<PAGE>

                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549
                                           
                                      FORM 10-K
                                           

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

                      FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
                            COMMISSION FILE NUMBER  1-8722
                                           
                          THE MACNEAL-SCHWENDLER CORPORATION

                (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                DELAWARE                             95-2239450
      (STATE OR OTHER JURISDICTION OF              (I.R.S. EMPLOYER
      INCORPORATION OR ORGANIZATION)              IDENTIFICATION NO.)

          815 COLORADO BOULEVARD,                       90041
          LOS ANGELES, CALIFORNIA                     (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                  

         REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE:   (213) 258-9111
                                           
             SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                           
                                               NAME OF EACH EXCHANGE 
            TITLE OF EACH CLASS                  ON WHICH REGISTERED
            -------------------                  --------------------

  COMMON STOCK PAR VALUE $.01 PER SHARE        NEW YORK STOCK EXCHANGE
  7-7/8% CONVERTIBLE SUBORDINATED
  DEBENTURES DUE AUGUST 18, 2004               NEW YORK STOCK EXCHANGE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  NONE
                                           
    Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (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. /X/

    As of April 24, 1997 the approximate aggregate market value of The 
MacNeal-Schwendler Corporation's voting stock held by nonaffiliates was 
$126,242,000.

    As of April 24, 1997 there were outstanding 13,465,806 shares of Common
Stock of The MacNeal-Schwendler Corporation.

    Documents incorporated by reference:   The Annual Proxy Statement of The 
MacNeal-Schwendler Corporation for the Annual Meeting of Shareholders to be 
held on June 11, 1997 is incorporated by reference into Part III.
                                           
<PAGE>
                                           
                                       FORM 10K
                                  TABLE OF CONTENTS
                                           
                                           
                                                                           PAGE
                                                                           ----

BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      1

PROPERTIES ......... . . . . . . . . . . . . . . . . . . . . . . . . . .      7
                                                                        
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . .      7
                                                                        
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . . .      7
                                                                        
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
     MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      8
                                                                        
SELECTED FINANCIAL DATA  . . . . . . . . . . . . . . . . . . . . . . . .      8

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
   AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . .      9
                                                                        
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . . . . . . .     14
                                                                        
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING. . . . . . .     30
   AND FINANCIAL DISCLOSURE

EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
   ON FORM 8-K.... . . . . . . . . . . . . . . . . . . . . . . . . . . .     30


<PAGE>

                                        PART I
                                           
ITEM 1.   BUSINESS.     The MacNeal-Schwendler Corporation ("MSC" or the 
"Company") was incorporated in Delaware in 1994 for the purpose of 
effectuating a reincorporation of The MacNeal-Schwendler Corporation, a 
California Corporation (the "Predecessor Company"), in Delaware. The 
Predecessor Company was originally incorporated in California in 1963. Unless 
the context indicates otherwise, reference to MSC or the Company include the 
Predecessor Company. Since its inception, the Company has been engaged in 
computer-aided engineering ("CAE"), including the development and marketing 
of applications software for use principally by engineers and designers in 
industry, research laboratories and universities. The Company's principal 
software products are MSC/NASTRAN and MSC/PATRAN. Each such product has been 
adapted over the years so that it is compatible with many of the platforms 
currently used by engineers.

    In the current computer-aided manufacturing environment, designs are 
subjected to engineering analysis before manufacturing has begun. MSC/NASTRAN 
is a basic CAE analytical tool. MSC/PATRAN is an interactive CAE environment 
that facilitates the use of geometric data from popular computer-aided design 
("CAD") systems such as CATIA, Pro/ENGINEER, and EDS/Unigraphics in a variety 
of commercial analysis programs including MSC/NASTRAN. The use of CAE 
analysis helps to reduce product cost and increase reliability.  CAE analysis 
can be used to break down a design prior to its physical manufacture, 
replacing time-consuming and costly manual analyses and physical testing and 
permits a substantial increase in the number of design trade-offs and design 
cycles. The Company's CAE tools are used by engineers worldwide in several 
diverse CAD/computer-aided manufacturing ("CAM") disciplines, including civil 
engineering, automobile design and manufacture, and aerospace.

    MSC/NASTRAN is a descendant of NASTRAN-Registered Trademark-, a computer 
program owned by the United States Government and leased to others. Since 
NASTRAN was first released in 1970, its contents and MSC/NASTRAN have rapidly 
diverged, and the current capabilities and scope of MSC/NASTRAN are 
substantially greater than those of NASTRAN. MSC commenced offering its 
proprietary version as a commercial product in 1971. Pursuant to a 1982 
agreement with the National Aeronautics and Space Administration, MSC 
acquired the perpetual rights to commercially use those elements of NASTRAN 
which are embodied in MSC/NASTRAN. See "Intellectual Property Rights" below.

    MSC offers the following CAE products in addition to MSC/NASTRAN and
    MSC/PATRAN: 

         MSC/ARIES - a geometric modeling and automatic meshing tool for use
         by design engineers in the early development stages of a mechanical
         product or component.
    
         MSC/DYTRAN - a tool used to solve highly nonlinear, transient dynamic
         problems, including those involving high speed impact, and
         fluid-structure interaction problems.
    
         MSC/NASTRAN for Windows - an integrated finite element modeling and
         analysis system for Windows NT, Windows 95, and Windows 3.1.
    
         MSC/MVISION - a materials data management system for test, design, 
         and analysis engineers.
    
         MSC/SuperModel - provides automatic assembly of airframe and launch
         vehicle models.

    As an extension of its software business, the Company develops 
educational tools designed to train users of MSC/NASTRAN, MSC/PATRAN, and its
other products. Training seminars are conducted in local languages on a 
frequent basis at the MSC Institute of Technology in Costa Mesa, California, 
at the Company's Los Angeles headquarters, at MSC's offices worldwide, and at 
actual client sites. In addition, the Company provides integration services 
to install and modify the software to meet customers' specific needs.

    The following is a detailed discussion of each of the Company's major CAE 
products:

                                          1


<PAGE>

MSC/NASTRAN
    MSC/NASTRAN is based upon the "finite element method" (FEM) of analysis. 
With FEM, complex structures are divided into small elements which form a 
finite element model. The model is then subjected to computer analysis. 
MSC/NASTRAN is used to analyze structures in order to determine, among other 
things, their strength, safety and performance characteristics. For example, 
in the aerospace industry, MSC/NASTRAN is employed to determine the stress 
distribution in the major parts of an aircraft, such as engines, wings, 
fuselage and tail. The computer analysis can be applied, creating a reduced 
usage of prototypes and other testing, to improve the design of aircraft by 
suggesting the removal of material where stresses are low and the addition of 
material where stresses are high. With this knowledge, aircraft can be made 
both stronger and lighter. The same principles can and have been applied to 
improve the design of jets, rockets, engines, automobiles, trucks, tires, 
ships, farm equipment, heavy industrial equipment, nuclear containment 
vessels, helicopters, spacecraft and other products and structures.

    Additional types of structural analysis are also provided by MSC/NASTRAN, 
including analyses of vibration characteristics, dynamic response, transient 
heat transfer, elastic stability and aeroelastic response, including flutter. 
The sequence of calculations required for each such analysis is prearranged. 
The user need only provide a physical description of the problem and the 
desired output.

    Because MSC/NASTRAN has been designed in a modular way, new features can 
be added and obsolete features replaced without disrupting the other modules 
of the system. As a result, major changes in computer hardware have been 
systematically accommodated. For example, the program has been adapted to be 
used on minicomputers and microcomputers, including Windows-based personal 
computers. The Company believes that the continued development and 
maintenance of MSC/NASTRAN, together with the modular design features of the 
program, have prevented, and will continue to prevent, its obsolescence, 
although no assurance can be given that future changes in hardware or 
breakthroughs in software design will not result in the obsolescence of the 
program.

    MSC/NASTRAN is currently operational on a wide variety of computer 
operating system/hardware platform combinations, including those manufactured 
and distributed by International Business Machines Corporation ("IBM"), 
Digital Equipment Corporation ("DEC"), Hewlett-Packard Corporation ("HP"), 
Hitachi Data Systems, Nippon Electric Corporation ("NEC"), Silicon Graphics 
Inc. ("SGI"), Fujitsu Ltd., Siemens GmbH, Sun Microsystems Inc. ("SUN"), and 
Cray Research Inc.

MSC/PATRAN
    MSC/PATRAN provides finite element modeling, analysis data integration, 
analysis simulation, and results evaluation capabilities required for 
analysts to simulate product performance early in the design-for-manufacture 
process. With MSC/PATRAN, an engineer is able to visualize the design, 
interface with other CAD programs, perform pre-processing to prepare the 
computer model for engineering analysis with MSC/NASTRAN, and perform 
post-processing of the results of the analysis from MSC/NASTRAN to assist in 
interpretation and visualization of the results, as well as integration of 
analysis data with testing software packages. All of the functions of the 
software can be integrated, automated and tailored to the user's specific 
requirements using a powerful programming command language.

    The MSC/PATRAN system can be described as software that provides three
    fundamental functions:

         MSC/PATRAN CORE SOFTWARE - The core of the MSC/PATRAN software enables
         the  engineer to visualize the design, preprocess the design into a 
         computer model for engineering analysis, and postprocess the results 
         of the analysis into a graphical representation. The software 
         interfaces with many popular CAD programs and many analysis packages 
         such as MSC/NASTRAN.

         APPLICATION MODULES - Through a series of modules that can be added 
         to the core software, engineers can perform analysis on stress, 
         thermal, mechanisms and dynamics, fluid flow, solid modeling, and 
         fatigue.


                                          2


<PAGE>

         Certain of these application modules have been developed by third 
         parties and are marketed under joint development or marketing 
         agreements.

         INTERFACES - MSC/PATRAN uses a series of interfaces that allow it to 
         interact with programs developed by other companies in the CAD/CAM/CAE
         industry. These interfaces either involve direct links into other 
         software or translate data to and from other software so that it can 
         be processed within MSC/PATRAN.

    Currently, the Company focuses its development activities with respect to
MSC/PATRAN on hardware platforms from DEC, HP, SUN, SGI, and IBM.

MSC/ARIES
    MSC/ARIES, which is based on solid geometric modeling, is a graphical and
user friendly pre- and post-processing environment for MSC/NASTRAN and other
major analysis codes.

    Comprised of several modules, MSC/ARIES allows engineers to create a 
solid model, derive engineering information such as mass and section 
properties, manage the material attributes of the solid model, apply load and 
boundary conditions directly to the solid, and generate either an automatic 
or mapped finite element mesh on the solid, resulting in a finite element 
model. The MSC/ARIES finite element model can be analyzed by a wide variety 
of popular design analysis codes. Analysis post-processing capabilities of 
MSC/ARIES allow engineers to view and query analysis results in numerous 
ways. Guided by analysis results, engineers can then use the integrated 
parametrics module to modify the solid model to better meet design criteria, 
all before downstream development functions such as drafting, physical 
prototyping, and manufacturing.

    MSC/ARIES supports an open systems architecture. The core module of 
MSC/ARIES is Solids, a precise solid modeling module based on the ACIS 
standard kernel. Because many other CAE/CAD/CAM software suppliers are also 
basing their emerging products on the ACIS standard, MSC/ARIES model data can 
be communicated to many popular software applications. In addition, MSC/ARIES 
data can be communicated to other applications via PDES/STEP, IGES, DXF, and 
various direct translators. This allows manufacturing companies to mix and 
match MSC software with products from many other vendors to provide superior 
solutions, not only at each point in the process, but also overall.

    MSC/ARIES runs on workstations, including those manufactured by SGI, HP,
SUN, IBM and DEC, and on PC's based on Intel 386/486 and Pentium processors.

MSC/DYTRAN
    MSC/DYTRAN is designed to analyze transient, dynamic events characterized
by large structural distortions or the interaction of fluids with structures.
Using MSC/DYTRAN, engineers can solve many practical problems, including
automotive crash simulations, vehicle occupant safety studies, and aircraft
crash-worthiness studies.

    MSC/DYTRAN is also suitable for analyzing highly nonlinear and complex 
processes such as the ingestion of objects into jet engines, hypervelocity 
particle impacts upon spacecraft, the deployment of airbags in vehicle 
crashes, accident containment during the transportation of hazardous cargo, 
and ballistic armament penetration. With MSC/DYTRAN, engineers in a broad 
range of industries can conduct "what if" studies involving the dynamic 
response and interaction of fluids and structures subjected to high velocity 
impact. Events characterized by rapid energy releases, such as explosions, 
can also be simulated.  MSC/DYTRAN has been used to successfully simulate 
phenomena as diverse as ship collisions, the seismic response of structures 
to earthquakes, the performance of munitions and armor, the safety tolerances 
of nuclear and chemical plant components, and automobile crashes.

                                          3


<PAGE>


MSC/MVISION
    MSC/MVISION is a materials software system for visualization, selection 
and data integration which helps companies take advantage of state-of-the-art 
materials technology throughout the design-to-manufacture process. 
MSC/MVISION electronically integrates data across engineering boundaries. It 
allows users to build their own proprietary materials database and provides 
access to that data across all engineering disciplines. It provides users 
with the ability to search, query, compare and manipulate materials data as 
well as with direct access to these databanks from within MSC/PATRAN.

MSC/SUPERMODEL
    MSC/SuperModel is an analysis process management and advanced aerospace 
modeling solution that dramatically reduces the time required for design 
simulation.  Aerospace structures are designed, analyzed, and manufactured by 
multiple companies, with each responsible for a given component, such as a 
wing or fuselage. These companies are also responsible for the component's 
finite element model, which predicts stress and deflection. MSC/SuperModel 
assembles a number of component models (submodels) into a complete model 
(supermodel). MSC/SuperModel automates the task of managing the component and 
assembly processes, tasks to which aerospace companies previously devoted 
significant time and effort.

RESEARCH AND DEVELOPMENT
    The Company continually expends significant amounts on the development 
and maintenance of its suite of CAE software products, as well as on new 
product research and development.  During the years ended January 31, 1997, 
1996, and 1995, approximately $31,764,000, $30,752,000, and $30,252,000, 
respectively, was expended for software research and development. Of the 
amounts expended, $9,025,000 in 1997, $10,447,000 in 1996, and $9,226,000 in 
1995 were included in software costs capitalized.

    The Company's development activities generally involve adding new 
capabilities to its family of CAE programs or converting those programs for 
use on new computer platforms. Such activities are intended to prevent 
technological obsolescence and assure the Company's clients the maximum 
flexibility in selecting computer hardware. A decision to undertake 
development activity to adapt MSC's software program for a particular 
computer is based upon the Company's estimates regarding feasibility, cost 
and the size of the market for the program in connection with the particular 
computer.

    Maintenance of MSC software products includes system integration, quality 
assurance testing, error correction, and modifications to accommodate changes 
to computer system software. Given the maturity of the Company's software, 
most maintenance efforts stem from continuing new developments. Maintenance 
costs are expensed as incurred.

MARKETING
    The Company's products are marketed internationally to aerospace, 
automotive, industrial, computer and electronics manufacturers, and 
universities. These categories of clients accounted for 39%, 25%, 24%, 9%, 
and 3%, respectively, of the Company's revenues for the fiscal year ended 
January 31, 1997.

    The Company markets its products through advertising in trade 
publications, participation in industry trade shows and exhibits, training 
seminars conducted worldwide, its existing client base and its complementary 
marketing agreements with computer hardware manufacturers.

    REVENUE POLICY. The Company provides a variety of licensing alternatives 
for the use of its software products. MSC's software products have been 
primarily offered on an annual pre-paid license basis.  An annual pre-paid 
license is set at a fixed rate for the period and provides for payment in 
advance of use. Under the pre-paid agreement, license revenue is recognized 
at the time of sale, while maintenance revenue, representing approximately 
15% of the revenue from a pre-paid license, is recognized ratably over the 
term of the maintenance period.

    In recent years, demand has also increased for paid-up licenses for 
engineering software products.  A paid-up license provides significant 
revenue at the original time of sale of the product, with smaller payments

                                          4


<PAGE>

for maintenance following the time of sale.  The growth of paid-up licenses 
creates higher earnings volatility since larger amounts of revenue are 
recognized at one time instead of over a period of time.

    Foreign marketing is generally conducted in the same manner as U.S. 
marketing. The basic licensing agreements are substantially the same.  Prices 
for agreements originating with MSC's German subsidiary are generally stated 
in German Marks and certain agreements originating within Japan are stated in 
Japanese Yen. The agreements stated in foreign currencies are subject to 
currency fluctuations. For the year ended January 31, 1997, foreign sales 
accounted for approximately 59% of gross revenues, most of which were 
attributable to Europe (30%) and Asia-Pacific (26%). The balance was 
attributable to Canada and South America. See Notes 7 and 9 of Notes to 
Consolidated Financial Statements for additional information with respect to 
the Company's foreign operations.

    SALES/SUPPORT OFFICES. The Company maintains U.S. sales and client 
support offices in the Los Angeles, Costa Mesa, San Jose, Sacramento, Denver, 
Dallas/Fort Worth, Atlanta, Chicago, Milwaukee, Detroit, Philadelphia, 
Boston, New York, Indianapolis, Rochester, Cleveland, St. Louis, Phoenix, and 
Seattle areas. The Los Angeles office also serves as the Company's 
headquarters. The other offices are staffed by sales and/or technical support 
representatives who have engineering backgrounds and experience using MSC 
products. These representatives market the Company's products, provide 
training in their use, respond to user support calls and provide integration 
services throughout North America.

    The Company's products are marketed, distributed and supported outside of 
North America through a network of international subsidiary offices.

    The Company's wholly-owned European headquarters, located in Munich, 
Germany, manages wholly-owned subsidiary offices in the United Kingdom, 
Italy, Spain, France, Norway, and The Netherlands. Other sales offices are 
located in Moscow, Russia and Fribourg, Switzerland. In the Far East, sales 
and service are handled through wholly-owned subsidiaries in Taipei, Taiwan; 
Beijing, People's Republic of China; and Tokyo, Japan. There is also a branch 
of the Tokyo office in Kyoto, Japan.

    Representative arrangements are also utilized in several European and Far
East countries as well as in India, Australia, and Latin America.

    ADDITIONAL CLIENT SUPPORT. Client service is an integral aspect of the 
Company's marketing program. The Company maintains toll-free numbers and a 
"hot line" service for its clients and sponsors annual users' conferences.

    User manuals, training and quality assurance are also essential to the 
Company's marketing program. The Company's user manuals are comprehensive and 
updated on a regular basis. A staff of writers and editors manage the design, 
writing, editing and preparation of user manuals as well as of training 
materials and promotional literature. A periodic newsletter provides clients 
with new information on the Company's products and services.

    Formal training for clients is conducted by the Company, ranging from 
three-day introductory courses to intensive courses on specialized subjects 
for experienced users. In-house courses are provided for larger user 
organizations.

    The Company also hosts annual users' conferences in the United States, 
Europe, the Far East, Australia, and Latin America to gather data on client 
needs, new engineering applications, and new trends in computing technology.

CUSTOMERS
    No customer of the Company accounts for more than 10% of the Company's
consolidated revenues.


                                          5


<PAGE>


BACKLOG
    The Company does not maintain backlog statistics for its products because 
software is generally available for delivery upon execution of a licensing 
agreement or contract.

INTELLECTUAL PROPERTY RIGHTS
    MSC, MSC/, MSC/ARIES, MSC/DYNA, MSC/PISCES, PATRAN and M/VISION are 
registered trademarks of the Company. NASTRAN is a registered trademark of 
NASA. MSC/NASTRAN is an enhanced proprietary version of NASTRAN.

    MSC/NASTRAN, MSC/NASTRAN for Windows, MSC/DYTRAN, MSC/SuperModel, 
MSC/InCheck, and MSC/SuperForge are trademarks of the Company. Registration 
on certain of these trademarks is pending. Most of the Company's trademarks 
have also been registered in foreign countries. MSC believes that it could 
successfully defend the use of its trademarks, whether registered or pending 
registration, under federal or common law existing in the State of California.

    In addition, the Company maintains federal statutory copyright protection 
with respect to its software programs and products and has registered 
copyrights on all documentation and manuals related to these programs.

MERGERS AND ACQUISITIONS
    On August 18, 1994, the Company acquired all of the outstanding shares of 
PDA Engineering, Inc. ("PDA") through the issuance of $56,608,000 of its 
7-7/8% Convertible Subordinated Debentures due 2004, or $6.85 per share, and 
cash of $5,313,000 to purchase all outstanding options. The acquisition was 
treated as a purchase for accounting purposes and, accordingly, the operating 
results of PDA from the date of the acquisition through January 31, 1997 have 
been reflected in the Company's consolidated financial statements in the 
applicable year.

COMPETITION
    The Company believes that MSC/NASTRAN is the leading program for 
engineering analysis worldwide based upon capability, international 
acceptance and sales volume. However, numerous programs which compete with 
MSC/NASTRAN are also available including other variants of NASTRAN, and the 
Company must continue to offer attractive prices and performance capabilities 
in order to retain existing clients and further extend its markets. See 
"Research and Development" and "Marketing" above. The Company competes 
primarily based upon product quality, service and technological innovation.

EMPLOYEES
    At January 31, 1997, the Company and its subsidiaries employed 627 
persons, of whom 203 were involved in technical activities, 320 in sales and 
marketing and 104 in administration. Of these employees, 241 hold advanced 
degrees. The Company's business is dependent in part upon its ability to 
attract and retain highly skilled personnel who are in great demand. The 
Company has no contracts with labor organizations and believes its relations 
with its employees are good.

                                          6


<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT
    The table below sets forth certain information with regard to executive 
officers who are not also directors of the Company. The Company is not aware 
of any arrangement or understanding between such persons and any other 
persons pursuant to which the executive officers were selected as such. The 
Company is not aware of any family relationships between these executive 
officers and any other executive officers.

    Ken Blakely       42     Vice President and General Manager-Aerospace
                             Business Unit for the Company (March
                             1996-present); Vice President-Marketing (January
                             1995-March 1996); Department Director of
                             Production and Support for the Company (March
                             1993-December 1994); Section Manager of Technical
                             Product Planning and Support for the Company
                             (January 1992-February 1993); Department Director
                             of Product Management and Support for the Company
                             (June 1991-December 1991); MSC/NASTRAN Program
                             Manager of the Company (October 1989-May 1991).
    
    Louis A. Greco    49     Chief Financial Officer of the Company (March
                             1983-present) and Corporate Secretary of the
                             Company (December 1985-present).
    
    Thomas C. Tecco   47     Vice President of Automotive Business Unit for the
                             Company (August 1996 to present)
    
    James M. White    38     Vice President of Product Development for the
                             Company (August 1994-present); Vice President of
                             Software Development for the Company (January
                             1994-August 1994); Technical Manager of Software
                             Development for the Company (April 1993-January
                             1994); Section Manager of Software Development for
                             the Company (January 1990-April 1993).

    This Form 10-K contains forward-looking statements within the meaning of 
the "safe harbor" provisions of the Private Securities Litigation Reform Act 
of 1995. Reference is made in particular to Item 1, "Business," and Item 7, 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations." Such statements may be identified by the use of forward-looking 
terminology such as "may," "will," "expect," "believe," "estimate," 
"anticipate," "continue," or similar terms, variations of such terms or the 
negative of such terms. Such statements are based on management's current 
expectations and are subject to a number of factors and uncertainties which 
could cause actual results to differ materially from those described in the 
forward-looking statements. Factors which could cause such results to differ 
materially from those described in the forward-looking statements include 
delays in developing, completing, or shipping new or enhanced products, 
fluctuation in quarterly results, foreign currency translations, and other 
risks and uncertainties that are detailed in the Company's Annual Report on 
Form 10-K and other reports filed by the Company with the Securities and 
Exchange Commission.

ITEM 2.  PROPERTIES.
    The Company's offices in Los Angeles, California, and elsewhere are 
leased under agreements expiring at various times over the next one to ten 
years. See Note 12 of Notes to Consolidated Financial Statements of this 
report for additional information regarding the Company's lease obligations. 
The Company's principal offices are in Los Angeles, California, and include 
56,690 square feet under leases expiring in 2005. Management of the Company 
believes current properties and facilities to be adequate and suitable for 
the Company's current and future needs.

ITEM 3.  LEGAL PROCEEDINGS.
    None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
    No matters were submitted to a vote of shareholders during the last quarter
of the Company's fiscal year ended January 31, 1997.


                                          7


<PAGE>

                                       PART II
                                           
ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
    The Company's common stock had been listed for trading on the American 
Stock Exchange and, pursuant to a Registration Statement on Form 8-A, which 
became effective June 24, 1996, the Company's common stock was listed on the 
New York Stock Exchange under symbol MNS. The following table sets forth 
through January 31, 1997, the high and low prices as reported on the 
applicable exchanges for the period shown:

                                                   SALES PRICES
                                                   ------------
                                                  HIGH       LOW
                                                  ----       ---

    Fiscal 1997
         Fourth quarter                         $10.13    $ 7.25
         Third quarter                            9.13      6.38
         Second quarter                          14.75      6.25
         First quarter                           15.00     13.00

    Fiscal 1996
         Fourth quarter                         $16.00    $13.50
         Third quarter                           19.63     13.13
         Second quarter                          15.00     12.75
         First quarter                           15.63     11.25


    As of April 11, 1997 there were 284 record holders of the Company's 
Common Stock.  The Company had paid a quarterly dividend until September of 
1996 when the dividend was eliminated.  For the fiscal year ended January 31, 
1997, the dividend declared aggregated $.22 per share.  For the fiscal year 
ended January 31, 1996, the dividend declared aggregated $.64 per share.  The 
price of the Common Stock on April 11, 1997 was $9.50.
    
ITEM 6.  SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>
                                                                           FOR THE YEARS ENDED JANUARY 31,
                                                                           -------------------------------
                                                         1997            1996           1995*           1994         1993
                                                         ----            ----           -----           ----         ----
                                                                      In thousands, except per share amounts

<S>                                                    <C>            <C>            <C>             <C>            <C>
    Revenue                                            $133,321       $130,483       $100,686        $79,574        $77,190
    Operating income (loss)                              19,043         24,739        (27,732)        16,785         16,098
    Net income (loss)                                     9,621         14,407        (30,382)        11,440          9,989
    Primary earnings (loss) per share                      .71           1.06          (2.27)           .86            .75
    Fully-diluted earnings (loss) per share                .70            .99          (2.27)           .86            .75
    Cash dividends declared per share                      .22            .64            .64            .64            .48
    Total assets                                        127,822        119,660        118,751         78,504         72,728
    Convertible long-term debt                           56,574         56,576         56,576           ----           ----

</TABLE>

    * Reflects an in-process research and development charge of $35,000,000 and
      a restructuring charge of $8,962,000.  Revenues in fiscal 1996 and 1995
      were positively affected by the acquisition of PDA Engineering.

    The selected financial data for the five years ended January 31, 1997, 
are not reported upon herein by independent auditors.  The selected financial 
data should be read in conjunction with Item 7, Management's Discussion and 
Analysis of Financial Condition and Results of Operations, and the 
Consolidated Financial Statements of the Company and the related Notes to 
Financial Statements.

                                          8


<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS.

1997 VS. 1996
    The Company reported revenue of $133,321,000 for the year ended January 
31, 1997, an increase of 2% from $130,483,000 for the year ended January 31, 
1996. A total of 81% of revenue was derived from the licensing of the 
Company's software products (MSC/NASTRAN, MSC/PATRAN, MSC/ARIES, 
MSC/SuperModel, MSC/MVISION, MSC/NASTRAN for Windows, MSC/DYTRAN, and 
MSC/ABAQUS), and 19% was derived from software maintenance and services 
revenue.

    The 2% increase in total revenue was adversely affected by the strength 
of the U.S. dollar compared to other foreign currencies during the period.  
The Asia-Pacific region, which accounts for 26% of the Company's total 
revenue, actually reported local currency growth of approximately 18% 
compared to the prior year.  In U.S. dollar terms, the growth in the 
Asia-Pacific region was 7%. Europe, which accounts for 30% of the Company's 
total revenue, reported revenue improvement in local currency of almost 9% 
compared to the prior year or 3% in U.S. dollar terms.  Latin America and 
Canada, which together account for 3% of the Company's total revenue, 
reported revenue growth of 16% in U.S. dollars.  In addition to the strength 
of the U.S. dollar, real growth was also overshadowed by the sale of the 
electromagnetic analysis product line (MSC/EMAS) in July of 1996.

    Revenue from international operations was $78,944,000, or 59% of total
revenue compared to $74,800,000, or 57% of total revenue for fiscal 1996.

    Operating expenses were $114,278,000 in fiscal 1997 compared to 
$105,744,000 in fiscal 1996, an increase of $8,534,000, or 8%.  This increase 
is attributable to many factors.

    Cost of revenue was $20,384,000 in fiscal 1997 compared to $19,856,000 in 
fiscal 1996, an increase of $528,000, or 3%.  Included in cost of revenue is 
the amortization of capitalized software costs of $7,874,000 in fiscal 1997 
and $8,739,000 in fiscal 1996.  The increase in the cost of revenue expense 
is primarily due to higher third-party royalty expenses brought about by 
increased revenues from software products that carry a royalty obligation.

    Research and development expense before the effects of capitalized 
software was $31,764,000 in fiscal 1997, compared to $30,752,000 in fiscal 
1996, an increase of $1,012,000 or 3%.  In accordance with SFAS No. 86, 
"Accounting for the Costs of Computer Software to Be Sold, Leased, or 
Otherwise Marketed," research and development expense is reported net of the 
amount capitalized, which was $9,025,000 in fiscal 1997 and $10,447,000 for 
fiscal 1996.  If capitalized software is included, net research and 
development was $22,739,000 in fiscal 1997 compared to $20,305,000 in fiscal 
1996, an increase of $2,434,000.  A substantial portion of the increase 
relates to the amount of research and development capitalized in each period. 
 The amount of product development capitalized can vary, depending in part on 
the number of products and their stage of development.

    Selling, general, and administrative expenses were $68,886,000 in fiscal 
1997 compared to $63,163,000 in fiscal 1996, an increase of $5,723,000, or 
9%. The increase in sales and marketing expense is primarily related to the 
expansion of the infrastructure in our international operations.  The 
increases in general and administrative expense relate to the expansion of 
the Company's worldwide information systems network, and, to a lesser extent, 
to an increase in the Company's bad debt expense.

    Income from operations is significantly affected by the amount of 
software capitalized and the amortization thereof.  Income from operations, 
excluding amortization and capitalization of software costs, was $17,892,000 
in fiscal 1997 compared to $23,031,000 in fiscal 1996, a decrease of 22%.  
The net effect of the amortization and capitalization of software costs was a 
$1,151,000 reduction of operating expenses in fiscal 1997 compared to a 
$1,708,000 reduction of operating expenses in fiscal 1996.  Thus, the 
operating income benefit from the amortization and capitalization of software 
costs was $557,000 less in fiscal 1997 

                                          9


<PAGE>

than fiscal 1996.  Income from operations, including software capitalization 
and amortization, was $19,043,000 in fiscal 1997 compared to $24,739,000 in 
fiscal 1996, a decrease of 23%.

    Debenture interest reflects the accrued interest on the convertible
subordinated debentures issued as part of the acquisition of PDA Engineering. 
Interest payments are due on March 15 and September 15 of each year until the
debentures are converted or redeemed.

    Other income (expense) was an expense of $333,000 in fiscal 1997 compared 
to income of $823,000 in fiscal 1996.  The fluctuation is primarily 
attributable to the increased loss on exchange rate changes due to the 
significant strengthening of the U.S. dollar versus the German mark and 
Japanese yen during fiscal 1997.  The exchange rate losses were partially 
offset by investment income, and gains and losses on sales of assets.

    The effective tax rate for the year was 32.5%, compared to 31.7% in fiscal
1996.  This change reflects an increase of $114,000 in income tax expense on a
year to year basis.

    Operating results in fiscal 1997 were unfavorably affected by 
fluctuations in functional currencies used in the Company's international 
operations.  The effect of foreign currency translation on net income was an 
unfavorable variance of $1,826,000 in fiscal 1997 compared to fiscal 1996.  
The fluctuation of the U.S. dollar versus these currencies could continue to 
have an unfavorable effect in fiscal 1998 and future years.

1996 VS. 1995
    The Company reported revenue of $130,483,000 for the year ended January 
31, 1996, an increase of 30% from $100,686,000 for the year ended January 31, 
1995. A total of 83% of revenue was derived from the licensing of the 
Company's software products (MSC/NASTRAN, MSC/PATRAN, MSC/ARIES, MSC/MVISION, 
MSC/NASTRAN for Windows, MSC/DYTRAN, MSC/EMAS, and MSC/ABAQUS), and 17% was 
derived from software maintenance and services revenue.

    The 30% increase in total revenue was primarily the result of a 23% 
increase in software license revenue and a 77% increase in software 
maintenance and services revenue.  The revenue growth was primarily 
attributable to the first full year of operations since the acquisition of 
PDA Engineering in August 1994.  The debut of MSC/NASTRAN for Windows, a 
PC-based version of MSC/NASTRAN, had a positive impact on revenue growth.  
Revenue from MSC/NASTRAN increased 2% to $64,723,000 compared to $63,560,000 
in fiscal 1995.  Revenue from the MSC/PATRAN and MSC/MVISION family of 
products represented 30% of total revenue for the year ended January 31, 
1996, compared to 17% in fiscal 1995.  The substantial increase in the 
proportion of MSC/PATRAN and MSC/MVISION revenue is due to the first full 
year of revenue since the acquisition of PDA in the third quarter of fiscal 
1995.  These increases were partially offset by the decline in MSC/ARIES 
revenue during the year.  Revenue from MSC/ARIES decreased by $1,868,000, or 
26% compared to fiscal 1995.  Included in fiscal 1995 was approximately 
$2,000,000 in revenues guaranteed under an agreement with a distributor of 
MSC/ARIES in Japan.  The agreement expired during the fourth quarter of 
fiscal 1995.

    Revenues from international operations were $74,800,000, or 57% of total
revenue compared to $49,478,000, or 49% of total revenue for fiscal 1995.

    Operating expenses were $105,744,000 in fiscal 1996 compared to 
$128,418,000 in fiscal 1995, a decrease of 18%.  Excluding one-time charges 
totaling $43,962,000 incurred during the quarter ended October 31, 1994, 
operating expenses increased by 25% compared to fiscal 1995.  The increase is 
attributable primarily to the inclusion of one full year of PDA operating 
expenses, in contrast to fiscal 1995, which, due to the timing of the 
acquisition in MSC's third quarter, included less than half of PDA's 
operating expenses.  Increases in operating expenses also include the 
addition of headcount in sales and marketing, and goodwill amortization, 
partially offset by reductions in technical areas.  Overall, operating 
expenses as a percentage of revenue, excluding one-time charges, decreased to 
81% from 84% in fiscal 1995.

                                          10


<PAGE>

    Income from operations, excluding amortization and capitalization of 
software costs and one-time charges, increased by $9,001,000, or 64% compared 
to fiscal 1995.  The net effect of capitalized software costs reduced 
operating expenses by $1,708,000 for fiscal 1996 compared to $2,200,000 in 
fiscal 1995. Thus, capitalized software costs had a negative effect on 
operating income in fiscal 1996 as compared to fiscal 1995.

    Operating margins, excluding one-time charges, were 19% and 16% for the 
years ended January 31, 1996 and 1995, respectively.  Excluding one-time 
charges, but including the effects of net capitalized software, operating 
income in fiscal 1996 was 52% higher than fiscal 1995 and was mainly the 
result of revenues that grew more quickly than expenses.

    The debenture interest reflects the accrued interest on the convertible 
subordinated debentures issued as part of the acquisition of PDA.  Interest 
payments are due on March 15 and September 15 of each year until the 
debentures are converted or redeemed.

    Other income includes investment income and gains and losses on sales of 
assets, and is net of non-operating expenses and losses on sales of assets.

    The effective tax rate for the year was 31.7%, as compared to 33.6% in 
fiscal 1995, excluding non-deductible one-time charges.  The decrease 
reflects benefit recognized by a larger percentage of revenue generated 
through the Company's Foreign Sales Corporation, resulting in recognizable 
credits in the current period.

    Operating results in fiscal 1996 were favorably affected by fluctuations 
in functional currencies used in the Company's international operations.  The 
effect of foreign currency translation on operating results was a favorable 
variance of $1,660,000 in fiscal 1996 compared to a favorable effect of 
$347,000 in fiscal 1995.

COMPANY TRENDS
    During fiscal 1997, the Company created three industry-oriented business 
units in order to increase focus on its customers.  The Company believes that 
by organizing itself around three core customer groups -- Aerospace, 
Automotive, and Growth Industries -- it can provide customers with complete 
mechanical computer-aided engineering solutions instead of simply selling 
software.

    Also during fiscal 1997, the Company acquired Automotive Analytics, Inc., 
which included an analysis tool specifically for automotive engineers, as 
well as a group of consultants experienced at applying CAE techniques to 
support the automotive engineering design process.

INDUSTRY AND ECONOMIC TRENDS
    According to Daratech, Inc., a research group, the overall mechanical 
CAD/CAM/CAE software market grew by an estimated 14% in 1996.  The market is 
expected to continue its growth in 1997.  As the market matures, it is 
aligning itself into two business groups.  One consists of vertically 
organized high-end software and integration vendors.  The second consists of 
vendors offering lower-priced packaged solutions.

OPERATING PATTERN
    Approximately 94%, 93%, and 93% of the Company's revenues in fiscal 1997, 
1996, and 1995, respectively, consisted of license and maintenance revenue 
paid by customers for use of the Company's software products.  Historically, 
license revenue was mainly generated by the volume of customer use of the 
Company's software.  However, this has changed in recent years due to the 
increased popularity and computing power of workstations and personal 
computers, and a migration by the market to annual leases and paid-up 
licenses.  The Company expects this trend toward annual leases and paid-up 
licenses to continue as workstations increase in computing power, and 
personal computers become more powerful.  The Company is addressing this 
shift by providing versions of its software tailored to run on these 
platforms, such as MSC/NASTRAN for Windows.

                                          11


<PAGE>

RESTRUCTURING CHARGES
    A restructuring charge of $9,800,000 was included as part of the 
allocation of the purchase price of PDA during fiscal 1995.  This charge 
related principally to a reduction of 100 employees from the work force, and 
the elimination and consolidation of duplicate facilities and equipment.

    An additional restructuring charge of $8,962,000 related to the PDA 
acquisition was recorded in operating expenses in the third quarter of fiscal 
1995, of which approximately $2,600,000 related to the write-off of 
overlapping capitalized software product costs; $2,700,000 to the elimination 
of duplicate facilities and equipment; $2,900,000 to a reduction in work 
force; and the balance to other costs directly associated with the 
acquisition.

LIQUIDITY AND CAPITAL RESOURCES
    Working capital needed to finance the Company's growth in the past has 
been provided by cash on hand and cash flow from operations.  Management 
believes that cash generated from operations will continue to provide 
sufficient capital for working capital needs in the foreseeable future.  Net 
cash from operating activities was $28,439,000, $25,977,000, and $5,813,000 
in fiscal 1997, 1996, and 1995, respectively.  In fiscal 1995, net cash from 
operating activities was significantly affected by the PDA acquisition.  The 
Company's working capital at January 31, 1997, was $33,029,000, compared to 
$21,182,000 at January 31, 1996. The Company has an agreement with its 
principal bank for a $15,000,000 unsecured line of credit at the prevailing 
prime rate. No amounts were outstanding under this line of credit as of April 
23, 1997.

    The Company issued convertible subordinated debentures in connection with 
the PDA acquisition in the aggregate amount of approximately $56,608,000. The 
debentures bear interest at 7-7/8%, with interest payments due semi-annually 
in March and September. Each semi-annual interest payment was approximately 
$2,200,000 in fiscal 1996.  The amount of interest will decrease if the 
debentures are converted into common stock.  The debentures mature in August 
2004.

    Management expects to continue to invest a substantial portion of the 
Company's revenues in the research and development of new computer software 
products and the enhancement of existing products.  The Company expended a 
total of $31,764,000, $30,752,000, and $30,252,000 in fiscal 1997, 1996, and 
1995, respectively, on research and development efforts, of which $9,025,000, 
$10,447,000, and $9,226,000 were capitalized in fiscal 1997, 1996, and 1995, 
respectively.  Product development costs and the capitalization rate may vary 
depending, in part, on the number of products and their stage of development.

    During the years ended January 31, 1997, 1996, and 1995, the Company 
acquired $4,591,000, $7,885,000, and $3,656,000, respectively, of new 
property and equipment. Capital expenditures during fiscal 1997 included 
significant upgrades in computer equipment in order to keep current with 
technological advances and expansion of facilities.  The Company's capital 
expenditures vary from year to year, as required by business needs.  The 
Company intends to continue to expand the capabilities of its computer 
equipment used in the development and support of its proprietary software 
products.  Management expects expenditures for property and equipment in 
future years to be consistent with those for fiscal 1997.

    The Company sold its Electromagnetics Business Unit (EBU) to Ansoft 
Corporation for $5,600,000 in July 1996, which did not result in a material 
effect on earnings. The sale of the unit did not materially affect fiscal 
1997 net income compared to prior years because of the relatively small size 
compared to the Company's overall operations.  However, the sale did 
significantly improve both the Company's cash position and its cash used in 
investing activities, compared to fiscal 1996.  Since the sale of the EBU is 
a non-recurring event, the Company does not expect to benefit from similar 
one-time liquidity improvements in future periods.

    During the middle of 1996, the Company eliminated its quarterly dividend 
in order to reinvest more of its earnings into its operations.  Dividend 
payments were made on the Company's common stock in the aggregate amounts of 
$5,111,000, $8,571,000, and $8,563,000 in the years ended January 31, 1997, 
1996, and 1995, respectively. The Company does not plan to reinstate the 
payment of dividends in the foreseeable future.

                                          12


<PAGE>

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
    In March 1995, the FASB issued SFAS No. 121, "Accounting for the 
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," 
which requires impairment losses to be recorded on long-lived assets used in 
operations when indicators of impairment are present and the undiscounted 
cash flows estimated to be generated by those assets are less than the 
assets' carrying amount.  SFAS No. 121 also addresses the accounting for 
long-lived assets that are expected to be disposed.  The Company adopted SFAS 
No. 121 in the first quarter of fiscal 1997.  The adoption of SFAS No. 121 
had no material effect on the Company's results of operations.

    In October 1995, the FASB issued SFAS No. 123, "Accounting for Awards of 
Stock-Based Compensation to Employees," which became effective for the 
Company's fiscal year ending January 31, 1997.  SFAS No. 123 provides 
alternative accounting treatment to APB No. 25 with respect to stock-based 
compensation and requires certain additional disclosures, including 
disclosures if the Company elects not to adopt the accounting requirements of 
SFAS No. 123.  The Company adopted the disclosure requirements of SFAS No. 
123 in the first quarter of fiscal 1997, but elected to continue to measure 
compensation costs following present accounting rules under APB No. 25.  
Consequently, the Company provided pro forma disclosures of what net income 
and earnings per share would have been had the fair market value method of 
SFAS No. 123 been used for the relevant periods.  Such disclosures are 
provided in Note 11 to the consolidated financial statements.

INFLATION
    Inflation in recent years has not had a significant effect on the Company's
business.

                                          13


<PAGE>

Item 8.  Financial Statements and Supplementary Data

                          THE MACNEAL-SCHWENDLER CORPORATION
                              CONSOLIDATED BALANCE SHEETS
                               JANUARY 31, 1997 AND 1996

                                        ASSETS

                                                     1997             1996
                                                 -------------  --------------
Current assets:
     Cash and cash equivalents . . . . . . . .   $  24,016,000  $   7,235,000
     Short-term investments. . . . . . . . . .       1,052,000      3,340,000
     Accounts receivable, net. . . . . . . . .      36,328,000     36,455,000
     Deferred tax charges. . . . . . . . . . .       3,111,000      3,219,000
     Income tax refund receivable. . . . . . .          ------      1,243,000
     Other current assets. . . . . . . . . . .       5,773,000      5,056,000
                                                 -------------  -------------
         Total current assets. . . . . . . . .      70,280,000     56,548,000
Property and equipment, net  . . . . . . . . .      10,242,000     12,281,000
Capitalized software costs, net  . . . . . . .      28,173,000     29,069,000
Goodwill and other intangible assets, net  . .      16,265,000     19,090,000
Other assets  .  . . . . . . . . . . . . . . .       2,862,000      2,672,000
                                                 -------------  -------------
                                                 $ 127,822,000  $ 119,660,000
                                                 -------------  -------------
                                                 -------------  -------------


                         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
    Accounts payable . . . . . . . . . . . . .   $   2,248,000  $   2,436,000
    Accrued liabilities. . . . . . . . . . . . 
       Compensation and related expenses . . .       6,845,000      4,075,000
       Contribution to profit sharing plan . .       3,107,000      3,155,000
       Other . . . . . . . . . . . . . . . . .      15,233,000     12,896,000
    Restructuring reserve. . . . . . . . . . .          ------      1,389,000
    Deferred income. . . . . . . . . . . . . .       9,035,000      8,663,000
    Dividends payable. . . . . . . . . . . . .          ------      2,151,000
    Income taxes payable . . . . . . . . . . .         783,000        601,000
                                                 -------------  -------------
         Total current liabilities . . . . . .      37,251,000     35,366,000
Deferred income taxes  . . . . . . . . . . . .      10,465,000     10,573,000
Convertible Subordinated Debentures  . . . . .      56,574,000     56,576,000

Commitments

Shareholders' equity:. . . . . . . . . . . . . 
    Preferred Stock, $0.01 par value,
    10,000,000 shares authorized; no
      shares outstanding in 1997 and 1996               ------         ------
    Common Stock, $0.01 par value, 100,000,000
      shares authorized; 13,455,800 and
      13,448,100 issued and outstanding in 1997
      and 1996, respectively . . . . . . . . .      30,250,000     30,082,000
    Retained earnings. . . . . . . . . . . . .      (4,093,000)   (10,754,000)
    Accumulated translation adjustment . . . .      (2,625,000)    (2,183,000)
                                                 -------------  -------------

         Total shareholders' equity. . . . . .      23,532,000     17,145,000
                                                 -------------  -------------
                                                 $ 127,822,000  $ 119,660,000
                                                 -------------  -------------
                                                 -------------  -------------

                             See accompanying notes.


                                        14   

<PAGE>

                       THE MACNEAL-SCHWENDLER CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>

                                                            1997              1996              1995
                                                        ---------------   --------------   ---------------
<S>                                                     <C>               <C>              <C>
Revenues:
    Software licenses. . . . . . . . . . . . .         $ 107,594,000     $ 108,719,000    $  88,375,000
    Software maintenance and services. . . . .            25,727,000        21,764,000       12,311,000
                                                        ---------------   --------------   ---------------
       Total revenues. . . . . . . . . . . . .           133,321,000       130,483,000      100,686,000
Operating expenses:. . . . . . . . . . . . . .  
    Cost of revenue. . . . . . . . . . . . . .            20,384,000        19,856,000       12,033,000
    Amortization of goodwill and other intangibles         2,269,000         2,420,000          731,000
    Research and development . . . . . . . . .            22,739,000        20,305,000       21,026,000
    Selling, general, and administrative . . .            68,886,000        63,163,000       50,666,000
    In-process research and development. . . .                ------            ------       35,000,000
    Restructuring costs. . . . . . . . . . . .                ------            ------        8,962,000
                                                        ---------------   --------------   ---------------
         Total operating expenses. . . . . . .           114,278,000       105,744,000      128,418,000
Operating income (loss). . . . . . . . . . . .            19,043,000        24,739,000      (27,732,000)
Debenture interest . . . . . . . . . . . . . .            (4,456,000)       (4,465,000)      (1,967,000)
Other income (expense), net. . . . . . . . . .              (333,000)          823,000          617,000 
                                                        ---------------   --------------   ---------------
Income (loss) before income taxes. . . . . . .            14,254,000        21,097,000      (29,082,000)
Provision for income taxes . . . . . . . . . .             4,633,000         6,690,000        1,300,000
                                                        ---------------   --------------   ---------------
Net income (loss). . . . . . . . . . . . . . .         $   9,621,000     $  14,407,000     $(30,382,000)
                                                         ---------------   --------------   ---------------
                                                        ---------------   --------------   ---------------
Primary earnings (loss) per share. . . . . . .         $        0.71     $        1.06     $      (2.27)
                                                        ---------------   --------------   ---------------
                                                        ---------------   --------------   ---------------
Fully-diluted earnings (loss) per share. . . .         $        0.70     $        0.99     $      (2.27)
                                                        ---------------   --------------   ---------------
                                                        ---------------   --------------   ---------------
</TABLE>










                               See accompanying notes.

                                          15

<PAGE>

                          THE MACNEAL-SCHWENDLER CORPORATION
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>

                                                                            1997                1996                1995
                                                                        ---------------     ---------------     ---------------
<S>                                                                     <C>                 <C>                 <C>
Cash flows from operating activities:
  Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . .  $   9,621,000       $  14,407,000       $ (30,382,000)
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities
     Depreciation and amortization of property and equipment. . . . .      6,346,000           5,880,000           5,576,000
     Amortization of goodwill and other intangibles . . . . . . . . .      2,269,000           2,420,000             731,000
     Amortization of capitalized software costs . . . . . . . . . . .      7,874,000           8,739,000           7,026,000
     Deferred income taxes. . . . . . . . . . . . . . . . . . . . . .         ------           2,669,000          (5,686,000)
     (Gain) loss on disposal of property and equipment. . . . . . . .         93,000              (4,000)             48,000
     Write-off of in-process research and development . . . . . . . .         ------              ------          35,000,000

  Changes in assets and liabilities:
     Accounts receivable, net . . . . . . . . . . . . . . . . . . . .        (19,000)         (2,633,000)        (10,590,000)
     Other current assets . . . . . . . . . . . . . . . . . . . . . .       (584,000)           (769,000)          6,179,000
     Income tax refund receivable . . . . . . . . . . . . . . . . . .      1,243,000           2,902,000          (4,145,000)
     Accounts payable . . . . . . . . . . . . . . . . . . . . . . . .       (246,000)           (243,000)           (460,000)
     Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . .      1,977,000             686,000           7,914,000
     Deferred income. . . . . . . . . . . . . . . . . . . . . . . . .      1,094,000          (4,250,000)          1,216,000
     Restructuring reserve. . . . . . . . . . . . . . . . . . . . . .     (1,379,000)         (4,428,000)         (4,303,000)
     Income taxes payable . . . . . . . . . . . . . . . . . . . . . .        150,000             601,000          (2,311,000)
                                                                        ---------------     ---------------     ---------------
  Net cash provided by operating activities . . . . . . . . . . . . .     28,439,000          25,977,000           5,813,000

  Cash flows from investing activities:
     Decrease in short-term investments . . . . . . . . . . . . . . .      2,288,000           3,735,000          10,709,000
     Proceeds from sale of Electromagnetics Business Unit . . . . . .      5,600,000              ------              ------
     Acquisition of property and equipment. . . . . . . . . . . . . .     (4,591,000)         (7,885,000)         (3,656,000)
     Purchase of subsidiaries, net of cash acquired . . . . . . . . .       (115,000)             ------          (2,594,000)
     Capitalized software costs . . . . . . . . . . . . . . . . . . .     (9,025,000)        (10,447,000)         (9,226,000)
     Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (428,000)         (1,462,000)          4,573,000
                                                                        ---------------     ---------------     ---------------
  Net cash used in investing activities . . . . . . . . . . . . . . .     (6,271,000)        (16,059,000)           (194,000)

  Cash flows from financing activities:
     Payments of long-term debt . . . . . . . . . . . . . . . . . . .         ------              ------             (19,000)
     Issuance of common stock . . . . . . . . . . . . . . . . . . . .        166,000             716,000              54,000
     Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . .     (5,111,000)         (8,571,000)         (8,563,000)
                                                                        ---------------     ---------------     ---------------
  Net cash used in financing activities . . . . . . . . . . . . . . .     (4,945,000)         (7,855,000)         (8,528,000)
  Translation adjustment. . . . . . . . . . . . . . . . . . . . . . .       (442,000)         (1,772,000)           (253,000)
                                                                        ---------------     ---------------     ---------------
  Net increase in cash and cash equivalents . . . . . . . . . . . . .     16,781,000             291,000          (3,162,000)
  Cash and cash equivalents at beginning of year. . . . . . . . . . .      7,235,000           6,944,000          10,106,000
                                                                        ---------------     ---------------     ---------------
  Cash and cash equivalents at end of year. . . . . . . . . . . . . .  $  24,016,000       $   7,235,000       $   6,944,000
                                                                        ---------------     ---------------     ---------------
                                                                        ---------------     ---------------     ---------------
  Supplemental cash flow information:
     Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . .  $   3,208,000       $   2,857,000       $   3,568,000
                                                                        ---------------     ---------------     ---------------
                                                                        ---------------     ---------------     ---------------
     Debenture interest paid. . . . . . . . . . . . . . . . . . . . .  $   4,454,000       $   4,737,000              ------
                                                                        ---------------     ---------------     ---------------
                                                                        ---------------     ---------------     ---------------
  Reconciliation of assets acquired and liabilities assumed:
     Fair value of assets acquired. . . . . . . . . . . . . . . . . .  $     309,000              ------       $  85,249,000
     Liabilities assumed. . . . . . . . . . . . . . . . . . . . . . .        194,000              ------          82,655,000
                                                                        ---------------     ---------------     ---------------
                                                                       $     115,000              ------       $   2,594,000
                                                                        ---------------     ---------------     ---------------
                                                                        ---------------     ---------------     ---------------

</TABLE>


                               See accompanying notes.



                                          16

<PAGE>

                          THE MACNEAL-SCHWENDLER CORPORATION
                   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED JANUARY 31, 1997, 1996 AND 1995



<TABLE>
<CAPTION>

                                                           SHARES OF                                    ACCUMULATED       TOTAL
                                                            COMMON          COMMON       RETAINED       TRANSLATION   SHAREHOLDERS'
                                                             STOCK           STOCK       EARNINGS        ADJUSTMENT       EQUITY
                                                        --------------- -------------- --------------- ------------- --------------
<S>                                                         <C>         <C>            <C>              <C>          <C>
Balance at January 31, 1994. . . . . . . . . . . . . .     13,375,500  $  29,312,000  $  22,365,000    $  (158,000) $  51,519,000
   Shares issued under Stock Option Plan . . . . . . .          3,800         44,000                                       44,000
     Cash dividends declared - $.64 per share. . . . .                                   (8,563,000)                   (8,563,000)
   Shares issued from Conversion of
     Debentures. . . . . . . . . . . . . . . . . . . .            700         10,000                                       10,000
      Net loss . . . . . . . . . . . . . . . . . . . .                                  (30,382,000)                  (30,382,000)
    Translation adjustment . . . . . . . . . . . . . .                                                    (253,000)      (253,000)
                                                        --------------- -------------- --------------- ------------- --------------
Balance at January 31, 1995. . . . . . . . . . . . . .     13,380,000     29,366,000    (16,580,000)      (411,000)    12,375,000
   Shares issued under Stock Option Plan . . . . . . .         68,100        716,000                                      716,000
     Cash dividends declared - $.64 per share. . . . .                                   (8,581,000)                   (8,581,000)
      Net income . . . . . . . . . . . . . . . . . . .                                   14,407,000                    14,407,000
    Translation adjustment . . . . . . . . . . . . . .                                                  (1,772,000)    (1,772,000)
                                                        --------------- -------------- --------------- ------------- --------------
Balance at January 31, 1996. . . . . . . . . . . . . .     13,448,100     30,082,000    (10,754,000)    (2,183,000)    17,145,000
   Shares issued under Stock Option Plan . . . . . . .          7,700        168,000                                      168,000
     Cash dividends declared - $.22 per share. . . . .                                   (2,960,000)                   (2,960,000)
      Net income . . . . . . . . . . . . . . . . . . .                                    9,621,000                     9,621,000
    Translation adjustment . . . . . . . . . . . . . .                                                    (442,000)      (442,000)
                                                        --------------- -------------- --------------- ------------- --------------
Balance at January 31, 1997. . . . . . . . . . . . . .     13,455,800  $  30,250,000  $  (4,093,000)   $(2,625,000) $  23,532,000
                                                        --------------- -------------- --------------- ------------- --------------
                                                        --------------- -------------- --------------- ------------- --------------
</TABLE>




                               See accompanying notes.


                                          17


<PAGE>

                          THE MACNEAL-SCHWENDLER CORPORATION
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS INFORMATION
    BUSINESS.  The Company designs, produces, and markets proprietary 
computer software products for use in computer-aided engineering.  The 
Company's products are marketed internationally to aerospace, automotive, and 
other industrial concerns, computer and electronics manufacturers, and 
universities.

    PRINCIPLES OF CONSOLIDATION.  The consolidated financial statements 
include the accounts of the Company and its subsidiaries.  All significant 
intercompany accounts and transactions have been eliminated.

    USE OF ESTIMATES.  The preparation of financial statements in conformity 
with generally accepted accounting principles requires management to make 
estimates and assumptions that affect the amounts reported in the financial 
statements and accompanying notes.  Actual results could differ from those 
estimates.

    REVENUE RECOGNITION.  Revenue from leasing computer software products is 
recognized as earned.  Revenue from prepaid and paid-up licenses is 
recognized in full upon the delivery of the software, with maintenance on 
such licenses deferred and recognized over the term of the maintenance 
agreement, generally one year.

    STOCK-BASED COMPENSATION.  The Company grants stock options for a fixed 
number of shares to employees, with an exercise price equal to the fair value 
of the shares at the date of grant.  The Company accounts for stock option 
grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to 
Employees," and, accordingly, recognizes no compensation expense for the 
stock option grants.

    RECLASSIFICATIONS.  The consolidated financial statements for 1996 and 
1995 contain certain reclassifications to conform to the 1997 presentation.

    CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS.  For purposes of the 
consolidated statements of cash flows, the Company considers investments in 
money market instruments to be cash equivalents.  In 1995, the Company 
adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity 
Securities." The adoption of SFAS No. 115 did not have a significant effect 
on the Company's financial statements.  Short-term investments (principally 
municipal debt securities with maturity dates generally within one year) are 
classified as "held-to-maturity," based on the Company's positive intent and 
ability to hold the securities to maturity.  Unrealized gains and losses were 
not significant at January 31, 1997, or January 31, 1996.

    ACCOUNTS RECEIVABLE.  Accounts receivable are reported net of allowances 
for doubtful accounts.  The Company's revenue is generated from customers in 
diversified industries, primarily in North America, Europe, and Asia-Pacific. 
The Company performs ongoing credit evaluations of its customers and 
generally does not require collateral.  The Company maintains reserves for 
potential credit losses, and such losses have been within management's 
expectations.

    PROPERTY AND EQUIPMENT.  Depreciation and amortization are computed on 
the straight-line method over the estimated useful lives of assets, ranging 
from two to five years.

    CAPITALIZED SOFTWARE COSTS.  Capitalized software costs are comprised of 
purchased software and internal software development costs.  Software costs 
incurred subsequent to the determination of the software product's 
technological feasibility are capitalized.  Capitalization ceases and 
amortization of capitalized costs begins when the software product is 
available for general release to clients.  Capitalized software amortization 
expense is included in cost of revenue.  The amortization period for the 
software costs capitalized is the economic life of the related products, 
typically three to four years.

                                          18


<PAGE>

    GOODWILL AND OTHER INTANGIBLE ASSETS.  Goodwill, amounting to 
approximately $11,456,000 and $13,607,000 net of accumulated amortization of 
$3,732,000 and $2,226,000 as of January 31, 1997 and 1996, respectively, 
arising from acquisitions is amortized on the straight-line basis over a 
period of 10 years. Other intangibles amounted to approximately $4,809,000 
and $5,483,000, net of accumulated amortization as of January 31, 1997 and 
1996, respectively, and are amortized on a straight-line basis over five to 
10 years.  Accumulated amortization of other intangibles as of January 31, 
1997 and 1996, amounted to $1,968,000 and $1,206,000, respectively.  The 
carrying value of intangibles is evaluated periodically in relation to the 
operating performance and future undiscounted cash flows of the underlying 
business.  Adjustments are made if the sum of expected future net cash flows 
is less than book value.  No adjustments have been made in the periods 
presented.

    MARKETING COMMUNICATIONS EXPENSE.  The cost of marketing communications 
is expensed as incurred.  The Company incurred $1,431,000, $1,229,000, and 
$1,035,000 in marketing communications costs during fiscal 1997, 1996, and 
1995, respectively.

    ROYALTIES TO THIRD-PARTIES.  The Company has several agreements with 
third-parties requiring the payment of royalties for sales of third-party 
products, or inclusion of such products as a component of the Company's 
products.

    INCOME TAXES.  Provision is made in the Company's financial statements 
for current income taxes payable, and deferred income taxes arising primarily 
from temporary differences in accounting for capitalized software costs, 
undistributed earnings of international subsidiaries, depreciation expense, 
deferred income, and state income taxes.

    EFFECT OF FOREIGN CURRENCY.  The Company translates the assets and 
liabilities of its foreign subsidiaries at the rate of exchange in effect at 
the period end.  Revenues and expenses are translated using an average of 
exchange rates in effect during the period.  Translation adjustments are 
recorded as a separate component of shareholders' equity in the consolidated 
balance sheet.

    EARNINGS PER SHARE.  Primary earnings per share are calculated by 
dividing net income by the weighted average number of shares of common stock 
and common stock equivalent shares outstanding during the period, which were 
13,570,000 in 1997, 13,582,000 in 1996, and 13,386,000 in 1995.  Common stock 
equivalent shares include stock options outstanding during the period 
computed under the treasury stock method.  Common equivalents are excluded 
from the calculation in 1995, because their effect is anti-dilutive.

    Fully-diluted earnings per share for 1997 and 1996 assumes the 
convertible subordinated debentures were converted into common stock at the 
beginning of the period, and the related interest requirements, net of tax, 
are added to net income in the calculation.  The assumed conversion of the 
debentures is excluded from the calculation in 1995 because the effect is 
anti-dilutive.  Shares outstanding for calculating fully-diluted earnings per 
share were 17,347,000 for 1997 and 17,336,000 for 1996.

    IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS.  In March 1995, the FASB 
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and 
for Long-Lived Assets to Be Disposed Of," which requires impairment losses to 
be recorded on long-lived assets used in operations when indicators of 
impairment are present, and the undiscounted cash flows estimated to be 
generated by those assets are less than the assets' carrying amount.  SFAS 
No. 121 also addresses the accounting for long-lived assets that are expected 
to be disposed.  The Company adopted SFAS No. 121 in the first quarter of 
fiscal 1997.  The adoption of SFAS No. 121 had no material effect on the 
Company's results of operations.

    In October 1995, the FASB issued SFAS No. 123, "Accounting for Awards of 
Stock-Based Compensation to Employees," which became effective for the 
Company's fiscal year ending January 31, 1997.  SFAS No. 123 provides 
alternative accounting treatment to APB No. 25 with respect to stock-based 
compensation and requires certain additional disclosures, including 
disclosures if the Company elects not to adopt the accounting requirements of 
SFAS No. 123.  The Company adopted the disclosure requirements of

                                          19

<PAGE>

SFAS No. 123 in the first quarter of fiscal 1997, but elected to continue to 
measure compensation costs following present accounting rules under APB No. 
25. Consequently, the Company has provided pro forma disclosures of what net 
income and earnings per share would have been, had the fair market value 
method of SFAS No. 123 been used for the relevant periods.  Such disclosures 
are provided in Note 11 to the consolidated financial statements.

NOTE 2:  MERGERS AND ACQUISITIONS
    In July 1996, the Company sold its Electromagnetics Business Unit to 
Ansoft Corporation for $5,600,000, which did not result in a material effect 
on earnings.  The sale of the unit did not materially affect fiscal 1997 net 
income compared to prior years because of the relatively small size compared 
to the Company's overall operations.

    On August 18, 1994, the Company acquired all the outstanding shares of 
PDA Engineering, Inc. (PDA) through the issuance of $56,608,000 of its 7-7/8% 
Convertible Subordinated Debentures (due 2004), or $6.85 per share, and cash 
of $5,313,000 to purchase all in the money options.  See Note 8 for a 
description of the debentures.  In allocating the purchase price to the 
acquired assets and assumed liabilities, the Company has provided $9,800,000 
for costs of restructuring PDA operations, principally related to work force 
reduction and duplicate facilities.  The acquisition was treated as a 
purchase for accounting purposes and, accordingly, the operating results of 
PDA from the date of the acquisition through January 31, 1997, have been 
reflected in the Company's consolidated financial statements.

    The total purchase price was allocated to the assets and liabilities of 
PDA based on their approximate fair market value.  The appraisal of the 
acquired business included $35,000,000 of purchased in-process research and 
development, which was written off at the time of the acquisition and appears 
as a charge for the quarter ending October 31, 1994.  The remaining purchase 
price was allocated to net tangible assets of approximately $18,657,000, 
$4,500,000 of identified intangible assets, and $13,600,000 of goodwill.  
Goodwill and identified intangibles are being amortized over 10 years.

    An additional charge of $8,962,000 related to the acquisition was also 
recorded in the third quarter of fiscal 1995, of which approximately 
$2,600,000 related to the write-off of overlapping capitalized software 
product costs; $2,700,000 to the elimination of duplicate facilities and 
equipment; $2,900,000 to a reduction in work force; and the balance for other 
costs directly associated with the acquisition.

    Included in the above restructuring reserves were approximately 
$10,800,000 of items that relate to cash expenditures.  As of January 31, 
1997, the entire $10,800,000 had been expended in relation to these items.

NOTE 3:  ACCOUNTS RECEIVABLE
    The components of the Company's allowance for doubtful accounts receivable
consist of the following:

                                                       Years Ended January 31,
                                                      -------------------------
                                                        1997             1996
                                                        ----             ----
         DOLLARS IN THOUSANDS

         Beginning balance                              $2,562         $3,574
         Amounts charged to expense                        616            152
         Writedowns against the reserve                  1,372          1,164
                                                         -----          -----
         Ending balance                                 $1,806         $2,562
                                                        ------         ------
                                                        ------         ------



                                          20


<PAGE>

NOTE 4:  PROPERTY AND EQUIPMENT
    Property and equipment, at cost, consist of the following:

                                                               January 31,
                                                               -----------
                                                          1997          1996
       DOLLARS IN THOUSANDS                               ----          ----

       Computers and other equipment                    $ 30,026     $ 27,520
       Furniture and fixtures                              1,862        1,911
       Leasehold improvements                              1,666        1,729
                                                       ---------    ---------
                                                          33,554       31,160
       Less accumulated depreciation and amortization    (23,312)     (18,879)
                                                       ---------    ---------
                                                        $ 10,242     $ 12,281
                                                       ---------    ---------
                                                       ---------    ---------

NOTE 5:  CAPITALIZED SOFTWARE COSTS
       Amortization of software costs capitalized of $7,874,000 in 1997, 
$8,739,000 in 1996, and $7,026,000 in 1995 is included in cost of revenues. 
Software costs capitalized amounted to $9,025,000 in 1997, $10,447,000 in 
1996, $9,226,000 in 1995.  In addition, the Company wrote off capitalized 
software costs of $4,897,000 and accumulated amortization of $2,700,000 in 
connection with the sale of the Electromagnetics Business Unit.  The Company 
also purchased certain software that was capitalized in fiscal 1997 amounting 
to $150,000.

                                                               January 31,
                                                               -----------
                                                          1997          1996
    DOLLARS IN THOUSANDS                                  ----          ----

    Capitalized software costs                           $54,617      $50,339
    Less accumulated amortization                        (26,444)     (21,270)
                                                       ---------    ---------
    Capitalized software costs, net                      $28,173      $29,069
                                                       ---------    ---------
                                                       ---------    ---------

NOTE 6:  OTHER ACCRUED LIABILITIES
    The components of the Company's other accrued liabilities are the
following:


                                                               January 31,
                                                               -----------
                                                          1997          1996
    DOLLARS IN THOUSANDS                                  ----          ----

    Debenture interest payable                          $ 1,687       $ 1,685
    Royalties payable                                       911           791
    Commissions payable                                   3,958         3,369
    Consumption taxes payable                             3,552         1,700
    Post-retirement benefits                              1,167         1,060
    Bonuses payable                                         224           200
    Other                                                 3,734         4,091
                                                        -------       -------
    Total                                               $15,233       $12,896
                                                        -------       -------
                                                        -------       -------


                                          21


<PAGE>

NOTE 7:  TAXES BASED ON INCOME
    The Company utilizes the asset and liability method of accounting for
income taxes.

    The provision for taxes based on income consists of the following:

                                                 YEARS ENDED JANUARY 31,

                                            1997           1996           1995
         DOLLARS IN THOUSANDS               ----           ----           ----

         Current:
           Federal                          $560           $464        $(5,698)
           State                             404            675             49
           Foreign                         3,669          2,882          2,656
                                           -----          -----          -----
                                           4,633          4,021         (2,993)

           Deferred                          ---          2,669          4,293
                                             ---          -----          -----
                                          $4,633         $6,690         $1,300
                                          ------         ------         ------
                                          ------         ------         ------

    The foreign tax provisions for fiscal 1997, 1996, and 1995 include 
withholding taxes of $1,780,000, $1,811,000, and $1,651,000, respectively, 
assessed to the Company by foreign authorities on foreign revenues remitted 
to the U.S.  The Company's foreign operations realized combined net income, 
including intercompany charges and before taxes, of $2,025,000 in 1997, 
$1,841,000 in 1996, and $398,000 in 1995.

    Deferred income taxes reflect the net tax effects of temporary 
differences between the carrying amounts of assets and liabilities for 
financial reporting purposes and the amounts used for income tax purposes. 
Significant components of the Company's deferred tax liabilities and assets 
as of January 31, 1997 and 1996, are as follows:

                                                               January 31,
                                                               -----------
                                                           1997           1996
         DOLLARS IN THOUSANDS                              ----           ----

         Deferred tax liabilities
             Tax in excess of book depreciation             $36           $213
             Capitalized software                        12,274         12,779
             Intangible assets                            1,391          1,576
             Organization costs                             591            ---
             Prepaid expenses                               126            189
                                                         ------         ------
             Total deferred tax liabilities              14,418         14,757

         Deferred tax assets
             State taxes                                    622          1,192
             Accrued liabilities                            306            739
             Net operating losses                         5,664          6,811
             Deferred revenue                               910            253
             Undistributed earnings of
                  foreign subsidiaries                    2,055          1,434
             Business credits                             1,918          1,659
             Sale of business unit                          540            ---
             Restructuring charge                           ---            372
             Benefits and compensation                      883            842
             Other                                          (34)             5
                                                         ------         ------
                  Total deferred tax assets              12,864         13,307
             Valuation allowance                         (5,800)        (5,904)
                                                         ------         ------
                 Net deferred tax assets                  7,064          7,403
                                                         ------         ------
             Net deferred tax liabilities                $7,354         $7,354
                                                         ------         ------
                                                         ------         ------


                                          22

<PAGE>


The balance sheet presentation of the net deferred tax liabilities is as
follows:

                                                      January 31,
                                                      -----------
                                                  1997           1996
       DOLLARS IN THOUSANDS                       ----           ----

       Net long-term deferred tax liability    $10,465        $10,573
       Current deferred charges                 (3,111)        (3,219)
                                                ------         ------
       Net deferred tax liabilities             $7,354         $7,354
                                                -------        ------
                                                -------        ------

    At January 31, 1997, the Company had net operating loss carryforwards and 
net operating loss carrybacks for federal income tax purposes of 
approximately $14,115,000 and $2,068,000, respectively.  The federal net 
operating loss carryforwards expire at various dates through the year 2010.  
An acquisition by the Company in 1993 constituted an ownership change for 
federal income tax purposes and, as a result, the amount of net operating 
loss carryforward that may be utilized in any given year may be limited.  For 
financial reporting purposes, a valuation allowance of $5,800,000 at January 
31, 1997, $5,904,000 at January 31, 1996, and $4,402,000 at January 31, 1995, 
has been recognized to offset the deferred tax assets relating to recent 
acquisitions.

    The following table reconciles the provision for taxes based on income 
before taxes to the statutory federal income tax rate of 35% for the years 
ended January 31, 1997, 1996, and 1995.

                                                     YEARS ENDED JANUARY 31,
                                                  1997        1996       1995
       DOLLARS IN THOUSANDS                       ----        ----       ----

       Tax expense at statutory rate            $4,989     $7,384    $(10,179)
       Increase (decrease) related to:
       State income taxes, net of
         federal benefits                          504        926         281
       Amortization of goodwill                    527        580         177
       Income of Foreign Sales Corporation      (1,201)    (1,632)       (655)
       Excludable portion of investment
         income                                    (24)       (91)       (150)
       Excludable research and development
         writeoff                                  ---        ---      12,250
       Benefit from net operating loss            (104)        (5)       (445)
       Other, net                                  (58)      (472)         21
                                                  -----      -----      -----
                                                 $4,633     $6,690     $1,300
                                                 ------     ------     ------
                                                 ------     ------     ------

NOTE 8:  CONVERTIBLE SUBORDINATED DEBENTURES
    The Company issued $56,608,000 of convertible subordinated debentures in 
connection with the acquisition of PDA.  The debentures bear interest at 
7-7/8% with interest payments due semi-annually on March 15th and September 
15th.  They have a conversion feature that permits the holder to convert the 
debentures into shares of the Company's common stock at a conversion price of 
$15.15 per share. The debentures mature August 18, 2004, but are redeemable 
at the Company's option at any time after August 18, 1997, upon payment of a 
premium.  At January 31, 1997, the fair market value of the debentures 
outstanding, based on their quoted trading price, was approximately 
$55,443,000.

                                          23


<PAGE>

NOTE 9:  INTERNATIONAL OPERATIONS
    The following tables summarize consolidated financial information of the
Company's operations by geographic location:

                                                  YEARS ENDED JANUARY 31,
     DOLLARS IN THOUSANDS                   1997          1996          1995
                                            ----------------------------------

     Revenues:

          The Americas                     $57,443       $58,324       $52,561
          Europe                            40,635       39,361         23,225
          Asia-Pacific                      35,243       32,798         24,900
                                           -----------------------------------
     Consolidated                         $133,321     $130,483       $100,686
                                          ------------------------------------
                                          ------------------------------------

    Financial data included in the consolidated financial statements of the 
Company's European and Asia-Pacific subsidiaries are based on years ending 
December 31.

                                                      January 31,
     DOLLARS IN THOUSANDS                  1997          1996           1995
                                          ------------------------------------

     Identifiable assets:

          The Americas                     $95,335      $94,795        $94,608
          Europe                            21,151       17,686         18,024
          Asia-Pacific                      11,336        7,179          6,119
                                          ------------------------------------
     Consolidated                         $127,822     $119,660       $118,751
                                          ------------------------------------
                                          ------------------------------------

    The net assets of the Company's foreign subsidiaries totaled $3,508,000, 
$3,749,000, and $3,662,000 in 1997, 1996 and 1995, respectively, including 
intercompany items.  The net income of the Company's foreign subsidiaries is 
reported in Note 7.

NOTE 10:  EMPLOYEE BENEFITS
    The Company contributes an amount, integrated with Social Security, to a 
defined contribution plan, covering substantially all North American 
full-time employees who have completed a specified term of service with the 
Company. Contributions charged to expense in connection with this plan were 
approximately $2,960,000 in 1997, $3,019,000 in 1996, and $2,206,000 in 1995. 
 The plan has a 401(k) feature to permit voluntary employee contributions, 
which does not affect the Company's expenses.

    The Company adopted a non-qualified supplemental retirement plan during 
the year ended January 31, 1995.  The Company contributes an amount, 
integrated with Social Security and the Company's defined contribution plan, 
covering certain key employees who have completed a specified term of service 
with the Company. Contributions charged to expense in connection with this 
plan were approximately $148,000 in 1997, $135,000 in 1996, and $116,000 in 
1995.

    The Company also has a post-retirement health care plan for employees 
completing minimum age and years of service requirements.  The plan provides 
for a benefit offsetting premiums for health care coverage.  The amount of 
the benefit is based on a combination of the age of the participant and the 
number of years of service at retirement.  The gross accumulated 
post-retirement obligation was approximately $1,554,000 and $1,636,000 at 
January 31, 1997 and 1996, respectively.  The Company is recognizing past 
service cost over 20 years. Total expense for the years ended January 31, 
1997, 1996, and 1995, was $306,000, $196,000, and $156,000, respectively.

                                          24


<PAGE>

NOTE 11:  STOCK OPTION PLANS

1983 PLAN
    The 1983 MacNeal-Schwendler Incentive Stock Option Plan for Key Employees 
provided for the granting of options for the purchase of up to 900,000 
authorized but unissued shares of the Company's common stock, at option 
prices of not less than the fair market value of the common shares at the 
date of grant.  The options become fully exercisable one year from the date 
of grant and expire five years after the date of grant.  The 1983 Plan 
expired during fiscal 1995, therefore no additional shares are available for 
grant.

    A summary of stock option activity is as follows:


<TABLE>
<CAPTION>

                                                                               WEIGHTED
                                                                                AVERAGE          NUMBER
                                                          OPTION PRICE         EXERCISE      OF OPTIONS
                                                OPTIONS      PER SHARE            PRICE     EXERCISABLE
                                               ---------------------------------------------------------
<S>                                            <C>         <C>                   <C>           <C>
       Outstanding at January 31, 1995         258,700     $8.00- $16.13         $13.35        258,700
       Granted                                       0
       Exercised                               (43,600)       8.00-14.25          12.05
       Canceled                                (15,800)      11.00-13.38          13.31
                                              --------                            
       Outstanding at January 31, 1996         199,300        8.00-16.13          13.64        199,300
       Granted                                       0
       Exercised                                     0
       Canceled                                (55,500)       8.00-16.13          12.70
                                              --------                            
       Outstanding at January 31, 1997         143,800     $13.38-$14.71         $14.00        143,800
                                              --------                                         -------
                                              --------                                         -------
</TABLE>


1991 PLAN
    The MacNeal-Schwendler 1991 Stock Option Plan consists of two parts: a 
"Key Employee Program" that allows discretionary awards of non-transferable 
incentive stock options and non-qualified stock options to officers and other 
key employees; and a "Non-Employee Director Program" that provides for 
automatic annual grants of non-transferable, non-qualified stock options to 
non-employee directors.

    The "Key Employee Program" section of the 1991 Plan provides for the 
granting of both incentive stock options and non-qualified options for the 
purchase of up to 2,500,000 authorized but unissued shares of the Company's 
common stock at the fair market value of such shares on the date the option 
is granted, or for non-qualified options at such price as the Compensation 
Committee may determine.

    The "Non-Employee Director Program" section of the 1991 Plan provides for 
automatic grants to members of the Board of Directors who are not officers or 
employees of the Company or its subsidiaries.  A maximum of 500,000 shares of 
Company authorized but unissued common stock may be issued upon the exercise 
of options under the "Non-Employee Director Program." All eligible directors 
will receive annual non-discretionary grants of non-qualified stock options 
for the purchase of 3,000 shares of the Company's common stock.

    Options under the 1991 Plan are exercisable up to 10 years from the date of
grant, subject to vesting provisions outlined at the grant date.

    A summary of stock option activity is as follows:




                                          25


<PAGE>


<TABLE>
<CAPTION>

                                                                               WEIGHTED
                                                                                AVERAGE          NUMBER
                                                          OPTION PRICE         EXERCISE      OF OPTIONS
                                                OPTIONS      PER SHARE            PRICE     EXERCISABLE
                                                ---------------------------------------------------------
<S>                                             <C>         <C>                  <C>            <C>

       Outstanding at January 31, 1994          468,700     $8.00-$16.13         $14.15         36,700
       Granted                                  806,000      10.38-14.25          11.58
       Exercised                                      0                                 
       Canceled                                (284,700)     11.00-16.13          14.27
                                              ---------                           
       Outstanding at January 31, 1995          990,000       8.00-15.38          12.03        344,500
       Granted                                  785,500      12.50-19.38          15.15
       Exercised                                (24,500)     11.00-14.25          11.66
       Canceled                                 (45,000)     11.00-15.38          12.37
                                              ---------                           
       Outstanding at January 31, 1996        1,706,000       8.00-19.38          13.46        941,000
       Granted                                  672,000       6.50-15.38           8.82
       Exercised                                 (7,700)      8.00-11.00          10.20
       Canceled                                (120,000)      8.00-19.38          14.17
                                              ---------                           
       Outstanding at January 31, 1997        2,250,300     $6.50-$15.88         $12.03      1,584,500
                                              ---------                          ------
                                              ---------                          ------
</TABLE>


    At January 31, 1997 and 1996, the per share weighted-average exercise 
prices of the stock options exercisable under the 1991 Plan were $13.40 and 
$12.09, respectively.  At January 31, 1997 and 1996, the per share 
weighted-average exercise prices of the stock options exercisable under the 
1983 Plan were $14.00 and $13.64, respectively.  Options for the purchase of 
699,500 and 1,251,000 shares were available for future grant as of January 
31, 1997 and 1996, respectively.  At January 31, 1997, the weighted-average 
remaining contractual life for stock options granted under the 1991 Plan and 
1983 Plan was 6.2 years and 1.4 years, respectively.

EMPLOYEE STOCK PURCHASE PLAN
    In September 1996, the Company's Board of Directors adopted The 
MacNeal-Schwendler Corporation 1996 Employee Stock Purchase Plan.  This Plan 
will be presented to the shareholders for approval at the 1997 annual meeting 
of common shareholders.  Under the Plan, a maximum of 750,000 shares of the 
Company's common stock will be made available for purchase by eligible 
employees electing to participate in the Plan.  Such eligible employees will 
be entitled semi-annually to purchase common stock, by means of limited 
payroll deductions at a 10% discount from the fair market value of the common 
stock as of specific dates.  The Plan is intended to provide an additional 
incentive to participating eligible employees, through ownership of common 
stock, to advance the best interests of the Company.  At January 31, 1997, a 
total of 173 eligible employees elected to participate in the Plan with total 
payroll deductions at that date of $216,000.  The first exercise period to 
purchase common shares under the plan is July 31, 1997.

STOCK-BASED COMPENSATION
    The Company has adopted the disclosure-only provisions of SFAS No. 123, 
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost 
has been recognized in the results of operations for the stock option grants. 
 Had compensation cost for the Company's stock option plans been determined 
based on the fair value at the grant date for awards in fiscal 1997 and 
fiscal 1996 consistent with the provisions of SFAS No. 123, the Company's net 
income and primary earnings per share would have been reduced to the pro 
forma amounts as follows: 

                                          26


<PAGE>

                                                  Fiscal year ended January 31,
                                                  -----------------------------
       DOLLARS IN THOUSANDS                               1997          1996
                                                          ----          ----

       Net income - as reported                         $9,621       $14,407
       Net income - pro forma                            7,803        14,070
       Primary earnings per share - as reported            .71          1.06
       Primary earnings per share - pro forma              .58          1.04
       Fully-diluted earnings per share - as reported      .70           .99
       Fully-diluted earnings per share - pro forma     $  ---          $.98

    Note: Fully-diluted earnings per share is presented only when it is
dilutive compared to primary earnings per share.

    The per share weighted-average fair value of stock options granted during 
the fiscal years ended January 31, 1997 and 1996 was $4.71 and $3.88, 
respectively. The pro forma effect on the Company's net income and primary 
earnings per share for fiscal 1997 and fiscal 1996 is not representative of 
the pro forma effect in future years. The pro forma effect does not take into 
consideration compensation expense related to grants made prior to fiscal 
1996, or additional grants in future years that are anticipated. The fair 
value of each option is estimated on the date of grant using the 
Black-Scholes option-pricing model with the following weighted-average 
assumptions used for grants made in fiscal 1997: dividend yield of 0%; 
expected volatility of 42.0%; risk-free interest rate of 7.5%. The following 
weighted-average assumptions were used for grants made in fiscal 1996: 
dividend yield of 4.5%; expected volatility of 28.0%; risk-free interest rate 
of 7.5%.

NOTE 12:  COMMITMENTS
    The Company leases facilities and equipment under various lease agreements
that range from one to 10 years, which require the following minimum annual
rental commitments:


       DOLLARS IN THOUSANDS                     YEARS ENDED
       OPERATING LEASES                         JANUARY 31,
                                                -----------
       1998                                         $ 5,146
       1999                                           4,008
       2000                                           3,478
       2001                                           2,925
       2002                                           2,438
       Thereafter                                     3,864
                                                      -----
                                                    $21,859
                                                    -------
                                                    -------

    The combined annual rental cost for facilities and various equipment under
operating leases approximated $5,340,000 in fiscal 1997, $5,310,000 in fiscal
1996, and $4,658,000 in fiscal 1995.   In most cases, management expects that in
the normal course of business, leases will be renewed or replaced by others.

    During fiscal 1997, the Company entered into an agreement with its 
principal bank for a $15,000,000 unsecured line of credit at the prevailing 
prime rate.  Borrowings under the line are subject to certain restrictive 
covenants.  This line of credit agreement expires August 31, 1998.  The 
Company anticipates that it will renew the line of credit agreement before 
its expiration date.  The line was unused at January 31, 1997.

NOTE 13:  SHAREHOLDERS' EQUITY
    In September 1988, the Company distributed to common shareholders one 
right for each outstanding share of common stock.  Each right entitles the 
holder to purchase one-half share of common stock at an exercise price of 
$50, subject to adjustment.  Initially, the rights will be attached to all 
common stock certificates and no separate right certificates will be 
distributed.

                                          27


<PAGE>

    The rights, which do not have any shareholder rights, such as voting or 
dividend rights, will expire on September 19, 1998, unless redeemed earlier 
by the Company prior to expiration, at a price of $.01 per right.  The rights 
automatically transfer with a transfer of common stock until the time they 
become exercisable, which happens when certain specified events occur.  If 
the rights become exercisable, they entitle the holders thereof to purchase 
stock or other property of the Company at a reduced price, subject to certain 
other provisions of the plan.  At January 31, 1997, approximately 6,728,000 
shares of common stock were reserved for issuance in connection with these 
rights.

    The debentures issued by the Company have a feature that allows the 
holder to convert the debentures to common stock of the Company at a 
conversion price of $15.15 per share.  At January 31, 1997, approximately 
3,734,000 shares were reserved for issuance upon conversion of debentures.

NOTE 14:  QUARTERLY FINANCIAL DATA (UNAUDITED)
    The following is selected quarterly financial data for the years ended
January 31, 1997 and 1996:


<TABLE>
<CAPTION>

                                                                               1997
                                                                               ----
DOLLARS IN THOUSANDS,                                1ST             2ND            3RD           4TH
EXCEPT SHARE AND PER SHARE AMOUNTS                --------------------------------------------------------
<S>                                               <C>            <C>            <C>            <C> 
Revenues                                          $  32,192      $  32,759      $  31,590      $  36,780
Operating expenses, net                              28,349         28,658         26,929         30,342
                                                  --------------------------------------------------------
Operating income                                      3,843          4,101          4,661          6,438
Other expense, net                                   (1,359)        (1,360)        (1,188)          (882)
                                                  --------------------------------------------------------
Income before income taxes                            2,484          2,741          3,473          5,556
Provision for income taxes                              807            891          1,129          1,806
                                                  --------------------------------------------------------
Net income                                        $   1,677      $   1,850      $   2,344      $   3,750
Primary earnings per share                        $    0.12      $    0.14      $    0.17      $    0.28
Fully-diluted earnings per share                        ---            ---            ---      $    0.25
Weighted average shares outstanding              13,615,000     13,477,000     13,480,000     13,500,000


<CAPTION>
                                                                               1996
                                                                               ----
DOLLARS IN THOUSANDS,                                1ST             2ND            3RD           4TH
EXCEPT SHARE AND PER SHARE AMOUNTS               ---------------------------------------------------------
<S>                                              <C>            <C>            <C>            <C> 
Revenues                                          $  30,635      $  32,045      $  32,008      $  35,795
Operating expenses, net                              25,063         26,264         25,850         28,567
                                                 ---------------------------------------------------------
Operating income                                      5,572          5,781          6,158          7,228
Other expense, net                                     (979)          (450)        (1,129)        (1,084)
                                                 ---------------------------------------------------------
Income before income taxes                            4,593          5,331          5,029          6,144
Provision for income taxes                            1,539          1,786          1,498          1,867
                                                 ---------------------------------------------------------
Net income                                        $   3,054      $   3,545      $   3,531      $   4,277
Primary earnings per share                        $    0.23      $    0.26      $    0.26      $    0.31
Fully-diluted earnings per share                  $    0.22      $    0.25      $    0.24      $    0.28
Weighted average shares outstanding              13,394,000     13,402,000     13,476,000     13,665,000
</TABLE>


Note:  Fully-diluted earnings per share is presented only when it is dilutive
compared to primary earnings per share.



                                          28


<PAGE>

                  REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
THE MACNEAL-SCHWENDLER CORPORATION

    We have audited the accompanying consolidated balance sheets of The 
MacNeal-Schwendler Corporation as of January 31, 1997 and 1996, and the 
related consolidated statements of operations, shareholders' equity, and cash 
flows for each of the three years in the period ended January 31, 1997.  
These financial statements are the responsibility of the Company'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 financial statements referred to above present 
fairly, in all material respects, the consolidated financial position of The 
MacNeal-Schwendler Corporation at January 31, 1997 and 1996, and the 
consolidated results of its operations and its cash flows for each of three 
years in the period ended January 31, 1997, in conformity with generally 
accepted accounting principles.

                                                 ERNST & YOUNG LLP

LOS ANGELES, CALIFORNIA
MARCH 14, 1997




                                          29


<PAGE>


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
    None.

                                       PART III

    Pursuant to General Instruction G(3) to Form 10-K, the information 
required by this Part is incorporated by reference to such information 
contained in the Company's definitive Proxy Statement for the Annual Meeting 
of Shareholders to be held June 11, 1997, filed with the Securities and 
Exchange Commission pursuant to Regulation 14A.  In addition, the information 
set forth under Item 1 of this Form 10-K under the caption "Executive 
Officers of the Registrant" is also incorporated herein by reference.

                                       PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:

ITEM 14(a)1.  FINANCIAL STATEMENTS.
    The following consolidated financial statements of The MacNeal-Schwendler
Corporation and subsidiaries as included in its annual report are included in
Item 8.

Consolidated Balance Sheets - January 31, 1997 and 1996

Consolidated Statements of Operations for each
    of the three years in the period ended January 31, 1997

Consolidated Statements of Cash Flows for each of the three years in the 
    period ended January 31, 1997

Consolidated Statements of Shareholders' Equity for each of the three years 
    in the period ended January 31, 1997

Notes to Consolidated Financial Statements

Report of Ernst & Young LLP, Independent Auditors

ITEM 14(a)2.   FINANCIAL STATEMENT SCHEDULES.

    The following financial statement schedule of The MacNeal-Schwendler
Corporation and subsidiaries is included in this Item 14:

    Schedule II-Valuation and qualifying accounts

    All other schedules have been omitted because the information either has 
been shown in the consolidated financial statements or notes thereto, or is 
not applicable or required under the instructions.

                                  SCHEDULE II
        
                      THE MACNEAL-SCHWENDLER CORPORATION
                       VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED JANUARY 31, 1997, 1996, AND 1995

                                  (in thousands)
<TABLE>
<CAPTION>
                                 Balance at     Charged      Additions      Deductions    Ending
                                 beginning of   to expense   due to                       balance
                                 period                      acquisitions
Accounts Receivable:
<S>                                <C>           <C>           <C>            <C>         <C>
Year ended January 31, 1995        $864          1,710         1,397          397         $3,574
Year ended January 31, 1996      $3,574            152           --         1,164         $2,562
Year ended January 31, 1997      $2,562            616           --         1,372         $1,806


</TABLE>
                                          30


<PAGE>

ITEM 14(a)3.  EXHIBITS.
    The following exhibits are included in this Report:

EXHIBIT
-------
NUMBER
------

2.1      Restated Agreement and Plan of Merger, dated as of August 11, 1994, by
         and among The MacNeal-Schwendler Corporation, MSC Sub, Inc. and PDA
         Engineering, Inc. (filed as part of The MacNeal-Schwendler
         Corporation's Registration Statement on Form S-3 (No. 33-83174), and
         incorporated herein by reference).

3.1      Amended Articles of Incorporation of The MacNeal-Schwendler
         Corporation (filed as Exhibit 3.1 to The MacNeal-Schwendler
         Corporation's Annual Report on Form 10-K filed for the fiscal year
         ended January 31, 1992, and incorporated herein by reference).

3.2      Restated Bylaws of The MacNeal-Schwendler Corporation (filed as 
         Exhibit 3.2 to The MacNeal-Schwendler Corporation's Annual Report on 
         Form 10-K filed for the fiscal year ended January 31, 1996, and 
         incorporated herein by reference).

4.1      Rights Agreement, dated September 19, 1988, between The
         MacNeal-Schwendler Corporation and Bank of America, NT&SA, as Rights
         Agent (filed as Exhibit 4.1 to a Current Report on Form 8-K filed
         October 4, 1988, and incorporated herein by reference).

4.2      Indenture, dated as of August 18, 1994, between The MacNeal-Schwendler
         Corporation and Chemical Trust Company of California, as trustee
         (filed as part of The MacNeal-Schwendler Corporation's Registration
         Statement on Form S-3 (No. 33-83174), and incorporated herein by
         reference).

4.3      First Supplemental Indenture, dated September 22, 1994, between The
         MacNeal-Schwendler Corporation and Chemical Trust Company of
         California, as trustee (filed as Exhibit 4.2 of The MacNeal-Schwendler
         Corporation's Quarterly Report on Form 10-Q for the quarterly period
         ended October 31, 1994, and incorporated herein by reference).

4.4      Second Supplemental Indenture, dated December 14, 1994, between The
         MacNeal-Schwendler Corporation and Chemical Trust Company of
         California, as trustee (filed as Exhibit 4.3 of The MacNeal-Schwendler
         Corporation's Quarterly Report on Form 10-Q for the quarterly period
         ended October 31, 1994, and incorporated herein by reference).

10.1     Form of Agreement for use of MSC/NASTRAN, as modified to September
         1991 (filed as Exhibit 10.1 to The MacNeal-Schwendler Corporation's
         Annual Report on Form 10-K filed for the fiscal year ended January 31,
         1992, and incorporated herein by reference). 

10.2     Agreement, dated October 22, 1982, between The MacNeal-Schwendler
         Corporation and NASA (filed as Exhibit 10.2 to The MacNeal-Schwendler
         Corporation's Registration Statement on Form S-1, File No. 2-82719,
         and incorporated herein by reference).



                                          31


<PAGE>

EXHIBIT
-------
NUMBER
------

10.3     Agreement of Lease, dated July 31, 1980, between The
         MacNeal-Schwendler Corporation and Frank De Pietro (filed as Exhibit
         10.3 to The MacNeal-Schwendler Corporation's Registration Statement on
         Form S-1, File No. 2-82719, and incorporated herein by reference).

10.4*    1983 Incentive Stock Option Plan for Key Employees, as amended to
         January 31, 1989 (filed as Exhibit 10.4 to The MacNeal-Schwendler
         Corporation's Annual Report on Form 10-K filed for the year ended
         January 31, 1989, and incorporated herein by reference).

10.5     Form of Indemnification Agreement between The MacNeal-Schwendler
         Corporation and directors, officers and agents thereof (filed as
         Exhibit 10.5 to The MacNeal-Schwendler Corporation's Annual Report on
         Form 10-K filed for the year ended January 31, 1989, and incorporated
         herein by reference).

10.6(a)  Form of Severance Agreement between The MacNeal-Schwendler Corporation
         and executive officers thereof (filed as Exhibit 10.6(a) to The
         MacNeal-Schwendler Corporation's Annual Report on Form 10-K filed for
         the year ended January 31, 1989, and incorporated herein by
         reference).

10.6(b)  Form of Severance Agreement between The MacNeal-Schwendler Corporation
         and key employees (filed as Exhibit 10.6(b) to The MacNeal-Schwendler
         Corporation's Annual Report on Form 10-K filed for the year ended
         January 31, 1989, and incorporated herein by reference).

10.7*    Amendment 1991-1 to 1983 Incentive Stock Option Plan for Key Employees
         (filed as Annex A to The MacNeal-Schwendler Corporation's Annual Proxy
         Statement for the Annual Meeting of Shareholders held on June 12,
         1991, and incorporated herein by reference).

10.8*    Amendment 1992-1 to 1983 Incentive Stock Option Plan for Key Employees
         (filed as part of the Annual Proxy Statement for The
         MacNeal-Schwendler Corporation's Annual Meeting of Shareholders held
         on June 10, 1992, and incorporated herein by reference).

10.9*    1991 Stock Option Plan (filed as Annex A to The MacNeal-Schwendler
         Corporation's Annual Proxy Statement for the Annual Meeting of
         Shareholders held on June 10, 1992, and incorporated herein by
         reference).

21       Material Subsidiaries of the Registrant (filed as Exhibit 21 to The 
         MacNeal-Schwendler Corporation's Annual Report on Form 10-K filed 
         for the fiscal year ended January 31, 1996, and incorporated herein 
         by reference).

23       Consent of Ernst & Young LLP, Independent Auditors.

27       Financial Data Schedule.

-----------------------------
*        Denotes compensatory plan.

ITEM 14(b).  REPORTS ON FORM 8-K.
    None.



                                          32


<PAGE>

                                      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
its behalf by the undersigned, thereunto duly authorized.  

                                            THE MACNEAL-SCHWENDLER CORPORATION

                                            By    /s/ Thomas C. Curry
                                                  -------------------------
                                                      Thomas C. Curry
                                                  President, Chief Executive
                                                  Officer and Director

Dated:  April 25, 1997

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

        SIGNATURES                 TITLE                             DATE
        ----------                 -----                             ----

  /s/  GEORGE N. RIORDAN          Chairman of the Board          April 25, 1997
-----------------------------
       George N. Riordan

  /s/  THOMAS C. CURRY            President, Chief Executive     April 25, 1997
-----------------------------     Officer and Director
       Thomas C. Curry

  /s/  LOUIS A. GRECO             Chief Financial Officer        April 25, 1997
-----------------------------     (Principal Financial
       Louis A. Greco             and Accounting Officer)


  /s/  PAUL B. MACCREADY          Director                       April 25, 1997
-----------------------------
       Paul B. MacCready

  /s/  RICHARD H. MACNEAL         Director                       April 25, 1997
-----------------------------
       Richard H. MacNeal

  /s/  BERNARD J. BANNAN          Director                       April 25, 1997
-----------------------------
       Bernard J. Bannan

  /s/  HAROLD HARRIGIAN           Director                       April 25, 1997
-----------------------------
       Harold Harrigian

  /s/  DALE D. MYERS              Director                       April 25, 1997
-----------------------------
       Dale D. Myers

  /s/  FRANK PERNA                Director                       April 25, 1997
-----------------------------
       Frank Perna

  /s/  ARTHUR S. REIDEL           Director                       April 25, 1997
-----------------------------
       Arthur S. Reidel




                                          33