions on our own behalf and as agent for our clients.
The growing diversity of our business through an expanded range of
products and services and participation in international markets has
increased the complexity of managing credit risk.

J.P. Morgan manages credit risk on an individual transaction,
counterparty level, and portfolio basis. Credit limits for individual
clients and counterparties are established by credit officers with
direct knowledge of the client's creditworthiness. These officers and
our business managers are responsible for credit screening and
monitoring. At a portfolio level, exposure concentrations that do not
relate to individual counterparties, such as country, industry, and
product exposures, are reviewed regularly by the Credit Policy
Committee. Credit concentration limits for various industries,
products, and countries are set by the Corporate Risk Management Group.

The Global Credit Group is responsible for evaluating the
likelihood that a counterparty will be able to fulfill its obligations
in a particular transaction or group of transactions, including an
assessment of the covenants, collateral, and other protections
available to the firm in the event a counterparty's creditworthiness
deteriorates. An internal credit rating, which is analogous to those of
public rating agencies in the United States, is established as a result
of this evaluation. To reduce individual counterparty credit risk, we
attempt to deal with creditworthy counterparties, obtain collateral
where appropriate, and utilize master netting agreements, primarily in
connection with derivative products.

15
<PAGE> 18
Established credit limits and actual levels of exposures are
reviewed regularly by senior management on both an individual
counterparty and portfolio basis. When our credit review procedures
identify counterparty, country, industry, or product exposures that
require a higher-than-normal degree of scrutiny, these exposures are
carefully monitored by the Asset Quality Review Committee, which meets
quarterly. In assessing the adequacy of our aggregate allowance for
credit losses, this group of senior officers recommends the portion of
credit exposures that should be charged off and the amount of any
provisions needed for credit losses. The size of our aggregate
allowance is based upon senior management's evaluations of required
reserves to cover potential losses on either an individual
counterparty, industry, or country basis, along with statistical
evaluations of the inherent default losses within J.P. Morgan's
remaining credit exposures.

From a portfolio perspective, the estimation of potential
default losses that could arise from adverse changes in our
counterparties' credit quality is a key element of managing credit
risk. J.P. Morgan employs a number of qualitative and quantitative
processes and methodologies to estimate such potential losses. The
primary qualitative aspect is determining the creditworthiness of our
counterparties, which we express in terms of the internal credit
ratings described above. Through statistical analysis, these ratings
are used to estimate the default probabilities and volatilities of our
counterparties. The correlation of default among different
counterparties, and the recoveries the firm may realize in the event of
a default, are other variables that reflect the judgment of senior
credit officers.

The quantitative aspect of potential default loss estimation
incorporates measurements of credit exposure to our counterparties. The
Corporate Risk Management Group is responsible for establishing the
framework of policies and practices required to measure such exposure.
We measure credit exposure in terms of both current and potential
credit exposure. Current credit exposure is generally represented by
the notional or principal value of on-balance-sheet financial
instruments and off-balance-sheet direct credit substitutes such as
standby letters of credit and guarantees. Current credit exposure also
includes the positive market value of derivative instruments. Since
many of our exposures vary with changes in market prices and the
borrowing needs of our clients, we also estimate the potential credit
exposure over the remaining term of transactions through statistical
analysis of market prices and borrowing patterns.

We estimate the likelihood of various potential default losses
by evaluating credit exposures in the context of our counterparties'
creditworthiness. These estimates incorporate management's evaluation
of several variables including the credit quality of our
counterparties, the amount and duration of our credit exposure, default
probabilities, collateral values, and expected recovery rates in the
event of default. We also consider the volatility of corporate defaults
as well as our portfolio's diversification across counterparties,
industries, and geographic regions.

The development of uniform estimates of credit exposure and
potential loss is useful in evaluating the relative level of credit
risk within and across counterparties, products, industries, and
geographic regions of our global credit portfolio. However, no single
measure can capture all dimensions of credit risk. To ensure our
understanding about the potential range of adverse outcomes from the
firm's credit risk, we supplement these measures with additional credit
risk information and tools, including stress tests and sensitivity
analyses aimed at estimating the potential exposure and losses
resulting from changes to the parameters of J.P. Morgan's credit risk
models. A strong capital position provides the firm and its
shareholders with additional protection in the event of adverse
outcomes.

16
<PAGE> 19
OPERATING RISK

Operating risk is the potential for loss arising from firm activities
or external events caused by breakdowns in information, communication,
physical safeguards, business continuity, supervision, transaction
processing, settlement systems and procedures, and the execution of
legal, fiduciary, and agency responsibilities. J.P. Morgan attempts to
mitigate operating risk by maintaining a comprehensive system of
internal controls.

The goal of an internal control framework begins with the
identification and prioritization of business objectives, and the
business processes through which they are attained. J.P. Morgan's
business managers are responsible for establishing and maintaining an
appropriate system of internal controls after considering the risks of
their businesses and the standards and policies of the firm. Risks
inherent in business processes are identified, and control objectives
and associated procedures required are established to mitigate those
risks. The impact of the controls is evaluated against business
objectives to ensure that cost and benefit remain in balance.
Monitoring the effectiveness of our control procedures by means of
performance measures is also a component of this framework.

In addition to the establishment of a system of internal
controls, we also invest in the development of key backup facilities
worldwide, and update systems and equipment as required in response to
changes in business conditions and technology needs. Contingency plans
are periodically tested and communicated throughout the firm.

The Operating Risk Committee monitors necessary changes to the
firm's operating environment, in response to changes in the
marketplace, in technology, and in the firm's strategic initiatives and
organizational structures. J.P. Morgan's business managers are
responsible for establishing and maintaining internal control
procedures that are appropriate for their local operating environments.
Local operating committees also evaluate the control environment on a
regular basis. The firm's achievement of its operational control
objectives is further enhanced by a strategic alliance with a
consortium of world-class technology firms that assist in the
management of Morgan's global technology infrastructure.

Legal risk, a component of operating risk, arises from the
uncertainty of the enforceability, through legal or judicial processes,
of the obligations of J.P. Morgan's clients and counterparties,
including contractual provisions intended to reduce credit exposure by
providing for the offsetting or netting of mutual obligations. The firm
seeks to minimize such uncertainty through consultation with internal
and external legal advisors in all countries in which we conduct
business.

Fiduciaries and agents have obligations to act on behalf of
others. Fiduciary or agency risks exist in our investment management
activities and to a lesser extent in many of our other agency and
brokerage activities. The firm has a number of policies and procedures
to ensure that our obligations to clients are discharged faithfully and
in compliance with applicable legal and regulatory requirements. Such
policies and procedures include "know your client" and suitability
policies and procedures regarding management of the firm's investment
products, trade execution, counterparty selection, and the evaluation
of potential investment opportunities.

Our control environment encompasses all of the above elements
and is enhanced by the integrity and competence of our professionals,
the way our professionals are developed and supervised, and
management's philosophy and operating style. This comprehensive system
of internal controls enables management to ensure compliance with firm
policies and external regulations.

17
<PAGE> 20
FINANCIAL REVIEW

NET INTEREST REVENUE

Net interest revenue aggregates interest revenue and expense
generated from the firm's client-focused and proprietary activities,
which use a variety of asset, liability, and off-balance-sheet
instruments. Net interest revenue is affected by changes in interest
rates, funding strategies, and the relative proportion and composition
of interest-bearing and noninterest-bearing financial instruments. The
levels of equity capital and net noninterest-bearing liabilities reduce
the requirement to incur interest-bearing liabilities to fund the
firm's activities. Proprietary Investing and Trading sector activities
remain the largest contributor to net interest revenue, representing
approximately one-third of total net interest revenue, down from
approximately 45% in the prior year. The Finance and Advisory and Asset
Management and Servicing sectors, which generate net interest revenue
from loans and other credit and deposit products, account for about
one-half of the firm's net interest revenue. In addition, net interest
revenue is generated from various financial instruments used in our
trading-related businesses within the Market Making sector.

Net interest revenue was $1,702 million in 1996, compared with
$2,003 million in 1995. The 15% decline from 1995 is primarily
attributable to a decline in net interest revenue from Proprietary
Investing and Trading positions as a result of the continuing maturity
of higher-yielding financial instruments.

Net interest revenue was $2,003 million in 1995, compared with
$1,981 million in 1994. Net interest revenue in 1994 included $66
million of interest revenue primarily related to past due interest
claims from Brazil and Argentina, and $50 million of interest revenue
associated with income tax refunds. Excluding these items, net interest
revenue was 7% higher in 1995 than in 1994. Net interest revenue
associated with the Finance and Advisory sector increased in 1995,
primarily driven by increases from credit-related products. Net
interest revenue from Proprietary Investing and Trading activities in
the United States and Asia also increased, while net interest revenue
related to the Market Making sector declined.

TRADING REVENUE

Trading revenue is generated primarily by activities included
within the Market Making and Proprietary Investing and Trading sectors.
Trading revenue increased 80% to $2,477 million in 1996 from 1995 and
35% to $1,376 million in 1995 from 1994, due to strong client demand in
the firm's market-making activities in both developed and emerging
markets, and higher results in our proprietary trading activities.

The following table presents trading revenue, disaggregated by
principal product groupings. Such revenue represents only a portion of
the total revenues generated by the business activities discussed in
the Business sector analysis, and does not include related net interest
revenue.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Income ..................... $1 540 $ 668 $ 766
Equities ......................... 330 249 115
Foreign Exchange ................. 320 253 168
Commodities ...................... 34 42 82
Proprietary Trading .............. 253 164 (112)
- --------------------------------------------------------------------------------
Total trading revenue ............ 2 477 1 376 1 019
- --------------------------------------------------------------------------------
</TABLE>

18
<PAGE> 21
Fixed Income

Fixed Income includes the results of making markets in both developed
and emerging countries in government securities, interest rate and
currency swaps, options and other derivative instruments, money market
instruments, U.S. government agency securities, and corporate debt
securities.

Trading revenue of $1,540 million in 1996 grew $872 million
from 1995. The growth in 1996 is due to increased demand for swaps and
swap derivatives, including more complex, customized transactions, and
for government and corporate securities. In addition, results were
positively impacted by gains on client-related positions compared with
losses in the prior year.

Trading revenue of $668 million in 1995 decreased $98 million
from 1994. While demand for risk management products was higher,
revenue declined from 1994 due to losses in positions arising from some
client activities. Additionally, losses were recorded in 1995 when we
curtailed mortgage-backed activities in a strategic realignment of
resources. Partially offsetting these declines were higher results from
emerging markets activities.

Equities

Equities include the results of making markets in global equity
securities and equity derivatives such as swaps, options, futures, and
forward contracts.

Trading revenue advanced $81 million to $330 million in 1996,
and $134 million to $249 million in 1995, reflecting strong client
demand in our equity derivatives activities.

Foreign Exchange

Foreign Exchange includes the results of making markets in spot,
options, and short-term interest rate products, including forwards and
forward rate agreements in multiple currencies.

Trading revenue grew $67 million to $320 million in 1996, and
$85 million to $253 million in 1995, primarily as a result of an
increase in client demand and greater volatility in the foreign
exchange markets.

Commodities

Commodities include the results of making markets in spot, forwards,
options, and swaps, and advising clients on developing hedging,
investment, and commodity-linked financing strategies.

Trading revenue of $34 million in 1996 decreased $8 million
from 1995, due primarily to declines in base metals revenues caused by
extreme market movements.

Trading revenue of $42 million in 1995 decreased $40 million
from the exceptional 1994 results, due primarily to declines in base
metals revenues.

Proprietary Trading

The Proprietary Investing and Trading sector engages in transactions
for our own account across all markets.

Trading revenue increased $89 million to $253 million in 1996,
reflecting an increase in revenues from relative value trading
activities.

Trading revenue of $164 million in 1995 reflected gains,
primarily in Asian markets, compared with losses of $112 million in
1994, primarily in European markets.

19
<PAGE> 22
TRADING-RELATED ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
In billions: Average balances 1996 1995 1994
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRADING-RELATED ASSETS:
Trading account assets ............................. $78.2 $68.0 $62.0
Securities purchased under agreements to resell .... 42.7 31.6 32.1
Securities borrowed ................................ 25.3 15.2 15.6

TRADING-RELATED LIABILITIES:

Trading account liabilities ........................ 49.1 45.2 38.6
Securities sold under agreements to repurchase ..... 59.8 40.1 45.5
----------------------------------------------------------------------------------------------------
</TABLE>

The level of trading account assets, securities purchased under
agreements to resell (resale agreements), securities borrowed, trading
account liabilities, and securities sold under agreements to repurchase
(repurchase agreements) fluctuates daily depending upon client needs as
well as market opportunities.

The firm uses resale agreements and securities borrowed to
facilitate deliveries to customers and to meet the inventory financing
needs of clients. We use repurchase agreements as a source of
short-term financing for trading-related positions and as one source of
financing for the debt investment securities portfolio.

Trading account assets and liabilities are mainly composed of
U.S. Treasury and foreign government securities, trading-related
derivatives, and corporate debt and equity securities. Average trading
account assets grew 15% in 1996, and 10% in 1995, as a result of
increased holdings of government securities and corporate debt and
equity securities, reflecting the continued expansion of activities
within the Market Making sector. Additionally, average balances for
resale agreements, securities borrowed, and repurchase agreements have
increased to meet the needs of clients and to profit from interest rate
spreads. The average balance of trading-related assets represented 68%
of average total assets in 1996, compared with 64% in 1995 and 1994.

For financial statement reporting purposes, beginning December
31, 1996, a portion of the aggregate allowance for credit losses
relating to derivatives, amounting to $350 million, which had
previously been reported as a reduction of loans, is presented as a
reduction of Trading account assets. Such change in presentation had no
material impact on 1996 averages. Refer to page 28 for a detailed
discussion of the aggregate allowance for credit losses.

DERIVATIVES

In general terms, derivative instruments are contracts or agreements
whose value is derived from interest rates, foreign exchange rates,
prices of securities, or financial or commodity indices. Derivatives
include swaps, futures, forwards, and option contracts.

Derivatives are generally either negotiated over-the-counter
contracts or standardized contracts executed on an exchange.
Standardized exchange-traded derivatives include futures and option
contracts. Negotiated over-the-counter derivatives include forwards,
swaps, and option contracts. Over-the-counter derivatives are generally
not traded like securities; however, in the normal course of business,
with the agreement of the original counterparty, they may be terminated
or assigned to another counterparty. The timing of cash receipts and
payments related to derivatives is generally determined by contractual
agreement.

J.P. Morgan's competitive strength in derivatives activities
results from our strong capital base, expertise developed over many
years, global distribution capabilities, long-standing client
relationships, sophisticated research and technological support, and
integrated approach to these activities.

J.P. Morgan utilizes derivatives in its trading and investing
activities. As part of our trading activities, we act as a dealer in
derivative instruments to satisfy the risk management needs of our
clients by structuring transactions that allow clients to manage their
exposure to interest rates, foreign exchange rates, prices of
securities, and financial or commodity indices. In addition, we assume
trading positions based on our market expectations and to benefit from
price differentials between instruments and markets. We also utilize
derivatives as hedges of trading instruments. Derivative instruments
used for trading purposes include interest rate swaps, currency swaps,
foreign exchange forward contracts, interest

20
<PAGE> 23
rate futures, forward rate agreements, commodity forwards, equity
swaps, equity futures, interest rate options, foreign exchange options,
commodity options, and equity options.

As an end user, J.P. Morgan utilizes derivative instruments in
the execution of its investing strategies. Such derivatives primarily
include interest rate swaps, foreign exchange forward contracts,
interest rate futures, and debt securities forwards. Derivatives are
used to hedge exposures to interest rate or currency fluctuations,
primarily on or related to debt investment securities, and to modify
the interest rate characteristics of related balance sheet instruments,
principally loans, short-term borrowings, and long-term debt. In
addition, we utilize derivatives to adjust our overall interest rate
risk profile, primarily through the use of risk-adjusting swaps. These
swaps do not contain leverage or embedded option features and are used
to replicate the cash flows of nonamortizing cash instruments.

As with balance sheet financial instruments, derivatives are
subject to market and credit risk. As discussed in the Risk management
section, we evaluate the risks associated with derivatives in much the
same way as the risks associated with balance sheet financial
instruments. However, unlike balance sheet financial instruments, where
the credit exposure is generally represented by the notional or
principal value, the credit exposure associated with derivatives is
generally a small fraction of the notional value of the instrument and
is represented by the positive market value of the derivative
instrument.

The following table presents the percentages of credit
exposure associated with all derivatives by counterparty credit
quality, based on J.P. Morgan's internal credit ratings. J.P. Morgan's
internal ratings are analogous to those of public rating agencies in
the United States. Ratings of AAA, AA, A, and BBB represent investment
grade ratings, and ratings of BB and below represent noninvestment
grade ratings. The percentages presented below do not consider the
credit enhancement effect of collateral securing these instruments or
the benefit of master netting agreements.

Total derivative credit exposure by counterparty credit quality

Percentage at December 31 1996 1995
-------------------------------------------------------------
AAA, AA .......................... 42% 45%
A ................................ 37 38
BBB .............................. 16 12
BB and below ..................... 5 5
-------------------------------------------------------------
Total ............................ 100 100
-------------------------------------------------------------

The following tables provide the aggregate notional amount of each
category of derivative financial instruments and the contractual
maturities for the 1996 balances. For detail of the notional amounts
segregated by trading and investing activities, refer to Note 9 to the
consolidated financial statements, Off-balance-sheet financial
instruments. The following tables also provide the total amount of
credit exposure, after considering the benefit of $36.5 billion, $27.7
billion, and $12.7 billion of master netting agreements in effect at
December 31, 1996, 1995, and 1994, respectively, and the contractual
maturities for the 1996 balances. Our use of master netting agreements
has increased as our market-making activities have grown since 1994 and
as the legal enforceability of these agreements has expanded to new
jurisdictions. The expanded use of these agreements resulted in a
decrease in credit exposure in 1996 for interest rate and currency
swaps and foreign exchange spot, forward, and futures contracts.

Interest rate and currency swaps

<TABLE>
<CAPTION>
After one After five
Within year but years but After
one within within ten Total
In billions: December 31 year five ten years 1996 1995 1994
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Notional amount ................... $681.1 $999.2 $382.6 $58.0 $2 120.9 $1 515.6 $974.9
Credit exposure ................... 1.6 4.6 4.3 1.2 11.7 12.4 10.9
---------------------------------------------------------------------------------------------------------------
</TABLE>

A swap is a contractual agreement in which a series of cash flows are
exchanged at specified intervals. The notional principal is not
exchanged for interest rate swaps, but is generally exchanged for
currency swaps. The notional amount of swaps, particularly interest
rate swaps, grew during 1996 and 1995 as client demand for risk
management products increased.

21
<PAGE> 24
Foreign exchange spot, forward, and futures contracts

<TABLE>
<CAPTION>
After one After five
Within year but years but After
one within within ten Total
In billions: December 31 year five ten years 1996 1995 1994
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Notional amount ............ $ 599.9 $ 19.4 $ 0.8 $ -- $ 620.1 $ 461.8 $ 397.7
Credit exposure ............ 2.3 0.2 -- -- 2.5 3.3 3.6
---------------------------------------------------------------------------------------------------------------------
</TABLE>

Foreign exchange contracts involve an agreement to exchange the
currency of one country for the currency of another country at an
agreed-upon price and settlement date. The contracts reported above
primarily include forwards. The increases in notional amounts of
foreign exchange contracts during 1996 and 1995 reflect increased
activity in foreign exchange forward contracts consistent with our
increased market-making activities.

Interest rate futures, forward rate agreements, and debt securities
forwards

Notional amount ............ $ 476.7 $ 85.9 $ 5.6 $ -- $ 568.2 $ 415.4 $ 426.5
Credit exposure ............ 0.3 0.1 -- -- 0.4 0.5 0.2
---------------------------------------------------------------------------------------------------------------------
</TABLE>

Interest rate futures, with a notional amount of $270.1 billion, $180.5
billion, and $210.4 billion at December 31, 1996, 1995, and 1994,
respectively are standardized exchange-traded agreements to receive or
deliver a specified financial instrument at a specified future date and
price. The credit risk associated with futures contracts is limited due
to the daily settlement of open contracts with the exchange on which
the instrument is traded. The contracts reported above also include
forward rate agreements and debt securities forwards. A forward rate
agreement is an agreement that provides for payment or receipt of the
difference between a specified interest rate and a reference rate at a
future settlement date. Debt securities forwards include
to-be-announced and when-issued securities contracts. These contracts
represent agreements to purchase or sell fixed income securities and
are executed prior to issuance of the security. The increase in the
notional amounts during 1996 is in line with the growth of activity in
our market-making businesses.

Commodity and equity swaps, forward, and futures contracts

Notional amount ................ $ 62.4 $ 14.1 $ 0.6 $ 0.1 $ 77.2 $ 65.1 $ 43.9
Credit exposure ................ 2.0 0.8 -- -- 2.8 1.4 1.1
-----------------------------------------------------------------------------------------------------------------
</TABLE>

The contracts shown above primarily include swaps and futures in the
commodity and equity markets, and commodity forward agreements. The
growth in the notional amounts during 1996 is primarily related to an
increase in client demand for energy contracts and the execution of
several large precious metals transactions. The increase in notional
amounts during 1995 reflects increased activity in equity contracts in
line with our strategy to expand our market-making capabilities.

22
<PAGE> 25
Option contracts

<TABLE>
<CAPTION>
After one After five
Within year but years but After
one within within ten Total
In billions: December 31 year five ten years 1996 1995 1994
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Notional amount:
Purchased option contracts ............. $ 366.7 $ 215.6 $ 32.5 $ 2.1 $ 616.9 $ 464.8 $ 280.6
Written option contracts ............... 394.6 254.8 60.3 3.3 713.0 524.0 348.9
----------------------------------------------------------------------------------------------------------------------
</TABLE>

An option contract provides the option purchaser with the right but not
the obligation to buy or sell the underlying item at a set price during
a period or at a specified date. The option writer is obligated to buy
or sell the underlying item if the option purchaser chooses to
exercise. The options reported above include contracts in the interest
rate, foreign exchange, equity, and commodity markets. Interest rate
options also include caps and floors. For caps and floors, the notional
amounts are used to calculate periodic cash flows. The notional amount
of options, particularly interest rate options, grew in 1996 and 1995,
primarily due to increased market-making activities.

Option contracts are either negotiated over-the-counter or
standardized contracts executed on an exchange. The notional amount of
purchased options executed on an exchange amounted to $165.5 billion
and those negotiated over-the-counter amounted to $451.4 billion at
December 31, 1996. Written options executed on an exchange amounted to
$181.8 billion and those negotiated over-the-counter amounted to $531.2
billion at December 31, 1996.

Credit exposure exists for purchased options and is measured
as the positive market value of the option contract. At December 31,
1996, the credit exposure of purchased option contracts was $8.5
billion compared with $5.2 billion at December 31, 1995, and $3.7
billion at December 31, 1994. The increase in purchased option credit
exposure reflects an increase in market-making activity, primarily in
interest rate options. There is no credit exposure associated with
written option contracts, as these contracts represent obligations,
rather than assets, of J.P. Morgan.

INVESTMENT BANKING REVENUE

Investment banking revenue is earned globally by providing strategic
and financial advice and by arranging financing for clients and
includes advisory, loan syndication, and underwriting revenue.
Substantially all of this revenue is reported in the Finance and
Advisory sector.

Investment banking revenue in both developed and emerging
markets increased 58% to the record level of $921 million in 1996, as
the continued strategic development of our ability to deliver a broader
array of financial services enabled the firm to benefit from increased
global investment banking activity.

Advisory and syndication fees rose 44% to $568 million in
1996, primarily from higher advisory fees reflecting increased merger
and acquisition activity from a growing and diverse client base
worldwide. Revenues from the arrangement of syndicated lending
facilities also rose in 1996 due to advances in the U.S. and Latin
American markets.

Underwriting revenue increased 87% to $353 million in 1996, as
we continued to raise more debt and equity for a broad range of clients
in the global marketplace.

Investment banking revenue increased 35% to $584 million in
1995 from 1994 on higher levels of activity. Advisory and syndication
fees rose 27% in 1995 to $395 million. Underwriting revenue increased
52% in 1995 to $189 million, as debt and equity securities underwriting
activities grew.

INVESTMENT MANAGEMENT REVENUE

Investment management revenue is derived from providing investment
management services to institutional and private clients and includes
fees from the administration of trusts and estates. These activities
are primarily reported in the Asset Management and Servicing sector.

23
<PAGE> 26
Investment management revenue increased 18% to $675 million in
1996 compared with 1995. The increase was primarily due to net new
business from both institutional and private clients, and to a lesser
extent, market appreciation, that resulted in higher assets under
management.

Investment management revenue increased 11% to $574 million in
1995 compared with 1994, reflecting an increase in assets under
management primarily from institutional net new business.

Assets under management increased 16% to $208 billion in 1996
compared with 1995, and 19% to $179 billion in 1995 compared with 1994.

FEES AND COMMISSIONS

Fees and commissions include revenue previously classified as
operational service fees and credit-related fees. Fees and commissions
are earned from providing brokerage of futures and options and equity
securities, as well as securities custody and clearing, trust and
agency and cash management services. In addition, fees are earned from
commitments to extend credit, standby letters of credit and guarantees,
and securities lending activities. This revenue is included primarily
in the Finance and Advisory and Asset Management and Servicing sectors,
while certain commissions are included in the Market Making sector.
Fees and commissions were $582 million, $708 million, and $750 million
in 1996, 1995, and 1994 respectively. Included in fees and commissions
is $45 million, $205 million, and $250 million in 1996, 1995, and 1994
respectively of revenue related to the exited custody and cash
processing businesses.

Excluding revenue from the exited custody and cash processing
businesses, fees and commissions increased 7% from the prior year due
to higher transaction volumes. Particularly strong growth in equity and
other brokerage commissions accounted for the majority of the increase.
Futures and options brokerage also rose as increased transaction levels
more than offset lower commission rates.

Fees and commissions were essentially flat in 1995 as compared
with 1994 after excluding revenue generated from the exited custody and
cash processing businesses. Increased revenue from equity commissions
due to increased market penetration and volumes was offset by lower
fees generated on securities lending transactions, commitments to
extend credit, and standby letters of credit.

CREDIT-RELATED FINANCIAL INSTRUMENTS

Credit-related financial instruments include loans, commitments to
extend credit, standby letters of credit and guarantees, and
indemnifications in connection with securities lending activities.
These instruments primarily result from the activities engaged in by
our Finance and Advisory sector. The maximum credit risk associated
with credit-related financial instruments is measured by the
contractual amounts of these instruments. For off-balance-sheet
credit-related financial instruments this balance represents the amount
at risk should the contract be fully drawn upon, the client default,
and any existing collateral become worthless. A significant amount of
these commitments expire without being drawn upon. In addition, in the
event of client default, commitment obligations of the firm are
protected by financial covenants and/or material adverse clauses in
contracts of credit-related financial instruments.

The following table presents the percentages of credit
exposure associated with credit-related financial instruments by
counterparty credit quality, based on J.P. Morgan's internal credit
ratings, as discussed on page 21. At December 31, 1996 and 1995, over
85% of the total credit exposure was with counterparties considered to
be of investment grade quality.

Total credit exposure by counterparty credit quality

Percentage at December 31 1996 1995
-------------------------------------------------------------
AAA, AA ...................... 24% 23%
A ............................ 41 41
BBB .......................... 22 22
BB and below ................. 13 14
-------------------------------------------------------------
Total ........................ 100 100
-------------------------------------------------------------

24
<PAGE> 27
Loans

The extension of credit, including loans, remains one of the many ways
we provide our clients with the broad array of financial services that
they require. Our portfolio of loans is diversified by borrower,
industry, and geographic area. At December 31 for each of the past
three years, the loan portfolio consisted mainly of shorter-term
outstandings, with over 45% of total loans maturing within one year and
over 85% maturing within five years.

Commitments to extend credit

Commitments to extend credit are conditional contracts to lend money to
a client in the future under specific terms. A majority of, and
increases in, J.P. Morgan's commitments during the past three years
relate to those issued to support clients' commercial paper programs.

Standby letters of credit and guarantees

Standbys are unconditional contracts issued to support clients'
obligations to third parties, the beneficiaries. In the event a client
fails to perform a contractual obligation, payment is made to the
beneficiary upon demand. The client is required to reimburse J.P.
Morgan for any payment made in connection with the standbys.

The following table provides the contractual amount of
commitments to extend credit and standby letters of credit and
guarantees and a maturity profile of such instruments by contractual
maturity for 1996.

<TABLE>
<CAPTION>
After one
Within year but More
one within than five Total
In billions: December 31 year five years 1996 1995 1994
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Contractual amount:
Commitments to
extend credit ........ $ 18.4 $ 38.1 $ 8.2 $ 64.7 $ 55.1 $ 44.6
Standby letters of credit
and guarantees ....... 7.4 5.0 1.5 13.9 11.7 9.9
------------------------------------------------------------------------------------------------------------
</TABLE>

For financial reporting purposes, beginning December 31, 1996, a
portion of the aggregate allowance for credit losses amounting to $200
million has been reclassified to Other liabilities, related to
undertakings to extend credit that are not currently reflected on the
balance sheet. This amount had previously been reported as a reduction
of loans in the consolidated balance sheet. Refer to page 28 for a
detailed discussion of the aggregate allowance for credit losses.

Securities lending indemnifications

Securities lending indemnifications are contractual obligations under
which J.P. Morgan guarantees that a third party lender of securities
will be protected against a borrower's failure to return such
securities. J.P. Morgan, acting as agent, receives from the borrower
collateral, in the form of cash, securities, or letters of credit, that
generally equals the market value of the securities borrowed plus some
specified margin. The borrowers of these securities are mainly nonbank
financial institutions. Generally, securities are lent for an average
period of less than 30 days. The contractual amount of securities
lending indemnifications declined from the levels in 1994 as a result
of the sale of the firm's custody businesses in 1995.

<TABLE>
<CAPTION>
In billions: December 31 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C>
Contractual amount ..... $ 5.5 $ 5.4 $19.5
-----------------------------------------------------------------------
</TABLE>

At December 31, 1996, 1995, and 1994, J.P. Morgan held cash and other
collateral in support of securities lending indemnifications.

25
<PAGE> 28
INVESTMENT SECURITIES REVENUE

Investment securities revenue includes gains and losses on debt and
equity investment securities, other-than-temporary impairments in
value, and related dividend income.

In 1996, 1995, and 1994, investment securities revenue was
$303 million, $517 million, and $751 million respectively. Net gains
from positions associated with our Equity Investments activities were
$269 million, $485 million, and $606 million in 1996, 1995, and 1994
respectively. These gains are primarily related to the recognition of
the firm's equity investment in Columbia/HCA Healthcare Corporation.

Investment securities revenue also includes net realized gains
of $17 million in 1996, $21 million in 1995, and $122 million in 1994,
primarily related to the sale of foreign and U.S. government agency
securities acquired in connection with our Proprietary Investing and
Trading activities and held in the debt investment securities
available-for-sale portfolio.

OTHER REVENUE

Other revenue includes hedge gains and losses from the management of
nontrading foreign currency exposures, earnings from equity in
affiliates, and the results of certain other transactions.

Other revenue of $195 million in 1996 included a gain of $77
million from a partial sale of a minority investment and $52 million of
foreign currency hedging gains. Other revenue of $142 million in 1995
included a net gain of $40 million on the sales of the firm's global
and local custody and U.S. commercial paper issuing and paying agency
businesses. Other revenue of $65 million in 1994 included $54 million
related to a gain on the sale of our domestic corporate trust business
and $56 million of foreign currency hedging losses.

OPERATING EXPENSES

<TABLE>
<CAPTION>
In millions 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C>
Employee compensation and benefits..... $2 884 $2 498 $2 217
Net occupancy ......................... 296 322 275
Technology and communications ......... 785 671 645
Other expenses ........................ 558 507 555
-----------------------------------------------------------------------
Total operating expenses .............. 4 523 3 998 3 692
-----------------------------------------------------------------------
</TABLE>

J.P. Morgan's strategy for expense management is critical to the firm's
goal of maximizing long-term profitability. This strategy focuses on
making disciplined investments and ensuring maximum efficiency in, as
well as accountability for, existing activities. As part of this
strategy, we review our business activities regularly to ensure that
they are valued by clients and are areas where we can achieve
competitive distinction.

As part of J.P. Morgan's expense management focus, we entered
into an agreement in July 1996 with a consortium of firms to form the
Pinnacle Alliance (Alliance) to manage parts of the firm's global
technology infrastructure, representing approximately one-third of our
$1.0 billion total technology and communications expenditures. The
Alliance expands our access to world-class technological resources and
provides flexibility in meeting changing business needs. Other ongoing
expense initiatives include redesigning our European branch network and
processing operations, optimizing the firm's process for procuring and
managing required resources, and responding to the technological
challenges presented by the year 2000 and the anticipated formation of
the European Monetary Union.

Total operating expenses increased 13% to $4,523 million in
1996, as we continued to allocate resources to areas of strategic
importance, including investment banking, equities, asset management,
and private client activities, which more than offset the reduction in
expenses resulting from the exit from the custody and cash processing
businesses. In 1995, total operating expenses increased 8% to $3,998
million as compared with 1994.

Employee compensation and benefits

Employee compensation and benefits, which represented 64% of total
operating expenses in 1996, is composed of salaries, incentive
compensation, and benefits. An essential component of our success is
the ability to hire and retain the most competent and highly skilled
professionals. In this regard, we compensate

26
<PAGE> 29
employees in accordance with their performance and that of the firm. A
significant component and an increasing proportion of the firm's senior
officers' compensation is tied to the firm's results, with a portion
paid in restricted stock in order to align compensation with
longer-term shareholder returns.

Employee compensation and benefits expense increased 15% in
1996 compared with 1995. Excluding the 1995 severance-related charge of
$55 million and expenses associated with the exited custody and cash
processing businesses, employee compensation and benefits expense
increased 21%. The increase was a result of higher incentive
compensation - attributable to higher earnings, the increasing
proportion of revenue earned in client business areas, and more
competitive market conditions.

At December 31, 1996, the total number of staff was 15,527, as
compared with 15,613 employees at December 31, 1995, and 17,055
employees at December 31, 1994. The decline in 1996 was primarily the
result of the transfer of employees to Alliance firms as discussed
below, offset by new hires in areas of strategic importance.

Employee compensation and benefits expense in 1995, excluding
the $55 million severance-related charge, increased 10% compared with
1994. The increase was primarily due to higher incentive compensation
linked to improved earnings over 1994, and higher salary expense
reflecting the full-year impact of the 1994 growth in staff levels.

Net occupancy

Net occupancy decreased 8% to $296 million in 1996 compared with 1995,
reflecting the rationalization of the firm's space requirements
concurrent with the sale of our custody and cash processing businesses.

In 1995, net occupancy increased 17% to $322 million compared
with 1994, reflecting the full-year impact of expansions in prior
years.

Technology and communications

Reported technology and communications expense includes all costs
associated with operating and enhancing the firm's global technology
capabilities, such as consulting, equipment, software, market
information costs, and fees paid to the Alliance.

J.P. Morgan completed the Alliance agreement with the goal of
achieving an aggregate savings over the seven-year life of the
agreement of approximately 15% on projected technology costs associated
with activities now managed by the Alliance - approximately one-third
of total technology and communications spending - including a $71
million technology-related special charge incurred in 1996. The special
charge recorded in the third quarter related primarily to payments for
training and other personnel costs incurred and to the sale, at a loss,
of certain technology equipment to the Alliance. Approximately 700
employees in areas covered by the agreement were transferred to
Alliance firms. Such employee costs, previously reflected in employee
compensation and benefits, are now reflected in payments to the
Alliance and are included in technology and communications expense.

Reported technology and communications expense increased 17%
during 1996 to $785 million. Excluding the 1996 technology-related
special charge and expenses associated with the custody and cash
processing businesses, technology and communications expense increased
12%. The increase is due to higher levels of business activity and the
firm's expansion of its investment banking, equities, asset management,
and private client activities, as well as the inclusion of costs
associated with employees transferred to the Alliance beginning in
July. In 1995, reported technology and communications expense increased
4% from 1994, as a result of higher depreciation and increased use of
external resources and market information services.

Excluding the special charge, total technology and
communications spending, which includes other technology-related costs,
primarily employee compensation and benefits, was $1,045 million in
1996, $1,040 million in 1995, and $984 million in 1994. Spending on
total technology and communications was essentially flat in 1996 as
compared to 1995, due to an increase in business activity which was
offset by the reduction in spending related to the exited custody and
cash processing businesses.

Other expenses

Other expenses include professional fees, costs for outside services,
travel, brokerage fees, taxes other than income taxes, and training
costs.

27
<PAGE> 30
Other expenses increased 10% in 1996 on a reported basis, or
22% excluding expenses associated with the custody and cash processing
businesses. The increase reflects higher professional fees,
travel-related expenses, and costs incurred for outside services,
including advertising fees and employment agency fees, reflecting
increased business activity.

The 9% decrease in other expenses in 1995 compared with 1994
was primarily due to a reduction in travel-related expenses and in
costs incurred for outside services, including advertising and
promotion fees and employment agency fees.

INCOME TAXES

Income tax expense of $758 million in 1996 increased $148 million from
1995, reflecting an increase in pretax income and a higher effective
tax rate. Income tax expense was unchanged at $610 million in 1995
compared with 1994, reflecting an increase in pretax income, offset by
a lower effective tax rate. The effective tax rates for 1996, 1995, and
1994 were 32.5%, 32.0%, and 33.4% respectively.

AGGREGATE ALLOWANCE FOR CREDIT LOSSES

Credit risk arises from the possibility that counterparties may default
on their obligations to the firm. Given the global and diversified
nature of our activities, these obligations may arise from our lending
activities, from the extension of credit in our trading and investment
activities, and from our participation in payment and securities
transactions on our own behalf and as agent for our clients. J.P.
Morgan maintains an aggregate allowance for credit losses to absorb
losses inherent in the existing portfolios of loans and other
undertakings to extend credit, such as unused loan commitments, or to
make payments to others for which a client is ultimately liable, such
as standby letters of credit and guarantees, commercial letters of
credit and acceptances, and all other credit exposures, including
derivatives.

Prior to December 31, 1996, the aggregate allowance for credit
losses was displayed in the consolidated balance sheet as a reduction
of the carrying value of loans. For financial statement reporting
purposes, beginning December 31, 1996, in accordance with the American
Institute of Certified Public Accountants Banks and Savings
Institutions Audit Guide, while we consider it in the aggregate, the
total allowance of $1,116 million has been apportioned and displayed as
follows: $566 million as a reduction of loans, $350 million as a
reduction of trading account assets relating to derivatives, and $200
million as other liabilities related to undertakings to extend credit
that are not currently reflected on the balance sheet, such as standby
letters of credit, guarantees, and commitments. Given the global and
diversified nature of our business, expected shifts in the relative
level of credit risk among financial instruments, and the numerous
estimates and assumptions necessary to derive such allocated amounts,
it is expected that portions of the aggregate allowance may be
reclassified from time to time. Prior period amounts have not been
reclassified.

An analysis of the aggregate allowance for credit losses is
presented in the following table.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
-------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 .............. $1 130 $1 131 $1 157
Recoveries ...................... 25 54 45
Charge-offs:

Commercial and industrial..... (30) (39) (37)
Restructuring countries ...... -- -- (18)
Other ........................ (9) (16) (17)
-------------------------------------------------------------------
Net charge-offs ................. (14) (1) (27)
Translation adjustment .......... -- -- 1
-------------------------------------------------------------------
Balance, December 31 ............ 1 116 1 130 1 131
-------------------------------------------------------------------
</TABLE>

28
<PAGE> 31
No provision for credit losses was deemed necessary in 1996, 1995, or
1994. In assessing the probability of losses that have not yet been
identified and the adequacy of the aggregate allowance, we have taken
into consideration economic conditions; regulatory requirements; our
historical experience; concentrations of risk by country, industry,
product, and client; and the relatively large size of many of our
credit exposures given our wholesale banking orientation.

Charge-offs in 1996, 1995, and 1994 were $39 million, $55
million, and $72 million respectively, related to relatively few
borrowers primarily in the U.S., and were diversified by industry.

NONPERFORMING ASSETS

Total nonperforming assets, net of charge-offs, are presented in the
following table:

<TABLE>
<CAPTION>
In millions: December 31 1996 1995 1994
----------------------------------------------------------------
<S> <C> <C> <C>
Impaired loans:
Commercial and industrial $ 89 $ 67 $136
Other ................... 29 48 81
----------------------------------------------------------------
118 115 217
Restructuring countries .... 2 2 2
----------------------------------------------------------------
Total impaired loans ....... 120 117 219
Other nonperforming assets . -- 1 1
----------------------------------------------------------------
Total nonperforming assets . 120 118 220
----------------------------------------------------------------
</TABLE>

Impaired loans remained essentially flat in 1996, as commercial and
industrial new classifications were offset by repayments and
charge-offs. Impaired loans declined $102 million during 1995 as new
classifications were more than offset by loan repayments, loan sales,
and charge-offs.

SOURCES OF FUNDS

J.P. Morgan's strong capital base and international presence have
allowed us to develop a global funding base consisting of a variety of
sources. As a result, J.P. Morgan is able to limit its dependence on
any individual source and choose the funding instruments that best meet
management's strategies. Our sources include interest-bearing and
noninterest-bearing deposits, commercial paper, bank notes, federal
funds purchased, long-term debt, capital securities, and stockholders'
equity. Other important sources of funding are trading account
liabilities and repurchase agreements, which are presented in the
Trading-related assets and liabilities section of the Financial review.
In determining the most appropriate funding source at a particular
point in time, management considers market conditions, prevailing
interest rates, liquidity needs, and our desired maturity profile.

<TABLE>
<CAPTION>
In billions: Average balances 1996 1995 1994
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-bearing deposits .......... $ 49.1 $ 43.8 $ 39.9
Noninterest-bearing deposits ....... 3.0 4.7 5.2
Commercial paper ................... 4.1 2.8 4.2
Other liabilities for borrowed money 16.4 12.1 10.3
---------------------------------------------------------------------------------
</TABLE>

Interest-bearing deposits are short-term in nature and central to our
operations. Noninterest-bearing deposits are mainly composed of items
in the process of collection and clients' compensating balances placed
with us in lieu of fees for certain services. Other liabilities for
borrowed money primarily include bank notes, term federal funds
purchased, and other short-term borrowings.

29
<PAGE> 32
Long-term debt

<TABLE>
<CAPTION>
In billions: December 31 1996 1995 1994
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long-term debt qualifying as risk-based capital ... $ 3.7 $ 3.6 $ 3.2
Long-term debt not qualifying as risk-based capital 9.4 5.7 3.6
------------------------------------------------------------------------------------------------
Total long-term debt .............................. 13.1 9.3 6.8
------------------------------------------------------------------------------------------------
</TABLE>

In 1996, favorable market conditions allowed us to increase our
activity in the term markets, particularly in non-U.S. dollar markets
and the domestic medium-term note market, resulting in the issuance of
$5.3 billion of long-term debt, of which approximately $260 million
qualified as risk-based capital. Offsetting the additions to long-term
debt were approximately $1.2 billion of maturities during 1996 and
early redemptions at par of $264 million of debt.

In 1995, we issued $3.8 billion of long-term debt, of which
approximately $695 million qualified as risk-based capital. Offsetting
the additions to long-term debt were approximately $511 million of
maturities during 1995 and early redemptions at par of $800 million of
debt.

Other capital securities

In November 1996, JPM Capital Trust I, a wholly owned subsidiary of
J.P. Morgan, issued $750 million of 7.54% Trust Preferred Securities
qualifying as tier 1 risk-based capital under the Board of Governors of
the Federal Reserve System (Federal Reserve Board) guidelines.

In January 1997, JPM Capital Trust II, a wholly owned
subsidiary of J.P. Morgan, issued $400 million of 7.95% Trust Preferred
Securities qualifying as tier 1 risk-based capital.

STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
In billions: December 31 1996 1995 1994
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stockholders' equity ................. $ 10.7 $ 10.0 $ 9.1
Total stockholders' equity .................. 11.4 10.5 9.6
--------------------------------------------------------------------------------------------
Total stockholders' equity to year-end assets 5.2% 5.7% 6.2%
--------------------------------------------------------------------------------------------
</TABLE>

Common and total stockholders' equity increased in 1996 due to the
retention of earnings in excess of common and preferred dividends. In
addition, total stockholders' equity was increased by the issuance of
preferred stock. These increases were offset in part by lower
unrealized gains on investment securities, net of taxes. Common and
total stockholders' equity increased in 1995 due primarily to the
retention of earnings in excess of common and preferred dividends and
higher unrealized gains on investment securities, net of taxes.

The ratio of total stockholders' equity to year-end assets
decreased in 1996 and 1995 primarily as a result of the growth of $37
billion and $30 billion in year-end assets respectively.

In February 1996, J.P. Morgan issued $200 million of perpetual
6 5/8% cumulative preferred stock, series H, with a stated value of
$500 per share. These shares are represented by 4 million depositary
shares with a stated value of $50 per share, each representing
one-tenth of a preferred share.

During 1996, 1995, and 1994, the firm purchased approximately
7 million, 4 million, and 7 million shares respectively of common stock
to reduce the dilutive impact on earnings per share of the firm's
employee benefit plans. In December 1996, the Board of Directors
approved the purchase of up to 7 million additional shares of J.P.
Morgan common stock for the same purpose. These shares may be purchased
periodically in 1997 or beyond in the open market or through privately
negotiated transactions.

Additionally, in December 1996, the Board of Directors
approved the purchase of up to $750 million of J.P. Morgan common stock
in the open market or through privately negotiated transactions. This
stock repurchase, which is expected to be completed in 1997, will be
funded principally with proceeds from the issuance of $750 million of
7.54% Trust Preferred Securities as discussed above in the Sources of
funds section.

30
<PAGE> 33
CAPITAL STRENGTH

J.P. Morgan and its subsidiaries, as well as certain foreign branches
of its bank subsidiary, Morgan Guaranty Trust Company of New York
(Morgan Guaranty), are subject to the capital adequacy rules of several
U.S. and foreign regulators. The Federal Reserve Board, J.P. Morgan's
primary regulator, establishes minimum capital requirements for the
consolidated bank holding company as well as for certain of its
subsidiaries, including Morgan Guaranty. The Federal Reserve Board has
risk-based capital guidelines for evaluating the capital adequacy of
bank holding companies and banks. In addition, guidelines for a
leverage ratio designed to complement the risk-based capital ratios
have been established. A bank holding company and bank are considered
"well capitalized" if certain minimum risk-based capital and leverage
ratios are maintained. The capital of J.P. Morgan and its principal
subsidiaries exceeded the minimum standards set by each regulator at
December 31, 1996. Further, the capital ratios of J.P. Morgan and
Morgan Guaranty exceeded the minimum standards for a "well capitalized"
bank holding company and bank respectively at December 31, 1996.

Capital strength of J.P. Morgan and Morgan Guaranty

J.P. Morgan's risk-based capital and leverage ratios at December 31
were as follows.
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------------------
<S> <C> <C>
Tier 1 capital ............. 8.8% 8.8%
Total risk-based capital ... 12.2 13.0
--------------------------------------------------------------
Leverage ................... 5.9 6.1
--------------------------------------------------------------
</TABLE>

In accordance with Federal Reserve Board guidelines, the risk-based
capital and leverage ratios provided exclude the equity, assets, and
off-balance sheet exposures of J.P. Morgan Securities Inc., and the
effect of SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities.

Morgan Guaranty's risk-based capital and leverage ratios at December
31, calculated in accordance with bank regulatory accounting
principles, were as follows.
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------
<S> <C> <C>
Tier 1 capital ......... 8.2% 8.6%
Total risk-based capital 11.5 11.2
-------------------------------------------------------------
Leverage ............... 5.3 5.7
-------------------------------------------------------------
</TABLE>

In accordance with Federal Reserve Board guidelines, the risk-based
capital and leverage ratios provided exclude the effect of SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities.
Prior period ratios were restated to reflect the merger of J.P. Morgan
Delaware with Morgan Guaranty Trust Company of New York effective June
1996.

Risk-based capital

The following table presents the components of J.P. Morgan's risk-based
capital at December 31.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stockholders' equity .............................. $10 276 $9 393 $8 620
Adjustable and fixed rate cumulative preferred stock ..... 444 244 244
Company-obligated mandatorily redeemable
preferred securities of subsidiary .................... 750 -- --
Less: investments in certain subsidiaries and goodwill (a) 597 604 599
------------------------------------------------------------------------------------------------------------------
Tier 1 capital ........................................... 10 873 9 033 8 265
------------------------------------------------------------------------------------------------------------------
Variable cumulative preferred stock ...................... 248 248 248
Long-term debt qualifying as risk-based capital .......... 3 692 3 590 3 227
Qualifying aggregate allowance for credit losses ......... 1 097 1 130 1 079
Less: investments in certain subsidiaries (a) ............ 765 603 598
------------------------------------------------------------------------------------------------------------------
Tier 2 capital ........................................... 4 272 4 365 3 956
------------------------------------------------------------------------------------------------------------------
Total risk-based capital ................................. 15 145 13 398 12 221
------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) In accordance with Federal Reserve Board guidelines, certain
portions of our investments in certain subsidiaries (principally
J.P. Morgan Securities Inc.) are deducted from both tier 1 and
tier 2 capital.

31
<PAGE> 34
Risk-adjusted assets

J.P. Morgan's risk-adjusted assets, excluding the assets and
off-balance-sheet exposures of JPMSI, were $123.9 billion, $103.1
billion and $86.2 billion as of December 31, 1996, 1995, and 1994,
respectively. Additional information is provided in the Risk-adjusted
assets section of Capital and funding analysis.

New risk-based capital market risk measure

The current risk-based capital guidelines require that capital be
maintained for both balance sheet assets and off-balance-sheet
exposures in accordance with their level of credit risk as defined by
the Federal Reserve Board; however, currently they do not explicitly
consider other risks, including liquidity, interest rate, and other
market risks. In August 1996, the Federal Reserve Board issued a final
rule, which amends the risk-based capital guidelines by incorporating a
measure of market risk into the existing risk-based capital framework.
The new rule is based on an amendment to the Basle Capital Accord that
requires banking institutions with significant trading activity to
measure and hold capital in support of their exposure to market risk.
Under the new standard, risk-based capital ratios will take into
account both the general market risk and specific risk of their debt
and equity trading portfolios, and the general market risk associated
with all trading and nontrading foreign exchange and commodity
positions. A firm will be required to measure its exposure to market
risk using internal models used to measure its daily value at risk,
subject to regulatory approval that the internal models and risk
management processes of the firm satisfy the rule's requirements.
Internal model assumptions must be modified to conform with confidence
levels and other assumptions specified by regulations. Upon adoption of
the risk-based capital market risk measure, risk-based capital ratio
requirements will be applied to J.P. Morgan, including J.P. Morgan
Securities Inc. and Morgan Guaranty. In addition, the minimum leverage
ratio for a bank holding company that is required to retain a "well
capitalized" status will be reduced from 4% to 3%. Firms are required
to adopt the risk-based capital market risk measure beginning no later
than January 1, 1998, with earlier adoption permitted throughout 1997.
Management believes that both J.P. Morgan and Morgan Guaranty will
continue to exceed the minimum standards for a "well capitalized" bank
holding company and bank respectively after adoption of the risk-based
capital market risk measure.

ACCOUNTING DEVELOPMENTS

Accounting for Transfers of Assets and Servicing of Financial Assets
and Extinguishments of Liabilities

In 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, Accounting for Transfers of
Assets and Servicing of Financial Assets and Extinguishments of
Liabilities, which provides new accounting and reporting standards for
sales, securitizations, and servicing of receivables and other
financial assets, and extinguishments of liabilities. The provisions
of the Statement are to be applied to transfers of assets, servicing
rights, and extinguishments of liabilities occurring after December
31, 1996, except for transfers involving repurchase agreements,
securities borrowing/lending transactions, and financial assets
provided as collateral. For these transactions, the Statement will be
applied to transfers occurring after December 31, 1997. The adoption
of this standard is expected to have no material impact on J.P.
Morgan's consolidated financial statements for the year ending
December 31, 1997. The firm is currently evaluating the impact of the
new standard for the year ending December 31, 1998.

32
<PAGE> 35
RESPONSIBILITY FOR FINANCIAL REPORTING

The consolidated financial statements in this Annual report were
prepared by the management of J.P. Morgan. In doing so, management
applied generally accepted accounting principles and also exercised its
judgment and made estimates in those instances where they were deemed
appropriate. Other financial information that is included in the Annual
report is consistent with that of the consolidated financial
statements.

In discharging its responsibility both for the integrity and
fairness of these statements and information, and for the examination
of the accounting systems from which they are derived, management
maintains a system of internal control designed to provide reasonable
assurance, weighing the costs with the benefits sought, that
transactions are executed in accordance with management's
authorization, assets are safeguarded, and proper records are
maintained. An important element in management's effort to establish a
reliable control environment is the careful selection, training, and
development of professional personnel, including internal auditors.
Management believes that the system of internal control, which is
subject to close scrutiny by management and by internal auditors and is
revised as considered necessary, supports the integrity and reliability
of the consolidated financial statements.

Further, the independent accountants perform a study and
evaluation of the system of internal accounting control for the purpose
of expressing an opinion on the consolidated financial statements of
J.P. Morgan.

The Board of Directors of J.P. Morgan appoints an Audit
Committee responsible for monitoring the accounting practices and
internal controls of the company. The Committee, whose membership
consists of directors who are not officers or employees of J.P. Morgan,
meets periodically with members of the internal auditing staff to
discuss the nature and scope of their work and to review such reports
and other matters as the Committee deems necessary. The Committee also
recommends to the Board of Directors the engagement of an independent
accounting firm and meets with representatives of that firm to discuss
the examination of the consolidated financial statements as well as
other auditing and financial reporting matters. Both the internal
auditors and the independent accountants are given access to the Audit
Committee at any time to discuss privately matters they believe may be
of significance.

In addition, J.P. Morgan is examined periodically by examiners
from the Federal Reserve System, State of New York Banking Department,
and other regulatory agencies. The Board of Directors and management
consider reports that arise from such examinations.

Douglas A. Warner III John A. Mayer Jr.
Chairman of the Board Chief Financial Officer

33
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of J.P. Morgan & Co.
Incorporated

We have audited the accompanying consolidated balance sheet of J.P.
Morgan & Co. Incorporated ("J.P. Morgan") and its subsidiaries as of
December 31, 1996 and 1995, the related consolidated statements of
income, of changes in stockholders' equity, and of cash flows for each
of the three years in the period ended December 31, 1996, and the
consolidated statement of condition of Morgan Guaranty Trust Company of
New York and its subsidiaries as of December 31, 1996 and 1995. These
financial statements are the responsibility of J.P. Morgan's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the consolidated financial statements audited
by us present fairly, in all material respects, the financial position
of J.P. Morgan and its subsidiaries at December 31, 1996 and 1995, the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, and the financial position
of Morgan Guaranty Trust Company of New York and its subsidiaries at
December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.

PRICE WATERHOUSE LLP
New York, New York
January 8, 1997

34
<PAGE> 37
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated

<TABLE>
<CAPTION>
In millions, except per share data 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue............................. $10 713 $9 937 $8 379
Interest expense............................. 9 011 7 934 6 398
- -----------------------------------------------------------------------------------------------
Net interest revenue......................... 1 702 2 003 1 981

NONINTEREST REVENUES
Trading revenue.............................. 2 477 1 376 1 019
Investment banking revenue................... 921 584 434
Investment management revenue................ 675 574 517
Fees and commissions......................... 582 708 750
Investment securities revenue................ 303 517 751
Other revenue................................ 195 142 65
- -----------------------------------------------------------------------------------------------
Total noninterest revenues................... 5 153 3 901 3 536

OPERATING EXPENSES
Employee compensation and benefits........... 2 884 2 498 2 217
Net occupancy................................ 296 322 275
Technology and communications................ 785 671 645
Other expenses............................... 558 507 555
- -----------------------------------------------------------------------------------------------
Total operating expenses..................... 4 523 3 998 3 692
- -----------------------------------------------------------------------------------------------
Income before income taxes................... 2 332 1 906 1 825
Income taxes................................. 758 610 610
- -----------------------------------------------------------------------------------------------
Net income................................... 1 574 1 296 1 215
- -----------------------------------------------------------------------------------------------
PER COMMON SHARE
Net income (a)............................... $ 7.63 $ 6.42 $ 6.02
Dividends declared........................... 3.31 3.06 2.79
- -----------------------------------------------------------------------------------------------
</TABLE>

(a) Earnings per share amounts for 1996 and 1995 represent primary earnings
per share. For 1996 and 1995, fully diluted earnings per share were $7.56
and $6.36 respectively. Earnings per share for 1994 represent both primary
and fully diluted earnings per share.

The accompanying notes are an integral part of these consolidated financial
statements.

35
<PAGE> 38
CONSOLIDATED BALANCE SHEET
J.P. Morgan & Co. Incorporated

<TABLE>
<CAPTION>
December 31
----------------------
Dollars in millions 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks ........................................................................... $ 906 $ 1 535
Interest-earning deposits with banks .............................................................. 1 908 1 986
Debt investment securities available-for-sale carried at fair value (Cost: $24 610 at 1996
and $24 154 at 1995) ........................................................................... 24 865 24 638
Trading account assets, net of allowance for credit losses of $350 at 1996 ........................ 90 980 69 408
Securities purchased under agreements to resell ($32 455 at 1996
and $32 157 at 1995) and federal funds sold .................................................... 32 505 32 157
Securities borrowed ............................................................................... 27 931 19 830
Loans, net of allowance for credit losses of $566 at 1996 and $1 130 at 1995 ...................... 27 554 22 323
Customers' acceptance liability ................................................................... 212 237
Accrued interest and accounts receivable .......................................................... 3 789 3 539
Premises and equipment, net ....................................................................... 1 865 1 927
Other assets ...................................................................................... 9 511 7 299
- -----------------------------------------------------------------------------------------------------------------------------
Total assets ...................................................................................... 222 026 184 879
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. ......................................................................... 1 501 3 287
In offices outside the U.S. .................................................................... 708 744
Interest-bearing deposits:
In offices in the U.S. ......................................................................... 7 103 2 003
In offices outside the U.S. .................................................................... 43 412 40 404
- -----------------------------------------------------------------------------------------------------------------------------
Total deposits .................................................................................... 52 724 46 438
Trading account liabilities ....................................................................... 50 919 45 289
Securities sold under agreements to repurchase ($56 117 at 1996 and
$40 803 at 1995) and federal funds purchased ................................................... 61 429 45 099
Commercial paper .................................................................................. 4 132 2 801
Other liabilities for borrowed money .............................................................. 19 948 15 129
Accounts payable and accrued expenses ............................................................. 5 935 5 643
Liability on acceptances .......................................................................... 212 237
Long-term debt not qualifying as risk-based capital ............................................... 9 411 5 737
Other liabilities, including allowance for credit losses of $200 at 1996 .......................... 1 442 4 465
- -----------------------------------------------------------------------------------------------------------------------------
206 152 170 838
Long-term debt qualifying as risk-based capital ................................................... 3 692 3 590
Company-obligated mandatorily redeemable preferred securities of subsidiary ....................... 750 --
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities ................................................................................. 210 594 174 428
Commitments and contingencies (Notes 9, 18, 19, 20, and 23)

STOCKHOLDERS' EQUITY
Preferred stock ................................................................................... 694 494
Common stock, $2.50 par value (authorized shares: 500 000 000;
issued: 200 688 123 at 1996 and 200 678 373 at 1995) ........................................... 502 502
Capital surplus ................................................................................... 1 446 1 430
Retained earnings ................................................................................. 8 635 7 731
Net unrealized gains on investment securities, net of taxes ....................................... 464 566
Other ............................................................................................. 826 552
- -----------------------------------------------------------------------------------------------------------------------------
12 567 11 275
Less: treasury stock (15 765 455 shares at 1996 and 13 562 755 shares at 1995) at cost ............ 1 135 824
- -----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity ........................................................................ 11 432 10 451
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity ........................................................ 222 026 184 879
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

36
<PAGE> 39
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
J.P. Morgan & Co. Incorporated

<TABLE>
<CAPTION>
In millions 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK
Adjustable rate cumulative preferred stock balance, January 1 and December 31 .... $ 244 $ 244 $ 244
Variable cumulative preferred stock balance, January 1 and December 31 ........... 250 250 250
Fixed cumulative preferred stock:
Balance, January 1 ............................................................ -- -- --
Shares issued ................................................................. 200 -- --
- ------------------------------------------------------------------------------------------------------------------------
Total preferred stock, December 31 ............................................... 694 494 494
- ------------------------------------------------------------------------------------------------------------------------

COMMON STOCK
Balance, January 1 ............................................................... 502 502 499
Shares issued or distributed under dividend reinvestment plan,
various employee benefit plans, and conversion of debentures .................. -- -- 3
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31 ............................................................. 502 502 502
- ------------------------------------------------------------------------------------------------------------------------

CAPITAL SURPLUS
Balance, January 1 ............................................................... 1 430 1 452 1 393
Shares issued under dividend reinvestment plan, various employee
benefit plans, and conversion of debentures and income tax
benefits associated with stock options ........................................ 16 (22) 59
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31 ............................................................. 1 446 1 430 1 452
- ------------------------------------------------------------------------------------------------------------------------

RETAINED EARNINGS
Balance, January 1 ............................................................... 7 731 7 044 6 386
Net income ....................................................................... 1 574 1 296 1 215
Dividends declared on adjustable rate cumulative preferred stock ................. (12) (12) (12)
Dividends declared on variable cumulative preferred stock ........................ (9) (12) (8)
Dividends declared on fixed cumulative preferred stock ........................... (12) -- --
Dividends declared on common stock ............................................... (617) (574) (530)
Dividend equivalents on common stock issuable .................................... (20) (11) (7)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31 ............................................................. 8 635 7 731 7 044
- ------------------------------------------------------------------------------------------------------------------------

NET UNREALIZED GAINS ON INVESTMENT SECURITIES, NET OF TAXES
Balance, January 1 ............................................................... 566 456 1 165
Net change in unrealized gains, net of taxes ..................................... (102) 110 (709)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31 ............................................................. 464 566 456
- ------------------------------------------------------------------------------------------------------------------------

OTHER

COMMON STOCK ISSUABLE UNDER STOCK AWARD PLANS
Balance, January 1 ............................................................... 556 369 253
Deferred stock awards, net ....................................................... 282 187 116
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31 ............................................................. 838 556 369
- ------------------------------------------------------------------------------------------------------------------------

FOREIGN CURRENCY TRANSLATION
Balance, January 1 ............................................................... (4) (2) (3)
Translation adjustments .......................................................... (14) (3) 2
Income tax benefit (expense) ..................................................... 6 1 (1)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31 ............................................................. (12) (4) (2)
- ------------------------------------------------------------------------------------------------------------------------
Total other, December 31 ......................................................... 826 552 367
- ------------------------------------------------------------------------------------------------------------------------

LESS: TREASURY STOCK
Balance, January 1 ............................................................... 824 747 328
Purchases ........................................................................ 604 293 444
Shares distributed under various employee benefit plans .......................... (293) (216) (25)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31 ............................................................. 1 135 824 747
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity, December 31 .......................................... 11 432 10 451 9 568
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

37
<PAGE> 40
CONSOLIDATED STATEMENT OF CASH FLOWS
J.P. Morgan & Co. Incorporated

<TABLE>
<CAPTION>
In millions 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME ................................................................. $ 1 574 $ 1 296 $ 1 215
Adjustments to reconcile to cash provided by (used in) operating activities:
Noncash items: depreciation, amortization, deferred income taxes,
stock award plans, and write-downs on investment securities .......... 1 055 598 390
(Increase) decrease in assets:
Trading account assets ............................................... (21 919) (12 271) (15 772)
Securities purchased under agreements to resell ...................... (297) (10 974) 1 461
Securities borrowed .................................................. (8 101) (7 703) (1 309)
Accrued interest and accounts receivable ............................. (250) 1 489 (92)
Increase (decrease) in liabilities:
Trading account liabilities .......................................... 5 632 8 937 18 151
Securities sold under agreements to repurchase ....................... 15 314 10 637 (6 140)
Accounts payable and accrued expenses ................................ 17 (788) 342
Other changes in operating assets and liabilities, net .................. (6 360) 6 655 (1 881)
Net investment securities gains included in cash flows from
investing activities ................................................. (294) (539) (747)
- -----------------------------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES .......................................... (13 629) (2 663) (4 382)
- -----------------------------------------------------------------------------------------------------------------------
(Increase) decrease in interest-earning deposits with banks ................ 78 (622) (142)
Debt investment securities:
Proceeds from sales ..................................................... 29 754 42 262 51 091
Proceeds from maturities, calls, and mandatory redemptions .............. 6 831 3 916 3 705
Purchases ............................................................... (36 923) (46 419) (59 062)
(Increase) decrease in federal funds sold .................................. (50) 180 (119)
(Increase) decrease in loans ............................................... (4 666) (1 375) 2 209
Payments for premises and equipment ........................................ (183) (237) (341)
Other changes, net ......................................................... 180 (1 064) (493)
- -----------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES .......................................... (4 979) (3 359) (3 152)
- -----------------------------------------------------------------------------------------------------------------------
(Decrease) in noninterest-bearing deposits ................................. (1 822) (428) (1 061)
Increase in interest-bearing deposits ...................................... 8 109 3 820 3 703
Increase (decrease) in federal funds purchased ............................. 1 016 (1 293) 2 483
Increase (decrease) in commercial paper .................................... 1 331 (706) 934
Other liabilities for borrowed money proceeds .............................. 29 455 23 864 7 946
Other liabilities for borrowed money payments .............................. (26 222) (18 240) (8 128)
Long-term debt proceeds .................................................... 5 288 3 808 2 342
Long-term debt payments .................................................... (1 426) (1 399) (879)
Proceeds from issuance of Company-obligated mandatorily
redeemable preferred securities of subsidiary .......................... 750 -- --
Capital stock issued or distributed ........................................ 424 143 61
Capital stock purchased .................................................... (604) (293) (445)
Dividends paid ............................................................. (643) (583) (541)
Other changes, net ......................................................... 2 319 (3 351) 2 297
- -----------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES ...................................... 17 975 5 342 8 712
- -----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and due from banks ................. 4 5 24
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and due from banks ............................. (629) (675) 1 202
Cash and due from banks, beginning of year ................................. 1 535 2 210 1 008
- -----------------------------------------------------------------------------------------------------------------------
Cash and due from banks, end of year ....................................... 906 1 535 2 210
- -----------------------------------------------------------------------------------------------------------------------
Cash disbursements made for:
Interest ................................................................ $ 8 898 $ 7 568 $ 6 178
Income taxes ............................................................ 748 560 1 223
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

38
<PAGE> 41
CONSOLIDATED STATEMENT OF CONDITION
Morgan Guaranty Trust Company of New York

<TABLE>
<CAPTION>
December 31
----------------------
Dollars in millions 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks ........................................................ $ 920 $ 1 429
Interest-earning deposits with banks ........................................... 1 910 1 995
Debt investment securities available-for-sale carried at fair value ............ 23 510 23 767
Trading account assets, net of allowance for credit losses of $350 at 1996 ..... 72 549 55 373
Securities purchased under agreements to resell and federal funds sold ......... 27 762 20 996
Loans, net of allowance for credit losses of $565 at 1996 and $1 129 at 1995 ... 27 378 22 190
Customers' acceptance liability ................................................ 212 237
Accrued interest and accounts receivable ....................................... 3 470 3 420
Premises and equipment, net of accumulated depreciation of
$1 116 at 1996 and $1 232 at 1995 ........................................... 1 696 1 735
Other assets ................................................................... 5 406 4 571
- -----------------------------------------------------------------------------------------------------------
Total assets ................................................................... 164 813 135 713
- -----------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. ...................................................... 1 495 3 275
In offices outside the U.S. ................................................. 749 839
Interest-bearing deposits:
In offices in the U.S. ...................................................... 7 114 1 975
In offices outside the U.S. ................................................. 43 716 40 985
- -----------------------------------------------------------------------------------------------------------
Total deposits ................................................................. 53 074 47 074
Trading account liabilities .................................................... 44 039 39 197
Securities sold under agreements to repurchase and federal funds purchased ..... 30 787 20 274
Other liabilities for borrowed money ........................................... 13 215 8 509
Accounts payable and accrued expenses .......................................... 4 203 4 187
Liability on acceptances ....................................................... 212 237
Long-term debt not qualifying as risk-based capital (includes $942 at 1996 and
$478 at 1995 of notes payable to J.P. Morgan) ............................... 5 436 2 846
Other liabilities, includes allowance for credit losses of $200 at 1996 ........ 977 2 805
- -----------------------------------------------------------------------------------------------------------
151 943 125 129
Long-term debt qualifying as risk-based capital (includes $2 780 at 1996
and $1 400 at 1995 of notes payable to J.P. Morgan) ......................... 2 979 1 599
- -----------------------------------------------------------------------------------------------------------
Total liabilities .............................................................. 154 922 126 728
Commitments and contingencies

STOCKHOLDER'S EQUITY
Preferred stock, $100 par value (authorized shares: 2 500 000) ................. -- --
Common stock, $25 par value (authorized shares: 11 000 000 at 1996 and 1995;
outstanding: 10 599 027 at 1996 and 1995) ................................... 265 265
Surplus ........................................................................ 3 155 3 155
Undivided profits .............................................................. 6 334 5 286
Net unrealized gains on investment securities, net of taxes .................... 149 283
Foreign currency translation ................................................... (12) (4)
- -----------------------------------------------------------------------------------------------------------
Total stockholder's equity ..................................................... 9 891 8 985
- -----------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity ..................................... 164 813 135 713
- -----------------------------------------------------------------------------------------------------------
</TABLE>

Prior period balances were restated to reflect the merger of J.P. Morgan
Delaware with Morgan Guaranty Trust Company of New York effective June 1996.
Member of the Federal Reserve System and Federal Deposit Insurance Corporation.

The accompanying notes are an integral part of this consolidated financial
statement.

39
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

J.P. Morgan, a global financial services firm, is the holding company
for subsidiaries engaged in providing a wide range of financial
services including advisory, underwriting, financing, trading, asset
management, brokerage, and related capabilities. J.P. Morgan provides
these capabilities to a broad global client base including
corporations, governments, institutions, and individuals. The
accounting and reporting policies and practices of J.P. Morgan and
subsidiaries, including Morgan Guaranty Trust Company of New York and
subsidiaries (Morgan Guaranty), conform with generally accepted
accounting principles. The following is a description of significant
accounting policies and practices.

Consolidation

The consolidated financial statements include the accounts of J.P.
Morgan and subsidiaries in which its percentage of ownership exceeds
50%. All material intercompany accounts and transactions have been
eliminated in consolidation. The equity method of accounting is used in
determining the carrying values of investments in companies in which
the percentage of investment in voting stock is 20% or more but not
more than 50%; these investments are included in Other assets.

Investment Securities

Debt investment securities:

Debt investment securities are held to maximize total return over the
longer term. Debt investment securities that may be sold in response to
or in anticipation of changes in interest rates and prepayment risk,
liquidity considerations, and other factors are considered
available-for-sale. Such securities are carried at fair value with
unrealized gains and losses, including the effect of hedges, reported
as a net amount within the stockholders' equity account, Net unrealized
gains on investment securities, net of taxes, until realized.

Realized gains and losses on debt investment securities, which
are generally computed by the specific identification method, and
other-than-temporary impairments in value are included in Investment
securities revenue. Debt investment securities transactions are
recorded on their trade dates. Carrying values of individual debt
investment securities are reduced, if necessary, through write-downs to
reflect other-than-temporary impairments in value. In instances where
J.P. Morgan has the positive intent and ability to hold to maturity,
investment securities will be carried at cost, adjusted for
amortization of premiums and accretion of discounts.

Equity investment securities:

Equity investment securities of companies are held for long-term
appreciation and are included in Other assets.

Marketable equity investment securities are carried at fair
value with unrealized gains and losses reported as a net amount within
the stockholders' equity account, Net unrealized gains on investment
securities, net of taxes, until realized. Nonmarketable equity
investment securities are carried at cost. In the case of securities
held in subsidiaries registered as Small Business Investment Companies
(SBICs), equity investment securities are carried at fair value with
changes in value recognized currently in earnings.

Carrying values of individual equity investment securities are
reduced through write-downs to reflect other-than-temporary impairments
in value. Realized gains and losses on equity investment securities,
which are generally computed by the average cost method for a security,
changes in the fair value of securities held in SBICs, other-than-
temporary impairments in value, and related dividend income are
included in Investment securities revenue.

40
<PAGE> 43
Trading account assets and liabilities

Trading account assets and liabilities are carried at market value and
are recorded as of their trade dates. Short trading positions are
classified as liabilities. Gains and losses on trading positions are
recognized currently as Trading revenue.

Securities financing arrangements

Securities purchased under agreements to resell (resale agreements) and
Securities sold under agreements to repurchase (repurchase agreements)
are generally treated as collateralized borrowing and lending
transactions and are carried at the amounts at which the securities
were initially acquired or sold. Securities borrowed for cash
collateral are included on the balance sheet at the amount of cash
advanced in connection with the transaction. Interest income and
Interest expense are accrued ratably over the life of each agreement.

J.P. Morgan takes possession of securities purchased under
resale agreements. J.P. Morgan monitors the market value of the
underlying securities, the majority of which are U.S. government and
agency securities, as compared to the related receivable plus accrued
interest, and, as necessary, requests additional collateral.

Premiums and discounts

Amortization of premiums and accretion of discounts are generally
recognized as interest expense or interest revenue over the life of the
instrument.

Impaired loans

J.P. Morgan defines an impaired loan as any loan on which the accrual
of interest is discontinued because the contractual payment of
principal or interest has become 90 days past due or management has
serious doubts about future collectibility of principal or interest,
even though the loans are currently performing (i.e., nonaccrual
loans). Factors involved in determining impairment include, but are not
limited to, expected future cash flows, financial condition of the
borrower, and current economic conditions. When a loan is recognized as
impaired, any accrued but unpaid interest previously recorded on such
loan is reversed against interest revenue of the current period.
Interest received on impaired loans is generally either applied against
the principal or reported as revenue, according to management's
judgment as to the collectibility of principal. Generally, a loan may
be restored to accrual status only after all delinquent interest and
principal are brought current and, in the case of loans where interest
has been interrupted for a substantial period, a regular payment
performance is established.

J.P. Morgan measures each loan impairment based upon the
present value of expected future cash flows discounted at an individual
loan's effective interest rate, except where there is an observable
market value or, if the loan is collateral dependent, at the fair value
of the collateral.

Management recommends those credits or portions of credits
judged to be uncollectible and that should be charged off.

Aggregate allowance for credit losses

An aggregate allowance is maintained that is considered adequate to
absorb losses inherent in the existing portfolios of loans and other
undertakings to extend credit, such as unused loan commitments, or to
make payments to others for which a client is ultimately liable, such
as standby letters of credit and guarantees, commercial letters of
credit and acceptances, and all other credit exposures, including
derivatives.

41
<PAGE> 44
Given the global and diversified nature of our business,
expected shifts in the relative level of credit risk among financial
instruments, and the numerous estimates and assumptions necessary to
derive such allocated amounts, it is expected that portions of the
aggregate allowance may be reclassified from time to time among Loans,
Trading account assets, and Other liabilities. A judgment as to the
adequacy of the aggregate allowance is made at the end of each
quarterly reporting period. Should the aggregate allowance require
adjustment either because of reductions due to charge-offs or because
of changes in the size or risk characteristics of the portfolios, it is
adjusted through a Provision for credit losses in the quarterly
reporting period.

Premises and equipment

Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is generally computed using the
straight-line method over the estimated useful lives of the related
assets.

Derivatives used for trading purposes

Derivatives entered into for trading purposes or used as hedges of
trading instruments are carried at market value. Instruments used for
trading purposes include swaps, futures, forwards, spot, and options
contracts in the interest rate, foreign exchange, equity, and commodity
markets. Gains and losses associated with such derivatives are
recognized currently in Trading revenue. The portion of the market
value associated with derivatives that reflects credit considerations,
ongoing servicing, and transaction hedging costs is recognized over the
life of the agreement in Trading revenue. Unrealized gains and losses
are reported on a gross basis in Trading account assets or Trading
account liabilities, after taking into consideration the offsetting
permitted under Financial Accounting Standards Board Interpretation No.
39 (FIN No. 39), Offsetting of Amounts Related to Certain Contracts.
The market values of options purchased and written are recorded on a
gross basis in Trading account assets and Trading account liabilities
respectively.

Derivatives used for purposes other-than-trading

Derivatives used for purposes other-than-trading are utilized to hedge
exposures, to modify the interest rate characteristics of related
balance sheet instruments, or to meet longer-term investment
objectives, including maximization of net interest revenue. The
specific criteria required for derivatives used for such purposes are
described below. Derivatives that do not meet these criteria are
carried at market value with changes in value recognized currently in
earnings.

Derivatives used as hedges must be effective at reducing the
risk associated with the exposure being hedged and must be designated
as a hedge at the inception of the derivative contract. Accordingly,
changes in the market value of the derivative must be highly correlated
with changes in the market value of the underlying hedged item at
inception of the hedge and over the life of the hedge contract.
Derivatives used for hedging purposes include swaps, forwards, futures,
and purchased options in the interest rate and foreign exchange
markets. Interest rate swaps are also used to modify the interest rate
characteristics of related balance sheet instruments. Swaps used to
modify the interest rate characteristics of nontrading-related balance
sheet instruments must be linked to the related asset or liability,
whereby the terms of the swap generally equal the terms of the related
asset or liability, at the inception and throughout the term of the
derivative contract. Unrealized gains and losses on all of these
derivative contracts are generally deferred. Derivatives used as hedges
or to modify the interest rate characteristics of debt investment
securities are carried at fair value with the related unrealized gains
and losses deferred in a separate component of stockholders' equity.
Margin requirements associated with futures contracts and option
premiums for contracts used as hedges are recorded in Other assets or
Other liabilities. The interest component associated with derivatives
used as hedges or to modify the interest rate characteristics of assets
and liabilities is recognized over the life of the contract in Net
interest revenue. Upon contract settlement or termination, the
cumulative change in the market value of such derivatives is recorded
as an adjustment to the carrying value of the underlying asset or
liability and recognized in Net interest revenue over the expected
remaining life of the related asset or liability. In instances where
the underlying instrument is sold, the cumulative change in the value
of the associated derivative is recognized immediately in the component
of earnings relating to the underlying instrument.

42
<PAGE> 45
Risk-adjusting swaps are used in a manner similar to debt
investment securities to achieve a desired overall interest rate
profile by increasing or decreasing the firm's overall exposure to
interest rate risk. Risk-adjusting swaps include only interest rate
swaps that replicate the cash flows of nonamortizing cash instruments
and do not contain leverage or embedded option features. Interest
revenue or expense associated with these swaps is accrued over the life
of the swap agreement in Net interest revenue. Risk-adjusting swaps are
carried at the lower of aggregate cost or market value with aggregate
unrealized net valuation adjustments, if any, recorded in Other
revenue. Risk-adjusting swaps are generally not terminated. In
instances where a risk-adjusting swap is terminated, losses are
recognized immediately and gains are deferred and amortized over the
original remaining life of the terminated swap in Other revenue.

Fee revenue

Investment banking revenue includes fees earned from providing advisory
services and arranging financing for clients. All such fees are
recognized as revenue when the related services are performed. In
addition, credit arrangement and syndication fees are recognized after
certain retention, timing, and yield criteria are satisfied.

Investment management revenue and revenue from Fees and
commissions are recognized as revenue when the related service is
performed. Commitment fees are recognized as revenue in the period the
unused commitment is available.

Stock options and awards

J.P. Morgan accounts for its stock-based compensation plans in
accordance with Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. In accordance with APB No.
25, no compensation cost is recorded in conjunction with stock options
granted under such stock-based compensation plans because such options
are granted at an exercise price that is not less than the market price
of the underlying stock on the date of grant. Compensation expense
related to restricted stock awards, stock bonus awards, stock unit
awards, redeemable preferred stock, and deferred stock payable in stock
granted under the stock-based compensation plans of J.P. Morgan is
recorded over the period in which the employees who receive such awards
perform services.

Effective January 1, 1996, J.P. Morgan adopted Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, which permits either the recognition of
compensation cost for the estimated fair value of employee stock-based
compensation arrangements on the date of grant, or the disclosure in
the notes to the consolidated financial statements of the pro forma
effects on net income and earnings per share, determined as if the fair
value-based method had been applied in measuring compensation cost.
J.P. Morgan has adopted the disclosure option and continues to apply
APB Opinion No. 25 in accounting for its stock-based compensation
plans.

Income taxes

Deferred tax assets and liabilities are established for the expected
future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities using enacted tax
rates. A valuation allowance is established to reduce deferred tax
assets to the amounts expected to be realized. Investment tax credits
continue to be amortized over the estimated useful lives of the related
assets.

Statement of cash flows

Cash flows from trading account assets and liabilities, trading-related
derivative transactions, resale and repurchase agreements, and
securities borrowed are classified as operating activities. Cash flows
from investment securities, including securities available-for-sale,
are classified as investing activities. Cash flows from sales of
investment securities that had remaining lives of greater than one year
when purchased and less than 90 days when sold, mandatory redemptions,
and calls are classified as proceeds from maturities. Cash flows from
derivative transactions used as hedges are classified consistent with
the items being hedged.

43
<PAGE> 46
Other

The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.

Certain prior-year amounts have been reclassified to conform with the
1996 presentation.

2. ACCOUNTING CHANGES AND DEVELOPMENTS

Accounting for impairment of a loan

Effective January 1, 1995, J.P. Morgan adopted SFAS No. 114 and
subsequent amendment SFAS No. 118, both entitled Accounting by
Creditors for Impairment of a Loan, which prescribe criteria for
recognition of loan impairment as well as methods to measure impairment
of certain loans, including loans whose terms were modified in troubled
debt restructurings. The standards require that impaired loans be
measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price, or at the fair value
of the collateral if the loan is collateral dependent. The adoption of
these standards did not have a material impact on J.P. Morgan's
consolidated financial statements and did not affect its charge-off
policy.

Accounting for transfers of assets and servicing of financial assets
and extinguishments of liabilities

In 1996, the Financial Accounting Standards Board issued SFAS No. 125,
entitled Accounting for Transfers of Assets and Servicing of Financial
Assets and Extinguishments of Liabilities, which provides new
accounting and reporting standards for sales, securitizations, and
servicing of receivables and other financial assets, and
extinguishments of liabilities. The provisions of the Statement are to
be applied to transfers of assets, servicing rights, and
extinguishments of liabilities occurring after December 31, 1996,
except for transfers involving repurchase agreements, securities
borrowing/lending transactions, and financial assets provided as
collateral. For these transactions, the Statement will be applied to
transfers occurring after December 31, 1997. The adoption of this
standard is expected to have no material impact on J.P. Morgan's
consolidated financial statements for the year ending December 31,
1997. The firm is currently evaluating the impact of the new standard
for the year ending December 31, 1998.

3. DISPOSITION OF CUSTODY AND CASH PROCESSING BUSINESSES

In 1996, J.P. Morgan completed the sale of its institutional U.S. cash
processing business. The sale did not have a material effect on
earnings.

In 1995, J.P. Morgan sold its global and local custody
businesses and its U.S. commercial paper issuing and paying agency
business and discontinued certain cash services businesses. Gross
proceeds of $260 million from the sales were recorded in Other revenue.
The firm recorded $220 million of nonrecurring costs, net against
proceeds, associated with the exit of these businesses. The costs
included severance and other personnel-related costs of $35 million,
unreimbursed transition costs of $35 million, and other costs of
approximately $40 million. In addition, a real estate charge of $110
million was recorded as a result of the rationalization of the firm's
space requirements coincident with the disposition of these businesses
and the corresponding reduction in personnel. The total number of
personnel affected by these actions approximated 1,200. As of December
31, 1996, no material changes occurred with respect to nonrecurring
costs related to the exit of these businesses, exclusive of planned
expenditures.

The transition of client accounts to the buyers of the sold
businesses is expected to be completed over the next 12 months. The
firm is contractually obligated to provide certain services to these
clients for the benefit of the buyers until the transitions are
complete.

Total revenues for the above exited businesses were
approximately 2% and 6% of consolidated total revenues in 1996 and 1995
respectively.

44
<PAGE> 47
4. INTEREST REVENUE AND EXPENSE

An analysis of interest revenue and expense derived from on- and
off-balance-sheet financial instruments is presented in the table
below. Interest revenue and expense associated with derivative
financial instruments, such as swaps, forwards, spot, futures, options,
and debt securities forwards, used as hedges or to modify the interest
rate characteristics of assets and liabilities, is attributed to and
included with the related balance sheet instrument. Net interest
revenue associated with risk-adjusting swaps that are used to meet
longer-term investment objectives, including the maximization of net
interest revenue, is not attributed to a specific balance sheet
instrument, but is included in the Other sources caption in the table
below.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
---------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST REVENUE
Deposits with banks ............................... $ 110 $ 168 $ 197
Debt investment securities (a) .................... 1 601 1 552 1 206
Trading account assets ............................ 3 275 3 036 2 784
Securities purchased under agreements to resell
and federal funds sold ......................... 2 254 1 942 1 593
Securities borrowed ............................... 1 284 876 624
Loans ............................................. 1 776 1 699 1 409
Other sources, primarily risk-adjusting swaps ..... 413 664 566
---------------------------------------------------------------------------------
Total interest revenue ............................ 10 713 9 937 8 379
---------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits .......................................... 2 541 2 520 1 946
Trading account liabilities ....................... 1 302 1 361 1 288
Securities sold under agreements to repurchase
and federal funds purchased .................... 3 295 2 568 2 196
Other borrowed money .............................. 1 248 935 679
Long-term debt .................................... 625 550 289
---------------------------------------------------------------------------------
Total interest expense ............................ 9 011 7 934 6 398
---------------------------------------------------------------------------------
Net interest revenue .............................. 1 702 2 003 1 981
---------------------------------------------------------------------------------
</TABLE>

(a) Interest revenue from debt investment securities included taxable
revenue of $1,484 million, $1,392 million, and $1,035 million and
revenue exempt from U.S. income taxes of $117 million, $160 million,
and $171 million in 1996, 1995, and 1994 respectively.

For the 12 months ended December 31, 1996, 1995, and 1994, net interest
revenue associated with derivatives used for purposes
other-than-trading was approximately $125 million, $370 million, and
$150 million respectively. At December 31, 1996 and 1995, approximately
$225 million and $250 million respectively of net deferred losses on
closed derivative contracts used for purposes other-than-trading were
recorded on the consolidated balance sheet. Such amounts are primarily
composed of net deferred losses on closed hedge contracts included in
the amortized cost of the debt investment portfolio at December 31,
1996 and 1995. As discussed in Note 7 to the consolidated financial
statements, Investment securities, the net unrealized appreciation
associated with the debt investment portfolio was $255 million and $484
million at December 31, 1996 and 1995, respectively. The amount of net
deferred gains or losses on closed derivative contracts will change
from period to period, primarily due to amortization of such amounts to
net interest revenue and the execution of our investing strategies,
which may result in the sale of the underlying hedged instruments
and/or termination of hedge contracts. Net deferred losses on closed
derivative contracts at December 31, 1996, are expected to amortize
into Net interest revenue as follows: $95 million in 1997; $75 million
in 1998; $35 million in 1999; $10 million in 2000; $7 million in 2001;
and approximately $3 million thereafter.

45
<PAGE> 48
5. TRADING REVENUE

Trading revenue disaggregated by principal product groupings is
presented below. For additional information refer to the Trading
revenue discussion in the Financial review.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Income................. $1 540 $ 668 $ 766
Equities..................... 330 249 115
Foreign Exchange............. 320 253 168
Commodities.................. 34 42 82
Proprietary Trading.......... 253 164 (112)
----------------------------------------------------------------------
Trading revenue.............. 2 477 1 376 1 019
----------------------------------------------------------------------
</TABLE>

6. CASH AND DUE FROM BANKS

J.P. Morgan is required to maintain noninterest-earning reserve
balances with U.S. Federal Reserve banks and various foreign central
banks. Such balances, which are based principally on deposits
outstanding, are included in Cash and due from banks. At December 31,
1996 and 1995, required reserves were $259 million and $385 million
respectively, compared with average required reserves during the year
of $306 million in 1996 and $378 million in 1995.

7. INVESTMENT SECURITIES

Debt investment securities

The debt investment securities portfolio is classified as
available-for-sale and measured at fair value with unrealized gains and
losses excluded from earnings and reported as a net amount within the
stockholders' equity account, Net unrealized gains on investment
securities, net of taxes, until realized.

Gross unrealized gains and losses, as well as a comparison of
the cost and carrying value of debt investment securities
available-for-sale and carried at fair value at December 31, 1996,
1995, and 1994, are presented in the table on the following page. Net
unrealized appreciation associated with debt investment securities at
December 31, 1996, was $255 million, consisting of gross unrealized
appreciation of $405 million and gross unrealized depreciation of $150
million. Such amounts represent the gross unrealized appreciation or
depreciation on each debt security, including the effects of any
related hedge. For additional detail of gross unrealized gains and
losses associated with open derivative contracts used to hedge debt
investment securities, see Note 10 to the consolidated financial
statements, Estimated fair value of financial instruments.

46
<PAGE> 49
<TABLE>
<CAPTION>
Gross Gross Fair and
unrealized unrealized carrying
In millions Cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
U.S. Treasury .......................... $ 1 773 $ 80 $ 13 $ 1 840
U.S. government agency, principally
mortgage-backed ..................... 16 848 109 114 16 843
U.S. state and political subdivision ... 1 575 164 15 1 724
U.S. corporate and bank debt ........... 304 1 -- 305
Foreign government (a) ................. 1 501 39 6 1 534
Foreign corporate and bank debt ........ 2 499 11 2 2 508
Other .................................. 110 1 -- 111
------------------------------------------------------------------------------------------------
Total debt investment securities ....... 24 610 405 150 24 865
------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Gross Gross Fair and
unrealized unrealized carrying
In millions Cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
U.S. Treasury .......................... $ 1 892 $ 136 $ 2 $ 2 026
U.S. government agency, principally
mortgage-backed ..................... 15 392 200 69 15 523
U.S. state and political subdivision ... 1 875 214 16 2 073
U.S. corporate and bank debt ........... 188 5 -- 193
Foreign government (a) ................. 3 413 33 21 3 425
Foreign corporate and bank debt ........ 1 295 6 3 1 298
Other .................................. 99 1 -- 100
------------------------------------------------------------------------------------------------
Total debt investment securities ....... 24 154 595 111 24 638
------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Gross Gross Fair and
unrealized unrealized carrying
In millions Cost gains losses value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
U.S. Treasury .......................... $ 1 651 $ 14 $ 42 $ 1 623
U.S. government agency, principally
mortgage-backed ..................... 13 531 210 88 13 653
U.S. state and political subdivision ... 2 396 157 58 2 495
U.S. corporate and bank debt ........... 265 17 -- 282
Foreign government (a) ................. 3 758 20 65 3 713
Foreign corporate and bank debt ........ 802 7 19 790
Other .................................. 100 1 -- 101
------------------------------------------------------------------------------------------------
Total debt investment securities ....... 22 503 426 272 22 657
------------------------------------------------------------------------------------------------
</TABLE>

(a) Primarily includes debt of countries that are members of the
Organization for Economic Cooperation and Development.

At December 31, 1996, there were no securities of a single issuer,
excluding the U.S. Treasury and U.S. government agencies, whose fair
value exceeded 10% of stockholders' equity.

47
<PAGE> 50
The following table presents the components of Investment
securities revenue realized related to the debt investment securities
portfolio during 1996, 1995, and 1994.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized gains from sales of securities ............... $ 231 $ 371 $ 411
Gross realized losses from sales of securities .............. (214) (363) (307)
Net gains on maturities, calls, and mandatory redemptions ... -- 13 18
------------------------------------------------------------------------------------------
Net debt investment securities gains ........................ 17 21 122
------------------------------------------------------------------------------------------
</TABLE>

A profile of the maturities of available-for-sale debt investment
securities as of December 31, 1996, and the related weighted-average
rates on such securities is presented in the following table.
Mortgage-backed securities are included based on their weighted-average
lives, reflecting anticipated future prepayments based on a consensus
of dealers in the market.

<TABLE>
<CAPTION>
After one After five
Within year but years but
one within within After ten
In millions year five ten years Total
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury .......................... $ 86 $ 735 $ 127 $ 825 $ 1 773
U.S. government agency,
principally mortgage-backed ......... 234 9 328 7 243 43 16 848
U.S. state and political subdivision ... 68 410 271 826 1 575
U.S. corporate and bank debt ........... 39 166 51 48 304
Foreign government ..................... 368 902 69 162 1 501
Foreign corporate and bank debt ........ 705 1 136 596 62 2 499
Other .................................. -- -- -- 110 110
------------------------------------------------------------------------------------------------------------------
Total debt investment securities,
at cost ............................. 1 500 12 677 8 357 2 076 24 610
Fair value ............................. 1 504 12 746 8 415 2 200 24 865
------------------------------------------------------------------------------------------------------------------
Net unrealized gains ................... 4 69 58 124 255
------------------------------------------------------------------------------------------------------------------
Average rates on debt
investment securities, at cost ...... 6.11% 7.02% 7.85% 8.37% 7.36%
------------------------------------------------------------------------------------------------------------------
</TABLE>

Average rates represent the weighted average at December 31, 1996, and
include the effects of various hedging transactions. Average rates do
not give effect to unrealized gains and losses that are reflected as a
component of stockholders' equity. U.S. state and political subdivision
securities have been adjusted to a taxable-equivalent basis.

Equity investment securities

Equity investment securities are held for long-term appreciation and
are included in Other assets. These securities, which are acquired
primarily through private placements, management buyouts,
privatizations, and recapitalizations and consist of both marketable
and nonmarketable securities, are generally owned by J.P. Morgan
Capital Corporation, a wholly owned nonbank subsidiary of J.P. Morgan.
Quoted or estimated values of equity investment securities do not
necessarily represent net realizable amounts, as the timing or size of
transactions and the liquidity of the markets may not support
realization of these values. Fair values for equity investment
securities for which the publicly quoted market prices do not represent
the net realizable amounts or for which there are no publicly quoted
market prices are determined by management based on financial and other
available information. Most of our equity investment securities are
subject to legal, regulatory, and contractual restrictions that limit
our ability to dispose of them freely.

At December 31, 1996, 1995, and 1994, marketable equity
investment securities were carried at fair value and largely classified
as available-for-sale. Net unrealized appreciation of $477 million,
$440 million, and $576 million associated with available-for-sale
equity investment securities at December 31, 1996, 1995, and 1994
respectively primarily related to investments in
insurance-industry-related securities at December 31, 1996, and
investments in insurance and health-care-industry-related securities at
December 31, 1995 and 1994. Such net unrealized appreciation is
included within the stockholders' equity account Net unrealized gains
on investment securities, net of taxes. Net realized gains on equity
investment securities during 1996 of $247 million are reflected in
Investment securities revenue. This amount represents $277 million of
gross realized gains and $30 million of write-downs of equity

48
<PAGE> 51
investment securities. In 1995 and 1994 net realized gains from equity
investment securities were $485 million and $606 million after
write-downs of $33 million and $19 million respectively. Gross
unrealized gains and losses as well as a comparison of the cost, fair
value, and carrying value of marketable available-for-sale equity
investment securities at December 31, 1996, 1995, and 1994 follows.

<TABLE>
<CAPTION>
In millions: December 31 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C>
Cost....................... $365 $237 $183
Gross unrealized gains..... 479 441 579
Gross unrealized losses.... (2) (1) (3)
----------------------------------------------------------------------
Fair and carrying value.... 842 677 759
----------------------------------------------------------------------
</TABLE>

Nonmarketable equity investment securities and securities held in SBICs
are outside the scope of SFAS No. 115, and are carried at cost and fair
value respectively. The carrying value of such investments is $499
million at December 31, 1996, $424 million at December 31, 1995, and
$432 million at December 31, 1994. The estimated fair value of these
securities was $614 million, $509 million, and $528 million at December
31, 1996, 1995, and 1994, respectively. Net unrealized appreciation was
primarily related to investments in the communications and insurance
industries at December 31, 1996, and an investment in the communication
industry at December 31, 1995 and 1994.

8. TRADING ACCOUNT ASSETS AND LIABILITIES

Trading account assets and liabilities, including derivative
instruments used for trading purposes, are carried at fair value. The
following table presents the carrying value of trading account assets,
before taking into consideration the allowance for credit losses, and
trading account liabilities at December 31, 1996 and 1995, and the
average balance for the years then ended.

<TABLE>
<CAPTION>
1996 1995
---------------------- -----------------------
Carrying Average Carrying Average
In millions value balance value balance
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRADING ACCOUNT ASSETS (a)
U.S. Treasury................................... $13 677 $10 214 $ 8 396 $ 6 900
U.S. government agency.......................... 6 163 3 527 2 549 2 410
Foreign government.............................. 24 348 20 784 20 111 20 139
Corporate debt and equity....................... 17 376 14 589 12 406 10 008
Other securities................................ 3 905 6 315 3 147 4 834
Interest rate and currency swaps................ 11 663 10 653 12 444 13 032
Foreign exchange contracts...................... 2 507 2 701 3 286 4 920
Interest rate futures and forwards.............. 405 341 444 309
Commodity and equity contracts.................. 2 811 3 035 1 377 1 372
Purchased option contracts...................... 8 475 6 061 5 248 4 095
---------------------------------------------------------------------------------------------------------------
91 330 78 220 69 408 68 019
---------------------------------------------------------------------------------------------------------------
TRADING ACCOUNT LIABILITIES
U.S. Treasury................................... 7 758 8 804 9 282 7 070
Foreign government.............................. 9 343 9 115 8 953 10 334
Corporate debt and equity....................... 5 372 4 393 2 847 3 384
Other securities................................ 801 2 498 668 1 552
Interest rate and currency swaps................ 12 037 10 252 11 208 12 016
Foreign exchange contracts...................... 4 173 4 323 4 126 4 501
Interest rate futures and forwards.............. 705 570 549 373
Commodity and equity contracts.................. 2 400 2 982 2 595 1 633
Written option contracts........................ 8 330 6 165 5 061 4 320
---------------------------------------------------------------------------------------------------------------
50 919 49 102 45 289 45 183
---------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Refer to Note 12 to the consolidated financial statements for a
discussion of the aggregate allowance for credit losses.

49
<PAGE> 52
9. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

Derivatives

Derivatives may be used either for trading or other-than-trading
purposes. Other-than-trading purposes are primarily related to our
investing activities. Accordingly, the notional amounts presented in
the table below have been identified as relating to either trading or
other-than-trading purposes based on management's intent and ongoing
usage. A summary of the credit exposure, which is represented by the
positive market value associated with derivatives, after considering
the benefit of approximately $36.5 billion and $27.7 billion of master
netting agreements in effect at December 31, 1996 and 1995,
respectively is also presented.

<TABLE>
<CAPTION>
Notional amounts Credit exposure
------------------- ------------------
In billions: December 31 1996 1995 1996 1995
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate and currency swaps
Trading .............................................. $1 867.9 $1 233.3
Other-than-trading (a) (b) (c) ....................... 253.0 282.3
-----------------------------------------------------------------------------------------------------
Total interest rate and currency swaps ............... 2 120.9 1 515.6 $ 11.7 $ 12.4
-----------------------------------------------------------------------------------------------------
Foreign exchange spot, forward, and futures contracts
Trading .............................................. 583.3 443.7
Other-than-trading (a) (b) ........................... 36.8 18.1
-----------------------------------------------------------------------------------------------------
Total foreign exchange spot, forward,
and futures contracts ............................. 620.1 461.8 2.5 3.3
-----------------------------------------------------------------------------------------------------
Interest rate futures, forward rate agreements,
and debt securities forwards
Trading .............................................. 524.8 412.7
Other-than-trading ................................... 43.4 2.7
-----------------------------------------------------------------------------------------------------
Total interest rate futures, forward rate
agreements, and debt securities forwards .......... 568.2 415.4 0.4 0.5
-----------------------------------------------------------------------------------------------------
Commodity and equity swaps, forward,
and futures contracts, all trading ................... 77.2 65.1 2.8 1.4
-----------------------------------------------------------------------------------------------------
Purchased options (d)
Trading .............................................. 614.8 462.2
Other-than-trading (a) ............................... 2.1 2.6
-----------------------------------------------------------------------------------------------------
Total purchased options .............................. 616.9 464.8 8.5 5.2
-----------------------------------------------------------------------------------------------------
Written options, all trading (e) (f) .................... 713.0 524.0 -- --
-----------------------------------------------------------------------------------------------------
Total credit exposure recorded as assets
on the consolidated balance sheet .................... 25.9 22.8
-----------------------------------------------------------------------------------------------------
</TABLE>

(a) The majority of J.P. Morgan's derivatives used for purposes
other-than-trading are transacted with independently managed J.P.
Morgan derivatives dealers who function as intermediaries for credit
and administrative purposes.

(b) At December 31, 1996 and 1995, the notional amounts of derivative
contracts used for purposes other-than-trading conducted in the foreign
exchange markets, primarily forward contracts, amounted to $40.6
billion and $20.8 billion respectively. At December 31, 1996, these
contracts were primarily denominated in the following currencies:
German deutsche mark $5.9 billion, Italian lira $5.9 billion, Japanese
yen $5.2 billion, French franc $4.1 billion, Swiss franc $3.4 billion,
Spanish peseta $3.1 billion, Belgian franc $3.1 billion, British pound
$1.9 billion, Australian dollar $1.4 billion, and European Currency
Unit $1.1 billion. At December 31, 1995, these contracts were primarily
denominated in the following currencies: German deutsche mark $4.6
billion, Italian lira $2.5 billion, Japanese yen $2.3 billion, French
franc $1.8 billion, British pound $1.7 billion, Spanish peseta $1.7
billion, Belgian franc $1.5 billion, and Swiss franc $1.5 billion.

(c) The notional amounts of risk-adjusting swaps were $214.3 billion and
$259.4 billion at December 31, 1996 and 1995, respectively.

(d) At December 31, 1996 and 1995, purchased options used for trading
purposes included $477.5 billion and $356.7 billion respectively of
interest rate options, $106.3 billion and $72.5 billion respectively of
foreign exchange options, and $31.0 billion and $33.0 billion
respectively of commodity and equity options. Only interest rate
options are used for purposes other-than-trading. Purchased options
executed on an exchange amounted to $165.5 billion and $137.4 billion
and those negotiated over-the-counter amounted to $451.4 billion and
$327.4 billion at December 31, 1996 and 1995 respectively.

(e) At December 31, 1996 and 1995, written options included $557.7 billion
and $414.6 billion respectively of interest rate options, $118.2
billion and $72.8 billion respectively of foreign exchange options, and
$37.1 billion and $36.6 billion respectively of commodity and equity
options. Written options executed on an exchange amounted to $181.8
billion and $162.4 billion and those negotiated over-the-counter
amounted to $531.2 billion and $361.6 billion at December 31, 1996 and
1995 respectively.

(f) The total notional amount of written put options includes $8.4 billion
and $6.7 billion of written put option contracts on debt securities at
December 31, 1996 and 1995, respectively.

50
<PAGE> 53
The following presents the credit exposure associated with derivatives
at December 31, 1996 and 1995, segregated by type of counterparty.

<TABLE>
<CAPTION>
Nonbank
financial Govern-
In billions: December 31 institutions ments Banks All other Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Credit exposure.................... $8.8 $2.4 $9.4 $5.3 $25.9
-------------------------------------------------------------------------------------------------------------

1995
Credit exposure.................... 5.8 2.8 8.9 5.3 22.8
-------------------------------------------------------------------------------------------------------------
</TABLE>

Credit-related financial instruments

Credit-related financial instruments include commitments to extend
credit, standby letters of credit and guarantees, and indemnifications
in connection with securities lending activities. The contractual
amounts of these instruments represent the amounts at risk should the
contract be fully drawn upon, the client default, and the value of any
existing collateral become worthless. The total contractual amount of
credit-related financial instruments does not represent the expected
future liquidity requirements, since a significant amount of
commitments to extend credit and standby letters of credit and
guarantees are expected to expire or mature without being drawn. The
credit risk associated with these instruments varies depending on the
creditworthiness of the client and the value of any collateral held.
Commitments to extend credit generally require the client to meet
certain credit-related terms and conditions before drawdown. Collateral
is required in connection with securities lending indemnifications.
Market risk for commitments to extend credit and standby letters of
credit and guarantees, while not significant, may exist as availability
of and access to credit markets changes.

A summary of the contractual amount of credit-related
instruments at December 31 is presented in the following table.

<TABLE>
<CAPTION>
In billions 1996 1995
-----------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit..................... $64.7 $55.1
Standby letters of credit and guarantees......... 13.9 11.7
Securities lending indemnifications (a).......... 5.5 5.4
-----------------------------------------------------------------------------
</TABLE>

(a) At December 31, 1996 and 1995, J.P. Morgan held cash and other
collateral in support of securities lending indemnifications.

The following presents the contractual amount of commitments to extend
credit and standby letters of credit and guarantees at December 31,
1996 and 1995, segregated by type of counterparty.

<TABLE>
<CAPTION>
Nonbank
financial Govern-
In billions: December 31 institutions ments Banks All other Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Commitments to extend credit....... $11.1 $3.4 $3.9 $46.3 $64.7
Standby letters of credit and
guarantees...................... 4.8 2.4 0.3 6.4(a) 13.9
-------------------------------------------------------------------------------------------------------------

1995
Commitments to extend credit....... 9.4 3.7 4.4 37.6(b) 55.1
Standby letters of credit and
guarantees...................... 3.8 2.0 0.5 5.4(a) 11.7
-------------------------------------------------------------------------------------------------------------
</TABLE>

(a) The utilities and health care industries at December 31, 1996 and 1995,
each exceeded 10% of this amount.

(b) At December 31, 1995, the utilities industry exceeded 10% of this
amount.

Included in Fees and commissions are credit-related fees of $156
million, $162 million, and $204 million for the years ended December
31, 1996, 1995, and 1994, respectively, which are primarily earned from
commitments to extend credit, standby letters of credit and guarantees,
and securities lending indemnifications.

51
<PAGE> 54
Other

Consistent with industry practice, amounts receivable and payable for
securities that have not reached the contractual settlement dates are
recorded net on the consolidated balance sheet. Amounts receivable for
securities sold of $20.1 billion and $27.5 billion were netted against
amounts payable for securities purchased of $17.1 billion and $31.6
billion to arrive at a net trade date receivable of $3.0 billion,
recorded in Other assets, and a net trade date payable of $4.1 billion,
recorded in Other liabilities, at December 31, 1996 and 1995,
respectively.

10. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, J.P. Morgan estimates that the aggregate net
fair value of all balance sheet and off-balance-sheet financial
instruments exceeded associated net carrying values by $1.7 billion and
$1.4 billion at December 31, 1996 and 1995, respectively before
considering income taxes.

In accordance with generally accepted accounting principles,
J.P. Morgan's financial instruments are recorded using several methods,
including historical cost and fair or market value. Under the
historical cost method, the carrying value generally represents the
amount received when a liability is incurred or the amount paid to
acquire an asset less subsequent amortization and allowances that
reflect management's estimate of uncollectible amounts. This method
differs from the basis of disclosure under SFAS No. 107, which states
that the fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale. Therefore,
differences between carrying values under the historical cost
accounting method and fair value estimates can be significant. For
example, such differences arise in the case of the loan portfolio,
where the net carrying value represents management's estimate of
ultimately recoverable principal amounts versus fair value estimates
that represent a theoretical exchange value based on current market
conditions that take into account both principal and interest and the
timing of cash flows.

52
<PAGE> 55
The following table presents the carrying value and fair value of J.P.
Morgan's financial instruments at December 31, 1996 and 1995.

<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------------
Appre- Appre-
ciation/ ciation/
Carrying Fair (depre- Carrying Fair (depre-
In billions value value ciation) value value ciation)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL INSTRUMENTS USED FOR
TRADING PURPOSES:
FINANCIAL ASSETS:
Trading account assets, net (a) ......... $91.0 $91.3 $ 0.3 (b) $69.4 $69.4 $ --
Securities purchased under
agreements to resell and
federal funds sold (c) ............... 32.5 32.5 -- 32.2 32.2 --
Securities borrowed (d) ................. 27.9 27.9 -- 19.8 19.8 --

FINANCIAL LIABILITIES:
Trading account liabilities (a) ......... 50.9 50.9 -- 45.3 45.3 --
Securities sold under agreements
to repurchase and federal funds
purchased (c) ........................ 61.4 61.5 (0.1) 45.1 45.3 (0.2)

FINANCIAL INSTRUMENTS USED FOR
PURPOSES OTHER THAN TRADING:
FINANCIAL ASSETS: (e)
Debt investment securities .............. 24.9 24.9 -- 24.6 24.6 --
Loans, net .............................. 27.6 28.2 0.6 (b) 22.3 23.5 1.2 (b)
Other financial assets (f) .............. 15.8 16.0 0.2 14.2 14.2 --

FINANCIAL LIABILITIES: (e)
Deposits ................................ 52.7 52.8 (0.1) 46.4 46.5 (0.1)
Related derivatives .................. -- (0.1) 0.1 -- (0.1) 0.1
Other liabilities for borrowed
money ................................ 19.9 19.8 0.1 15.1 15.1 --
Long-term debt (g) ...................... 12.4 12.5 (0.1) 8.6 8.9 (0.3)
Related derivatives .................. -- (0.1) 0.1 -- (0.3) 0.3
Company-obligated mandatorily
redeemable preferred securities of
subsidiary ........................... 0.8 0.7 0.1
Other financial liabilities (h) ......... 11.7 11.3 0.4 (b) 12.9 12.9 --

OFF-BALANCE-SHEET FINANCIAL
INSTRUMENTS:
Risk-adjusting swaps (i) ................ -- 0.1 0.1 -- 0.4 0.4
Commitments to extend credit and
standby letters of credit and
guarantees ........................... -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------
Excess of net fair values over net
carrying values before
considering income taxes ............. 1.7 1.4
--------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Refer to Note 8 to the consolidated financial statements, Trading
account assets and liabilities, for the carrying value and fair value
of financial instruments, including derivatives, used for trading
purposes.

(b) Relates substantially to the allowance for credit losses. Refer to Note
12 to the consolidated financial statements, Aggregate allowance for
credit losses.

(c) These trading-related financial instruments are generally treated as
collateralized lending and borrowing transactions and are carried at
the amounts at which the securities were initially acquired or sold.
Securities sold under agreements to repurchase are also used as one
source of financing for the debt investment securities portfolio.

(d) These trading-related financial instruments, which are collateralized
by cash, are carried at amounts equal to the cash advanced.

(e) Derivatives are used to hedge or modify the interest rate
characteristics of debt investment securities, loans, deposits, other
liabilities for borrowed money, long-term debt, and other financial
assets and liabilities. Net unrealized gains and losses associated with
such derivatives contracts amounted to $90 million and $195 million at
December 31, 1996 and 1995, respectively. Gross unrealized gains and
gross unrealized losses associated with open derivative contracts used
for these purposes at December 31, 1996 and 1995, are presented below.
Such amounts primarily relate to interest rate and currency swaps used
to hedge or modify the interest rate characteristics of long-term debt;
deposits; debt investment securities, principally mortgage-backed
securities; and other financial instruments.

53
<PAGE> 56

<TABLE>
<CAPTION>
Gross Gross Net unrealized
In millions: December 31 unrealized gains unrealized losses gains/(losses)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996
Long-term debt.................. $239 $153 $ 86
Debt investment securities...... 49 126 (77)
Deposits........................ 75 25 50
Other financial instruments..... 76 45 31
-----------------------------------------------------------------------------------------
Total........................... 439 349 90
-----------------------------------------------------------------------------------------
1995
Long-term debt.................. 275 19 256
Debt investment securities...... 1 111 (110)
Deposits........................ 57 1 56
Other financial instruments..... 38 45 (7)
-----------------------------------------------------------------------------------------
Total........................... 371 176 195
-----------------------------------------------------------------------------------------
</TABLE>

(f) Includes cash and due from banks, interest-earning deposits with banks,
customers' acceptance liability, accrued interest and accounts
receivable, and other financial assets.

(g) Estimating the fair value for J.P. Morgan's convertible mortgage loan
and British pound financing obligation is not practicable due to the
complex terms and conditions associated with the transactions. For
additional information regarding these financing obligations, see Note
14 to the consolidated financial statements, Long-term debt.

(h) Includes commercial paper, liability on acceptances, accounts payable
and accrued expenses, and other financial liabilities.

(i) Represents the net unrealized gain associated with risk-adjusting swaps
and their related hedges that are entered into to meet longer-term
investment objectives. The net amount is composed of gross unrealized
gains and gross unrealized losses of $2.8 billion and $2.7 billion
respectively at December 31, 1996, and $4.4 billion and $4.0 billion
respectively at December 31, 1995. The unrealized gains and losses
related to the derivative contracts used to hedge these risk-adjusting
swaps, included above, were not material at December 31, 1996 and 1995.
There were no material terminations of risk-adjusting swaps during 1996
or 1995.

The following table summarizes the fair values of all on- and
off-balance-sheet financial instruments according to the valuation
methods used to determine fair value estimates.

<TABLE>
<CAPTION>
Off-balance-
sheet
Financial assets Financial liabilities instruments
-------------------------------------------------------------------
Carrying Carrying
In billions: December 31 value Fair value value Fair value Fair value
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Carried at fair or market value.... $116.9 $117.2 $ 50.9 $ 50.9 $ --
Carried at cost:
Carrying value approximates
fair value due to
short-term nature............ 76.0 76.0 72.4 72.4 --
Fair value based on available
quoted market prices......... 3.0 3.0 4.1 3.8 --
Fair value derived using
estimation techniques........ 23.8 24.6 82.4 82.2 0.1
-------------------------------------------------------------------------------------------------------------
219.7 220.8 209.8 209.3 0.1
-------------------------------------------------------------------------------------------------------------
1995
Carried at fair or market value.... 94.7 94.7 45.3 45.3 --
Carried at cost:
Carrying value approximates
fair value due to
short-term nature............ 65.1 65.1 58.1 58.3 --
Fair value based on available
quoted market prices......... 2.8 2.8 5.4 5.4 --
Fair value derived using
estimation techniques........ 19.9 21.1 64.6 64.6 0.4
-------------------------------------------------------------------------------------------------------------
182.5 183.7 173.4 173.6 0.4
-------------------------------------------------------------------------------------------------------------
</TABLE>

54
<PAGE> 57
Carried at fair or market value

Trading account assets and liabilities, including derivatives used for
trading purposes, are carried at market value. For financial statement
reporting purposes, a portion of the aggregate allowance for credit
losses related to derivatives is classified as a reduction of the
carrying value of trading account assets. Debt and marketable equity
investment securities are carried at fair value.

Carried at cost: Carrying value approximates fair value due to
short-term nature

For short-term balance sheet instruments without publicly quoted market
prices, the carrying value approximates fair value. These balance sheet
instruments include cash and due from banks, certain securities
purchased under agreements to resell and federal funds sold, securities
borrowed, certain loans, customers' acceptance liability, accrued
interest and accounts receivable, certain other financial assets,
certain securities sold under agreements to repurchase and federal
funds purchased, liability on acceptances, accounts payable and accrued
expenses, and certain other financial liabilities. Instruments with a
maturity or repricing profile of one year or less are generally
classified as short term.

Carried at cost: Fair value based on available quoted market prices

The fair values of certain loans and other financial assets and certain
other financial liabilities were determined based on quoted market
prices for the instruments or similar issues in their most active
market.

Carried at cost: Fair value derived using estimation techniques

The fair values of most financial instruments without quoted market
prices are derived using discount rates that management believes are
appropriate. Interest rates derived from prevailing market yield
curves, which closely reflect J.P. Morgan's interest-earning deposit
and borrowing rates, are used to discount interest-earning deposits,
other interest-earning assets, interest-bearing deposits, other
borrowings, long-term repurchase agreements, and risk-adjusting swaps.
In order to estimate fair values for commercial paper, J.P. Morgan's
current commercial paper rates are used; for most long-term debt, J.P.
Morgan's current cost of funds for debt with similar terms and
remaining maturities is used. Loans are discounted at current market
rates that are applicable to loans of similar type, maturity, and
credit standing. The fair value of impaired loans is derived using
expected cash flows on a discounted basis (or by taking the fair value
of any collateral on the loan or by using available market prices). For
financial statement reporting purposes, a portion of the aggregate
allowance for credit losses is classified as a reduction of the
carrying value of loans whose fair value is derived using estimation
techniques. Fair values for equity investment securities for which
there are no publicly quoted market prices are determined by management
based on financial and other available information.

The fair value related to commitments to extend credit and
standby letters of credit and guarantees is derived by comparing the
contractual future stream of fees with such fee streams adjusted to
reflect current market rates that would be applicable to instruments of
similar type, maturity, and credit standing. The fair value of
securities lending indemnifications is determined similarly based on
fee streams, which are at market rates since most agreements mature in
less than 30 days. For financial statement reporting purposes, a
portion of the aggregate allowance for credit losses related to
undertakings to extend credit that are not currently reflected on the
balance sheet is included in the carrying value of other liabilities.

55
<PAGE> 58
11. LOANS

Loans, before taking into consideration the allowance for credit
losses, at December 31 are summarized in the following table.

<TABLE>
<CAPTION>
In millions 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C>
LOANS IN OFFICES IN THE U.S.
Commercial and industrial................................. $ 1 878 $ 1 990
Financial institution:
Banks.................................................. 641 729
Other financial institutions........................... 902 527
Collateralized by real estate............................. 324 365
Other, including U.S. state and political subdivision..... 1 488 1 666
---------------------------------------------------------------------------------------
5 233 5 277
---------------------------------------------------------------------------------------
LOANS IN OFFICES OUTSIDE THE U.S.
Commercial and industrial................................. 12 026 10 045
Financial institution:
Banks.................................................. 2 853 1 447
Other financial institutions........................... 4 522 3 013
Collateralized by real estate............................. 364 281
Foreign governments and official institutions ............ 811 1 042
Other..................................................... 2 311 2 348
---------------------------------------------------------------------------------------
22 887 18 176
---------------------------------------------------------------------------------------
28 120 23 453
---------------------------------------------------------------------------------------
</TABLE>

The distribution of total loans at December 31 on the basis of the
location of the borrower is presented in the following table.

<TABLE>
<CAPTION>
In millions 1996 1995
-----------------------------------------------------------------------
<S> <C> <C>
LOANS TO BORROWERS IN THE U.S.
In offices in the U.S....................... $ 4 354 $ 3 769
In offices outside the U.S.................. 8 275 6 702
-----------------------------------------------------------------------
12 629 10 471
-----------------------------------------------------------------------

LOANS TO BORROWERS OUTSIDE THE U.S.
In offices in the U.S....................... 879 1 508
In offices outside the U.S.................. 14 612 11 474
-----------------------------------------------------------------------
15 491 12 982
-----------------------------------------------------------------------
28 120 23 453
-----------------------------------------------------------------------
</TABLE>

Total impaired loans, net of charge-offs, at December 31 are presented
in the following table. At December 31, 1996, more than half of the
impaired loan balance is measured based upon the present value of
expected future cash flows discounted at an individual loan's effective
interest rate, and the remainder is primarily based on the fair value
of the collateral. Consistent with prior periods, all of J.P. Morgan's
impaired loans at December 31, 1996, were on nonaccrual status.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C>
Commercial and industrial....... $ 89 $ 67 $136
Other........................... 29 48 81
-----------------------------------------------------------------------
118 115 217
Restructuring countries......... 2 2 2
-----------------------------------------------------------------------
120 117 219
-----------------------------------------------------------------------
</TABLE>

56
<PAGE> 59
As of December 31, 1996, no SFAS No. 114 reserve was required for the
$120 million recorded investment in impaired loans. Charge-offs and
interest applied to principal have reduced the recorded investment
values to amounts that are less than the SFAS No. 114 calculated
values. For the 12 months ended December 31, 1996, the average recorded
investment in impaired loans was $141 million.

An analysis of the effect of impaired loans, net of charge-offs, on
interest revenue is presented in the following table.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest revenue that would have been recorded if accruing (a) ..... $ 14 $17 $18
Less interest revenue recorded: (b)
Related to the current period ................................... 3 1 5
Related to prior periods ........................................ 1 38 39
-------------------------------------------------------------------------------------------
Positive (negative) impact of impaired loans on interest revenue ... (10) 22 26
-------------------------------------------------------------------------------------------
</TABLE>

(a) Represents $12 million, $13 million, and $13 million from borrowers in
the U.S. and $2 million, $4 million, and $5 million from borrowers
outside the U.S. in 1996, 1995, and 1994 respectively.

(b) Represents $3 million, $30 million, and $4 million from borrowers in
the U.S. and $1 million, $9 million, and $40 million from borrowers
outside the U.S. in 1996, 1995, and 1994 respectively.

12. AGGREGATE ALLOWANCE FOR CREDIT LOSSES

An analysis of the aggregate allowance for credit losses is presented
in the following table.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, JANUARY 1 ................... $1 130 $1 131 $1 157
----------------------------------------------------------------------
Recoveries ........................... 25 54 45
Charge-offs:
Commercial and industrial ......... (30) (39) (37)
Restructuring countries ........... -- -- (18)
Other ............................. (9) (16) (17)
----------------------------------------------------------------------
Net charge-offs ...................... (14) (1) (27)
Translation adjustment ............... -- -- 1
----------------------------------------------------------------------
BALANCE, DECEMBER 31 ................. 1 116 (a) 1 130 1 131
----------------------------------------------------------------------
</TABLE>

(a) At December 31, 1996, the aggregate allowance was apportioned and
displayed as follows: $566 million as a reduction of loans, $350
million as a reduction of trading account assets relating to
derivatives, and $200 million included in other liabilities related to
undertakings to extend credit that are not currently reflected on the
consolidated balance sheet.

13. PREMISES AND EQUIPMENT

The components of premises and equipment at December 31 are presented
in the following table.

<TABLE>
<CAPTION>
In millions 1996 1995
-----------------------------------------------------------------------
<S> <C> <C>
Land...................................... $ 112 $ 112
Buildings................................. 1 047 958
Equipment and furniture................... 1 107 1 435
Leasehold improvements.................... 342 347
Property under financing obligation:
Land and building...................... 500 455
Construction-in-progress.................. 29 32
-----------------------------------------------------------------------
3 137 3 339
Less: accumulated depreciation............ 1 272 1 412
-----------------------------------------------------------------------
1 865 1 927
-----------------------------------------------------------------------
</TABLE>

Depreciation expense was $212 million in 1996, $247 million in 1995,
and $231 million in 1994. No interest was capitalized in connection
with various construction projects in 1996 or 1995.

57
<PAGE> 60
14. LONG-TERM DEBT

The net proceeds of J.P. Morgan's long-term debt may be used for
general corporate purposes, including investment in equity and debt
securities and advances to subsidiaries. J.P. Morgan has the option to
redeem certain debt prior to maturity at specified prices.

Long-term debt qualifying as risk-based capital generally must
be unsecured and subordinated with an original weighted-average
maturity of at least five years.

LONG-TERM DEBT QUALIFYING AS RISK-BASED CAPITAL

Long-term debt qualifying as risk-based capital and representing all of
J.P. Morgan's subordinated issues at December 31 is presented in the
following table.

<TABLE>
<CAPTION>
J.P. Morgan (parent) Morgan Guaranty Total debt
------------------------ ---------------- outstanding
Fixed Floating Fixed Floating ------------------
In millions rate rate rate rate 1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONTRACTUAL MATURITY DATE
1996................................. $ -- $ -- $ -- $ -- $ -- $ 100
1998................................. 611 (a)(b) -- -- -- 611 582 (a)(b)
2000................................. -- 200 -- -- 200 200
2002-2006............................ 1 602 740 199 -- 2 541 2 548
Thereafter........................... 899 10 -- -- 909 649
------------------------------------------------------------------------------------------------------------------
4 261 4 079
Less: amortization for risk-based
capital purposes (c).............. (569) (489)
------------------------------------------------------------------------------------------------------------------
Total long-term debt qualifying as
risk-based capital................ 3 692 3 590
------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Amounts include $2 million of outstanding convertible debentures at
December 31, 1996 and 1995, respectively. At December 31, 1996, these
debentures were convertible into 76,650 shares of J.P. Morgan common
stock at $20 per share.

(b) Amounts include $360 million and $331 million of outstanding
zero-coupon notes at December 31, 1996 and 1995, respectively. The
principal amount of these notes is $400 million. The yield to maturity
on the notes, which do not bear interest, is 8.66%. The carrying value
increases as the discount on the notes is accreted to interest expense.

(c) The balance of debt qualifying as risk-based capital is reduced 20% per
year during each of the last five years prior to maturity.

58
<PAGE> 61
LONG-TERM DEBT NOT QUALIFYING AS RISK-BASED CAPITAL

Long-term debt not qualifying as risk-based capital and representing
all of J.P. Morgan's senior issues at December 31 is presented in the
following table.

<TABLE>
<CAPTION>
J.P. Morgan (parent) Morgan Guaranty Total debt
------------------------ ---------------- outstanding
Fixed Floating Fixed Floating ------------------
In millions rate rate rate rate 1996 1995
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONTRACTUAL MATURITY DATE
1996..................................... $ -- $ -- $ -- $ -- $ -- $1 062
1997..................................... 854 650 125 6 1 635 1 500
1998..................................... 208 194 414 1 543 2 359 399
1999..................................... 138 -- 530 200 868 332
2000..................................... 458 -- 43 10 511 537
2001..................................... 192 -- 738 95 1 025 65
2002-2006................................ 391 160 374 65 990 227
Thereafter............................... 1 103 (a)(b) -- 16 25 1 144 832 (a)(b)
British pound financing obligation (c)... 310 310 294
-------------------------------------------------------------------------------------------------------------------
8 842 5 248
Add: amortization for risk-based
capital purposes (d).................. 569 489
-------------------------------------------------------------------------------------------------------------------
Total long-term debt not qualifying
as risk-based capital................. 9 411 5 737
-------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Amounts include a convertible mortgage loan with a carrying value of
$406 million and $407 million at December 31, 1996 and 1995,
respectively. The interest rate on the loan increases 1/2% every four
years from 7%, as set in 1988, to 9% in 2004. After 2008 the rate will
be fixed based upon the interest rate for 10-year U.S. Treasury
securities at that time. Beginning in 2008 the loan may be converted,
at the option of the lender, into a 49% interest in the J.P. Morgan
building at 60 Wall Street. If the loan is converted, J.P. Morgan will
have the option to lease the property for seven 10-year terms. J.P.
Morgan has the right to prepay the debt if the lender does not exercise
the conversion option. The loan is collateralized by the 60 Wall Street
building owned by Morgan Guaranty.

(b) Includes notes maturing in 2008 - 2009 for which the interest rates
will be reset during 1998 for the following 10-year term at a rate
based on the interest rate for 10-year U.S. Treasury securities at that
time. The carrying amount of these notes was $425 million at December
31, 1996 and 1995, respectively.

(c) Represents the sale of a 52.5% interest in J.P. Morgan's office
building complex in London. The transaction is treated as a financing
obligation, which is being amortized over a 25-year period,
corresponding with J.P. Morgan's initial lease term for the entire
complex. J.P. Morgan has renewal options to lease this space for an
additional 50 years. The lease contains escalation clauses under which
rental payments will be redetermined every five years, beginning after
year 15. Interest on the financing obligation is imputed annually at an
effective rate that varies depending on then-current rental rates in
the London real estate market.

The aggregate amounts of minimum cash payments (at the December 31,
1996 exchange rate) to be applied to the financing obligation for each
of the five years subsequent to December 31, 1996, and thereafter are
presented in the following table.

<TABLE>
<CAPTION>
In millions
--------------------------------------------------------------------
<S> <C>
1997..................................................... $ 26
1998..................................................... 26
1999..................................................... 26
2000..................................................... 26
2001..................................................... 28
Thereafter............................................... 283
--------------------------------------------------------------------
Total cash payments...................................... 415
Less: interest........................................... 105
--------------------------------------------------------------------
Balance outstanding at December 31, 1996................. 310
--------------------------------------------------------------------
</TABLE>

(d) The balance of debt qualifying as risk-based capital is reduced 20% per
year during each of the last five years prior to maturity.

59
<PAGE> 62
Included in the long-term debt tables above are non-U.S. dollar
denominated fixed rate instruments totaling $2,790 million and $1,319
million at December 31, 1996 and 1995, respectively. Non-U.S. dollar
denominated floating rate instruments totaled $350 million and $124
million at December 31, 1996 and 1995, respectively.

Also included in the long-term debt tables above are
medium-term notes totaling $745 million at December 31, 1996. Based
solely on contractual terms, the weighted-average interest rate of
these issues was 6.09% at December 31, 1996. Maturities of these issues
ranged from 1997 to 2026. There were no medium-term notes outstanding
at December 31, 1995.

Based on the yield to maturity for zero-coupon notes and
contractual terms for all other issues, the ranges of interest rates
associated with long-term debt at December 31 are summarized in the
following table.

<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------------------
<S> <C> <C>
U.S. dollar fixed rate issues............... 4.50-10.00% 4.46-8.66%
U.S. dollar floating rate issues (a)........ 5.18-14.00 4.92-6.86
Non-U.S. dollar fixed rate issues........... 2.52-14.50 4.63-14.50
Non-U.S. dollar floating rate issues (a).... 3.39-8.00 4.13-9.69
-----------------------------------------------------------------------------
</TABLE>

(a) Floating rates are determined by formulas and may be subject to certain
minimum or maximum rates.

The weighted-average interest rate for total long-term debt was 6.67%
and 6.94% at December 31, 1996 and 1995, respectively.

In order to modify exposure to interest rate and currency
exchange rate movements, J.P. Morgan utilizes derivative instruments,
primarily interest rate and currency swaps, in conjunction with some of
its debt issues. The effect of these derivative instruments is included
in the calculation of the interest expense on the associated debt. The
weighted-average interest rate for total long-term debt, including the
effects of the related derivative instruments, was 5.75% and 6.01% at
December 31, 1996 and 1995, respectively.

15. INCOME TAXES

J.P. Morgan and eligible subsidiaries file a consolidated U.S. federal
income tax return. The current and deferred portions of income tax
expense included in the consolidated statement of income are presented
in the following table.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
---------------------------------------------------- -------------------------- ---------------------------
INCOME TAX EXPENSE
(BENEFIT) Current Deferred Total Current Deferred Total Current Deferred Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S................... $285 $(123) $162 $ 43 $ (3) $ 40 $161 $ 91 $252
Foreign............... 586 (74) 512 505 (4) 501 243 16 259
State and local....... 120 (36) 84 114 (45) 69 115 (16) 99
---------------------------------------------------------------------------------------------------------------
991 (233) 758 662 (52) 610 519 91 610
---------------------------------------------------------------------------------------------------------------
</TABLE>

60
<PAGE> 63
The income tax expense related to net gains on debt and equity
investment securities, included in Income taxes, was $98 million in
1996, $187 million in 1995, and $274 million in 1994.

Deferred tax assets and liabilities at December 31, 1996,
1995, and 1994, resulted from the items listed in the following table.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEFERRED TAX ASSETS
Compensation and benefits............................... $ 887 $ 646 $ 454
Aggregate allowance for credit losses................... 443 444 444
Foreign operations...................................... 68 82 88
Write-down of equity investment securities.............. 44 54 52
Other................................................... 168 199 129
------------------------------------------------------------------------------------------------
Total deferred tax assets before valuation allowance.... 1 610 1 425 1 167
Less: valuation allowance (a)........................... 120 140 140
------------------------------------------------------------------------------------------------
Total deferred tax assets............................... 1 490 1 285 1 027
------------------------------------------------------------------------------------------------

DEFERRED TAX LIABILITIES
Gains on debt and equity investment securities.......... 549 564 342
Lease financing transactions............................ 142 135 120
Unremitted earnings..................................... 101 86 67
Depreciation............................................ 36 43 44
Interest rate and currency swaps........................ 14 68 99
Other................................................... 147 241 219
------------------------------------------------------------------------------------------------
Total deferred tax liabilities.......................... 989 1 137 891
------------------------------------------------------------------------------------------------
</TABLE>

(a) The valuation allowance is primarily related to the ability to
recognize tax benefits associated with foreign operations.

J.P. Morgan recorded a deferred income tax liability of $268 million,
$358 million, and $274 million at December 31, 1996, 1995, and 1994,
respectively related to the net unrealized gains on investment
securities classified as available-for-sale.

A reconciliation of the difference between the expected U.S. statutory
income tax rate and J.P. Morgan's effective income tax rate is shown in
the following table.

<TABLE>
<CAPTION>
Percentage of pretax income 1996 1995 1994
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory tax rate........................................ 35.0% 35.0% 35.0%
Increase (decrease) due to:
State and local taxes, net of U.S. income tax effects....... 2.3 2.4 3.5
Tax-exempt income........................................... (2.7) (6.7) (3.7)
Other....................................................... (2.1) 1.3 (1.4)
-----------------------------------------------------------------------------------------------------------
Effective tax rate............................................. 32.5 32.0 33.4
-----------------------------------------------------------------------------------------------------------
</TABLE>

Pretax income

The following table presents Income before income taxes reported by
location of office. This presentation differs from the basis of
disclosure of U.S., foreign, and state and local tax expense above and
from the basis of disclosure of domestic-related and
international-related income in Note 25 to the consolidated financial
statements, International operations.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C>
Offices in the U.S............. $ 155 $ 455 $ 908
Offices outside the U.S........ 2 177 1 451 917
---------------------------------------------------------------------
2 332 1 906 1 825
---------------------------------------------------------------------
</TABLE>

61
<PAGE> 64
16. COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY

In November 1996, the JPM Capital Trust I (Trust), a wholly owned
subsidiary of J.P. Morgan, issued $750 million of 7.54% Cumulative
Capital Securities (Trust Preferred Securities) with a stated value
and liquidation preference of $1,000 per share. The Trust Preferred
Securities qualify as tier 1 capital under Federal Reserve guidelines,
and have no voting rights. The obligations of J.P. Morgan under the
Trust Agreement, as defined, constitute a full and unconditional
guarantee by J.P. Morgan of the Trust's obligations under the Trust
Preferred Securities issued. The proceeds from the sale of the Trust
Preferred Securities and the sale of the Trust's common stock to J.P.
Morgan were utilized by the Trust to purchase $773.2 million of 7.54%
Junior Subordinated Debentures (Intercompany Debentures) of J.P.
Morgan. The Intercompany Debentures are unsecured and rank subordinate
and junior in right of payment to all other indebtedness, liabilities,
and obligations of J.P. Morgan. The Intercompany Debentures represent
the sole assets of the Trust. Interest on the Trust Preferred
Securities is cumulative, payable semiannually, but only if, and to
the extent that, the semiannual interest payments are made on the
Intercompany Debentures by J.P. Morgan. Upon approval from the Federal
Reserve, J.P. Morgan has the right to optionally redeem the
Intercompany Debentures, prior to the maturity date of January 15,
2027, on or after January 15, 2007, at 103.77% of the stated
liquidation preference amount; such price declining 0.377% per year
until January 15, 2017, at which time the price on and thereafter
shall equal 100%. Proceeds from any redemption or maturity of the
Intercompany Debentures would cause a mandatory redemption of Trust
Preferred Securities having an aggregate liquidation amount equal to
the principal amount of Intercompany Debentures redeemed.

In accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 53, J.P. Morgan is not required to disclose
separate financial statements because the Trust is wholly owned, has no
independent operations, and is issuing securities that contain a full
and unconditional guarantee of its parent, J.P. Morgan.

In December 1996, the Board of Directors approved the purchase
of up to $750 million of J.P. Morgan common stock in the open market or
through privately negotiated transactions with the proceeds raised from
the issuance of the Trust Preferred Securities. The repurchase is
expected to be completed in 1997.

62
<PAGE> 65
17. PREFERRED STOCK

Total authorized shares of preferred stock are 10,400,000 and
10,000,000 at December 31, 1996 and 1995, respectively. J.P. Morgan may
redeem the outstanding preferred stock, in whole or in part, at its
option, for the stated value plus accrued and unpaid dividends except
for the Fixed Cumulative Preferred Stock, Series H shares, which may
not be redeemed before March 31, 2006. All preferred stock has a
dividend preference as well as a liquidation preference and is
generally nonvoting. Preferred stock outstanding at December 31 is
presented in the following table.

<TABLE>
<CAPTION>
Authorized, issued,
and outstanding shares Dividend rate (a)
--------------------------- ------------------------
1996 1995 1996 1995
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable Rate Cumulative Preferred Stock,
Series A (stated value: $100 per share)........ 2 444 300 2 444 300 5.00% 5.00%
Variable Cumulative Preferred Stock, Series
B, C, D, E, and F (authorized, issued, and
outstanding: 50 000 shares each series;
stated value: $1 000 per share)................ 250 000 250 000 3.88-4.08 4.28-4.56
Fixed Cumulative Preferred Stock,
Series H (stated value: $500 per share)........ 400 000 -- 6.63 --
-------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Series A: The quarterly dividend rate is determined by a formula based
on the interest rates of certain actively traded U.S. Treasury
obligations. The quarterly rate in no event will be less than 5.00% or
greater than 11.50% per annum. The Series A preferred stock qualifies
as tier 1 capital. Series B, C, D, E, and F: Dividend rates for each
series are determined periodically either by auction or remarketing.
The dividend rates may not exceed certain maximums that are 110% to
200% of various market interest rates, depending on the prevailing
credit rating of the instrument at the dividend determination dates and
the duration of the then-current dividend periods. The dividend periods
may vary from one day to 30 years, depending on the dividend
determination method used. During 1996 and 1995, J.P. Morgan reset the
dividend rates approximately every 49 days. The dividend rates stated
above represent the range of those in effect at year-end. These series
of preferred stock qualify as tier 2 capital. Series H: The quarterly
dividend rate is paid at the fixed rate of 6.625% per annum. The Series
H preferred stock qualifies as tier 1 capital.

18. PENSION BENEFITS

Pension plans are in effect for substantially all regular employees of
J.P. Morgan. J.P. Morgan's pension plans are generally noncontributory
defined benefit plans. The plans' pension benefits are generally based
on age and years of credited service and a percentage of qualifying
compensation during the final years of employment.

J.P. Morgan's policy generally has been to contribute
currently the accrued costs of its funded pension plans. The principal
U.S. plan continues to meet legal funding requirements. Contributions
to that plan were $20 million in 1996, $26 million in 1995, and $63
million in 1994. The accrued costs of certain other pension plans are
not contributed currently, since contributions to these unfunded plans
are not tax deductible.

63
<PAGE> 66
For J.P. Morgan's domestic and foreign funded plans, the value
of plan assets exceeded accumulated benefits at September 30, 1996 and
1995 (the dates of the actuarial valuations). The following table
presents information related to these plans, including the amounts
recorded on the consolidated balance sheet.

<TABLE>
<CAPTION>
In millions 1996 1995
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plan assets (a)............................................................... $1 309 $1 175
Less: accumulated benefits earned prior to valuation date (b)
Vested..................................................................... 787 763
Nonvested.................................................................. 132 112
------------------------------------------------------------------------------------------------------
Accumulated benefit obligation (b)......................................... 919 875
------------------------------------------------------------------------------------------------------
Funded status of accumulated benefit obligation............................... 390 300
Less: additional benefits based on estimated future salary levels (b)......... 171 209
------------------------------------------------------------------------------------------------------
Funded status of projected benefit obligation (c)............................. 219 91
Amounts available to increase (reduce) future pension expense:
Unamortized balance of the initial transition amount (d)................... (34) (42)
Cumulative net actuarial gain, including deferred investment results (e)... (114) (27)
Costs of retroactive benefits granted by plan amendments................... 32 38
------------------------------------------------------------------------------------------------------
Net amounts available to decrease expense in future periods................ (116) (31)
------------------------------------------------------------------------------------------------------
Net prepaid pension cost recorded on the consolidated balance sheet........... 103 60
------------------------------------------------------------------------------------------------------
</TABLE>

(a) Plan assets, which are at fair value, are managed by a trustee and are
generally invested in fixed income securities, listed stocks, and
commingled pension trust funds.

(b) Expressed as the actuarial present value.

(c) The projected benefit obligation, which equals the sum of the
accumulated benefit obligation and additional benefits based on
estimated future salary levels, was $1,090 million and $1,084 million
at September 30, 1996 and 1995, respectively.

(d) To be recognized ratably as a reduction of pension expense through
1999.

(e) Actuarial gains result from experience that differs from that assumed
or from a change in an actuarial assumption.

Obligations related to unfunded pension plans are recorded as a
liability on the consolidated balance sheet. At December 31, 1996 and
1995, such obligations were $116 million and $112 million respectively.

The following table presents the components of 1996, 1995, and
1994 pension expense for all defined benefit pension plans. The pension
expense related to defined contribution pension plans continues to be
immaterial.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost of benefits earned during the period ......................... $ 60 $ 60 $ 67
Interest cost on the projected benefit obligation ................. 88 87 81
Assumed return on all pension plan assets (a) ..................... (109) (98) (89)
Amortization, primarily of the initial transition amount .......... (7) (6) (3)
----------------------------------------------------------------------------------------------
Pension expense reflected in Employee compensation and benefits ... 32 43 56
----------------------------------------------------------------------------------------------
</TABLE>

(a) For the 12 month periods ended September 30, 1996, 1995, and 1994, the
actual returns on plan assets were $163 million, $141 million, and $33
million respectively. The differences between the actual and assumed
amounts have been deferred.

The following table presents weighted-average actuarial assumptions
used to calculate the projected benefit obligation and pension expense.
Assumptions at September 30 are used to calculate the projected benefit
obligation as of that date and determine the pension expense for the
following fiscal year.

<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assumptions at September 30:
Assumed rate of return ......................... 9.3% 9.3% 9.5%
Future annual compensation increases ........... 4.9 5.1 6.0
Discount rate .................................. 7.6 7.4 8.3
-------------------------------------------------------------------------------------
Pension expense for the year ended December 31:
Assumed rate of return ......................... 9.3 9.5 9.5
Future annual compensation increases ........... 5.1 6.0 5.0
Discount rate .................................. 7.4 8.3 7.0
-------------------------------------------------------------------------------------
</TABLE>

64
<PAGE> 67
19. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

U.S. employees retiring with J.P. Morgan who were hired before February
1, 1989, and who have completed 10 years of continuous service with
J.P. Morgan may be eligible for pensioner health care and pensioner
life insurance coverage, although J.P. Morgan has no contractual
obligation to provide this coverage. Eligible employees retiring after
July 1, 1992, will absorb a greater proportion of the cost of health
care than those who retired on or before July 1, 1992. U.S. employees
hired on or after February 1, 1989, are not eligible for pensioner
health care coverage but may be eligible for limited pensioner life
insurance coverage when they retire. Substantially all of the
postretirement benefit costs relate to U.S. employees. Eligibility
requirements for each plan vary from country to country.

Effective November 21, 1994, J.P. Morgan began to fund its
postretirement benefit obligations through the purchase of
corporate-owned life insurance (COLI) on the lives of eligible
employees and retirees. Assets attributable to the COLI policy are held
in a separate account at the insurance company, and the cash value of
the policy is invested by the insurance company in equity securities
and/or bonds or other debt instruments. The COLI policy is owned by
J.P. Morgan; however, the COLI proceeds (i.e., death benefits,
withdrawals, and other distributions) are segregated and restricted to
reimbursing J.P. Morgan for its net postretirement benefit claim
payments and related administrative expenses.

The following table reconciles the actuarial present value of
J.P. Morgan's accumulated postretirement benefit obligation (APBO)
relating to health care and life insurance at September 30, the date of
the actuarial valuation, to the amount recorded on the consolidated
balance sheet at December 31.

<TABLE>
<CAPTION>
In millions 1996 1995
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of APBO:
Retirees ................................................................ $ 104 $ 97
Fully eligible active participants ...................................... 19 22
Other active participants ............................................... 69 83
-----------------------------------------------------------------------------------------------
Total APBO at September 30 ................................................. 192 202
Cumulative net actuarial gain, including deferred investment results (a) ... 91 73
Fair value of COLI policy at December 31 ................................... (140) (91)
-----------------------------------------------------------------------------------------------
Net accrued postretirement benefit liability recorded on the
consolidated balance sheet .............................................. 143 184
-----------------------------------------------------------------------------------------------
</TABLE>

(a) Actuarial gains and losses result from experience that differs from
that assumed or from a change in an actuarial assumption.

The following table presents the components of 1996, 1995, and 1994
postretirement benefit expense.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C>
Cost of benefits earned during the period .... $ 5 $ 6 $ 9
Interest cost on APBO ........................ 15 17 18
Assumed return on COLI policy (a) ............ (7) (3) --
Amortization of unrecognized net gains ....... (4) (2) --
-----------------------------------------------------------------------
Postretirement benefit expense reflected in
Employee compensation and benefits ........ 9 18 27
-----------------------------------------------------------------------
</TABLE>

(a) For the 12 month periods ended September 30, 1996 and 1995, the actual
return was $10 million and $9 million respectively. The differences
between the actual and assumed amounts have been deferred.

65
<PAGE> 68
The following table presents actuarial assumptions used to calculate
the APBO and postretirement benefit expense. Assumptions at September
30 are used to calculate the APBO as of that date and determine
postretirement benefit expense for the following fiscal year.

<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assumptions at September 30:
Assumed rate of return ......................................... 9.0% 9.0% 9.0%
Future annual compensation increases, affecting the APBO for
pensioner life insurance only ............................... 4.8 4.8 5.5
Health care cost trend rate:
First year .................................................. 11.5 12.0 15.0
Ultimate rate after gradual decreases until the year 2009 ... 5.5 5.5 5.5
Discount rate .................................................. 7.8 7.5 8.5
---------------------------------------------------------------------------------------------------
</TABLE>

If the assumed health care cost trend rate were increased one
percentage point in each future year, annual postretirement benefit
expense would have increased by $2.0 million in 1996, $2.0 million in
1995, and $3.0 million in 1994. In addition, the APBO as of September
30 would have increased by $13.0 million, $16.0 million, and $20.0
million for 1996, 1995, and 1994 respectively.

20. STOCK OPTIONS AND AWARDS

J.P. Morgan's stock option and award plans provide for the issuance of
stock-related awards to key employees, such as stock options, stock
appreciation rights, restricted stock awards, stock bonus awards, stock
unit awards, deferred stock payable in stock, and redeemable preferred
stock.

To satisfy awards granted under the stock option and award
plans, common stock may be made available from J.P. Morgan's authorized
but unissued shares. Shares may also be purchased on the open market at
various times during the year. Shares available for future grant under
the Stock Incentive plans totaled 21,204,623 at December 31, 1996,
certain of which may be made available from treasury shares. Shares
authorized for future grant under the Stock Bonus plan are 2% of
outstanding shares. All shares authorized under the Stock Bonus plan
are required to be settled in treasury shares. The Company applies APB
Opinion No. 25 and related Interpretations in accounting for its stock
option and award plans. Compensation cost recognized in the
consolidated income statement for J.P. Morgan's stock award plans for
1996, 1995, and 1994 was $272 million, $227 million, and $157 million
respectively.

Had compensation cost for J.P. Morgan's stock-based
compensation plans been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of SFAS
No. 123, net income and earnings per share for 1996 and 1995 would
approximate the pro forma amounts indicated below.

<TABLE>
<CAPTION>
In millions, except per share data 1996 1995
-----------------------------------------------------------------------
<S> <C> <C> <C>
Net income (a) As reported..... $1 574 $1 296
Pro forma....... 1 522 1 231
-----------------------------------------------------------------------
Primary earnings per share As reported..... $ 7.63 $6.42
Pro forma....... 7.37 6.09
-----------------------------------------------------------------------
Fully diluted earnings per share As reported..... 7.56 6.36
Pro forma....... 7.31 6.03
-----------------------------------------------------------------------
</TABLE>

(a) For pro forma purposes, the fair value of stock option awards is
amortized over the relative vesting periods; the fair value of other
stock awards is generally expensed entirely in the year of performance
to which it relates. As of December 31, 1996 and 1995, the unamortized
expense of nonvested options for pro forma purposes was $28 million and
$23 million respectively.

66
<PAGE> 69
Stock options

Stock options under the Stock Incentive plans are issued at exercise
prices not less than the fair market value on the date of grant, and in
accordance with APB Opinion No. 25 and related Interpretations, no
compensation cost has been recognized for fixed stock option plans.
Stock options are generally exercisable commencing one to three years
following the date of grant and in no event later than 10 years from
the date of grant. Options generally vest ratably over the vesting
period.

Since employee stock options have characteristics
significantly different from those of traded options and because
changes in the subjective assumptions can materially affect the fair
value estimate, J.P. Morgan used a modified Black-Scholes
option-pricing model to estimate the fair value of each option grant.
The modified Black-Scholes model takes into account the estimated lives
of the options and an expected dividend yield based on historical
dividend rate increases.

The following weighted-average assumptions were used for
grants in 1996 and 1995 respectively: dividend yield of 4.24% and
4.83%; five year monthly historical volatility of 18.5% and 21.3%;
risk-free interest rate of 5.98% and 7.61%; and expected life of 7
years.

A summary of Morgan's stock option activity and related information
follows.

<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------ ------------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ..... 24 325 921 $59.75 20 725 020 $56.28 17 532 954 $51.95
Granted .............................. 5 208 808 78.44 7 166 952 64.61 4 541 600 71.00
Exercised ............................ (4 189 674) 54.33 (3 128 485) 47.17 (946 955) 42.87
Forfeited ............................ (271 958) 68.18 (437 566) 65.07 (402 579) 65.41
Expired .............................. (982) 41.94 -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
Outstanding at year-end, ............. 25 072 115 64.45 24 325 921 59.75 20 725 020 56.28
-----------------------------------------------------------------------------------------------------------------------
Exercisable at year-end .............. 15 991 664 $59.13 15 179 860 $55.89 14 229 295 $51.06
-----------------------------------------------------------------------------------------------------------------------
Weighted-average fair value of
options granted during the year ... $ 13.47 $78.44 $ 13.41 $64.61 $ 16.18 $71.00
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

The following table summarizes information about stock options
outstanding at December 31, 1996.

<TABLE>
<CAPTION>
Options outstanding Options exercisable
--------------------------------------- --------------------------
Weighted-
average Weighted- Weighted-
remaining average average
Number contractual exercise Number exercise
Range of exercise prices outstanding life (years) price exercisable price
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$31-$46............................ 4 101 242 3.05 $41.43 4 101 242 $41.43
$60-$76............................ 19 265 873 7.32 67.01 11 890 422 65.23
$78-$105........................... 1 705 000 8.55 90.82 -- --
-----------------------------------------------------------------------------------------------------------
</TABLE>

Prior to 1997, stock options were generally granted in January.
Beginning in 1997, stock options will generally be granted in midyear.

67
<PAGE> 70
Restricted stock awards

Restricted stock awards under the Stock Incentive and Stock Bonus plans
are awarded in the form of share credits, each of which is equivalent
to one share of J.P. Morgan common stock. Restricted stock awards
generally become fully vested on the fifth anniversary of the date of
the award. Payment of the award generally may be made to the
participant as soon as practicable after the award has become vested,
but may be deferred at the discretion of a committee of the Board of
Directors administering the plans. At December 31, 1996, 1995, and
1994, total share credits representing previously granted restricted
stock awards, including share credits attributable to dividend
equivalents, were 3,395,355 credits, 2,968,840 credits, and 2,146,629
credits respectively. For the 1996 and 1995 award years, 485,507 and
612,530 share credits respectively were granted at weighted-average
grant date fair values of $95.34 and $73.37 per share respectively.

Stock bonus awards

Stock bonus awards under the Stock Incentive and Stock Bonus plans are
substantially similar to restricted stock awards, except that stock
bonus awards generally become vested on the third anniversary of the
date of the award. Payment of stock bonus awards may be made to the
participant as soon as practicable after the award has become vested,
but may be deferred at the discretion of a committee of the Board of
Directors administering the plans. At December 31, 1996, 1995, and
1994, total share credits representing previously granted stock bonus
awards, including share credits attributable to dividend equivalents,
were 4,030,763 credits, 2,603,378 credits, and 1,573,006 credits
respectively. For the 1996 and 1995 award years, 2,126,067 and
1,588,477 share credits respectively were granted at weighted average
grant date fair values of $103.14 and $75.53 per share respectively.

Stock unit awards

Stock unit awards under the Stock Bonus plan are substantially similar
to restricted stock and stock bonus awards, except that the value of a
stock unit award will never exceed (but may be less than) the dollar
value of the initial award, except for the value of dividend
equivalents accrued on such awards. Stock unit awards generally become
fully vested on the third anniversary of the date of the award. At
December 31, 1996 and 1995, total share credits representing previously
granted stock unit awards, including share credits attributable to
dividend equivalents, were 176,481 credits and 52,533 credits
respectively. At December 31, 1994, no stock unit awards had been
granted. For the 1996 and 1995 award years, 145,594 and 123,364 share
credits respectively were granted at weighted-average grant date fair
values of $103.44 and $75.63 per share respectively.

Deferred stock payable in stock

Morgan's Incentive Compensation plans permit eligible employees to
elect to defer all or a portion of their current annual incentive
compensation awards into several types of accounts, including a Morgan
common stock account. Deferral amounts are not subject to forfeiture.
Amounts deferred into the Morgan common stock account are converted
into share credits and earn dividend equivalents during the deferral
period. In general, upon termination of employment or retirement, a
participant's balance in the Morgan common stock account is distributed
in the form of Morgan common stock. At December 31, 1996, total share
credits payable in stock (including share credits attributable to
dividend equivalents) were 2,100,985 credits. For the 1996 and 1995
award years, 306,284 and 186,155 share credits respectively were
granted at weighted-average grant date fair values of $97.63 and $80.25
per share respectively.

68
<PAGE> 71
Redeemable preferred stock

J.P. Morgan may award redeemable preferred stock to certain employees.
The redeemable preferred stock is redeemable at any time by the
stockholder. J.P. Morgan may also call the outstanding redeemable
preferred stock, in whole, upon 30 days' notice after 60 days from
issuance. At December 31, 1996, 1995, and 1994, approximately 2.5
million, 1.7 million, and 1.0 million shares respectively of the
redeemable preferred stock had been authorized, and there were no
shares issued or outstanding. In 1996 and 1995, shares of redeemable
preferred stock were awarded to employees, and all shares were redeemed
by those employees.

Stock awards other than options are generally granted in the January
following the award year. In January 1997, 2,818,693 share credits
representing stock awards other than options were granted.

21. EARNINGS PER COMMON SHARE

In the calculation of primary and fully diluted earnings per common
share, net income is adjusted by adding back to net income the interest
expense on convertible debentures and the expense related to dividend
equivalents on certain deferred incentive compensation awards, net of
the related income tax effects, and subtracting from net income the
preferred stock dividends to arrive at net income applicable to common
stock. Primary and fully diluted earnings per common share are computed
by dividing net income applicable to common stock by the
weighted-average number of common and common equivalent shares
outstanding during the year.

For primary and fully diluted earnings per share, the
weighted-average number of common and common equivalent shares
outstanding was the sum of the average number of shares of common stock
outstanding, the average number of shares issuable upon conversion of
convertible debentures, and the average number of shares issuable under
employee benefit plans that have a dilutive effect, as computed under
the treasury stock method. Under this method, the number of incremental
shares is determined by assuming the issuance of the outstanding stock
options and certain deferred incentive compensation awards, reduced by
the number of shares assumed to be repurchased from the issuance
proceeds, using the market price of the company's common stock. For
primary earnings per share, this market price is the average market
price for the period, while for fully diluted earnings per share, it is
the period-end market price, if it is higher than the average price.

<TABLE>
<CAPTION>
Dollars in millions 1996 1995 1994
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income applicable to common stock............. $ 1 541 $ 1 275 $ 1 198
Weighted-average number of common and common
equivalent shares outstanding:
Primary earnings per share..................... 202 010 237 198 654 973 199 056 561
Fully diluted earnings per share............... 203 754 564 200 613 199 199 056 809
----------------------------------------------------------------------------------------------
</TABLE>

69
<PAGE> 72
22. CAPITAL REQUIREMENTS

J.P. Morgan and its subsidiaries, as well as certain foreign branches of
its bank subsidiary, Morgan Guaranty, are subject to various regulatory
capital requirements administered by U.S. and foreign regulators. The Board
of Governors of the Federal Reserve System (Federal Reserve Board), J.P.
Morgan's primary regulator, establishes the minimum capital requirements
for the consolidated bank holding company as well as for certain of its
subsidiaries, including Morgan Guaranty. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a
direct material effect on J.P. Morgan's financial statements. The capital
of J.P. Morgan and its principal subsidiaries, Morgan Guaranty and J.P.
Morgan Securities Inc. (JPMSI), exceeded the minimum requirements set by
each regulator at December 31, 1996.

Under risk-based capital adequacy guidelines set by the Federal
Reserve Board, banks and bank holding companies must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices.

Set forth in the table below are the risk-based capital and leverage
ratios and amounts for J.P. Morgan and Morgan Guaranty. Under the capital
guidelines established by the Federal Reserve Board, the published capital
ratios of J.P. Morgan are calculated excluding the equity, assets, and
off-balance-sheet exposures of JPMSI. JPMSI is subject to the SEC Uniform
Net Capital Rule, which requires the maintenance of minimum net capital. In
accordance with Federal Reserve Board guidelines, the risk-based capital
and leverage amounts and ratios exclude the effect of SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities.

<TABLE>
<CAPTION>
Amounts Ratios (c)
--------------------- ----------------
In millions 1996 1995 1996 1995
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 capital (a)
J.P. Morgan ............. $10 873 $ 9 033 8.8% 8.8%
Morgan Guaranty (d) ..... 9 665 8 510 8.2 8.6
-----------------------------------------------------------------------------------
Total risk-based capital (b)

J.P. Morgan ............. 15 145 13 398 12.2 13.0
Morgan Guaranty (d) ..... 13 551 11 143 11.5 11.2
-----------------------------------------------------------------------------------
Leverage

J.P. Morgan ............. 5.9 6.1
Morgan Guaranty (d) ..... 5.3 5.7
-----------------------------------------------------------------------------------

</TABLE>

(a) For capital adequacy purposes, J.P. Morgan and Morgan Guaranty required
minimum tier 1 capital of $5.0 billion and $4.7 billion respectively as of
December 31, 1996. At December 31, 1995, J.P. Morgan and Morgan Guaranty
required minimum tier 1 capital of $4.1 billion and $4.0 billion
respectively.

(b) For capital adequacy purposes, J.P. Morgan and Morgan Guaranty required
minimum total risk-based capital of $9.9 billion and $9.4 billion
respectively as of December 31, 1996. At December 31, 1995, J.P. Morgan and
Morgan Guaranty required minimum total capital of $8.3 billion and $7.9
billion respectively.

(c) Pursuant to Federal Reserve Board guidelines, the minimum tier 1 capital,
total risk-based capital, and leverage ratios are 4%, 8%, and 3%
respectively for bank holding companies and banks.

(d) The December 31, 1995 amounts and ratios have been restated to reflect the
merger of J.P. Morgan Delaware with Morgan Guaranty Trust Company of New
York effective June 1996.

Furthermore, for certain regulatory supervision purposes, bank regulators
use five capital category definitions applicable to banks ranging from
"well capitalized" to "critically undercapitalized." A bank is considered
"well capitalized" if it has minimum tier 1 capital, total capital, and
leverage ratios of 6%, 10%, and 5% respectively. At December 31, 1996 and
1995, Morgan Guaranty's ratios exceeded the minimum standards for a "well
capitalized" bank, under standards provided by the regulatory framework for
prompt corrective action and the Federal Reserve Board. Management is aware
of no conditions or events that have occurred since December 31, 1996, that
would change Morgan Guaranty's "well capitalized" status.

70
<PAGE> 73
Effective October 1996, the Federal Reserve Board issued a rule
implementing provisions of Regulation Y, which determines the capital
levels at which a bank holding company shall be considered "well
capitalized." Pursuant to these guidelines, the Federal Reserve Board
considers a bank holding company "well capitalized" if it has a minimum
tier 1 capital, total capital, and leverage ratios of 6%, 10%, and 4%
respectively. At December 31, 1996, J.P. Morgan's ratios exceeded the
minimum standards for a "well capitalized" bank holding company. Management
is aware of no conditions or events that have occurred since December 31,
1996, that would change J.P. Morgan's "well capitalized" status.

23. COMMITMENTS AND CONTINGENT LIABILITIES

Excluding mortgaged properties, assets carried at approximately $67.0
billion and approximately $53.1 billion in the consolidated balance sheet
at December 31, 1996 and 1995, respectively were pledged as collateral for
borrowings, to qualify for fiduciary powers, to secure public monies as
required by law, and for other purposes.

In compliance with rules and regulations established by various
domestic and foreign regulators, cash of $112 million and $96 million and
securities with a market value of $2,158 million and $1,786 million were
segregated in special bank accounts for the benefit of securities and
futures brokerage customers at December 31, 1996 and 1995, respectively.

Operating expenses include net rentals of $96 million in 1996, $115
million in 1995, and $94 million in 1994. Minimum rental commitments on
noncancelable leases for premises and equipment are $746 million in the
aggregate, and for each of the five years subsequent to December 31, 1996,
are $93 million (1997), $86 million (1998), $57 million (1999), $54 million
(2000), and $50 million (2001). Certain leases contain renewal options and
escalation clauses.

In the ordinary course of business, J.P. Morgan guarantees the
performance of certain obligations of certain subsidiaries and affiliates.
It is not anticipated that these agreements will have a material effect on
the results of operations of J.P. Morgan.

Various legal actions and proceedings are pending against or involve
J.P. Morgan and its subsidiaries. Management, after reviewing with counsel
all actions and proceedings pending against or involving J.P. Morgan and
its subsidiaries, considers that the aggregate liability or loss, if any,
resulting from them will not be material.

71
<PAGE> 74
24. CONCENTRATIONS OF FINANCIAL INSTRUMENTS

J.P. Morgan's clients and other counterparties to the company's on- and
off-balance-sheet financial instruments operate in diverse industries of
the world economy, most significantly in the United States and Europe, and
include nonbank financial institutions, governments, and banks.

Summarized in the following tables are the amounts of credit exposure
associated with the company's on- and off-balance-sheet financial
instruments allocated to the industries and geographic areas of the
ultimate obligors at December 31, 1996 and 1995. The amounts below do not
consider $97.0 billion and $95.5 billion of cash and marketable security
collateral at December 31, 1996 and 1995, respectively related mainly to
loans, resale agreements, securities lending indemnifications, and amounts
receivable for securities sold not yet settled, that are available to J.P.
Morgan to limit these credit exposures.

<TABLE>
<CAPTION>
Nonbank
financial Govern-
In billions institutions (a) ments Banks All other Total
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
On-balance-sheet:
North America (b) ..................... $ 30.6 $ 39.5 $ 23.8 $ 18.6 $112.5
Europe (c) ............................ 22.2 25.0 18.7 9.4 75.3
Asia Pacific .......................... 4.0 8.2 6.6 3.7 22.5
Latin America (d) ..................... 0.1 4.0 1.5 5.2 10.8
------------------------------------------------------------------------------------------------------------
Total on-balance-sheet credit exposure 56.9 76.7 50.6 36.9 221.1 (e)
------------------------------------------------------------------------------------------------------------
Off-balance-sheet:
North America (b) ..................... 20.3 5.7 5.1 42.0 73.1
Europe (c) ............................ 9.8 1.6 10.0 10.0 31.4
Asia Pacific .......................... 1.1 2.7 0.9 2.9 7.6
Latin America (d) ..................... 0.2 -- 0.3 0.6 1.1
------------------------------------------------------------------------------------------------------------
Total off-balance-sheet credit exposure 31.4 10.0 16.3 55.5 113.2
------------------------------------------------------------------------------------------------------------
Total credit exposure ................. 88.3 86.7 66.9 92.4(f) 334.3
------------------------------------------------------------------------------------------------------------
Cash and marketable security
collateral ......................... 51.8 1.6 33.1 10.5 97.0
------------------------------------------------------------------------------------------------------------
1995
On-balance-sheet:
North America (b) ..................... 32.2 33.6 20.8 17.3 103.9
Europe (c) ............................ 13.5 20.3 13.4 9.5 56.7
Asia Pacific .......................... 1.7 7.1 3.4 2.4 14.6
Latin America (d) ..................... 0.1 4.6 1.6 2.6 8.9
------------------------------------------------------------------------------------------------------------
Total on-balance-sheet credit exposure 47.5 65.6 39.2 31.8 184.1(e)
------------------------------------------------------------------------------------------------------------
Off-balance-sheet:
North America (b) ..................... 25.7 6.6 3.7 34.2 70.2
Europe (c) ............................ 8.9 5.8 6.0 8.4 29.1
Asia Pacific .......................... 0.4 1.0 2.4 2.3 6.1
Latin America (d) ..................... 0.7 0.7 0.3 0.2 1.9
------------------------------------------------------------------------------------------------------------
Total off-balance-sheet credit exposure 35.7 14.1 12.4 45.1 107.3
------------------------------------------------------------------------------------------------------------
Total credit exposure ................. 83.2 79.7 51.6 76.9 291.4
------------------------------------------------------------------------------------------------------------
Cash and marketable security
collateral ......................... 57.2 1.7 27.0 9.6 95.5
------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Nonbank financial institutions include securities firms, insurance
companies, and investment companies.

(b) Includes the United States, Canada, and the Carribean.

(d) Includes Mexico, Central America, and South America.

(e) On-balance-sheet items without credit exposure totaled $0.9 billion and
$0.8 billion in 1996 and 1995 respectively.

(f) The utilities industry exceeded 10% of this amount at December 31, 1996.

72
<PAGE> 75
25. INTERNATIONAL OPERATIONS

For financial reporting purposes, the operations of J.P. Morgan are divided
into domestic and international components. Management believes that the
methodology used to allocate J.P. Morgan's results between domestic and
international sources, while inexact, is an appropriate one.

Assets are distributed on the basis of the location of the borrower
or obligor, with the exception of interest-earning deposits with banks,
which are distributed based on the location of the institution receiving
the deposit, and trading account assets, premises and equipment, accrued
interest and accounts receivable, and other assets, which are distributed
based on the location of the office recording the asset.

Because the operations of J.P. Morgan are highly integrated,
identification of revenues and expenses by geographic region involves
estimates and assumptions. Client-focused revenues are assigned to the
region managing the client relationship for the particular product. For
finance and advisory products, this is the location of the client's head
office; for most other products, it is based on the location where activity
is transacted. Market-making revenues that cannot be specifically
attributed to individual clients (for example, gains/losses arising from
positions taken to facilitate client transactions) are generally allocated
based on the proportion of regional revenues. Revenues from proprietary
investing and trading activities are based upon the location of the
risk-taker. Expenses are allocated based on the estimated cost associated
with servicing the client base in the region. Earnings on stockholders'
equity are generally allocated based on the proportion of regional revenue,
and adjustments are made for differences between domestic and international
income tax rates.

On the basis described above, assets at December 31 and results for
the years ended December 31, 1996, 1995, and 1994 were distributed among
domestic and international operations as presented in the following table.

<TABLE>
<CAPTION>
Income
before Income
Total Total Total income tax Net
In millions assets revenues (a) expenses taxes expense income
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
Europe (b) ................... $ 95 854 $2 060 $1 367 $ 693 $ 277 $ 416
Asia Pacific ................. 11 365 845 458 387 155 232
Latin America (c) ............ 5 839 528 227 301 120 181
------------------------------------------------------------------------------------------------------------
Total international operations 113 058 3 433 2 052 1 381 552 829
Domestic operations (d) (e) .. 108 968 3 422 2 471 951 206 745
------------------------------------------------------------------------------------------------------------
Total ........................ 222 026 6 855 4 523 2 332 758 1 574
------------------------------------------------------------------------------------------------------------
1995
Europe (b) ................... 73 040 1 684 1 236 448 179 269
Asia Pacific ................. 7 753 786 430 356 143 213
Latin America (c) ............ 4 537 441 189 252 101 151
------------------------------------------------------------------------------------------------------------
Total international operations 85 330 2 911 1 855 1 056 423 633
Domestic operations (d) (e) .. 99 549 2 993 2 143 850 187 663
------------------------------------------------------------------------------------------------------------
Total ........................ 184 879 5 904 3 998 1 906 610 1 296
------------------------------------------------------------------------------------------------------------
1994
Europe (b) ................... 63 939 1 481 1 135 346 138 208
Asia Pacific ................. 5 840 578 363 215 86 129
Latin America (c) ............ 2 851 389 158 231 92 139
------------------------------------------------------------------------------------------------------------
Total international operations 72 630 2 448 1 656 792 316 476
Domestic operations (d) (e) .. 82 287 3 069 2 036 1 033 294 739
------------------------------------------------------------------------------------------------------------
Total ........................ 154 917 5 517 3 692 1 825 610 1 215
------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Includes net interest revenue and noninterest revenues.

(b) Includes Middle East and Africa.

(d) Includes the United States, Canada, and the Caribbean. Total assets include
$99.5 billion, $90.5 billion, and $78.2 billion at December 31, 1996, 1995,
and 1994, respectively related to United States operations. Total revenue
and expenses relate substantially to United States operations for all
years.

(e) Expenses for domestic operations include a technology-related charge of $71
million in 1996, a severance-related charge of $55 million in 1995, and
other unallocated corporate expenses.

73
<PAGE> 76
26. CONDENSED FINANCIAL STATEMENTS OF J.P. MORGAN (PARENT)

Presented below are the condensed statement of income, balance sheet, and
statement of cash flows for J.P. Morgan & Co. Incorporated, the parent
company.

STATEMENT OF INCOME
J.P. Morgan (parent)

<TABLE>
<CAPTION>
In millions 1996 1995 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Equity in undistributed earnings of subsidiaries .......... $1 093 $ 588 $ (82)
Dividends from subsidiaries:
Bank ................................................... 150 285 725
Other .................................................. 360 420 593
--------------------------------------------------------------------------------------------------
Total equity in earnings of subsidiaries .................. 1 603 1 293 1 236
Interest from subsidiaries ................................ 637 616 423
Other interest revenue .................................... 37 46 27
Investment banking revenue allocations from subsidiaries .. 103 71 59
Service fees from subsidiaries ............................ 186 134 87
Investment securities revenue ............................. (7) (28) (29)
Other revenue ............................................. (9) 3 17
--------------------------------------------------------------------------------------------------
Total revenues ............................................ 2 550 2 135 1 820
--------------------------------------------------------------------------------------------------
EXPENSES
Interest (includes $9 in 1996, $24 in 1995, and $16 in 1994
to subsidiaries) ....................................... 714 665 446
Employee compensation and benefits ........................ 203 159 103
Other expenses ............................................ 103 75 56
--------------------------------------------------------------------------------------------------
Total expenses ............................................ 1 020 899 605
--------------------------------------------------------------------------------------------------
Income before income taxes ................................ 1 530 1 236 1 215
Income tax benefit ........................................ (44) (60) --
--------------------------------------------------------------------------------------------------
Net income ................................................ 1 574 1 296 1 215
--------------------------------------------------------------------------------------------------
</TABLE>

74
<PAGE> 77
BALANCE SHEET
J.P. Morgan (parent)

<TABLE>
<CAPTION>
December 31
---------------------
In millions 1996 1995
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Interest-earning deposits with subsidiary bank ................................ $ 202 $ 377
Debt investment securities available-for-sale carried at fair value ........... 1 098 688
Investments in subsidiaries:

Bank ....................................................................... 9 891 8 985
U.S. broker-dealer ......................................................... 494 407
Other nonbanks ............................................................. 919 947
Advances to subsidiaries:
Bank ....................................................................... 3 545 1 878
U.S. broker-dealer ......................................................... 1 333 2 148
Other nonbanks, primarily securities-related ............................... 6 047 5 154
Accrued interest and accounts receivable, primarily from subsidiary bank ...... 296 265
Other assets (includes $1 577 in 1996 and $908 in 1995 related to
corporate-owned life insurance contracts, $669 in 1996 and $544 in 1995
related to deferred tax assets, and $50 in 1995 from dividends
receivable from subsidiary bank) ........................................... 2 343 1 660
------------------------------------------------------------------------------------------------------------
Total assets .................................................................. 26 168 22 509
------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Securities sold under agreements to repurchase (includes $87 in 1996 and
$102 in 1995 with subsidiary bank) ......................................... 505 102
Commercial paper .............................................................. 3 438 2 729
Other liabilities for borrowed money .......................................... -- 1 140
Accounts payable and accrued expenses ......................................... 1 434 1 255
Long-term debt not qualifying as risk-based capital ........................... 4 931 3 369
Other liabilities ............................................................. 161 71
------------------------------------------------------------------------------------------------------------
10 469 8 666
Long-term debt qualifying as risk-based capital ............................... 3 494 3 392
Intercompany debentures ....................................................... 773 (a) --
------------------------------------------------------------------------------------------------------------
Total liabilities ............................................................. 14 736 12 058
------------------------------------------------------------------------------------------------------------
Total stockholders' equity .................................................... 11 432 10 451
------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity .................................... 26 168 22 509
------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Consists solely of $773.2 million of 7.54% Junior Subordinated Debentures
issued to JPM Capital Trust I. Refer to Note 16 to the consolidated
financial statements, Company-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary.

75
<PAGE> 78
STATEMENT OF CASH FLOWS
J.P. Morgan (parent)

<TABLE>
<CAPTION>
In millions 1996 1995 1994
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME ............................................................. $ 1 574 $ 1 296 $ 1 215
Adjustments to reconcile to cash provided by operating activities:
Equity in undistributed (earnings) losses of subsidiaries ........... (1 093) (588) 82
Increase (decrease) due to changes in other
balance sheet amounts ............................................ 116 (223) 359
Net investment securities losses included in cash flows
from investing activities ........................................ 7 28 29
----------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES .................................. 604 513 1 685
----------------------------------------------------------------------------------------------------------------
(Increase) decrease in interest-earning deposits
with subsidiary bank ................................................ 227 1 263 (1 452)
Debt investment securities:
Proceeds from sales ................................................. 1 173 5 720 535
Purchases ........................................................... (1 605) (5 230) (1 064)
Increase in advances to subsidiaries ................................... (1 712) (2 479) (695)
Capital to subsidiaries ................................................ (23) (250) (270)
Payments for insurance contracts ....................................... (717) (367) (367)
Other changes, net ..................................................... (8) (14) 36
----------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES ...................................... (2 665) (1 357) (3 277)
----------------------------------------------------------------------------------------------------------------
Increase (decrease) in securities sold under agreements
to repurchase ....................................................... 403 (490) 281
Increase (decrease) in commercial paper ................................ 706 (698) 991
Increase (decrease) in other liabilities for borrowed money ............ (1 140) 1 140 -
Long-term debt:
Proceeds ............................................................ 1 792 2 230 1 575
Payments ............................................................ - (833) (464)
Intercompany debentures:
Proceeds ............................................................ 773 - -
Capital stock:
Issued or distributed ............................................... 424 143 61
Purchased ........................................................... (604) (293) (445)
Dividends paid ......................................................... (643) (583) (541)
Cash receipts from subsidiary bank for common stock issuable ........... 307 171 108
Other changes, net ..................................................... 41 57 26
----------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES .................................. 2 059 844 1 592
----------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND DUE FROM BANKS .................................... (2) - -
Cash and due from banks, beginning of year ............................. 2 2 2
----------------------------------------------------------------------------------------------------------------
Cash and due from banks, end of year ................................... - 2 2
----------------------------------------------------------------------------------------------------------------
Cash disbursements for interest and taxes .............................. $ 692 $ 617 $ 445
----------------------------------------------------------------------------------------------------------------
</TABLE>

76
<PAGE> 79
27. CERTAIN RESTRICTIONS: SUBSIDIARIES

Under the Federal Reserve Act and New York State law, there are legal
restrictions limiting the amount of dividends that Morgan Guaranty, a state
member bank, can declare. The most restrictive test requires approval of
the Federal Reserve Board if dividends declared exceed the net profits for
that year combined with the net profits for the preceding two years. The
calculation of the amount available for payment of dividends is based on
net profits determined in accordance with bank regulatory accounting
principles, reduced by the amount of dividends declared. At December 31,
1996, the cumulative retained net profits for the years 1996 and 1995
available for distribution as dividends in 1997 without approval of the
Federal Reserve Board amounted to approximately $1,859 million.

The Federal Reserve Board may prohibit the payment of dividends if it
determines that circumstances relating to the financial condition of a bank
are such that the payment of dividends would be an unsafe and unsound
practice.

U.S. federal law also places certain restrictions on certain types of
transactions engaged in by insured banks and their subsidiaries with
certain affiliates, including, in the case of Morgan Guaranty, J.P. Morgan
and its nonbanking subsidiaries. "Covered transactions" are limited to 20%
of capital and surplus, as defined, and "covered transactions" with any one
such affiliate are limited to 10% of capital and surplus. "Covered
transactions" are defined to include, among other things, loans and
extensions of credit to such an affiliate, purchases of assets from such an
affiliate, and any guarantees, acceptances, and letters of credit issued on
behalf of such an affiliate. Such loans, extensions of credit, guarantees,
acceptances, and letters of credit must be collateralized. In addition, a
wide variety of transactions engaged in by insured banks and their
subsidiaries with such affiliates are required to be made on terms and
under circumstances that are at least as favorable to the bank or
subsidiary concerned as those prevailing at the time for comparable
transactions with nonaffiliated companies.

Certain other subsidiaries are subject to various restrictions,
mainly regulatory requirements, that may limit cash dividends and advances
to J.P. Morgan and that establish minimum capital requirements.

77
<PAGE> 80
ADDITIONAL SELECTED DATA
J.P. Morgan & Co. Incorporated

<TABLE>
<CAPTION>
Dollars in millions, except per share data 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA
Total interest revenue ............................ $ 10 713 $ 9 937 $ 8 379 $ 7 442 $ 7 281
Total noninterest revenues ........................ 5 153 3 901 3 536 4 499 2 950
Total revenues .................................... 15 866 13 838 11 915 11 941 10 231
Net interest revenue .............................. 1 702 2 003 1 981 1 772 1 708
Provision for credit losses ....................... -- -- -- -- 55
Total operating expenses .......................... 4 523 3 998 3 692 3 580 2 854
Net income ........................................ 1 574 1 296 1 215 1 586(a) 1 582(b)
At year-end:
Total assets .................................... 222 026 184 879 154 917 133 888 103 197
Long-term debt and other capital securities (c).. 13 853 9 327 6 802 5 276 5 443
Stockholders' equity ............................ 11 432 10 451 9 568 9 859 7 308
Common stockholders' equity ..................... 10 738 9 957 9 074 9 365 6 814
Tier 1 risk-based capital (k) ................... 10 873 9 033 8 265 7 773 6 625
Total risk-based capital (k) .................... 15 145 13 398 12 221 10 850 9 672
Per common share:
Net income (d) .................................. $ 7.63 $ 6.42 $ 6.02 $ 7.80(a) $ 7.95(b)
Book value ...................................... 54.43(e) 50.71(f) 46.73(g) 47.25(h) 35.56
Dividends declared .............................. 3.31 3.06 2.79 2.48 2.23 1/2

EARNINGS RATIOS
Net income as % of:
Average total assets ............................ 0.73%(e) 0.73%(f) 0.70%(g) 1.08%(h) (i) 1.32%(j)
Average stockholders' equity .................... 14.3(e) 13.2(f) 12.5(g) 19.8(h) (i) 22.5 (j)
Average common stockholders' equity ............. 14.9(e) 13.6(f) 12.9(g) 20.9(h) (i) 23.9(j)

DIVIDEND PAYOUT RATIO
Dividends declared per common share as % of
net income per common share ..................... 43.4% 47.7% 46.3% 31.8%(i) 28.1%(j)

CAPITAL RATIOS
Average stockholders' equity as % of average
total assets .................................... 5.1%(e) 5.5%(f) 5.7%(g) 5.5%(h) 5.8%
Common stockholders' equity as % of:
Average total assets ............................ 5.0(e) 5.6(f) 5.3(g) 6.4(h) 5.7
Total year-end assets ........................... 4.8(e) 5.4(f) 5.9(g) 7.0(h) 6.6
Total stockholders' equity as % of:

Average total assets ............................ 5.3(e) 5.9(f) 5.5(g) 6.7(h) 6.1
Total year-end assets ........................... 5.2(e) 5.7(f) 6.2(g) 7.4(h) 7.1
Tier 1 risk-based capital ratio (k) ............... 8.8 8.8 9.6 9.3 8.9
Total risk-based capital ratio (k) ................ 12.2 13.0 14.2 13.0 13.0
Leverage ratio (k) ................................ 5.9 6.1 6.5 7.3 7.1

OTHER SELECTED DATA
Registered holders of record of common stock at
year-end ........................................ 29 607 29 391 29 596 28 919 28 061
Common shares outstanding at year-end
(in thousands) .................................. 184 923 187 116 187 701 193 087 191 610
Employees at year-end:
In the U.S. ..................................... 8 579 8 855 9 607 8 983 8 567
Outside the U.S. ................................ 6 948 6 758 7 448 6 210 5 801
- ----------------------------------------------------------------------------------------------------------------------------------
Total employees ................................... 15 527 15 613 17 055 15 193 14 368
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

78
<PAGE> 81
(a) Net income in 1993 includes a $137 million ($0.68 per share) charge related
to the cumulative effect of a change in accounting for postretirement
benefits adopted January 1, 1993.

(b) Net income in 1992 includes $452 million ($2.29 per share) related to the
cumulative effect of a change in accounting for income taxes adopted
retroactive to January 1, 1992. As a result of applying the new method of
accounting for income taxes, income before the cumulative effect of the
change for 1992 was reduced by $252 million, or $1.26 per share ($1.27 per
share assuming full dilution); net income was increased by $200 million, or
$1.03 per share ($1.02 per share assuming full dilution).

(c) Includes $3,692 million, $3,590 million, $3,197 million, $2,459 million,
and $2,300 million of long-term debt qualifying as risk-based capital in
1996, 1995, 1994, 1993, and 1992 respectively and $750 million of
Company-obligated mandatorily redeemable preferred securities of subsidiary
in 1996.

(d) Earnings per share amounts for 1994 and 1993 represent both primary and
fully diluted earnings per share; earnings per share amounts for 1996,
1995, and 1992 represent primary earnings per share. For 1996 fully diluted
earnings per share were $7.56. For 1995 fully diluted earnings per share
were $6.36. For 1992 fully diluted earnings per share before and after the
cumulative effect of the change in accounting were $5.63 and $7.92
respectively.

(e) Excluding the effect of SFAS No. 115, the book value per common share would
have been $52.08 for the 12 months ended December 31, 1996; net income
would have been 0.73% of average total assets, 14.89% of average
stockholders' equity, and 15.6% of average common stockholders' equity;
average stockholders' equity would have been 4.9% of average total assets;
common stockholders' equity would have been 4.79% of average total assets
and 4.64% of total year-end assets; and total stockholders' equity would
have been 5.12% of average total assets and 4.96% of total year-end assets.

(f) Excluding the effect of SFAS No. 115, the book value per common share would
have been $47.83 for the 12 months ended December 31, 1995; net income
would have been 0.73% of average total assets, 13.78% of average
stockholders' equity, and 14.3% of average common stockholders' equity;
average stockholders' equity would have been 5.3% of average total assets;
common stockholders' equity would have been 5.29% of average total assets
and 5.11% of total year-end assets; and total stockholders' equity would
have been 5.57% of average total assets and 5.37% of total year-end assets.

(g) Excluding the effect of SFAS No. 115, the book value per common share would
have been $44.39 for the 12 months ended December 31, 1994; net income
would have been 0.71% of average total assets, 13.6% of average
stockholders' equity, and 14.2% of average common stockholders' equity;
average stockholders' equity would have been 5.2% of average total assets;
common stockholders' equity would have been 5.0% of average total assets
and 5.6% of total year-end assets; and total stockholders' equity would
have been 5.3% of average total assets and 5.9% of total year-end assets.

(h) Excluding the effect of adopting SFAS No. 115 at December 31, 1993, the
book value per common share would have been $41.37; net income would have
been 1.09% of average total assets, 19.8% of average stockholders' equity,
and 20.9% of average common stockholders' equity; average stockholders'
equity would have been 5.5% of average total assets; common stockholders'
equity would have been 5.6% of average total assets and 6.2% of total
year-end assets; and total stockholders' equity would have been 6.0% of
average total assets and 6.6% of total year-end assets.

(i) Excluding the cumulative effect of the accounting change for postretirement
benefits, 1993 net income would have been 1.18% of average total assets,
21.1% of average stockholders' equity, and 22.3% of average common
stockholders' equity; dividends declared per common share would have been
29.3% of income per common share before the accounting change.

(j) Excluding the cumulative effect of the accounting change for income taxes,
1992 net income would have been 0.94% of average total assets, 17.2% of
average stockholders' equity, and 18.3% of average common stockholders'
equity; dividends declared per common share would have been 39.5% of income
per common share before the accounting change.

(k) In accordance with Federal Reserve Board guidelines, the effect of SFAS No.
115 and the equity, assets, and off-balance-sheet exposures of J.P. Morgan
Securities Inc. are excluded.

79
<PAGE> 82
CONSOLIDATED AVERAGE BALANCES AND TAXABLE-EQUIVALENT NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated

<TABLE>
<CAPTION>
In millions 1996 1995
- ---------------------------------------------------------------------------- ------------------------
Interest and average rates on Average Average Average Average
a taxable-equivalent basis balance Interest rate balance Interest rate
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning deposits with banks,
mainly in offices outside the U.S. ....... $ 2 022 $ 110 5.44% $ 1 796 $168 9.35%
Debt investment securities in offices
in the U.S.:(a)
U.S. Treasury ............................ 1 581 106 6.70 1 983 130 6.56
U.S. state and political subdivision ..... 1 591 183 11.50 1 964 236 12.02
Other .................................... 17 399 1 109 6.37 13 619 962 7.06
Debt investment securities in offices outside
the U.S.(a) .............................. 4 452 271 6.09 4 433 309 6.97
Trading account assets:
In offices in the U.S. ................... 16 591 994 5.99 12 802 836 6.53
In offices outside the U.S. .............. 29 656 2 285 7.71 25 560 2 205 8.63
Securities purchased under agreements to
resell and federal funds sold, mainly in
offices in the U.S. ...................... 43 064 2 254 5.23 31 769 1 942 6.11
Securities borrowed in offices in the U.S. .. 25 310 1 284 5.07 15 222 876 5.75
Loans:
In offices in the U.S. ................... 6 227 418 6.71 6 586 479 7.27
In offices outside the U.S. .............. 21 794 1 371 6.29 17 561 1 236 7.04
Other interest-earning assets:(b)
In offices in the U.S. ................... 940 139 * 1 185 252 *
In offices outside the U.S. .............. 1 027 274 * 1 635 412 *
- -----------------------------------------------------------------------------------------------------------
Total interest-earning assets ............... 171 654 10 798 6.29 136 115 10 043 7.38
Allowance for credit losses ................. (1 119) (1 130)
Cash and due from banks ..................... 935 1 796
Other noninterest-earning assets ............ 43 573 41 729
- -----------------------------------------------------------------------------------------------------------
Total assets ................................ 215 043 178 510
- -----------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
In millions 1994
- -------------------------------------------------------------------------------
Interest and average rates on Average Average
a taxable-equivalent basis balance Interest rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-earning deposits with banks,
mainly in offices outside the U.S. ....... $ 2 252 $ 197 8.75%
Debt investment securities in offices
in the U.S.:(a)
U.S. Treasury ............................ 1 282 79 6.16
U.S. state and political subdivision ..... 2 215 267 12.05
Other .................................... 10 569 547 5.18
Debt investment securities in offices outside
the U.S.(a) .............................. 6 010 409 6.81
Trading account assets:
In offices in the U.S. ................... 14 632 952 6.51
In offices outside the U.S. .............. 24 033 1 838 7.65
Securities purchased under agreements to
resell and federal funds sold, mainly in
offices in the U.S. ...................... 32 247 1 593 4.94
Securities borrowed in offices in the U.S. .. 15 615 624 4.00
Loans:
In offices in the U.S. ................... 7 754 438 5.65
In offices outside the U.S. .............. 16 201 991 6.12
Other interest-earning assets:(b)
In offices in the U.S. ................... 913 269 *
In offices outside the U.S. .............. 646 295 *
- --------------------------------------------------------------------------------
Total interest-earning assets ............... 134 369 8 499 6.33
Allowance for credit losses ................. (1 143)
Cash and due from banks ..................... 1 790
Other noninterest-earning assets ............ 37 565
- --------------------------------------------------------------------------------
Total assets ................................ 172 581
- --------------------------------------------------------------------------------
</TABLE>

The percentage of average interest-earning assets attributable to offices
outside the U.S. was 47% in 1996, 50% in 1995, and 48% in 1994. Average balances
are derived from daily balances except in the case of some subsidiaries, for
which they are derived from month-end balances. Interest and average rates
applying to the following asset categories have been adjusted to a
taxable-equivalent basis: Debt investment securities in offices in the U.S.,
Trading account assets in offices in the U.S., and Loans in offices in the U.S.
The applicable tax rate used to adjust tax-exempt interest to a
taxable-equivalent basis was approximately 41% in 1996, 1995, and 1994.

Impaired loans are included in the determination of average total loans.

(a) Average debt investment securities are computed based on historical
amortized cost, excluding the effects of SFAS No. 115 adjustments.

(b) Interest revenue includes the effect of certain off-balance-sheet
transactions.

* Not meaningful

80
<PAGE> 83

<TABLE>
<CAPTION>
In millions 1996 1995
- ------------------------------------------------------------------------------------------ ------------------------------------
Interest and average rates on Average Average Average Average
a taxable-equivalent basis balance Interest rate balance Interest rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
In offices in the U.S......................... $ 3 962 $ 204 5.15% $ 2 048 $ 98 4.79%
In offices outside the U.S.................... 45 148 2 337 5.18 41 762 2 422 5.80
Trading account liabilities:
In offices in the U.S......................... 8 295 522 6.29 6 596 438 6.64
In offices outside the U.S.................... 11 056 780 7.05 12 222 923 7.55
Securities sold under agreements to
repurchase and federal funds purchased,
mainly in offices in the U.S.................. 63 424 3 295 5.20 43 658 2 568 5.88
Commercial paper, mainly in offices in
the U.S....................................... 4 133 225 5.44 2 809 169 6.02
Other interest-bearing liabilities:
In offices in the U.S......................... 14 274 815 5.71 10 414 639 6.14
In offices outside the U.S.................... 2 258 204 9.03 1 869 127 6.80
Long-term debt, mainly in offices in the U.S..... 10 643 625 5.87 8 761 550 6.28
Company-obligated mandatorily redeemable
preferred securities of subsidiary............ 57 4 7.54 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities............... 163 250 9 011 5.52 130 139 7 934 6.10
Noninterest-bearing deposits:
In offices in the U.S......................... 2 298 3 336
In offices outside the U.S.................... 737 1 354
Other noninterest-bearing liabilities............ 37 767 33 822
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities................................ 204 052 168 651
Stockholders' equity............................. 10 991 9 859
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity....... 215 043 178 510
Net yield on interest-earning assets:............ 1.04 1.55
Attributable to offices in the U.S.(a) 0.76 1.29
Attributable to offices outside the U.S.(a) 1.36 1.85
Taxable-equivalent net interest earnings: 1 787 2 109
Attributable to offices in the U.S.(a) 699 883
Attributable to offices outside the U.S.(a) 1 088 1 226
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
In millions 1994
- -------------------------------------------------------------------------------------
Interest and average rates on Average Average
a taxable-equivalent basis balance Interest rate
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
In offices in the U.S..................... $ 2 175 $ 101 4.64%
In offices outside the U.S................ 37 768 1 845 4.89
Trading account liabilities:
In offices in the U.S..................... 8 028 510 6.35
In offices outside the U.S................ 11 109 778 7.00
Securities sold under agreements to
repurchase and federal funds purchased,
mainly in offices in the U.S.............. 48 372 2 196 4.54
Commercial paper, mainly in offices in
the U.S................................... 4 174 182 4.36
Other interest-bearing liabilities:
In offices in the U.S..................... 8 085 365 4.51
In offices outside the U.S................ 2 315 132 5.70
Long-term debt, mainly in offices in the U.S. 5 901 289 4.90
Company-obligated mandatorily redeemable
preferred securities of subsidiary........ -- -- --
- -------------------------------------------------------------------------------------
Total interest-bearing liabilities........... 127 927 6 398 5.00
Noninterest-bearing deposits:
In offices in the U.S..................... 3 818
In offices outside the U.S................ 1 395
Other noninterest-bearing liabilities........ 29 684
- -------------------------------------------------------------------------------------
Total liabilities............................ 162 824
Stockholders' equity......................... 9 757
- -------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 172 581
Net yield on interest-earning assets:........ 1.56
Attributable to offices in the U.S.(a) 1.41
Attributable to offices outside the U.S.(a) 1.73
Taxable-equivalent net interest earnings: 2 101
Attributable to offices in the U.S.(a) 994
Attributable to offices outside the U.S.(a) 1 107
- -------------------------------------------------------------------------------------
</TABLE>
The percentage of average interest-bearing liabilities attributable to
offices outside the U.S. was 47% in 1996, 53% in 1995, and 51% in 1994.

(a) Funding costs are allocated based on the location of the office recording
the asset. No allocation is made for capital.

81
<PAGE> 84
ANALYSIS OF YEAR-TO-YEAR CHANGES IN TAXABLE-EQUIVALENT NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated

<TABLE>
<CAPTION>
1996/95 1995/94
--------------------------------- ---------------------------------
Increase (decrease) Increase (decrease)
due to change in: due to change in:
-------------------- --------------------
Average Average Increase Average Average Increase
In millions balance rate (decrease) balance rate (decrease)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Interest-earning deposits with banks, mainly in offices
outside the U.S. ................................... $ 19 $ (77) $ (58) $ (42) $ 13 $ (29)
Debt investment securities in offices in the U.S.:
U.S. Treasury ...................................... (27) 3 (24) 46 5 51
U.S. state and political subdivision ............... (43) (10) (53) (30) (1) (31)
Other .............................................. 248 (101) 147 184 231 415
Debt investment securities in offices outside the U.S. 1 (39) (38) (109) 9 (100)
Trading account assets:
In offices in the U.S. ............................. 231 (73) 158 (119) 3 (116)
In offices outside the U.S. ........................ 330 (250) 80 122 245 367
Securities purchased under agreements to resell and
federal funds sold, mainly in offices in the U.S. .. 620 (308) 312 (24) 373 349
Securities borrowed in offices in the U.S. ............ 522 (114) 408 (16) 268 252
Loans:
In offices in the U.S. ............................. (25) (36) (61) (72) 113 41
In offices outside the U.S. ........................ 277 (142) 135 88 157 245
Other interest-earning assets:
In offices in the U.S. ............................. (46) (67) (113) 69 (86) (17)
In offices outside the U.S. ........................ (161) 23 (138) 295 (178) 117
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets ......................... 1 946 (1 191) 755 392 1 152 1 544
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
In offices in the U.S. ............................. 99 7 106 (6) 3 (3)
In offices outside the U.S. ........................ 187 (272) (85) 209 368 577
Trading account liabilities:
In offices in the U.S. ............................. 108 (24) 84 (94) 22 (72)
In offices outside the U.S. ........................ (84) (59) (143) 81 64 145
Securities sold under agreements to repurchase and
federal funds purchased, mainly in offices in
the U.S. ........................................... 1 052 (325) 727 (229) 601 372
Commercial paper, mainly in offices in the U.S. ....... 73 (17) 56 (70) 57 (13)
Other interest-bearing liabilities:
In offices in the U.S. ............................. 224 (48) 176 121 153 274
In offices outside the U.S. ........................ 29 48 77 (28) 23 (5)
Long-term debt, mainly in offices in the U.S. ......... 108 (33) 75 175 86 261
Company-obligated mandatorily redeemable preferred
securities of subsidiary ........................... 4 -- 4 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities .................... 1 800 (723) 1 077 159 1 377 1 536
- ----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN TAXABLE-EQUIVALENT NET INTEREST EARNINGS .... 146 (468) (322) 233 (225) 8
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Changes in the average balance/rate are allocated based on the percentage
relationship of the change in average balance or average rate to the total
increase (decrease). Included in the above analysis is approximately $1 million,
$38 million, and $39 million of interest revenue recorded in 1996, 1995, and
1994 respectively that related to prior years.

TAXABLE-EQUIVALENT NET INTEREST EARNINGS AND THE CONSOLIDATED STATEMENT OF
INCOME

J.P. Morgan & Co. Incorporated

<TABLE>
<CAPTION>
In millions 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable interest revenue............................................. $10 551 $ 9 728 $8 154
Tax-exempt interest revenue, adjusted to a taxable-equivalent basis.. 247 315 345
- ------------------------------------------------------------------------------------------------------
Total interest revenue, adjusted to a taxable-equivalent basis....... 10 798 10 043 8 499
Less: interest expense............................................... 9 011 7 934 6 398
- ------------------------------------------------------------------------------------------------------
Taxable-equivalent net interest earnings............................. 1 787 2 109 2 101
Less: adjustment of tax-exempt interest revenue...................... 85 106 120
- ------------------------------------------------------------------------------------------------------
Net interest revenue, as in the consolidated statement of income..... 1 702 2 003 1 981
- ------------------------------------------------------------------------------------------------------
</TABLE>

82
<PAGE> 85
ASSET-QUALITY ANALYSIS

LOANS

J.P. Morgan's portfolio of loans is diversified by borrower, industry, and
geographic area. On the basis of the location of the borrower or, in the case of
guaranteed loans, the location of the guarantor, at December 31, 1996 and 1995,
45% of loans were in the United States. No more than 9% and 12% of loans were in
any single foreign country at year-end 1996 and 1995 respectively. At December
31, 1996 and 1995, 14% and 12% respectively of loans were collateralized by
marketable securities or cash. At December 31, 1996, after exclusion of these
collateralized amounts, the only category of borrower or guarantor that
accounted for 10% or more of total loans was banks, which accounted for 13%,
while at December 31, 1995, no category accounted for 10% or more of total
loans.

The following table shows loan diversity based upon maturity and
interest rate structure, by category and location of the booking office.

<TABLE>
<CAPTION>
Maturing
----------------------------------------------------------------------
After one After five
Within year but years but After
In millions: December 31, 1996 one year within five within ten ten years Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOANS IN OFFICES IN THE U.S.
Commercial and industrial.......... $ 484 $ 560 $ 623 $211 $ 1 878
Financial institution:
Banks........................... 441 200 -- -- 641
Other financial institutions.... 404 380 72 46 902
Collateralized by real estate...... 26 91 61 146 324
Other, including U.S. state and
political subdivision........... 1 059 153 210 66 1 488
- ---------------------------------------------------------------------------------------------------------------
2 414 1 384 966 469 5 233
- ---------------------------------------------------------------------------------------------------------------
LOANS IN OFFICES OUTSIDE THE U.S.
Commercial and industrial.......... 4 192 6 413 1 388 33 12 026
Financial institution:
Banks........................... 1 755 1 009 89 -- 2 853
Other financial institutions.... 2 775 1 427 256 64 4 522
Collateralized by real estate...... 207 121 9 27 364
Foreign governments and official
institutions.................... 337 349 118 7 811
Other.............................. 1 326 712 272 1 2 311
- ---------------------------------------------------------------------------------------------------------------
10 592 10 031 2 132 132 22 887
- ---------------------------------------------------------------------------------------------------------------
13 006 11 415 3 098 601 28 120
- ---------------------------------------------------------------------------------------------------------------
LOANS AT FIXED RATES OF INTEREST
Offices in the U.S................. 691 865 582 198 2 336
Offices outside the U.S............ 2 291 770 144 30 3 235
- ---------------------------------------------------------------------------------------------------------------
2 982 1 635 726 228 5 571
- ---------------------------------------------------------------------------------------------------------------
LOANS AT FLOATING RATES OF INTEREST
Offices in the U.S................. 1 723 519 384 271 2 897
Offices outside the U.S............ 8 301 9 261 1 988 102 19 652
- ---------------------------------------------------------------------------------------------------------------
10 024 9 780 2 372 373 22 549
- ---------------------------------------------------------------------------------------------------------------
13 006 11 415 3 098 601 28 120
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 86
Additional detail on loans by category and location at December 31 is presented
in the following table.

<TABLE>
<CAPTION>
In millions 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOANS IN OFFICES IN THE U.S.
Commercial and industrial.......... $ 1 878 $ 1 990 $ 3 047 $ 3 507 $ 3 643
Financial institution:
Banks........................... 641 729 458 730 258
Other financial institutions.... 902 527 738 1 457 1 089
Collateralized by real estate...... 324 365 365 411 457
Other, including U.S. state and
political subdivision........... 1 488 1 666 1 483 1 928 2 802
- -----------------------------------------------------------------------------------------------------------
5 233 5 277 6 091 8 033 8 249
- -----------------------------------------------------------------------------------------------------------
LOANS IN OFFICES OUTSIDE THE U.S.
Commercial and industrial.......... 12 026 10 045 8 451 7 809 8 777
Financial institution:
Banks........................... 2 853 1 447 1 940 1 076 956
Other financial institutions.... 4 522 3 013 2 460 3 917 4 107
Collateralized by real estate...... 364 281 329 313 691
Foreign governments and official
institutions.................... 811 1 042 846 1 149 1 840
Other.............................. 2 311 2 348 1 963 2 083 1 818
- -----------------------------------------------------------------------------------------------------------
22 887 18 176 15 989 16 347 18 189
- -----------------------------------------------------------------------------------------------------------
28 120 23 453 22 080 24 380 26 438
- -----------------------------------------------------------------------------------------------------------
</TABLE>

Impaired loans

Impaired loans, net of charge-offs, at December 31, distributed according to the
location of the borrower, are presented in the following table. At December 31,
1996, more than half of the impaired loan balance is measured based upon the
present value of expected future cash flows discounted at an individual loan's
effective interest rate, and the remainder is primarily based on the fair value
of the collateral.

<TABLE>
<CAPTION>
In millions 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BORROWERS IN THE U.S.
Commercial and industrial....... $ 83 $ 59 $106 $129 $168
Other........................... 17 31 60 68 114
- ----------------------------------------------------------------------------
100 90 166 197 282
- ----------------------------------------------------------------------------
BORROWERS OUTSIDE THE U.S.
Commercial and industrial....... 6 8 30 53 33
Other........................... 12 17 21 24 38
- ----------------------------------------------------------------------------
18 25 51 77 71
Restructuring countries......... 2 2 2 8 183
- ----------------------------------------------------------------------------
20 27 53 85 254
- ----------------------------------------------------------------------------
120 117 219 282 536
- ----------------------------------------------------------------------------
</TABLE>

84
<PAGE> 87
An analysis of changes in impaired loans is presented in the following table.

<TABLE>
<CAPTION>
In millions 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
IMPAIRED LOANS, JANUARY 1.......... $117 $219 $282 $536 $642
Additions to impaired loans........ 98 89 96 113 201
Less: Repayments of principal net
of additional advances.......... 56 113 53 86 86
Loans returning to accrual status -- -- 42 26 78
Charge-offs:
Commercial and industrial.... 8 13 20 24 62
Restructuring countries...... -- -- 1 1 6
Other........................ 7 7 8 30 33
Interest and other credits...... 11 12 11 19 20
Sales and swaps of loans........ 13 46 24 181 22
- -------------------------------------------------------------------------------
IMPAIRED LOANS, DECEMBER 31........ 120 117 219 282 536
- -------------------------------------------------------------------------------
</TABLE>

Loans that are 90 days or more past due may still accrue interest if they are in
the process of collection and are either well collateralized or guaranteed. The
composition of such loans at December 31 is presented in the following table.

(a) Guaranteed by the French and Swiss governments.

Aggregate allowance and provision for credit losses

A provision for credit losses is recorded in each accounting period as
necessary, based on senior management's judgment as to the amount needed to
maintain the aggregate allowance for credit losses at an adequate level to
absorb losses inherent in the existing portfolios of loans and other
undertakings to extend credit, such as irrevocable unused loan commitments, or
to make payments to others for which a client is ultimately liable, such as
standby letters of credit and guarantees, commercial letters of credit and
acceptances, and all other credit exposures, including derivatives. Size and
risk characteristics of the portfolios are considered in determining the
appropriate level for the aggregate allowance, and therefore the amount of the
provision. Because J.P. Morgan deals with a relatively small number of
borrowers, management believes that it is generally able to identify borrowers
with financial problems reasonably early and to monitor carefully its credits to
such borrowers. The Asset Quality Review Committee recommends those credits or
portions of credits that are judged to be uncollectible and should therefore be
charged off. It also recommends the size of the aggregate allowance considered
adequate after taking such charge-offs into account.

Specific allocations

In reaching its judgment as to an adequate aggregate allowance, the Asset
Quality Review Committee estimates the amounts necessary to provide for possible
losses relating to specific credits. Although these credits are presently judged
to be collectible, there is a greater-than-normal risk that some portion of them
will become uncollectible if the factors that have adversely affected those
borrowers continue.

<PAGE> 88
Allocation to general risk

The allocation to general risk considers the probability that there are inherent
losses in the existing portfolios that cannot yet be identified. The allocation
to general risk also includes the portion of the aggregate allowance that can be
considered to be related to outstandings to restructuring countries. The portion
of the aggregate allowance related to restructuring countries is based on
overall concerns about the willingness and ability of certain countries to make
timely payments on their outstanding debt and does not result in allocations of
the allowance being made against specific counterparties.

The following table summarizes the activity in the consolidated
aggregate allowance for credit losses for the last five years.

<TABLE>
<CAPTION>
In millions 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1................. $1 130 $1 131 $1 157 $1 258 $1 419
- -----------------------------------------------------------------------------------------------------------
Recoveries:
Borrowers in the U.S., primarily
commercial and industrial.... 20 37 14 7 7
Borrowers outside the U.S....... 5 17 31 53 26
- -----------------------------------------------------------------------------------------------------------
25 54 45 60 33
- -----------------------------------------------------------------------------------------------------------
CHARGE-OFFS:
Borrowers in the U.S., primarily
commercial and industrial.... (36) (45) (51) (78) (117)
Borrowers outside the U.S.:
Restructuring countries...... -- - (18) (37) (48)
Other, primarily commercial
and industrial............ (3) (10) (3) (45) (82)
- -----------------------------------------------------------------------------------------------------------
(39) (55) (72) (160) (247)
- -----------------------------------------------------------------------------------------------------------
Net charge-offs.................... (14) (1) (27) (100) (214)
Provision for credit losses........ -- -- -- -- 55
Translation adjustment............. -- -- 1 (1) (2)
- -----------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31............... 1 116 (a) 1 130 1 131 1 157 1 258
- -----------------------------------------------------------------------------------------------------------
Specific allocations, primarily
commercial and industrial (b)... 249 283 186 283 326
Allocation to general risk (c)..... 867 847 945 874 932
- -----------------------------------------------------------------------------------------------------------
Net charge-offs as % of average
loans (d)....................... 0.05% 0.01% 0.11% 0.38% 0.74%
- -----------------------------------------------------------------------------------------------------------
</TABLE>

(a) At December 31, 1996, the aggregate allowance has been apportioned and
displayed as follows: $566 million as a reduction of loans, $350 million as
a reduction of trading account assets relating to derivatives, and $200
million included in other liabilities related to undertakings to extend
credit that are not currently reflected on the consolidated balance sheet.

(b) At December 31, 1996, 1995, 1994, 1993, and 1992, the specific allocation
of the aggregate allowance for credit losses was as follows: borrowers in
the U.S., $169 million, $224 million, $116 million, $164 million, and $198
million respectively; borrowers outside the U.S., $80 million, $59 million,
$70 million, $119 million, and $128 million respectively.

(c) Includes the portion of the aggregate allowance that could be considered to
be related to outstandings to restructuring countries, which totaled
approximately $129 million, $310 million, $239 million, $310 million, and
$426 million at December 31, 1996, 1995, 1994, 1993, and 1992,
respectively.

(d) Excluding restructuring-country net charge-offs and loans, the ratios for
1996, 1995, 1994, 1993, and 1992 would have been 0.05%, 0.05%, 0.13%,
0.37%, and 0.68% respectively.

Foreign-country-related assets

The composition of foreign-country-related assets is presented in the following
table. Assets are distributed on the basis of the location of the borrower or
obligor, with the exception of interest-earning deposits with banks, which are
distributed based on the location of the office receiving the deposit, and
trading account assets, premises and equipment, accrued interest and accounts
receivable, and other assets, which are distributed based on the location of the
office recording the asset.

86
<PAGE> 89
<TABLE>
<CAPTION>
In millions: December 31 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-earning deposits with banks:
At overseas branches or subsidiaries of U.S. banks..... $ 305 $ 70 $ 94
Other.................................................. 1 539 1 906 1 258
Loans..................................................... 15 491 12 982 11 270
Less: allowance for credit losses......................... 356 716 647
- ----------------------------------------------------------------------------------------------------
Net loans................................................. 15 135 12 266 10 623
Investment securities..................................... 4 087 4 557 4 442
Trading account assets, net............................... 66 704 50 588 40 070
Customers' acceptance liability........................... 212 193 342
Other assets.............................................. 34 546 24 756 19 864
- ----------------------------------------------------------------------------------------------------
Total foreign-country-related assets...................... 122 528 94 336 76 693
- ----------------------------------------------------------------------------------------------------
</TABLE>

For financial statement reporting purposes, beginning December 31, 1996, in
accordance with the American Institute of Certified Public Accountants Banks and
Savings Institutions Audit Guide, while we consider it in the aggregate, the
total allowance has been apportioned and displayed as a reduction of Loans, a
reduction of Trading account assets relating to derivatives, and as Other
liabilities relating to undertakings to extend credit that are not currently
reflected on the consolidated balance sheet. Prior period amounts have not been
reclassified.

Foreign-country-related aggregate allowance for credit losses

In response to regulatory requirements, the following table presents the
foreign-country-related portion of the aggregate allowance for credit losses. In
cases where a specific allocation of the aggregate allowance was made for a
borrower, the foreign-country-related component is determined on the basis of
the borrower's location. The foreign-country-related portion of the aggregate
allowance also includes the amount of the allowance that could be considered to
relate to outstandings to restructuring countries. The remaining portion of the
aggregate allowance allocated to general risk is apportioned to U.S.-related and
foreign-country-related components in the same proportion as average total
loans.

<TABLE>
<CAPTION>
In millions 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1................. $ 716 $647 $708 $748 $ 807
- -------------------------------------------------------------------------------------
Recoveries......................... 5 17 31 53 26
Charge-offs:
Commercial and industrial....... (1) (6) (2) (34) (69)
Restructuring countries......... -- -- (18) (37) (48)
Other........................... (2) (4) (1) (11) (13)
- -------------------------------------------------------------------------------------
Net charge-offs.................... 2 7 10 (29) (104)
Provision for credit losses........ -- -- (1) 9 17
Net transfer from (to) U.S.-related
allowance....................... (187) 62 (71) (19) 30
Translation adjustment............. -- -- 1 (1) (2)
- -------------------------------------------------------------------------------------
BALANCE, DECEMBER 31............... 531 716 647 708 748
- -------------------------------------------------------------------------------------
</TABLE>

Foreign-country-related outstandings

Foreign-country-related outstandings represent outstandings to foreign borrowers
that are denominated in U.S. dollars or currencies other than the borrower's
local currency or, in the case of a guarantee, other than the guarantor's local
currency. Countries in which J.P. Morgan's outstandings exceeded 1% of total
assets at December 31, 1996, 1995, and 1994, are listed in the following table.
Outstandings, which are shown by category of borrower, include loans,
interest-earning deposits with banks, investment securities, customers'
acceptance liability, securities purchased under agreements to resell, trading
account securities, accrued interest, and other monetary assets. Outstandings
generally are distributed according to the location and category of the
borrower. In the case of guaranteed outstandings or when tangible, liquid
collateral is held and realizable outside the obligor's country, distribution is
generally made according to the location and category of the guarantor or the
location where the collateral is held and realizable.

87
<PAGE> 90
<TABLE>
<CAPTION>
Public sector Private sector
--------------------------------------- -------------------
Governments,
government agencies,
central banks, and Commit- Con-
official and Government-owned Other, ments tingent
international ---------------- mainly to extend out-
In millions: December 31 institutions Banks Other Banks businesses Total credit standings(a)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996
United Kingdom............ $522 $ 3 $ 22 $1 221 $3 002 $4 770 $5 992 $1 504
France.................... 352 1 077 467 1 289 465 3 650 1 888 473
Switzerland............... -- 4 86 1 847 327 2 264 501 470
- --------------------------------------------------------------------------------------------------------------------------------
1995 (b)
United Kingdom............ 403 8 12 1 007 5 674 7 104 6 293 960
France.................... 208 1 343 533 1 329 342 3 755 1 289 350
- --------------------------------------------------------------------------------------------------------------------------------
1994 (b)
United Kingdom............ 40 263 4 669 3 018 3 994 4 263 2 876
Switzerland............... 1 17 49 961 613 1 641 397 749
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The amounts reported for each country exclude those outstandings that are
denominated in the local currency of that country except in cases of net
unfunded or unhedged positions in the local currency.

(a) Contingent outstandings include standby letters of credit, guarantees, and
securities lending indemnifications.

(b) Mexican cross-border outstandings at December 31, 1995 and 1994, were
$1,196 million and $1,086 million respectively, less than 0.75% of total
assets; commitments to extend credit and contingent outstandings were $6
million and $1 million at December 31, 1995, and $30 million and $11
million at December 31, 1994. Not included in Mexican cross-border
outstandings are United Mexican States (UMS) bonds, substantially all of
which have been sold forward (and delivered in 1996), which are
collateralized by U.S. Treasury securities. If the book value of these
bonds, which is discussed below, had been included, total Mexican
cross-border outstandings would have exceeded 1% of total assets at
December 31, 1995 and 1994.

<TABLE>
<CAPTION>
1995 1994
------------- ----------------
Book Face Book Face
In millions: December 31 value value value value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UMS bonds collateralized by U.S.
Treasury securities:
Due in 2008....................... $855 $879 $1 112 $1 149
Due in 2019....................... 561 786 985 1 303
- ----------------------------------------------------------------------------
</TABLE>

The UMS bonds were collateralized as to principal by zero-coupon U.S. Treasury
securities with a face value equal to the face value of the underlying bonds.
The collateral was pledged to the holders of the bonds and held by the Federal
Reserve Bank of New York. The fair value of the U.S. Treasury securities was
$635 million and $585 million at December 31, 1995 and 1994, respectively. The
estimated market value of the UMS bonds at December 31, 1995 and 1994, was
$1,298 million and $1,945 million respectively.

At December 31, 1996 and 1995, the amount of impaired loans relating to the
countries listed in the table was immaterial. At December 31, 1994, there were
no impaired loans relating to the countries listed in the above table.
Additionally, loans contractually past due 90 days or more as to principal or
interest payments but with interest still being accrued were immaterial for each
of the countries in the table at December 31, 1996, 1995, and 1994.

Foreign countries in which J.P. Morgan's total foreign-country-related
outstandings were between 0.75% and 1% of total assets are presented below.

<TABLE>
<CAPTION>
Total cross-border
In millions: December 31 outstandings
- ----------------------------------------------------------
<S> <C>
1995
Switzerland.................... $1 761
- ----------------------------------------------------------
</TABLE>

At December 31, 1996 and 1994, there were no foreign-country-related
outstandings between 0.75% and 1% of total assets.

88
<PAGE> 91
DERIVATIVES USED FOR PURPOSES OTHER-THAN-TRADING

The objective of J.P. Morgan's investing activities is to create longer-term
value through the management of interest rate risk related to J.P. Morgan's
nontrading assets, liabilities, and off-balance-sheet activities. J.P. Morgan
utilizes a variety of financial instruments, including derivatives, in an
integrated manner to achieve these objectives. Additional information on
derivatives used for purposes other-than-trading, primarily interest rate swaps,
is provided below. For more information about investing activities, see the
Proprietary Investing and Trading section of the Business sector analysis, and
Note 9 to the consolidated financial statements, Off-balance-sheet financial
instruments.

The table below summarizes maturities and weighted-average interest
rates to be received and paid on U.S. dollar and non-U.S. dollar interest rate
swaps used for purposes other-than-trading at December 31, 1996. The majority of
nontrading interest rate swaps, as presented below, are risk-adjusting swaps.
Also included in the table are swaps designated as hedges or used to modify the
interest rate characteristics of assets and liabilities. Variable rates
presented are generally based on the London Interbank Offered Rate (LIBOR) in
effect on the swaps at December 31, 1996, and reset at predetermined dates. The
table was prepared under the assumption that these variable interest rates will
remain constant. The variable interest rates to be received or paid will change
to the extent that rates fluctuate. Such changes may be substantial.

Not included in the table below are other derivatives used for purposes
other-than-trading, such as currency swaps, basis swaps, foreign exchange
contracts, interest rate futures, forward rate agreements, debt securities
forwards, and purchased options, totaling $88.7 billion at December 31, 1996.
The contractual maturities of these derivative contracts are primarily less than
one year.

By expected maturities

<TABLE>
<CAPTION>
After
In billions 1997 1998 1999 2000 2001 2001 Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE SWAPS:
U.S. DOLLAR
Receive fixed swaps
Notional amount.......... $18.5 $13.6 $ 4.1 $ 2.9 $ 1.8 $ 11.7 $ 52.6
Weighted average:
Receive rate.......... 6.2% 6.1% 7.1% 6.5% 6.7% 6.5% 6.3%
Pay rate.............. 5.6 5.5 5.3 5.5 5.5 5.5 5.5

Pay fixed swaps
Notional amount.......... $21.6 $14.7 $ 3.5 $ 8.3 $ 5.1 $ 9.9 $ 63.1
Weighted average:
Receive rate.......... 5.2% 5.5% 5.6% 5.6% 5.5% 5.6% 5.4%
Pay rate.............. 5.9 5.7 6.8 6.2 6.6 7.0 6.2

INTEREST RATE SWAPS:
NON-U.S. DOLLAR
Receive fixed swaps
Notional amount.......... $26.0 $15.8 $ 9.4 $ 8.2 $ 3.5 $ 6.0 $ 68.9
Weighted average:
Receive rate.......... 6.2% 4.8% 6.1% 6.2% 6.8% 7.0% 6.0%
Pay rate.............. 3.6 2.8 3.3 3.5 3.8 3.6 3.4

Pay fixed swaps
Notional amount.......... $25.5 $12.4 $ 9.1 $ 6.9 $ 2.8 $ 5.3 $ 62.0
Weighted average:
Receive rate.......... 3.5% 3.5% 3.4% 4.0% 3.8% 3.5% 3.6%
Pay rate.............. 6.1 5.4 6.0 6.4 7.2 7.2 6.1
- -------------------------------------------------------------------------------------------------------------
Total notional amount.... $91.6 $56.5 $26.1 $26.3 $13.2 $32.9 $246.6
- -------------------------------------------------------------------------------------------------------------
</TABLE>

Not included in the table above are $3.9 billion and $2.5 billion of notional
amounts related to currency swaps and basis swaps respectively.

89
<PAGE> 92
CAPITAL AND FUNDING ANALYSIS

RISK-ADJUSTED ASSETS

J.P. Morgan's consolidated risk-adjusted assets and the net adjustments to
exclude the assets and off-balance-sheet exposures of J.P. Morgan Securities
Inc. (JPMSI) at December 31 are set forth in the following table.

<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ---------------------
Balance Balance Balance
sheet/ Risk- sheet/ Risk- sheet/ Risk-
notional adjusted notional adjusted notional adjusted
In billions amount balance amount balance amount balance
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks and interest-
earning deposits with banks........ $ 2.8 $ 0.7 $ 3.5 $ 0.9 $ 3.5 $ 0.7
Debt investment securities............ 24.9 4.0 24.6 3.6 22.7 2.9
Trading account assets, net........... 91.0 22.4 69.4 18.3 57.0 11.3
Resale agreements and federal
funds sold......................... 32.5 5.7 32.2 3.1 21.4 4.4
Securities borrowed................... 27.9 7.4 19.8 4.0 12.1 2.4
Loans, net............................ 27.6 23.6 22.3 20.7 21.0 18.9
Customers' acceptance liability....... 0.2 0.2 0.2 0.2 0.6 0.6
Premises and equipment, net........... 1.9 1.9 1.9 1.9 2.0 2.0
Other assets.......................... 13.2 9.8 11.0 7.3 14.6 12.0
- ----------------------------------------------------------------------------------------------------------------------
Total assets.......................... 222.0 75.7 184.9 60.0 154.9 55.2
Net effect of excluding JPMSI assets
(primarily trading account assets,
resale agreements, and securities
borrowed).......................... (43.8) (7.2) (37.3) (5.7) (25.8) (7.8)
- ----------------------------------------------------------------------------------------------------------------------
Assets, excluding JPMSI............... 178.2 68.5 147.6 54.3 129.1 47.4
- ----------------------------------------------------------------------------------------------------------------------
OFF-BALANCE-SHEET EXPOSURES
Commitments to extend credit.......... 64.7 22.5 55.1 21.3 44.6 16.7
Standby letters of credit and guarantees 13.9 7.9 11.7 8.6 9.9 7.8
Securities lending indemnifications... 5.5 1.4 5.4 0.7 19.5 1.8
Other credit facilities............... 0.6 0.6 1.3 0.9 0.6 0.2
Foreign exchange contracts,
including foreign exchange options. 844.6 4.4 607.1 3.1 494.9 3.5
Currency swaps........................ 205.9 4.3 144.2 3.8 112.7 3.5
Interest rate swaps................... 1 915.0 7.3 1 371.4 6.1 862.2 3.6
Interest rate and other contracts..... 1 750.8 8.2 1 324.0 4.5 1 002.7 1.8
- ----------------------------------------------------------------------------------------------------------------------
Total off-balance-sheet exposures..... 4 801.0 56.6 3 520.2 49.0 2 547.1 38.9
Net effect of excluding JPMSI
off-balance-sheet exposures........ (29.1) (1.2) (27.7) (0.2) (58.0) --
- ----------------------------------------------------------------------------------------------------------------------
Off-balance-sheet exposures,
excluding JPMSI.................... 4 771.9 55.4 (a) 3 492.5 48.8 (a) 2 489.1 38.9 (a)
- ----------------------------------------------------------------------------------------------------------------------
Gross risk-adjusted assets, excluding
JPMSI.............................. 123.9 103.1 86.3
Less: allowance for credit losses not
qualifying as risk-based capital... -- -- (0.1)
- ----------------------------------------------------------------------------------------------------------------------
Risk-adjusted assets,
excluding JPMSI.................... 123.9 103.1 86.2
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Includes $9.9 billion, $6.8 billion, and $4.6 billion at December 31, 1996,
1995, and 1994, respectively related to potential future credit exposure as
defined in the risk-based capital framework.

90
<PAGE> 93
DEPOSITS

Average deposits in offices outside the U.S. are presented in the following
table.

<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------ -------------------
Average Average Average Average Average Average
In millions balance rate paid balance rate paid balance rate paid
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-BEARING DEPOSITS
From banks in foreign countries....... $13 753 4.96% $11 703 6.44% $12 139 5.05%
From foreign governments and
official institutions.............. 11 020 4.97 10 374 5.55 8 932 4.24
Other time............................ 16 830 5.96 15 750 6.10 13 114 5.75
On demand............................. 3 545 2.96 3 935 3.30 3 583 2.76
- ---------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits in
offices outside the U.S............ 45 148 5.18 41 762 5.80 37 768 4.89
- ---------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING DEPOSITS
From banks in foreign countries....... 29 56 183
From foreign governments and
official institutions.............. 5 6 43
Other demand.......................... 703 1 292 1 169
- ---------------------------------------------------------------------------------------------------------------
Total noninterest-bearing deposits in
offices outside the U.S............ 737 1 354 1 395
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

Foreign-country-related deposits in offices in the U.S. totaled $0.8 billion at
December 31, 1996, $1.2 billion at December 31, 1995, and $0.9 billion at
December 31, 1994.

A profile of the maturities of time certificates of deposit and other
time deposits in denominations of $100,000 or more at December 31, 1996, is
presented in the following table.

<TABLE>
<CAPTION>
After six
Within After three months but After
three months but within one
In millions months within six one year year Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Offices in the U.S.:
Time certificates of deposit.... $ 1 714 $ 52 $3 190 $ 203 $ 5 159
Other time deposits............. 235 51 -- 25 311
- -----------------------------------------------------------------------------------------------------------
1 949 103 3 190 228 5 470
- -----------------------------------------------------------------------------------------------------------
Offices outside the U.S.:
Time certificates of deposit.... 3 756 219 232 9 4 216
Other time deposits............. 27 981 1 171 351 1 023 30 526
- -----------------------------------------------------------------------------------------------------------
31 737 1 390 583 1 032 34 742
- -----------------------------------------------------------------------------------------------------------
</TABLE>

91
<PAGE> 94

PURCHASED FUNDS AND OTHER BORROWINGS

Purchased funds and other borrowings are detailed in the following table.

<TABLE>
<CAPTION>
In millions 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Balance at year-end............................................ $56 117 $40 803 $30 179
Average balance................................................ 59 812 40 245 45 470
Maximum month-end balance...................................... 69 548 51 162 51 387
Average interest rate:
During year................................................. 5.19% 5.87% 4.55%
At year-end................................................. 5.98 5.77 5.43
- -----------------------------------------------------------------------------------------------------------
FEDERAL FUNDS PURCHASED (DAY-TO-DAY)
Balance at year-end............................................ $ 5 312 $ 4 296 $ 5 589
Average balance................................................ 3 612 3 414 2 902
Maximum month-end balance...................................... 5 312 6 199 5 589
Average interest rate:
During year................................................. 5.30% 5.96% 4.35%
At year-end................................................. 6.19 5.48 5.25
- -----------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER
Balance at year-end............................................ $ 4 132 $ 2 801 $ 3 507
Average balance................................................ 4 133 2 809 4 174
Maximum month-end balance...................................... 5 102 3 250 4 882
Average interest rate:
During year................................................. 5.44% 6.02% 4.36%
At year-end................................................. 5.50 5.67 5.89
- -----------------------------------------------------------------------------------------------------------
OTHER LIABILITIES FOR BORROWED MONEY
Federal funds purchased (term):
Balance at year-end......................................... $ 386 $ 442 $ 465
Average balance............................................. 554 461 372
Maximum month-end balance................................... 800 640 516
Average interest rate:
During year.............................................. 5.57% 6.27% 4.30%
At year-end.............................................. 5.51 5.95 3.82
Other:
Balance at year-end......................................... $19 562 $14 687 $10 435
Average balance............................................. 15 810 11 822 10 028
Maximum month-end balance................................... 20 142 13 762 10 823
Average interest rate:
During year.............................................. 6.20% 6.23% 4.80%
At year-end.............................................. 5.63 5.96 5.82
- -----------------------------------------------------------------------------------------------------------
</TABLE>

Average interest rates during each year are computed by dividing total interest
expense by the average amount borrowed. Average interest rates at year-end are
average rates for a single day and as such may reflect one-day market
distortions that may not be indicative of generally prevailing rates. Original
maturities of securities sold under agreements to repurchase generally are not
more than six months. Original maturities of commercial paper are generally not
more than nine months. Other liabilities for borrowed money generally have
original maturities of one year or less.

92
<PAGE> 95
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
J.P. Morgan & Co. Incorporated

<TABLE>
<CAPTION>
In millions, except per share data 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Three months ended Dec. 31 Sept. 30 June 30 Mar. 31
- -----------------------------------------------------------------------------------------------------
Interest revenue............................... $2 925 $2 675 $2 559 $2 554
Interest expense............................... 2 441 2 250 2 162 2 158
- -----------------------------------------------------------------------------------------------------
Net interest revenue........................... 484 425 397 396
Total noninterest revenues..................... 1 321 1 124 1 364 1 344
Total operating expenses....................... 1 197 1 137 1 104 1 085
- -----------------------------------------------------------------------------------------------------
Income before income taxes .................... 608 412 657 655
Income taxes................................... 189 136 217 216
- -----------------------------------------------------------------------------------------------------
NET INCOME .................................... 419 276 440 439
- -----------------------------------------------------------------------------------------------------
PER COMMON SHARE
Net income (a)................................. $2.04 $ 1.32 $ 2.14 $ 2.13
Dividends declared............................. 0.88 0.81 0.81 0.81
- -----------------------------------------------------------------------------------------------------
Price range per common share on the
composite tape:
High........................................ $ 100 1/8 $ 92 1/2 $89 1/4 $ 85 3/4
Low......................................... 82 1/4 80 1/4 75 1/2 73 1/2
Closing price per common share at quarter-end.. 97 5/8 88 7/8 84 5/8 83
- -----------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
In millions, except per share data 1995
- -----------------------------------------------------------------------------------------------------
Three months ended Dec. 31 Sept. 30 June 30 Mar. 31
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest revenue............................... $2 609 $2 453 $2 405 $2 470
Interest expense............................... 2 121 1 946 1 897 1 970
- -----------------------------------------------------------------------------------------------------
Net interest revenue........................... 488 507 508 500
Total noninterest revenues..................... 1 030 1 042 941 888
Total operating expenses....................... 990 1 022 984 1 002
- -----------------------------------------------------------------------------------------------------
Income before income taxes .................... 528 527 465 386
Income taxes................................... 162 167 150 131
- -----------------------------------------------------------------------------------------------------
NET INCOME .................................... 366 360 315 255
- -----------------------------------------------------------------------------------------------------
PER COMMON SHARE
Net income (a)................................. $ 1.80 $ 1.78 $ 1.56 $ 1.27
Dividends declared............................. 0.81 0.75 0.75 0.75
- -----------------------------------------------------------------------------------------------------
Price range per common share on the
composite tape:
High........................................ $ 82 1/2 $ 78 7/8 $ 74 1/2 $ 65 5/8
Low......................................... 74 5/8 68 7/8 60 1/2 56 1/8
Closing price per common share at quarter-end.. 80 1/4 77 3/8 70 1/8 61
- -----------------------------------------------------------------------------------------------------
</TABLE>

The principal market on which the company's common stock is traded is the
New York Stock Exchange.

(a) Earnings per share amounts represent both primary and fully diluted
earnings per share, except for the three months ended December 31, 1996.
Fully diluted earnings per share were $2.03 for the three months ended
December 31, 1996.

The 1996 fourth quarter results are discussed in J.P. Morgan's earnings release
dated January 13, 1997.

93
<PAGE> 96
FORM 10-K ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996

J.P. MORGAN & CO. INCORPORATED
(Incorporated in the State of Delaware)
60 Wall Street, New York, NY 10260-0060
(212) 483-2323

Filed with:
Securities and Exchange Commission, Washington, D.C. 20549

Commission file number: 1-5885
I.R.S. Employer Identification Number: 13-2625764

The following securities are registered on the New York Stock Exchange pursuant
to Section 12(b) of the Act:

Common Stock, $2.50 Par Value
Adjustable Rate Cumulative Preferred Stock, Series A
No Par Value, Stated Value $100
Depositary shares representing a one-tenth interest in 6 5/8% Cumulative
Preferred Stock, Series H, No Par Value, Stated Value $500
4 3/4% Convertible Debentures Due 1998

No securities are registered pursuant to Section 12(g) of the Act.

The aggregate market value of the voting stock held by nonaffiliates of J.P.
Morgan totaled $19,344,804,150 at February 28, 1997.

The number of shares outstanding of J.P. Morgan's Common Stock, $2.50 Par Value,
at February 28, 1997, totaled 184,236,230 shares.

J.P. Morgan (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.

Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein nor in any amendment to this Form 10-K, but is contained in
J.P. Morgan's 1997 Proxy Statement incorporated by reference in Part III of this
Form 10-K.

J.P. Morgan's definitive Proxy Statement dated March 24, 1997, is incorporated
by reference in response to Part III, Items 10, 11, 12, and 13 of Form 10-K.

94
<PAGE> 97
FORM 10-K CROSS-REFERENCE INDEX

Part I

1. BUSINESS

Description of business, 2-10, 97-100
Number of employees, 78
Financial information about foreign and domestic operations, 73, 86-88
Distribution of assets, liabilities, and stockholders' equity; interest rates
and interest differential, 80-82
Investment portfolio, 46-49
Loan portfolio, 41, 56-57, 83-88
Summary of loan loss experience, 85-87
Deposits, 80-82, 91
Return on equity and assets, 78-79
Short-term borrowings, 92

2. PROPERTIES, 100

3. LEGAL PROCEEDINGS(a)

4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS(a)

PART II

5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, 77-79,
93

6. SELECTED FINANCIAL DATA, 78-79

7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, 2-32

8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of independent accountants, 34
J.P. Morgan & Co. Incorporated
Consolidated statement of income, 35
Consolidated balance sheet, 36
Consolidated statement of changes in stockholders' equity, 37
Consolidated statement of cash flows, 38
Morgan Guaranty Trust Company of New York - Consolidated statement of
condition, 39
Notes to consolidated financial statements, 40-77
Selected consolidated quarterly financial data,(b) 93

9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE(a)

PART III

10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT(c)

11. EXECUTIVE COMPENSATION(c)

12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT(c)

13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS(c)

PART IV

14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

1. Financial statements have been included in Item 8.

2. Financial statement schedules Schedule III - Condensed financial
information of J.P. Morgan & Co. Incorporated (parent), 74-76

EXHIBITS

3a. Restated certificate of incorporation, as amended (incorporated by
reference to Exhibit 3a to J.P. Morgan's post-effective amendment No. 1 to
Form S-3, Registration No. 33-55851)

3b. By-laws of J.P. Morgan as amended through April 10, 1996 (incorporated by
reference to Exhibit 3b to J.P. Morgan's report on Form 8-K, dated April
11, 1996)

4. Instruments defining the rights of security holders, including
indentures(d)

10a. 1992 stock incentive plan, as amended (incorporated by reference to Exhibit
10a to J.P. Morgan's annual report on Form 10-K for the year ended December
31, 1994, File No. 1-5885)

10b. Director stock plan, as amended (incorporated by reference to Exhibit 10b
to J.P. Morgan's annual report on Form 10-K for the year ended December 31,
1994, File No. 1-5885)

10c. Deferred compensation plan for directors' fees, as amended (incorporated by
reference to Exhibit 10c to J.P. Morgan's annual report on Form 10-K for
the year ended December 31, 1992, File No. 1-5885)

10d. 1989 stock incentive plan, as amended (incorporated by reference to Exhibit
10d to J.P. Morgan's annual report on Form 10-K for the year ended December
31, 1994, File No. 1-5885)

10e. 1987 stock incentive plan, as amended (incorporated by reference to Exhibit
10e to J.P. Morgan's annual report on Form 10-K for the year ended December
31, 1994, File No. 1-5885)

10f. Stock option plan, as amended (incorporated by reference to Exhibit 10f to
J.P. Morgan's annual report on Form 10-K for the year ended December 31,
1994, File No. 1-5885)

10g. Incentive compensation plan, as amended (incorporated by reference to
Exhibit 10g to J.P. Morgan's annual report on Form 10-K for the year ended
December 31, 1994, File No. 1-5885)

10h. Stock option award (incorporated by reference to Exhibit 10h to J.P.
Morgan's quarterly report on Form 10-Q for the quarter ended March 31,
1995, File No. 1-5885)

10i. 1995 stock incentive plan, as amended

10j. 1995 executive officer performance plan (incorporated by reference to
Exhibit 10j to J.P. Morgan's annual report on Form 10-K for the year ended
December 31, 1995, File No. 1-5885)

12. Statements re computation of ratios

13. Annual report to stockholders(e)

21. Subsidiaries of J.P. Morgan

23. Consent of independent accountants

24. Powers of attorney

27. Financial data schedule

REPORTS ON FORM 8-K

Report on Form 8-K dated October 10, 1996, was filed with the Securities and
Exchange Commission during the quarter ended December 31, 1996, which reported
the issuance by J.P. Morgan of a press release reporting its earnings for the
three- and nine-month periods ended September 30, 1996. In addition, Form 8-K
dated December 11, 1996, was filed announcing a dividend increase, a stock
repurchase program, and that John A. Krol had been elected a director of both
J.P. Morgan and Morgan Guaranty effective January 1, 1997.

This report on Form 10-K has not been approved or disapproved by the Securities
and Exchange Commission nor has the Commission passed upon the accuracy or
adequacy of this report. Portions of the annual report to stockholders are not
required for the Form 10-K report and are not filed as part of J.P. Morgan's
Form 10-K.

(a) Nothing to report.

(b) Fourth quarter 1996 results are incorporated by reference to the report on
Form 8-K dated January 13, 1997, filed with the Securities and Exchange
Commission.

(d) J.P. Morgan hereby agrees to furnish to the Commission, upon request, a copy
of any unfiled agreements defining the rights of holders of long-term debt
of J.P. Morgan and of all subsidiaries of J.P. Morgan for which
consolidated or unconsolidated financial statements are required to be
filed.

(e) Only those sections of the annual report to stockholders referenced in the
cross-reference index above are incorporated in the report on Form 10-K.

Other schedules and exhibits are omitted because the required information either
is not applicable or is shown in the consolidated financial statements or the
notes thereto.

95
<PAGE> 98
SIGNATURES

J.P. Morgan & Co. Incorporated
Registrant

RACHEL F. ROBBINS
- -------------------------------
Rachel F. Robbins
Secretary

JOHN A. MAYER JR.
- -------------------------------
John A. Mayer Jr.
Chief Financial Officer
(Principal financial officer)

DAVID H. SIDWELL
- -------------------------------
David H. Sidwell
Managing Director and Controller
(Principal accounting officer)

Douglas A. Warner III*
Chairman of the Board and Director
Riley P. Bechtel* Director
Martin Feldstein* Director
Hanna H. Gray* Director
James R. Houghton* Director
James L. Ketelsen* Director
John A. Krol* Director

Roberto G. Mendoza*
Vice Chairman of the Board and Director
Michael E. Patterson*
Vice Chairman of the Board and Director
Lee R. Raymond* Director
Richard D. Simmons* Director
Kurt F. Viermetz*
Vice Chairman of the Board and Director
Dennis Weatherstone* Director
Douglas C. Yearley* Director

*By: JAMES C.P. BERRY
-------------------------------------------------------
James C.P. Berry
Attorney-in-fact

96
<PAGE> 99
DESCRIPTION OF BUSINESS

J.P. Morgan & Co. Incorporated, whose origins date to a merchant banking firm
founded in London in 1838, is the holding company for subsidiaries engaged
globally in providing a wide range of financial services to institutions,
corporations, governments, and individuals. A list of principal subsidiaries and
associated companies appears on page 104.

BUSINESS ENVIRONMENT

J.P. Morgan conducts its business in a global environment that is inherently
unpredictable. Numerous variables may have a material effect on the firm's
results or operations. These variables include, but are not limited to: economic
and market conditions, including the liquidity of secondary markets, the
volatility of market prices, rates and indices, the timing and volume of market
activity, the availability of capital, and inflation; political events,
including legislative, regulatory, and other developments, such as the
anticipated formation of the European Monetary Union; competitive forces,
including the ability to attract and retain highly skilled individuals, and the
ability to cost-effectively develop and support technology and information
systems critical to its businesses; and investor sentiment. As a result,
revenues and net income in any particular period may not be indicative of
full-year results; may vary from year to year; and may impact the firm's ability
to achieve its strategic objectives.

BUSINESS SECTORS

We describe the activities of J.P. Morgan using five business sectors, as
discussed below. Three of these sectors - Finance and Advisory, Market Making,
and Asset Management and Servicing - focus on services we provide for clients,
including positions taken to facilitate client transactions. Two sectors
comprise proprietary activities that we conduct exclusively for our own account:
Equity Investments and Proprietary Investing and Trading. While presenting our
results in sector format helps simplify the complexity of Morgan's business, it
is also important to understand the shared benefits of our strategy: our focus
on building long-term client relationships; the synergy we create by acting as
one firm with singular dedication to clients, rather than as a collection of
separate businesses; the global diversification of activities across a range of
products and locations; and the integration of global capabilities to capitalize
on opportunities. Effective with the 1996 Annual report, we have made some
changes to the business sector analysis in order to more closely align our
sector results with the manner in which we provide services to our clients and
to distinguish our proprietary activities. As a result, certain activities have
been reclassified as follows: the proprietary trading unit results have been
included in Proprietary Investing and Trading as compared to Market Making in
the 1995 Annual report; cash and derivative secondary trading results related to
the equities business have been included in the Market Making sector as compared
to the Finance and Advisory sector in the 1995 Annual report; and earnings on
stockholders' equity have been restated to reflect current internal management
models based on external benchmarks. Prior year results have been restated to
conform with the 1996 presentation. Our activities, updated for these changes,
are summarized below.

Finance and Advisory

Finance and Advisory encompasses the sophisticated advisory, capital raising,
and financing work that we do for our broad base of clients around the world.
These clients include financial institutions, corporations, governments, and
municipalities. The expertise we offer them is based on in-depth knowledge of
their needs and the industries and financial markets in which they operate. Our
global network of senior client relationship managers markets the full spectrum
of our capabilities and provides the link between a corporate client's need and
J.P. Morgan's financing, advisory, asset management, and risk management
products and services.

In partnership with clients, our advisory professionals explore the risks
and rewards of such strategic alternatives as mergers and acquisitions,
divestitures, privatizations, and recapitalizations. We also advise clients on
their capital structures, looking for ways to unlock value and capture
opportunities.

97
<PAGE> 100
Our debt and equities underwriting and credit businesses provide clients
with the capabilities to raise the necessary capital and execute strategies.
High-quality research is an integral part of this business. Our credit
capabilities include meeting clients' financing needs by underwriting, arranging
and syndicating loans and other credit facilities.

Market Making

Market Making provides clients with around-the-clock access to global markets.
J.P. Morgan makes markets in fixed income, equity, foreign exchange, and
commodity instruments in both developed and emerging markets; we serve as a
counterparty to help clients manage risks; and we provide research to help
clients assess opportunities and track performance. We take positions to
facilitate client transactions, to enable us to function effectively, and to
benefit from our role as a market maker. Our clients include corporations,
central banks, governments and their agencies, financial institutions, pension
funds, mutual funds, and leveraged funds.

Our fixed income activities encompass acting as a primary dealer in U.S.
and foreign government securities; making markets in money market instruments,
U.S. government agency securities, corporate debt securities, and options; and
helping clients manage their exposure to fluctuating interest and foreign
exchange rates by structuring, executing, and making markets in risk management
products.

Our equities activities include providing clients with liquidity in the
cash and derivatives secondary markets through our global sales and trading
network. We utilize our expertise in the equities markets to structure equity
derivatives for our clients.

Our foreign exchange capabilities include making markets in spot, options,
and short-term interest rate products, including forwards and forward rate
agreements in multiple currencies, to help clients manage their foreign currency
exposures. In commodities, we make markets in metals and energy products and we
advise clients on developing hedging, investment, and commodity-linked financing
strategies. We also provide physical commodity services such as settlement of
physical trades in the various metal and oil markets and metal borrowing and
lending services.

Our emerging markets activities, while principally related to fixed income
activities, cross all markets, and our worldwide network enables us to fulfill
our role as a market maker and provide clients with a steady flow of market
information.

Asset Management and Servicing

Asset Management and Servicing activities encompass designing and executing
investment strategies and providing administrative and brokerage services. Our
clients include corporations, financial and governmental institutions, and
high-net-worth individuals.

We tailor our asset management capabilities for both institutional and
private clients. For institutional clients, we offer a range of investment
strategies and products worldwide to service the investment management needs of
private and public sector retirement plans, governments, corporations,
endowments, foundations, and trusts.

Our private client group helps high-net-worth individuals plan and execute
their investment strategies with a broad range of capabilities, which include
managed investment and trust portfolios, Morgan-advised mutual funds, and a
full-service brokerage unit. Credit, deposit, trust, and estate services are
also provided to private clients.

Our futures and options brokerage group provides institutional clients
with worldwide access to major exchanges by acting as futures and options
brokers in executing and clearing contracts.

We operate under contract the Euroclear System, the world's largest
clearance and settlement system for internationally traded securities. We
provide credit and deposit services to Euroclear participants.

In addition, we provide such operational services as the administration of
depositary receipt programs and global trust and agency services, primarily in
Europe.

Equity Investments

J.P. Morgan invests globally in privately held growth companies, management
buyouts, privatizations, and recapitalizations. These investments are made and
managed with the objective of maximizing total return, which is a measure of
both long-term appreciation and net recognized gains. In addition, a number of
our Equity Investment companies become clients of the firm. Our broad global
presence and expertise is an important advantage in sourcing, evaluating, and
managing investments. These activities are managed by a small group of
professionals.

98
<PAGE> 101
Our equity investment portfolio is diversified by industry, geographic
area, and stage of investment. Our goal is to maintain a diversified portfolio
capable of generating significant returns over time. This is a high-risk,
high-reward business, and we operate under a variety of legal and regulatory
restrictions in managing the portfolio.

Investments are generally held for three to seven years, depending on our
view of when a sale will produce optimal returns. Typically, investments are
harvested through a public offering of securities or the sale of the investment.
The process of assessing and managing the risks and rewards of new opportunities
and existing investments continues throughout market cycles.

Proprietary Investing and Trading

Morgan actively takes market risk positions for its own account. These
activities are managed by a small group of experienced market professionals who
employ directional and relative value risk-taking strategies diversified across
markets and instruments.

Directional strategies anticipate changes in absolute rate and price
levels, while relative value strategies anticipate changes in relationships
between markets and classes of instruments. These strategies are conducted
across many currencies and types of instruments, both on- and off-balance-sheet,
where we perceive opportunities exist to generate value for the firm.
Instruments typically used in these positioning activities include fixed income
securities, foreign exchange, equity securities, commodity products, and related
derivative instruments. Positions may be held for short or long periods of time,
depending on the strategy and actual market performance. Certain longer-term
strategies are considered to be investment activities, and primarily utilize
government and mortgage-backed fixed income securities and interest rate swaps.
The securities and interest rate swaps used in these investment activities are
classified as "available-for-sale" and "risk-adjusting" respectively.

In addition to these risk-taking activities are the firm's capital and
liquidity management activities. Liquidity management is the management of the
firm's liquidity risk profile to ensure that we have access to funding at a
reasonable cost, even under adverse circumstances, to support all the business
activities of the firm. A strong capital position is therefore an integral part
of our liquidity management because it enables us to raise funds as
inexpensively as possible in a variety of international markets.

REGULATION

J.P. Morgan is subject to regulation under the Bank Holding Company Act of 1956
(the Act). Under the Act, J.P. Morgan is required to file certain reports with
the Board of Governors of the Federal Reserve System (the Board) and is subject
to examination by the Board. The Act generally precludes J.P. Morgan and its
subsidiaries from engaging in nonbanking activities, or from acquiring more than
5% of any class of voting securities of any company engaging in such activities,
unless the Board has determined, by order or regulation, that such proposed
activities are closely related to banking. Federal law and Board interpretations
limit the extent to which J.P. Morgan and its subsidiaries can engage in certain
aspects of the securities business.

The Glass-Steagall Act prohibits affiliates of banks that are members of
the Federal Reserve System, including J.P. Morgan Securities Inc. (JPMSI), a
Section 20 subsidiary, from being "engaged principally" in bank-ineligible
underwriting and dealing activities (mainly corporate debt and equity
securities). As interpreted by the Board, this prohibition has restricted
JPMSI's gross revenues from such activities to a maximum of 10% of its total
gross revenues. Effective March 6, 1997, the restriction was changed from 10% to
25% of total gross revenues. J.P. Morgan continues to seek ways to expand the
limits on its securities activities, including the continued reform of the
Glass-Steagall Act, necessary to achieve our strategic objectives.

99
<PAGE> 102
Morgan Guaranty Trust Company of New York (Morgan Guaranty), J.P. Morgan's
largest subsidiary, is a member of the Federal Reserve System and a member of
the Federal Deposit Insurance Corporation (FDIC). Its business is subject to
both U.S. federal and state law and to examination and regulation by U.S.
federal and state banking authorities. J.P. Morgan and its nonbank subsidiaries
are affiliates of Morgan Guaranty within the meaning of the applicable federal
statutes. Morgan Guaranty is subject to restrictions on loans and extensions of
credit to J.P. Morgan and certain other affiliates and on certain other types of
transactions with them or involving their securities. Among other wholly owned
subsidiaries:

- - JPMSI is a broker-dealer registered with the Securities and Exchange
Commission and is a member of the National Association of Securities
Dealers, the New York Stock Exchange, and other exchanges.

- - J.P. Morgan Futures Inc. is subject to regulation by the Commodity Futures
Trading Commission, the National Futures Association, and the commodity
exchanges and clearinghouses of which it is a member.

- - J.P. Morgan Investment Management Inc. is registered with the Securities
and Exchange Commission as an investment advisor under the Investment
Advisers Act of 1940, as amended.

J.P. Morgan subsidiaries conducting business in other countries are also subject
to regulations and restrictions imposed by those jurisdictions, including
capital requirements.

COMPETITION

In all areas of business, J.P. Morgan and its subsidiaries operate in an
intensely competitive environment, especially with respect to services and
pricing. In the United States, we face competition from investment banks, money
center bank holding companies, many regional and foreign banks, and a wide range
of nonbank financial institutions. Internationally, we face competition from
investment banks, commercial banks, and universal banks in the money centers of
Europe, Asia, and Latin America.

PROPERTIES

J.P. Morgan owns and occupies buildings in New York, including its headquarters
at 60 Wall Street, as well as 23 Wall Street and 15 Broad Street. J.P. Morgan
also owns property in Delaware, London, and Paris and leases office space in New
York, Brussels, Delaware, Paris, and London. J.P. Morgan also owns and leases
property in other locations in which it conducts business throughout the world.

As more fully described in Note 14 to the consolidated financial
statements, Long-term debt, J.P. Morgan's financing arrangement for an office
building complex in London involved the sale of a 52.5% interest in the building
complex to the lender, excluding the interior office finishing, furniture, and
technology. In addition, the 60 Wall Street building is subject to a mortgage in
the amount of $400 million at December 31, 1996.

100
<PAGE> 103
MANAGEMENT

<TABLE>
<S> <C> <C> <C>
Douglas A. Warner III Roberto G. Mendoza
Chairman of the Board Michael E. Patterson
Chief Executive Officer Kurt F. Viermetz
Vice Chairmen

CLIENTS Thomas B. Ketchum Walter A. Gubert Peter L. Woicke
Americas Europe, Middle East, Asia Pacific
Africa

CAPABILITIES AND Ramon de Oliveira Nicolas S. Rohatyn Pilar Conde
SERVICES Equities Emerging Markets Michael R. Corey
Equity Investments Foreign Exchange Proprietary Positioning
Finance and Advisory Commodities
Market Making Peter D. Hancock Luc Bomans
Asset Management and Servicing Fixed Income John T. Olds Euroclear System
Equity Investments Futures and Options Private Client Services
Proprietary Investing and Trading
Joseph P. MacHale Keith M. Schappert
Credit Investment Management

CORPORATE RESOURCES Stephen G. Thieke John A. Mayer Jr. Rachel F. Robbins
Corporate Risk Management Chief Financial Officer General Counsel
Credit Policy Strategic Planning
Research Ronald H. Menaker
David H. Sidwell Corporate Services
Michael Enthoven Controller
Technology and Operations Laura W. Dillon
Edward F. Murphy Corporate Communication
Herbert J. Hefke Auditor
Human Resources
</TABLE>

101
<PAGE> 104
SENIOR OFFICERS

<TABLE>
<S> <C> <C> <C> <C>
Joseph T. Donohue Robert H. Muller John E. Graham Catherine S. Bryan
Winfield S. Downs Sarah E. Nash David S. Hickman Jolyne K. Caruso-Fitzgerald
Douglas A. Warner III Nicholas A. Draper El Walid Nsouli Stephen F. Holcomb W. Montgomery Cerf
Chairman of the Board Richard R. Duron Timothy J. O'Brien Maria G. Jordan Jenifer L. Condit
Chief Executive Officer Terence C. Eccles Simon R. Paterno Kenneth A. Lang John C. Conti
Robert C. Elliott Hugh Paton Robert Le Blanc Etienne Deshormes
Roberto G. Mendoza Frederic A. Escherich Nicholas B. Paumgarten Carl F. Munana Ronald R. Dewhurst
Michael E. Patterson Yuichi Ezawa James R. Peacock Philip W. Mc Neal Pierre Dupont
Kurt F. Viermetz Jean O. Facon Barrett R. Petty Charles C. O'Brien S. Luke L. Ellis
Vice Chairmen of the Kathleen M. Fisher Werner C. Pfaffenberger Sheila J. O'Connell James R. English
Board John A. Forlines III Howard F. Powers Jr. John A. Payne Simon W.P. Flannery
Allen R. Friedman P. Preben Prebensen Joseph A. Sabatini John B. Fullerton
CLIENTS Ronald T. Gault Roberta J. Puschel Mary E. Watkins James J. Fuschetti
INVESTMENT BANKING S. Lane Genatowski Pascal J. Ravery Michael F. Gambardella
Walter A. Gubert Michael P. George Gail M. Rogers EMERGING MARKETS Peter H. Gleason
Thomas B. Ketchum Jean-Marc Georgy James P. Rutherfurd COMMODITIES Robert S. Hanft
Peter L. Woicke John B. Goodwin Jr. T. Timothy Ryan Jr. FOREIGN EXCHANGE Meryl D. Hartzband
Jacques G. Aigrain James M. Grant Purna R. Saggurti Nicolas S. Rohatyn Carlos M. Hernandez
Yasukazu Aiuchi Alfredo D. Gutierrez Jaime Salaverri Frank B. Arisman Mark A. Husson
Eric Altman Gregory L. Guyett Stephen Schaible Anthony J. Best Sharon H. Jacquet
Jan A. Amethier James L. Hamilton Jr. Weijian Shan John G. Caccavale Daniel R. Kunstler
Victor M. Arbulu Henry Harnischfeger Dag J. Skattum Petros Christodoulou Edward F. Mc Cartin
Martin R. Atkin Maureen A. Hendricks Stephen S. Sloan John J. Coulter Charles C. Mountain
Peter E. Baccile Peter J. Hill Damon P. Smith III Jose Luiz Daza Brian T. Murphy
Stefano Balsamo Herman Hintzen Robert Sroka Ian R. Dubugras Jr. Catherine L. Murray
Lloyd Bankson Henry W. Howell Michael W. Szeto Patrick du Pre de Saint-Maur Nirmal P. Narvekar
Christophe J. Bataillard Herve Huas Jackson P. Tai Goetz Eggelhoefer Martin L. O'Neil
Thaddeus T. Beczak Yong-Hak Huh Francis J. Tellier Stephanie E. Ercegovic Bintoar Palar
David A. Behnke Gabriella Z. Icaza Xavier Tintore Peter F. Frey Timothy Purcell
Carl J. Bergendahl Christian Jacobs Shu Tomioka Miguel Gutierrez Thomas S. Quinn III
Enrico M. Bombieri Rondy E. Jennings Hiromichi Tsubouchi Christopher L. Harvey William D. Rabin
Willard S. Boothby III John B. Jetter Georges Van Erck Thorkild P. Juncker Thomas P. Reagan
Jonathan R. Brown Gregg Johnston Joseph A. Walker Elizabeth L. Littlefield Clayton S. Rose
Henry I. Bryant Eric D. Karp William F. Wallace Richard S. Luddington Declan K. Sheehan
P. Nicolas Carlisle Toshihide Kawashima Tira Wannamethee Arthur S. Magnus Nicholas E. Snee
Francis P. Carr Edward J. Kelly III Raymond N. Wareham Jorge A. Maortua Thomas M. Snell
Octavio Castello Branco Stephen C. Kirmse David B. Weir Jose A. Mc Loughlin Charles P. Soderstrom
Eduardo F. Cepeda John D. Langlois James A. Wethered Guido A. Mosca James E. Staley
Rowena W. Chu W. David Lawson IV David L. White Kurt Muehlbauer Rene Vanguestaine
Ian M. Clark Robin A. Lawther Deborah M. Winshel Klaus T. Said Nancy S. Voye
Peter T. Clarke Jin-Yi Lee Jon H. Zehner Cara L. Schnaper Brian F. Watson
Pierre Colin John W. Littlefield Jr. Stephen A. Sinacore Christian Zugel
Cezar P. Consing Dianne F. Lob CREDIT Glenn J. Smith
David H. Courtney Michael C. Lobdell Joseph P. MacHale Thomas H. Smith EUROCLEAR
Clifford S. Cramer Benjamin B. Lopata Roger B. Arner Jakob T. Stott Luc Bomans
William F. Cruger Claus Lowe Barbara J. Asch Maria A. Trigo de Rosetti Santina Bernardi
Guillaume D'Angerville Charles F. Lowrey Jr. Santiago Assalini Joseph C. Willing Ignace Combes
D'Auvrecher C.H. Randolph Lyon William R. Barrett Jr. Jeanette K. Wong Erwin De Keyzer
Antoinette Daridan Russell A. Mannis Wesley R. Brooks Richard Evans
Olivier J. de Grivel Michael C. Mc Call Bruce N. Carnegie-Brown EQUITIES Michael Fleming
William R. de Jonge Ferrell P. Mc Clean Timothy R. Elliott EQUITY INVESTMENTS Pierre Francotte
Susana M. de la Puente John K. Mc Colloch Martha J. Gallo Ramon de Oliveira Martine Patureau
David H. Deming Kenneth S. Mc Cormick Michael J. Gibbons Joseph Anastasio Pierre Slechten
Jim H. Derryberry Benjamin Meuli Elizabeth R. Gile Edward C. Archer Anne Swaelus
Klaus Diederichs Terry R. Mills David W. Godfrey Molly F. Ashby Gilbert Swinkels
Adrian W. Doherty Jr. Marco Morelli Albert C. Bashawaty Andrew Threadgold
D. Leslie A. Morrison Carol Bell Yannic Weber
Guy Moszkowski Stephen A. Berenson
Seth P. Bernstein
David Bradley

</TABLE>

102

<PAGE> 105
<TABLE>
<S> <C> <C> <C> <C>
FIXED INCOME Robert D. Birnbaum Susan E. Ulick Giovanni Gorno Tempini Robert McGinn
FUTURES AND OPTIONS Jean L. Brunel Gilbert Van Hassel Michael J. Henderson Rachel F. Robbins
Peter D. Hancock Andrew J. Canning Hendrick Van Riel Maureen R. Lee David J. Schraa
Thomas J. Aylward IV Henry D. Cavanna William D. Walker Pierre Lenders Hildy J. Simmons
Terrence M. Belton John C. Chigounis William L. Warner Lazaros P. Mavrides Ernest Stern
Richard D. Berliand William L. Cobb Jr. Kurt J. Wolfgruber Colin W.P. McKechnie Debra F. Stone
Eric Bertrand Warren K. Corning Gerd Woort-Menker Constantin E. Megiris Cory N. Strupp
Mark C. Brickell Richard S. Davis Paul L. Zemsky Hubert Penot
Bart J. Broadman Douglas J. Dooley Philipp M. Zenz-Spitzweg Georges-Arnaud Saier ECONOMIC RESEARCH
Margaret A. Brody Roger L. Du Bois Peter T. Schwicht William A. Brown
Robert S. Butler Christopher J. Durbin PRIVATE CLIENTS Guy Van Pelt Philip J. Suttle
Russell Church Douglas M. Fleming John T. Olds
Alan R. Collins Pablo Forero Sean A. Amery SECURITIES SERVICES FINANCIAL
Thomas C. Connor Gordon B. Fowler Jr. Carlos M. Arias Charlton H. Chatfield John A. Mayer Jr.
Joseph P. Cook L. George Gardella Susan G. Bell Jean M. Pellegrini Deborah L. Cuny
John R. Corrie Stephen R. Goldman Saumyendra Bhattacharya Michael P. D'Angelo
Louis Dehler Michael R. Granito Thomas R. Boehlke AUDIT Richard Johnson
William S. Demchak Evelyn E. Guernsey Ann D. Borowiec Edward F. Murphy Patricia A. Jones
Amin H. Ezz Al-Arab Andrew Harmstone David D. Burrows Bonnie L. Howard Allan B. Lubarsky
Jeanne V. Feldhusen Timothy J. Heise Didier Cherpitel Mark L. Kay Dean R. Miller
Alain L. Grisay Paul Hicks Jr. Joel I. Cohen Edmond J. Sannini Louis Rauchenberger
Thomas F. Hagerstrom Pieter Hoets Philippe Damas Joel Tancer David H. Sidwell
Stephen D. Heard Martyn C. Hole Herve de Montlivault Stephen M. Skoczylas
Paul J. Hearn Robert Holland Daniel W. Drake CORPORATE RISK MANAGEMENT Gareth G. Stephens
Rachel Hines Alistair Jessiman John R. Duffy Stephen G. Thieke Edmund H. Sutton
Adam H. Howard Arthur J. Kalita Benoit H. Dumont Marc E. Berman
Robert J. Hugin Dennis M. Kass Walter L. Fabricius Kyung Hee A. Choi HUMAN RESOURCES
Mary L. Hustings Ivan Kerno Daniel M. Fitzpatrick James R. Helvey III Herbert J. Hefke
Philippe K. Khuong-Huu Adrian Lee John A. Gent Alastair I. Hunter- Thomas R. Bain
Fawzi S. Kyriakos-Saad Rudolph Leuthold Martyn E. Goossen Henderson James P. Baughman
Richard G. Leibovitch Gerard W. Lillis Stephanie S. Hanbury-Brown Charles R. Monet John F. Bradley
Martin K. Matsui Geoffrey M. Lindey Owen H. Harper David L. Roscoe III Gerard G. Cameron II
James W. McAleenan Thomas M. Luddy James H. Higgins III Stephen A. Tyler Barbara M. Hack
Richard M. McVey Thomas P. Madsen David A. Kelso Nancy B. Harwood
David L. Meyer Robert J. Miller Chase W. Landreth CORPORATE SERVICES C. Dixon Kunzelmann
Stephen Miller Jorg A. Mitterer Javier Muguiro Ronald H. Menaker Christopher R. Lowney
T. Kelley Millet Thruston B. Morton III R. Scott Nycum Jr. John G. Daniello Isabel H. Sloane
Michael J. Moore Patrick J. Murphy J. Edward Odegaard Theodore V. Farace Cecilia Y. Tsim
John P. Mullen Fredric A. Nelson III William L. Oullin Derek G. Hall Andrew O. Watson
Satoshi Nagase Lisa J. Oram Elizabeth J. Patrick Brian S. Howells
Kenichi Noguchi James B. Otness Bruce T. Prolow William J. Kelly STRATEGIC PLANNING
David M. Pryde Marian U. Pardo Susan G. Restler William J. Schneider John A. Mayer Jr.
Eunice T. Reich-Berman Wesley I. Paul David B. Robb Jr. David W. Singleton David H. Brigstocke
Robert L. Rossman William B. Petersen George W. Rowe Richard Speciale
John G. Stathis Connie J. Plaehn Nicholas P. Sargen John J. Vahey TECHNOLOGY & OPERATIONS
David J. Theobald Judith J. Plows John W. Schmidlin Michael Enthoven
Charles M. Trunz III William M. Riegel Jr. Robert G. Simon CORPORATE STAFF Michael A. Azarian
Alice Wang Roger A. Sayler Debra B. Treyz Charles A. Alexander Malcolm J. Beane
Mark B. Werner Mark A. Sheridan Alexander G. Zaharoff Donald R. Brunner John Carlisle
William T. Winters Terry Shu Laura W. Dillon Charles P. Costa
Alain Younes Guenther P. Skrzypek PROPRIETARY POSITIONING Travis F. Epes Penelope A. Flugger
Peter P. Zuppinger Laurence R. Smith Pilar Conde John W. Field Jr. Kenneth C. Fuller
M. Steven Soltis Michael R. Corey Diane M. Genova Christophe E. Hioco
INVESTMENT MANAGEMENT Yukiko Sugimoto Christopher C. Belchamber Dominique George Pamela V. Huttenberg
Keith M. Schappert Robert J. Teatom Douglas A. Dachille Dennis C. Hensley Thomas F. Hynd
Kenneth W. Anderson John R. Thomas Kim E. Fox-Moertl Hugh T. Kemper James F. Krass
Robert A. Anselmi Takeshi Fujimaki Stephen E. Kowitt Peter A. Miller
Joseph K. Azelby Veronique Weill
Keith T. Banks Olivia C. Wyer

</TABLE>

103
<PAGE> 106
J.P. MORGAN DIRECTORY
Principal subsidiaries and offices - wholly owned except where noted

NORTH AMERICA

NEW YORK
J.P. Morgan & Co. Incorporated
Morgan Guaranty Trust Company of New York
J.P. Morgan Securities Inc.
J.P. Morgan Investment Management Inc.
J.P. Morgan Futures Inc.
J.P. Morgan Capital Corporation
J.P. Morgan Community Development Corporation

BOSTON
J.P. Morgan Securities - Boston office

CHICAGO
J.P. Morgan & Co. - Chicago office
J.P. Morgan Securities - Chicago office
J.P. Morgan Futures - Chicago office
J.P. Morgan Trust Company of Illinois
Morgan Guaranty - representative office

HOUSTON
J.P. Morgan Securities - Houston office
J.P. Morgan Investment Management -
Houston office

LOS ANGELES
Morgan Guaranty - representative office
J.P. Morgan - Los Angeles office
J.P. Morgan California
J.P. Morgan Investment Management -
Los Angeles office

NEWARK, DELAWARE
Morgan Guaranty - banking office
J.P. Morgan Services Inc.
J.P. Morgan Overseas Capital Corporation
Morgan Guaranty International Finance
Corporation

PALM BEACH
J.P. Morgan Florida, FSB
J.P. Morgan Securities - Palm Beach office

PHILADELPHIA
Morgan Guaranty - limited purpose banking office

SAN FRANCISCO
J.P. Morgan & Co. - San Francisco office
Morgan Guaranty - representative office
J.P. Morgan California - San Francisco office
J.P. Morgan Capital - San Francisco office
J.P. Morgan Futures - San Francisco office
J.P. Morgan Securities - San Francisco office

WASHINGTON, DC
J.P. Morgan Securities - Washington office

WILMINGTON
Morgan Guaranty - banking office
J.P. Morgan Trust Company of Delaware

TORONTO
J.P. Morgan Canada
J.P. Morgan Securities Canada Inc.

NASSAU
Morgan Guaranty - banking office
Morgan Trust Company of The Bahamas Limited

CAYMAN ISLANDS
Morgan Fonciere Cayman Islands Ltd.
Morgan Trust Company of the Cayman Islands Ltd.

EUROPE

LONDON
Morgan Guaranty - banking and private
banking offices
J.P. Morgan Securities Ltd.
J.P. Morgan Sterling Securities Ltd.
J.P. Morgan Investment Management -
London office
J.P. Morgan Whitefriars Inc.

AMSTERDAM
J.P. Morgan Nederland N.V.

BRUSSELS
Morgan Guaranty - banking office
J.P. Morgan Benelux S.A./N.V.
Euroclear Operations Centre+

FRANKFURT
Morgan Guaranty - banking office
J.P. Morgan GmbH
J.P. Morgan Investment GmbH
J.P. Morgan Investment Management Inc.
J.P. Morgan Holding Deutschland GmbH

GENEVA
J.P. Morgan (Suisse) S.A.

MADRID
Morgan Guaranty - banking and private
banking offices
Morgan Gestion, S.A.
J.P. Morgan Espana S.A.
J.P. Morgan Iberica S.L.
J.P. Morgan Sociedad de Valores y Bolsa, S.A.

MILAN
Morgan Guaranty - banking office
J.P. Morgan S.p.A.
J.P. Morgan Fondi Italia S.p.A.

PARIS
Morgan Guaranty - banking and private
banking offices
J.P. Morgan & Cie S.A.
Societe de Bourse J.P. Morgan S.A.

PRAGUE
J.P. Morgan International Ltd.

ROME
Morgan Guaranty - representative office

WARSAW
J.P. Morgan Polska Sp. z o.o.

ZURICH
Morgan Guaranty - banking office

AFRICA

JOHANNESBURG
J.P. Morgan Securities South Africa
(Proprietary) Limited

*50% owned
**40% owned
+operated by J.P. Morgan

104
<PAGE> 107
J.P. MORGAN DIRECTORY (continued)
Principal subsidiaries and offices - wholly owned except where noted

ASIA PACIFIC

TOKYO
Morgan Guaranty - banking and private
banking offices
J.P. Morgan Investment Management -
Tokyo office
J.P. Morgan Trust Bank Ltd.
J.P. Morgan Securities Asia* - Tokyo office

BANGKOK
J.P. Morgan Securities Asia* - representative office

BEIJING
J.P. Morgan & Co. - representative office

BOMBAY
ICICI Asset Management Company Limited**
ICICI Securities and Finance Company Limited**

HONG KONG
Morgan Guaranty - banking and private
banking offices
J.P. Morgan Futures Hong Kong Ltd.
J.P. Morgan Securities Hong Kong Ltd.
J.P. Morgan International Capital - Hong
Kong office
J.P. Morgan Securities Asia* - Hong Kong office

JAKARTA
Morgan Guaranty - representative office

MANILA
Morgan Guaranty - representative office

MELBOURNE
Morgan Guaranty - banking office
J.P. Morgan Australia Limited
J.P. Morgan Investment Management
Australia Limited
J.P. Morgan Australia Securities Limited

OSAKA
J.P. Morgan Securities Asia* - Osaka office

SEOUL
Morgan Guaranty - representative office
J.P. Morgan Securities Asia* - representative office

SHANGHAI
J.P. Morgan & Co. - representative office

SINGAPORE
Morgan Guaranty - banking and private
banking offices
J.P. Morgan Securities Asia Ltd.*
J.P. Morgan Futures - Singapore office
J.P. Morgan International Capital Corporation - Singapore office
J.P. Morgan Investment Management -
Singapore office

SYDNEY
Morgan Guaranty - banking office
J.P. Morgan Australia - Sydney office
J.P. Morgan Australia Securities - Sydney office

TAIPEI
Morgan Guaranty - representative office
J.P. Morgan Securities Asia* - representative office

LATIN AMERICA

BUENOS AIRES
Morgan Guaranty - banking office
J.P. Morgan Argentina Sociedad de Bolsa S.A.

CARACAS
J.P. Morgan Venezuela, S.A.

LIMA
Morgan Guaranty - representative office

MEXICO CITY
Morgan Guaranty - representative office
J.P. Morgan Grupo Financiero, S.A. de C.V.
J.P. Morgan Casa de Bolsa, S.A. de C.V.
Banco J.P. Morgan, S.A.

RIO DE JANEIRO
Morgan Guaranty - banking office
Banco J.P. Morgan, S.A. - Rio de Janeiro office
JPM Corretora de Cambio, Titulos e Valores
Mobiliarios - Rio de Janeiro office
J.P. Morgan Investimentos e Financas -
Rio de Janeiro office

SANTIAGO
J.P. Morgan Chile Ltda.

SAO PAULO
Morgan Guaranty - banking office Banco J.P. Morgan, S.A.
JPM Corretora de Cambio, Titulos e Valores Mobiliarios S.A.
J.P. Morgan Investimentos e Financas Ltda.

*50% owned
**40% owned
+operated by J.P. Morgan

105
<PAGE> 108
BOARD OF DIRECTORS
J.P. Morgan & Co. Incorporated

DOUGLAS A. WARNER III
Chairman of the Board
Chief Executive Officer

RILEY P. BECHTEL
Chairman and Chief Executive Officer
Bechtel Group, Inc.

MARTIN FELDSTEIN
President and Chief Executive Officer
National Bureau of Economic Research, Inc.

HANNA H. GRAY
President Emeritus and Harry Pratt Judson
Distinguished Service Professor of History
The University of Chicago

JAMES R. HOUGHTON
Retired Chairman of the Board
Corning Incorporated

JAMES L. KETELSEN
Retired Chairman and Chief Executive Officer
Tenneco Inc.

JOHN A. KROL
President and Chief Executive Officer
E.I. du Pont de Nemours and Company

ROBERTO G. MENDOZA
Vice Chairman of the Board

MICHAEL E. PATTERSON
Vice Chairman of the Board

LEE R. RAYMOND
Chairman of the Board and
Chief Executive Officer
Exxon Corporation

RICHARD D. SIMMONS
Retired President
The Washington Post Company and
International Herald Tribune

KURT F. VIERMETZ
Vice Chairman of the Board

DENNIS WEATHERSTONE
Retired Chairman of the Board

DOUGLAS C. YEARLEY
Chairman, President, and
Chief Executive Officer
Phelps Dodge Corporation

COMMITTEES OF THE BOARD

EXECUTIVE COMMITTEE
J.P. MORGAN AND MORGAN GUARANTY
Messrs. Warner (Chairman), Houghton,
Mendoza, Patterson, Viermetz, Weatherstone

AUDIT COMMITTEE
J.P. MORGAN
EXAMINING COMMITTEE
MORGAN GUARANTY
Messrs. Ketelsen (Chairman), Feldstein, Krol,
Yearley

COMMITTEE ON TRUST MATTERS
J.P. MORGAN
Dr. Gray (Chairman), Messrs. Ketelsen, Simmons

COMMITTEE ON MANAGEMENT DEVELOPMENT AND
EXECUTIVE COMPENSATION
J.P. MORGAN
Messrs. Houghton (Chairman), Bechtel, Raymond

COMMITTEE ON DIRECTOR NOMINATIONS AND
BOARD AFFAIRS
J.P. MORGAN
Mr. Raymond (Chairman), Dr. Gray, Mr. Yearley

COMMITTEE ON EMPLOYMENT POLICIES
AND BENEFITS
MORGAN GUARANTY
Messrs. Simmons (Chairman), Feldstein, Weatherstone

106
<PAGE> 109
INTERNATIONAL COUNCIL
J.P. Morgan & Co. Incorporated

Formed in 1967 and composed of business leaders and prominent individuals from
public life, the International Council advises the senior management of
J.P.Morgan on matters relating to its global business. It meets approximately
every eight months to discuss relevant issues of international concern and
interest.

The Hon. Bill Bradley was named Vice Chairman of the Council and Miguel
Etchenique became a member early in 1997.

HON. GEORGE P. SHULTZ
Chairman of the Council
Distinguished Fellow, Hoover Institution
Stanford University
Stanford, California

HON. BILL BRADLEY
Vice Chairman of the Council
Former U.S. Senator
Montclair, New Jersey

MOHAMMED ABALKHAIL
Former Minister of Finance and Economy
Kingdom of Saudi Arabia
Riyadh, Saudi Arabia

ROBERT E. ALLEN
Chairman and Chief Executive Officer
AT&T Corporation
Basking Ridge, New Jersey

BO BERGGREN
Chairman
Stora Kopparbergs Bergslags AB
Stockholm, Sweden

JORGE BORN
President
Bomagra S.A.
Buenos Aires, Argentina

LAWRENCE A. BOSSIDY
Chairman and Chief Executive Officer
AlliedSignal Inc.
Morristown, New Jersey

ING. CARLO DE BENEDETTI
Chairman
CIR S.p.A.
Milan, Italy

H. MIGUEL ETCHENIQUE
Chairman of the Board and President
Brasmotor S.A.
Sao Paulo, Brazil

SIR CHRISTOPHER HOGG
Chairman
Reuters Holdings PLC
London, England

THE RT. HON. THE LORD HOWE OF
Aberavon, PC, QC
House of Lords
London, England

DURK I. JAGER
President and Chief Operating Officer
The Procter & Gamble Company
Cincinnati, Ohio

ALAIN A. JOLY
Chairman and Chief Executive Officer
L'Air Liquide S.A.
Paris, France

DEREK L. KEYS
Executive Director
Gencor Limited
Johannesburg, South Africa

YOTARO KOBAYASHI
Chairman and Chief Executive Officer
Fuji Xerox Co., Ltd.
Tokyo, Japan

HON. LEE KUAN YEW
Senior Minister
Singapore

CARLOS MARCH
Chairman
The March Group
Madrid, Spain

HELMUT O. MAUCHER
Chairman and Chief Executive Officer
Nestle S.A.
Vevey, Switzerland

KARL OTTO POHL
Partner
Sal. Oppenheim Jr. & Cie.
Frankfurt, Germany

JOHN B. PRESCOTT
Managing Director and Chief Executive Officer
The Broken Hill Proprietary Company Ltd.
Melbourne, Australia

CONDOLEEZZA RICE
Provost
Stanford University
Stanford, California

JURGEN E. SCHREMPP
Chairman of the Board of Management
Daimler-Benz AG
Stuttgart, Germany

JESS SODERBERG
Partner and Chief Executive Officer
A.P. Moller
Copenhagen, Denmark

DENNIS WEATHERSTONE
Retired Chairman
J.P. Morgan & Co. Incorporated
New York, New York

L.R. WILSON
Chairman and Chief Executive Officer
BCE Inc.
Montreal, Canada

107
<PAGE> 110
DIRECTORS ADVISORY COUNCIL
Morgan Guaranty Trust Company of New York

The Directors Advisory Council of Morgan Guaranty Trust Company, whose members
are retired directors of J.P. Morgan, provides counsel to management and the
Board.

ELLMORE C. PATTERSON
Chairman
Directors Advisory Council
Retired Chairman
J.P. Morgan & Co. Incorporated

RALPH E. BAILEY
Former Vice Chairman
E.I. du Pont de Nemours and Company
and Retired Chairman and Chief Executive Officer
Conoco Inc.

BORIS S. BERKOVITCH
Retired Vice Chairman
J.P. Morgan & Co. Incorporated

JAMES O. BOISI
Retired Vice Chairman
J.P. Morgan & Co. Incorporated

CARTER L. BURGESS

FRANK T. CARY
Retired Chairman of the Board
International Business Machines Corporation

CHARLES D. DICKEY JR.
Retired Chairman of the Board
Scott Paper Company

WALTER A. FALLON
Former Chairman of the Board
Eastman Kodak Company

LEWIS W. FOY
Former Chairman
Bethlehem Steel Corporation

HOWARD GOLDFEDER
Retired Chairman and Chief Executive Officer
Federated Department Stores, Inc.

JOHN J. HORAN
Former Chairman and Chief Executive Officer
Merck & Co., Inc.

HOWARD W. JOHNSON
President Emeritus and Former
Chairman of the Corporation
Massachusetts Institute of Technology

EDWARD R. KANE
Former President
E.I. du Pont de Nemours and Company

RALPH F. LEACH
Retired Chairman of the Executive Committee
J.P. Morgan & Co. Incorporated

ROBERT V. LINDSAY
Retired President
J.P. Morgan & Co. Incorporated

HOWARD J. MORGENS
Chairman Emeritus
The Procter & Gamble Company

WALTER H. PAGE
Retired Chairman
J.P. Morgan & Co. Incorporated

DEWITT PETERKIN JR.
Retired Vice Chairman
J.P. Morgan & Co. Incorporated

DONALD E. PROCKNOW
Former Vice Chairman and Chief Operating Officer
AT&T Technologies, Inc.

THOMAS RODD
Retired Vice Chairman
J.P. Morgan & Co. Incorporated

JOHN P. SCHROEDER
Retired Vice Chairman
J.P. Morgan & Co. Incorporated

WARREN M. SHAPLEIGH
Retired Vice Chairman of the Board
Ralston Purina Company

JOHN G. SMALE
Chairman of the Executive Committee of the Board
General Motors Corporation
and Retired Chairman of the Board and Chief Executive Officer
The Procter & Gamble Company

OLCOTT D. SMITH
Retired Chairman
Aetna Life and Casualty Company

108
<PAGE> 111
CORPORATE INFORMATION

CORPORATE HEADQUARTERS

J.P. Morgan & Co. Incorporated, 60 Wall Street, New York, NY 10260-0060,
1-212-483-2323

ANNUAL MEETING

The annual meeting of stockholders of J.P. Morgan will be held on
Wednesday, May 14, 1997, at 11:00 a.m. in Morgan Hall West, 46th floor, 60
Wall Street, New York.

LISTING

The common stock of J.P. Morgan is listed on the New York, Amsterdam,
London, Paris, Swiss, and Tokyo stock exchanges. International Depositary
Receipts for the stock are listed on the Brussels and London stock
exchanges. NYSE symbol: JPM

The Adjustable Rate Cumulative Preferred Stock, Series A of J.P. Morgan is
listed on the New York Stock Exchange. NYSE symbol: JPM Pr A

Depositary shares representing a one-tenth interest in 6-5/8% Cumulative
Preferred Stock, Series H of J.P. Morgan are listed on the New York Stock
Exchange. NYSE symbol: JPM Pr H

TRANSFER AGENT AND REGISTRAR

Common Stock, Adjustable Rate Cumulative Preferred Stock, Series A,
Depositary shares on 6-5/8% Cumulative Preferred Stock, Series H:

First Chicago Trust Company of New York, P.O. Box 2500, Jersey City, NJ
07303-2500, 1-800-519-3111

Variable Cumulative Preferred Stock, Series B through F:

Bankers Trust Company, 4 Albany Street, 7th floor, New York, NY 10006-1500,
1-212-250-6850

FORM 10-K

J.P. Morgan's Annual report on Form 10-K as filed with the Securities and
Exchange Commission is incorporated in this report.

DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

Stockholders wishing to receive a prospectus for the dividend reinvestment
and stock purchase plan are invited to write to First Chicago Trust Company
of New York, J.P. Morgan Dividend Reinvestment Plan, P.O. Box 2500, Jersey
City, NJ 07303-2500, or call 1-800-519-3111.

1996 ANNUAL REVIEW
REPORT ON CONTRIBUTIONS

For a copy of J.P. Morgan's 1996 Annual review, the companion publication
to this Annual report, or for a report on J.P. Morgan's philanthropic
activities in 1996, write to Corporate Communication - Publications, J.P.
Morgan & Co. Incorporated, 60 Wall Street, New York, NY 10260-0060, or call
(1-212) 648-9607.

CONTACTS

Investor Relations: 1-212-648-9446
Media Relations: 1-212-648-9553

Please visit us on the Internet: www.jpmorgan.com

EQUAL OPPORTUNITY AT J.P. MORGAN

J.P. Morgan is committed to providing equal opportunity in the workplace.
The company, through this commitment, benefits from the full use and
development of its employees.

109
<PAGE> 112
J.P. Morgan & Co. Incorporated
60 Wall Street
New York, NY 10260-0060
1-212-483-2323
<PAGE> 113

GRAPHIC INDEX

PAGE 13
(1) Depicted on page 13 is a timeline of Daily Earnings at Risk for our
combined trading activities for each business day in 1995 and 1996, as well as
the average quarterly DEaR, in millions of dollars, for each quarter of 1995
and 1996. For 1995, in millions of dollars, the high was $31, the low was $11,
the average was $19, and the period end amount was $27. For 1996, in millions
of dollars, the high was $28, the low was $13, the average was $21, and the
period end amount was $27.

PAGE 14
(1) Depicted on page 14 is a histogram showing the frequency distribution of
1996 daily combined trading-related revenue generated by our trading
businesses, in millions of dollars.

<PAGE> 1
EXHIBIT 21

Subsidiaries of J.P. Morgan & Co. Incorporated

----------------------------------------------

J.P. Morgan & Co. Incorporated
Delaware

Subsidiaries of J.P. Morgan & Co. Incorporated
- ----------------------------------------------
(all wholly owned, except where noted)

DMHL
Delaware

Fund 800 Inc.
Delaware

J.P. Morgan California
California

Morgan Fonciere Cayman Islands Ltd.
Cayman Islands

Morgan Trust Company of the Cayman Islands Ltd.
Cayman Islands

Morgan Trust Company of The Bahamas Limited
Commonwealth of The Bahamas

J.P. Morgan Acceptance Corporation I
Delaware

J.P. Morgan Capital Corporation
Delaware

JPM Capital Trust I
Delaware

J.P. Morgan Capital Emerging Markets K Corporation
Delaware

J.P. Morgan Florida Holdings Corp.(1)
Delaware

J.P. Morgan Funding Corp.
United Kingdom

J.P. Morgan Funds Management Inc.
Delaware

J.P. Morgan Futures Inc.
Delaware

J.P. Morgan Futures Hong Kong Limited
Crown Colony of Hong Kong

J.P. Morgan GT Corporation
Delaware

J.P. Morgan International Capital Corporation
Delaware
<PAGE> 2
J.P. Morgan International Holdings Corp.
Delaware

J.P. Morgan Investment Corporation
Delaware

J.P. Morgan Investment Management Inc.
Delaware

J.P. Morgan Leasefunding Corp.
Delaware

J.P. Morgan (1992-I) Foreign Sales Corporation
Barbados

J.P. Morgan Mortgage Funding Inc.
Delaware

J.P. Morgan Commercial Mortgage Finance Corp.
Delaware

J.P. Morgan Mortgage Pass-Through Corporation
Delaware

J.P. Morgan News Partnership Corporation
Delaware

J.P. Morgan Technology Partnership Corporation
Delaware

JPM Pork Partnership Corporation
Delaware

J.P. Morgan Pine Street Corporation
Delaware

J.P. Morgan Partnership Capital Corporation
Delaware

J.P. Morgan Real Estate Partnership Corporation
Delaware

J.P. Morgan Energy Partnership Corporation
Delaware

J.P. Morgan Ventures Energy Corporation
Delaware

J.P. Morgan Private Investment Inc.
Delaware

J.P. Morgan Securities Holdings Inc.
Delaware

J.P. Morgan Securities Inc.
Delaware

J.P. Morgan Services Inc.
Delaware

J.P. Morgan Structured Finance Corp.
Delaware

2
<PAGE> 3
J.P. Morgan Structured Obligations Corporation
Delaware

Trading and Finance Management Limited
United Kingdom

J.P. Morgan Trust Company of Delaware
Delaware

J.P. Morgan Trust Company of Illinois
Illinois

J.P. Morgan Ventures Corporation
Delaware

J.P. Morgan Venezuela S.A.
Venezuela

J.P. Morgan Community Development Corporation
Delaware

Corsair, Inc.
Delaware

Sixty Wall Street Corporation
Delaware

Sixty Wall Street SBIC Corporation
Delaware

J.P. Morgan Florida, FSB
Florida

J.P. Morgan Trading and Finance Limited
United Kingdom

J.P. Morgan & Co. Limited
United Kingdom

Morgan Guaranty Trust Company of New York
New York

3
<PAGE> 4
Subsidiaries of Morgan Guaranty Trust Company of New York
- ---------------------------------------------------------

Angel Court Limited
United Kingdom

Morgan Guaranty Nominees Bahamas Limited
Commonwealth of The Bahamas

J.P. Morgan Interfunding Corp.
Delaware

Morprop Incorporated
Delaware

MorWest, Inc.
Delaware

MGT North America Corp.
Delaware

J.P. Morgan V.E. 92 Ltd.
New York

Oil Tankers Leasing Corporation
New York

J.P. Morgan Energy Products Inc.
Delaware

Ship Holding Corp.
New York

Whitkath Inc.
New York

EC Nominees Limited
United Kingdom

Guaranty Nominees Limited
United Kingdom

JPM (Eagle Star) Nominees Limited
United Kingdom

JPM Nominees Limited
United Kingdom

MGTB Nominees Limited
United Kingdom

MGT-EOC Nominees Limited
United Kingdom

Morgan Guaranty Executor and Trustee Company Limited
United Kingdom

J.P. Morgan Trustees Ltd.
United Kingdom

Morgan Guaranty International Finance Corporation
Section 25 (a) of the Federal Reserve Act of the United States

4
<PAGE> 5
Subsidiaries of Morgan Guaranty International Finance Corporation
- -----------------------------------------------------------------

J.P. Morgan Argentina Sociedad de Bolsa S.A.(4)
Argentina

J.P. Morgan Chile Limitada(4)
Chile

Morgan Guaranty Finance Limited
Bermuda

J.P. Morgan Funds Bahamas Ltd.
Commonwealth of The Bahamas

JPM Corretora de Cambio, Titulos e Valores Mobiliarios S.A.
Brazil

Banco J.P. Morgan, S.A.(5)
Brazil

J.P. Morgan Fonds (Luxembourg) S.A.
Grand Duchy of Luxembourg

ICICI Asset Management Company Limited (40% owned)
Bombay, India

ICICI Brokerage Services Limited
Bombay, India

J.P. Morgan Iberica, S.L.
Spain

J.P. Morgan Investimentos e Financas Ltda.
Brazil

J.P. Morgan GmbH (97% owned)(6)
Federal Republic of Germany

J.P. Morgan Holding Deutschland GmbH(2)
Federal Republic of Germany

J.P. Morgan Investment GmbH
Federal Republic of Germany

J.P. Morgan & Cie S.A.
France

Morgan Gestion S.A.
France

Societe de Bourse J.P. Morgan S.A.
France

Morgan Conseil S.A.
France

J.P. Morgan Fund Services S.A.(4)
Grand Duchy of Luxembourg

J.P. Morgan S.p.A.(4)
Italy

5
<PAGE> 6
J.P. Morgan Trust Bank Ltd.(3)
Japan

J.P. Morgan Japanese Fund Services S.A.(4)
Grand Duchy of Luxembourg

J.P. Morgan Jersey Limited
Jersey, The Channel Islands

J.P. Morgan Benelux S.A.
Kingdom of Belgium

J.P. Morgan Securities Asia Ltd. (50% owned)
Republic of Singapore

J.P. Morgan Securities South Africa (Proprietary) Limited
South Africa

J.P. Morgan Servicios S.A. de C.V.,
J.P. Morgan Morgan Grupo Financiero
Mexico City, Mexico

J.P. Morgan Financial Markets Ltd.
Switzerland

J.P. Morgan (Suisse) S.A.
Switzerland

J.P. Morgan Portfolio Ltd.
United Kingdom

Morgan Property Development Company Limited
United Kingdom

J.P. Morgan Polska Sp. z o.o.
Warsaw, Poland

J.P. Morgan International Ltd.
Delaware

J.P. Morgan Grupo Financiero, S.A. de C.V.
Mexico City, Mexico

Banco J.P. Morgan, S.A., Institucion de Banca Multiple,
J.P. Morgan Grupo Financiero
Mexico City, Mexico

J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan
Grupo Financiero
Mexico City, Mexico

J.P. Morgan Fondi Italia S.p.A.
Italy

J.P. Morgan Services Ltd.
Singapore

Financiere Franco-Neerlandaise (10% Owned)
France

FL21 SARL (10% Owned)
France

6
<PAGE> 7
ICICI Securities and Finance Company Limited (39.7% Owned)
Bombay, India

Epargne-Interessement (23% Owned)
France

Private Export Funding Corporation (7.5% Owned)
New York

J.P. Morgan Overseas Capital Corporation
Delaware

Subsidiaries of J.P. Morgan Overseas Capital Corporation
- --------------------------------------------------------

J.P. Morgan Nederland N.V.
Amsterdam, The Netherlands

J.P. Morgan Securities Hong Kong Ltd.
Crown Colony of Hong Kong

J.P. Morgan Whitefriars Inc.
Delaware

J.P. Morgan Whitefriars (UK)
United Kingdom

J.P. Morgan Securities Ltd.(7)
United Kingdom

J.P. Morgan Securities Canada Inc.
Ontario, Canada

J.P. Morgan Canada
Ontario, Canada

Morgan Bank of Canada (Receivables Purchase Financing) Ltd.
Ontario, Canada

J.P. Morgan Espana S.A.
Spain

J.P. Morgan Sociedad de Valores y Bolsa S.A.
Spain

Morgan Gestion, S.A.
Spain

J.P. Morgan Sterling Securities Ltd.
United Kingdom

Kipps Nominees Ltd.
United Kingdom

J.P. Morgan Societa di Intermediazione Mobiliare S.p.A.
Italy

Morgan Guaranty Holdings Ltd.(8)
United Kingdom

Morgan Guaranty Trust Company Limited (U.K.)
United Kingdom

7
<PAGE> 8
Sociven S.A.
Venezuela

J.P. Morgan Australia Holdings Limited
Victoria, Australia

J.P. Morgan Australia Limited
Victoria, Australia

J.P. Morgan Australia Securities Limited
Victoria, Australia

J.P. Morgan Investment Management Australia Limited
Victoria, Australia

J.P. Morgan Nominees Pty. Limited
Victoria, Australia

Bank of the Philippine Islands (12.6% Owned)
Philippines

Saudi International Bank Al-Bank Al-Saudi Al-Alami Limited (20% Owned)
London

- -------------------------------------

(1) J.P. MORGAN INTERNATIONAL HOLDINGS CORP. HAS A 50% OWNERSHIP
INTEREST.

(2) J.P. MORGAN & CIE S.A. OWNS SHARES CARRYING 23% OF THE VOTING POWER.

(3) J.P. MORGAN AND CIE S.A. OWNS PREFERRED SHARES CARRYING 31.74% OF
THE VOTING POWER.

(4) J.P. MORGAN OVERSEAS CAPITAL CORPORATION OWNS A MINORITY INTEREST IN
THE COMPANY.

(5) J.P. MORGAN INVESTIMENTOS E FINANCAS LTDA. HAS A 36% OWNERSHIP
INTEREST.

(6) MORGAN GUARANTY TRUST COMPANY OF NEW YORK HAS A 3% OWNERSHIP
INTEREST.

(7) MORGAN GUARANTY INTERNATIONAL FINANCE CORPORATION AND MORGAN
GUARANTY INTERNATIONAL BANK EACH OWNS A MINORITY INTEREST IN THE
COMPANY.

(8) MORGAN GUARANTY INTERNATIONAL FINANCE CORPORATION HAS A 21%
OWNERSHIP INTEREST.

<PAGE> 1
EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 33-44312,
33-45651, 33-49775, 33-55851, 33-64193, 333-01723, 333-01121, 333-15079,
333-15079-1 through 4, 333-20427, and 333-20427-1 through 3) and in the
Registration Statements on Form S-8, as amended, (Nos. 33-61167, 33-61181,
33-65065, 33-49267, 33-32659, 33-49419 and 33-63659) of our report dated January
8, 1997 appearing on page 34 of the J. P. Morgan & Co. Incorporated Annual
Report, which is included as exhibit 13 to Form 10-K for the year ended
December 31, 1996.

/s/ PRICE WATERHOUSE LLP
- ------------------------
Price Waterhouse LLP
New York, New York
March 24, 1997

<PAGE> 1
EXHIBIT 24

POWER OF ATTORNEY
(Form 10-K)

KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas A. Warner III, Roberto G. Mendoza, Kurt F. Viermetz, Michael E.
Patterson, Rachel F. Robbins, James C. P. Berry and Gene A. Capello and each of
them, with full power to act without the others, as the undersigned's true and
lawful attorney-in-fact and agent, with full and several power of substitution,
for the undersigned and in the undersigned's name, place and stead, in any and
all capacities, to sign any and all Annual Reports of J.P. Morgan & Co.
Incorporated on Form 10-K and any and all amendments thereto pursuant to the
Securities Exchange Act of 1934, as amended, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.