SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

_X_  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 For THE FISCAL YEAR ENDED AUGUST 31, 1996

___  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO______

                         Commission file number 0-15811

                -------------------------------------------------
                            BRODERBUND SOFTWARE, INC.
             (Exact name of registrant as specified in its charter)
                -------------------------------------------------

         Delaware                                        94-2768218
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                        Identification No.)

              500 Redwood Boulevard, Novato, California 94948-6121
               (Address of principal executive offices) (Zip Code)

       Registrant's Telephone Number, including area code: (415) 382-4400

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

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.        YES _X_          NO___

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

The aggregate  market value of the  registrant's  Common Stock,  $.01 par value,
held by non-affiliates  of the registrant,  based upon the closing sale price of
the Common Stock on October 31, 1996 as reported on the NASDAQ  National  Market
system, was $582,097,753.

As of October 31, 1996, there were 20,696,809 shares of the registrant's  Common
Stock Outstanding.

Documents Incorporated by Reference

Portions of registrant's  definitive proxy statement (the "Proxy Statement") for
its  1997  Annual  Meeting  of  Stockholders  to be held  January  23,  1997 are
incorporated by reference into Part III hereof.

This report  consists of 44 sequentially  numbered  pages.  The Exhibit Index is
located at pages 38 and 39.  Page 1 of 44 Pages

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<PAGE>


                            BRODERBUND SOFTWARE, INC.
                           FORM 10-K, AUGUST 31, 1996
                                Table of Contents
<TABLE>
<CAPTION>
                                                                                                          Page
                                                                                                          ----
                                                      PART I

<S>               <C>                                                                                      <C>
Item 1.           Business................................................................................  3
Item 2.           Properties.............................................................................. 14
Item 3.           Legal Proceedings....................................................................... 14
Item 4.           Submission of Matters to a Vote of Security Holders..................................... 14

                                                      PART II

Item 5.           Market for Registrant's Common Equity and Related Stockholder Matters................... 16
Item 6.           Selected Financial Data................................................................. 17
Item 7.           Management's Discussion and Analysis of Financial Condition
                     and Results of Operations............................................................ 18
Item 8.           Financial Statements and Supplementary Data............................................. 24
Item 9.           Changes in and Disagreements with Accountants
                     on Accounting and Financial Disclosure............................................... 38

                                                     PART III

Item 10.          Directors and Executive Officers of the Registrant...................................... 38
Item 11.          Executive Compensation.................................................................. 38
Item 12.          Security Ownership of Certain Beneficial Owners and Management.......................... 38
Item 13.          Certain Relationships and Related Transactions.......................................... 38

                                                     PART IV

Item 14.          Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................ 38
                  Signatures.............................................................................. 41
</TABLE>

CAUTIONARY  NOTE  REGARDING  FORWARD  LOOKING  STATEMENTS:  This  Form  10-K  of
Broderbund   Software,   Inc.   ("Broderbund  "  or  the   "Company")   contains
forward-looking   statements  that  are  subject  to  risks  and  uncertainties.
Statements indicating that the Company "believes,"  "expects,"  "anticipates" or
"estimates" are forward  looking as are all other  statements  regarding  future
financial  results,  market  conditions,  product offerings or other events that
have not yet occurred.  There are many important factors that could cause actual
results or events to differ  materially  and/or adversely from those anticipated
by the  forward  looking  statements  contained  in  this  Form  10-K  or in the
Company's 1996 Annual Report to  Stockholders.  Such factors include but are not
limited  to,  the  rate  of  growth  of the  consumer  software  market,  market
acceptance of the Company's products or those of its competitors,  the timing of
new product introductions, expenses relating to the development and promotion of
new  product  introductions,  changes in pricing  policies by the Company or its
competitors,  projected and actual changes in platforms and technologies, timely
and  successful  adaptation to such platforms or  technologies,  the accuracy of
forecasts of consumer demand, product returns, market seasonality, the timing of
orders from major customers and order cancellations,  and changes or disruptions
in the consumer software  distribution  channels as well as those factors listed
under Factors  Affecting Future  Operating  Results in the Company's 1996 Annual
Report to Stockholders and elsewhere herein.  Actual events or the actual future
results of the Company may differ  materially from any forward looking statement
due  to  such  risks  and  uncertainties.   Other  factors,   uncertainties  and
assumptions  not  specifically  identified or disclosed by the Company were also
involved in the derivation of these  forward-looking  statements and the failure
of such other assumptions to be realized may also cause actual results to differ
materially  from those  projected.  The Company  assumes no obligation to update
these forward-looking statements to reflect actual results or changes in factors
or assumptions affecting such forward looking statements.

                                                                               2
<PAGE>


PART I

Item 1. BUSINESS

Overview

     Broderbund  Software,   Inc.  ("Broderbund"  or  the  "Company")  develops,
publishes  and  markets  a broad  line  of  interactive  personal  productivity,
entertainment  and  education  software  for use in the home,  school  and small
business  markets.  Since the  founding of the Company in 1980,  Broderbund  has
developed  innovative  products  which take  advantage  of  advances in personal
computer  ("PC")  technology and which have won over 400 awards and sold over 35
million  units.  The Company is  committed to creating  imaginative  software to
provide value for consumers of all ages.

     Broderbund's  strategy is to identify and develop families of products that
will achieve  sustained  consumer  appeal and brand name  recognition  primarily
across  three  major  consumer  software  categories:   personal   productivity,
entertainment  and  education.  The Company's  best known products are The Print
Shop(R) family of personal productivity  products, the Carmen Sandiego(R) family
of educational  products,  the Family Tree Maker(TM) line of genealogy products,
and the entertainment product Myst(R),  which is the best selling PC game of all
time.  Recognizing that new and emerging  technologies have historically played,
and will continue to play, an  increasingly  significant  role in the multimedia
environment  and  consumer  preferences,  the  Company  seeks  to  adapt  to and
incorporate such technologies into its product offerings.  In this respect,  the
Company  believes  that the  emergence of the internet  represents  an important
trend  and  opportunity  in the  consumer  software  market,  and as part of its
internet  strategy  it  is  developing  on-line  capabilities  to  its  existing
products,  expanding its web-site presence and infrastructure and investing in a
number  of  small  internet  related  companies  in  order  to keep  abreast  of
developments in this rapidly-evolving  area, and to position itself as a leading
participant in this emerging platform.

     The Company sells its products through distributors,  computer superstores,
electronics  stores,  mass  merchandisers,  discount  warehouse  stores,  office
stores,  software specialty retail chains and educational dealers. The Company's
North American retail sales force serves over 20,000 domestic retail outlets. In
addition,  Broderbund  also  sells  its  products  directly  to  schools  and to
consumers.  International  sales are primarily  derived from a subsidiary in the
United Kingdom and from licensing  arrangements with foreign  distributors.  The
Company also  leverages  its  distribution  strength by acting as the  exclusive
distributor for other publishers through its affiliated label program.

     The consumer  software  industry is characterized by rapid change,  intense
competition  and  consolidation.   The  Company  has  engaged  in  acquisitions,
investments and joint ventures of technologies,  content products and businesses
when it believes  that they are  consistent  with and  beneficial to its overall
strategy.  In 1995  Broderbund  acquired  Banner Blue, and its Family Tree Maker
product line, one of Broderbund's top three best selling families of products in
1996. In August 1996, the Company acquired T/Maker Company,  a leading publisher
of clip art software,  including the popular  ClickArt(R)  product line.  During
fiscal 1996,  Broderbund also made a minority equity investment in Live Picture,
Inc.,  which publishes photo editing  software for businesses and consumers.  In
addition,  the Company has initiated  investments in certain  start-up  internet
related companies.

     Living  Books(R)  is an equal  partnership  between  Broderbund  and Random
House.  This joint  venture  publishes  a series of  award-winning,  interactive
animated  children's  storybooks on CD-ROM.  Broderbund has an affiliated  label
arrangement  with Living Books to distribute its products  through  Broderbund's
computer software distribution  channels.  Living Books has now released a total
of 14

                                                                               3

<PAGE>


children's  titles,  including Just Grandma and Me, The Berenstain  Bears In the
Dark, Dr. Seuss's ABC and the recently released Green Eggs and Ham.

     The  Company was  incorporated  in  California  in  September  1981 and was
reincorporated in Delaware in February 1987. The Company's executive offices are
located at 500 Redwood Boulevard,  Novato, California 94948-6121.  Its telephone
number  is  (415)  382-4400.  The  Company's  internet  web site is  located  at
http://www.broderbund.com.

Industry Background

     The  consumer  software  market is  generally  divided  into  five  primary
categories:   entertainment,   education,  personal  productivity,  finance  and
reference.  The Company primarily  develops and publishes products for the first
three of these categories.

     Improvements  in  multimedia  technology  have  fundamentally  changed  the
consumers'   experience  by  providing  highly  interactive   entertainment  and
educational environments  increasingly rich in content with realistic sounds and
music,  text,  advanced  graphics and  animations,  photographs and even film or
video clips.  Accordingly,  although  consumer  demand has grown for  multimedia
products as a result of these  improvements,  so have consumer  expectations for
more  sophisticated,  easy to use,  content  rich  products.  Periodically,  the
software  industry  undergoes  profound  changes  with the  introduction  of new
hardware platforms and new technologies,  such as, most recently,  Win95 and the
internet.  In addition  to these  developments,  competition  has  continued  to
increase and intensify among new and existing multimedia content providers.

     The growth in the installed  base of multimedia PCs over the last few years
has  resulted in the creation of a mass market for  consumer  software  products
with advanced  multimedia  functionality and engaging  content.  The creation of
this  mass  market  has been  characterized  by the rise in  importance  of mass
merchant software sales as a distribution channel,  increasing price pressure as
well as increasing  competition for limited  consumer  retail shelf space.  This
competitive  environment  has resulted in the  increased  importance of creating
significant brand name recognition,  establishing strong retail relationships in
the  distribution  channel,  and offering a diverse  product line for  increased
likelihood of retail success and sell-through.

Products

     Broderbund's  product strategy is to create,  identify and develop families
of software  products with brand name recognition in order to achieve  sustained
consumer appeal.  During fiscal 1996, the Company released 42 new titles in both
the published and affiliated label areas, as compared to 36 new titles in fiscal
1995. The Company  offers  products  primarily in three major consumer  software
categories:   personal  productivity,   entertainment  and  education.  Personal
productivity products consist of software that provide tools for the consumer to
enhance  productivity,  whether via printed  output or on-screen  visualization.
Entertainment  products are designed for the consumer's  leisure time enjoyment.
Broderbund  designs its education  products to be both educational and engaging,
so that the products  appeal both to the primary  user (i.e.,  the child) and to
the buyer (i.e., the parent).  The top three best selling products during fiscal
1996 were The Print Shop Ensemble, Myst and Family Tree Maker.

     The Company's  product  strategy for each of its categories is based on the
following:

     Branded  Product  Franchises.  Broderbund  seeks to develop  products  with
significant and broad brand name  recognition that may be expanded into families
of related sequel or complementary products in

                                                                               4


<PAGE>


order to achieve  sustained  consumer  appeal.  Successful  products  serving as
examples of the Company's strategy include: The Print Shop, Carmen Sandiego, Kid
Pix(R),  Myst,  the Active Mind  Series(TM),  Family Tree Maker and Living Books
families of products.  The Company  believes that  developing  product  families
helps to achieve longer life cycles for the Company's products.

     Advanced   Technology.   The  Company   seeks  to  create   technologically
sophisticated   multimedia  products  based  on  the  latest  personal  computer
platforms,   including  the  internet.   Broderbund  incorporates   conventional
programming  disciplines with advanced tools like those used to develop animated
or  cinematic  films.  The  Company  has  also  developed  proprietary  internal
programming tools,  including a powerful product  development system that allows
for  simultaneous  development of programs on multiple  platforms.  The advanced
technology   utilized   increases  the  appeal  of   Broderbund's   products  to
sophisticated consumers as well as new users.

     Creativity. Broderbund seeks to foster creativity in the development of its
products.  The Company's goal is to lead the market in manifesting creativity in
our products and in pioneering new types of interactive experiences.  Throughout
its  sixteen  years  of  developing  products,   Broderbund  has  a  history  of
establishing  products with enduring  consumer appeal by conceiving  imaginative
and innovative ideas to develop new niches in the consumer market.

     Quality.  The  Company  seeks to  provide a high  level of  quality  in its
products.   The  Company  strives  to  develop  products  that  exceed  customer
expectations  and provide  long-term  lasting value and  enjoyment.  The SPA has
consistently recognized the quality of Broderbund products.  Broderbund has been
awarded more SPA "Excellence in Software" Awards than any other company.

     Ease-of-Use.  The Company seeks to create  products that allow the consumer
to become  quickly  proficient in the use of the product.  Because  Broderbund's
products  are easy to use,  they are  often  given  as gifts or  recommended  as
purchases for the first-time buyer.

     Third Party  Validation.  The Company seeks to develop products that appeal
both  to the  primary  user  and to  third  parties,  particularly  parents  and
teachers,  who have  significant  influence  over the product  buying  decision.
Broderbund  believes the educational and creative  content in its products makes
them popular with parents and teachers without  diminishing the enjoyment of the
primary users.

     The Company's products in each category are described below:

     Productivity  Products. The Company's productivity products are designed to
provide  consumers and small businesses with high quality,  easy to use software
products that relate to popular  lifestyle,  adult  education  and  productivity
interests and needs. The productivity category includes The Print Shop family of
products,   the  Family  Tree  Maker  line,  3D  Home  Architect(R)  Edition  2,
Williams-Sonoma  Guide to Good  Cooking(TM),  PC Globe(R)  Maps N Facts(R),  Org
Plus(R) and the ClickArt family of products.  Products in The Print Shop family,
first  introduced in May 1984, have sold over ten million units.  The Print Shop
programs enable consumers to easily create  personalized  greeting cards, signs,
banners, calendars, post cards, letterhead,  envelopes, business cards and other
personal  documents and are  supplemented  by the additions of several  graphics
libraries.  Family Tree Maker is a leading  genealogy program which is supported
by the Banner Blue division's Family  Archives(TM)  CD-ROM collections of family
historical data to make searching for one's ancestors  easier. 3D Home Architect
is a  best-selling,  comprehensive  solution to easy home design,  complete with
realistic 3D views. Williams-Sonoma Guide to Good Cooking, released in September
1996, is a computerized cookbook designed to streamline and organize the cooking
process. Org Plus is an organizational charting tool used by many businesses. In
August 1996, the Company  acquired  T/Maker Company which publishes Click Art, a
popular line of clip art software.

                                                                               5

<PAGE>


     The  Company's   productivity  products  range  in  price  in  stores  from
approximately $20 to $90. During fiscal 1996,  productivity  products  accounted
for approximately 45% of the Company's net revenues.

     Entertainment Products. In September 1993, the Company released Myst, which
subsequently became the single best-selling title in PC history, and although it
continues to remain  popular,  sales declined  significantly,  especially in the
second half of fiscal 1996. Other  entertainment  titles released in fiscal 1996
included  In the  1st  Degree(R)  and  Learn  the  Art  of  Magic(TM).  Part  of
Broderbund's strategy is to increase its focus and commitment to the development
of entertainment  titles and to expand its  entertainment  line with several new
strategy,  adventure  and action  products  using  both  internal  and  external
development resources. The Company has signed development agreements for several
new  entertainment  products that are expected to be released in calendar  1997.
However,  because the entertainment  market tends to be a "hit" driven business,
where  only  a  relatively  limited  number  of  popular  "hit"  titles  achieve
widespread  consumer  acceptance,  the  risks  associated  with  the  successful
development  of  costly  entertainment  products  and  their  market  acceptance
increase.  As a result,  there can be no assurance that the Company will publish
an adequate number of successful  titles. In addition,  the Company  anticipates
that a significant  number of the entertainment  products will be licensed from,
or  developed  by,  the  Company  in  collaboration  with  independent  software
developers.   Accordingly  the  risks  associated  with  reliance  upon  outside
developers will increase, including the risks of delays in product introduction,
increases in royalties paid to outside developers, and uncertainties surrounding
the  Company's  ability to attract and retain  successful  developers  and their
content.

     The  Company's  entertainment  products  range  in  price  in  stores  from
approximately $20 to $50. During fiscal 1996,  entertainment  products accounted
for approximately 20% of the Company's net revenues.

     Education Products.  Broderbund's  education strategy is to provide a broad
and diverse  selection  of  high-quality  educational  products for the home and
school which are educationally strong, easy to use and engaging for a wide range
of age groups.  The core of the  education  category is  comprised of the Carmen
Sandiego family of products,  the Active Mind Series, the ImagiMaker Series(TM),
the StoryQuest(TM) Series, and the new Advantage Libraries.

     The  Carmen  Sandiego  family  of  products  is a very  popular  series  of
interactive  games designed to motivate the player to learn more about geography
and history and which have sold over five million  units since the first product
was released in April 1985. The central  character is Carmen Sandiego,  who, due
to the popularity of the game and marketing efforts of the Company, has become a
household name. Since September 1991,  Public  Broadcasting  Service  Television
("PBS") has shown a weekday  children's  quiz show based on the Carmen  Sandiego
theme.  In addition,  in February  1994,  the Fox TV network  began airing a new
cartoon series created by DIC Animation  City, Inc. based on the Carmen Sandiego
software  program  called  "Where on Earth is Carmen  Sandiego?".  Although  the
Company does not receive significant revenues from the television programs,  the
Company believes the programs have increased the exposure of the Carmen Sandiego
series and enhanced the recognition of the brand name.

     The  Active  Mind  Series  includes  seven  products  designed  to  develop
curriculum-oriented  skills in reading, writing, math,  communication,  thinking
and  reasoning,   including  the  recently   released  Logical  Journey  of  the
Zoombinis(TM),   Reading  Galaxy(TM),  and  Write,  Camera,   Action!(TM).   The
ImagiMaker  Series  includes Kid Pix Studio,  Kid Pix,  and The Amazing  Writing
Machine(R),  a series of creative  products  that allow  children to do projects
ranging from multimedia  painting,  arts and crafts, and slide shows to creative
writing.  The first  products  in the  Company's  new  StoryQuests  Series,  the
adventure stories Darby the

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Dragon and Gregory and the Hot Air Balloon, were released in fiscal 1996 and are
designed to entertain and teach children from the ages of 4 to 8.

     In fiscal  1996,  the Company,  as part of its strategy to provide  greater
value to its  customers  and to capture  greater  market share in the  education
category,  released four product  "suites",  which are collections of its CD-ROM
titles  in  one  retail  package,  called  Advantage  Libraries.  The  Advantage
Libraries are designed to provide parents with complete  education  solutions at
an exceptional value.

     The   Company's   education   products   range  in  price  in  stores  from
approximately $20 to $70. During fiscal 1996,  education  products accounted for
approximately 20% of the Company's net revenues.

     Affiliated   Label  Products.   Affiliated  label  products  are  designed,
developed and published by third party software  publishers  and  distributed by
Broderbund  through its sales forces. In fiscal 1996,  affiliated label products
accounted for  approximately  15% of the  Company's net revenues.  The Company's
current affiliated label partners are: Against All Odds Productions, Cyan, Inc.,
Headbone  Interactive  Inc.,  Inroads  Interactive,  Inc.,  Live Picture,  Inc.,
ParaGraph International,  Progressive Networks, Starwave Corporation, Sunset New
Media, The Logic Factory, Inc., Tsunami Media, Inc. and Living Books.

     Under  affiliated  label  agreements,   Broderbund  performs  a  low-margin
distribution  function and in certain cases,  a  manufacturing  function,  which
causes affiliated label revenues to yield substantially lower gross margins than
sales of  Broderbund's  published  products.  As a  result,  changes  in the mix
between  published  sales and  affiliated  label sales can affect the  Company's
gross margin. Affiliated label publishers in general are small publishers, often
with limited  financial  resources.  The Company's  affiliated  label  agreement
requires the affiliate  label  publisher to assume the financial risk of product
returns. There can be no assurance that there will not be significant returns of
affiliated  label products,  or that the affiliated label publisher will be able
to fulfill its financial  obligation created thereby, in which case the Company,
in order to preserve it relationships  with its customers,  would have to assume
the obligation for affiliated label product returns.

     Living Books. Since January 1, 1994, Broderbund and Random House, Inc. have
been equal partners in a joint venture called Living Books to publish the Living
Books line of products. Both Broderbund and Random House are distributing Living
Books through their  respective  distribution  channels under  affiliated  label
agreements.  The  Living  Books  line of  products  is a series of CD-ROM  based
interactive  storybooks for children  which allow children to learn,  listen and
explore.   Living  Books  feature  well-known  children's  authors  and  classic
children's  stories,  including Just Grandma and Me, The Berenstain Bears In the
Dark,  Dr.  Seuss's  ABC and the  recently  released,  Green  Eggs and Ham.  The
Company's 50% share of the joint venture's  profits and losses are recognized in
nonoperating income in the financial statements.  In fiscal 1996, the market for
children's interactive  storybooks on CD-ROM became intensely competitive,  with
significant  new entrants into the market,  resulting in lower  average  selling
prices.  In some cases, the new entrants had access to proprietary  intellectual
property content,  as well as the financial resources to market products heavily
and to leverage  brand names  through  other  media,  such as feature  films and
television. As a result, the Living Books joint venture recognized a loss in the
Company's  fourth quarter in 1996, and there can be no assurances that the joint
venture will return to profitability in fiscal 1997.

Product Development

     The Company's  product  development  process includes design,  prototyping,
programming,  computer graphic design, animation, sound and video recordings and
quality  assurance.  Although  the Company has focused on  internally  developed
technology, it acquires a portion of its products, content and 

                                                                               7

<PAGE>


technologies from third parties. The Company's development agreements with third
parties   generally   provide  the  Company  with   publishing,   marketing  and
distribution  rights to a personal  computer  software  product  for  payment of
royalties based on sales of the product.  Many of these agreements also call for
development  fees to be paid as advances on such  royalties over the term of the
product's  development.  The specific royalty rates,  development fees,  payment
terms,  geographic  scope,  duration  and other terms of the  Company's  license
agreements  vary,  based  on the  nature  of  the  product  and  the  amount  of
development contribution from the licensor.

     The Company's product development  department is divided into studios based
on product  categories.  Each of the  Company's  studios  consists  of  software
engineers,  graphic  artists,  animators,  and sound and  video  technicians  to
develop products and convert existing programs to various hardware formats.  The
product development  department also has a systems group which works on creating
more  effective  development  systems.  For example,  the Company has designed a
proprietary  development  system  that lets the  Company  develop  programs  for
several  platforms  at once.  This  advanced  system is  designed  to enable the
internal development staff to accelerate production of new software products and
to reduce the time to convert a product to a  different  hardware  platform.  In
addition,  the Company  has also  developed a  proprietary  graphics  digitizing
system that enables  Broderbund to deliver  richer,  more  realistic  images and
animations.

     Most elements of the  development  process are provided by a combination of
third-party  and in-house  resources  with the  exception of quality  assurance,
which is completed solely at Broderbund facilities. Broderbund believes that the
use of both in-house and third-party designers,  artists and programmers expands
its  ability  to  introduce  creative  and  innovative   products.   Third-party
designers,  content  providers  (such as  musical  composers)  and some  outside
programming  groups often receive  royalties on the sales of products with which
they were  involved,  in addition to fees,  while most graphic  artists and some
outside  programming  groups  operate  on  a  fee-only  basis.  The  Company  is
continuing to devote research and  development  resources to each of its product
categories.

     The continued success of the Company depends on the timely  introduction of
successful new products,  including new titles and adaptations to new platforms,
to replace  declining  revenues from older  products.  Consumer  preferences for
software  products are difficult to predict,  and few consumer software products
achieve  sustained  market   acceptance.   During  fiscal  1996,  a  substantial
percentage of Broderbund's  net revenues has been derived from each of The Print
Shop family,  Myst and Family Tree Maker line.  There can be no  assurance  that
current  sales  levels  of  these  products  can be  maintained.  In  fact,  the
substantial  year-over-year  decline in Myst revenues  during the second half of
fiscal  1996 was not fully  replaced,  and there  can be no  assurance  that the
shortfall  from the  continuing  decline in Myst  revenues will be replaced in a
timely manner or that Myst II's  introduction  will occur in fiscal 1997 or that
it will achieve widespread market acceptance. In general, entertainment products
have relatively short product lives, and sales of older  entertainment  products
may  decline  precipitously.  If for any reason  revenues  from new  products or
upgrades should fail to replace declining revenues from existing  products,  the
Company's  business,  operating  results and the trading  price of  Broderbund's
common stock would be significantly adversely affected.

     The process of  developing  software  products such as those offered by the
Company is extremely  complex and is becoming  more complex and  expensive  over
time. In recent periods, the costs of internal development of new products,  and
advances  to  fund  product   development  by  third  parties,   have  increased
significantly.  As a result, the financial risks borne by the Company associated
with new product development have increased.  In addition,  Broderbund's expense
levels are based on its  expectations  regarding  future sales, and accordingly,
operating results would be  disproportionately  adversely affected by a decrease
in sales or failure to meet the Company's  sales  expectations  due to delays in
new product

                                                                               8

<PAGE>


introductions,  or lower  than  expected  demand.  As a result  of the  inherent
seasonality of the Company's business,  a delay in a new product introduction in
the first or second quarter of a fiscal year may have a particularly exaggerated
effect on  results  of  operations  in that year.  In the past,  Broderbund  has
experienced delays in the introduction of new products,  and anticipates that it
will experience  similar delays from time to time in the future.  If the Company
does not accurately  anticipate and successfully  adapt its products to emerging
platforms,  environments  and  technologies,  or new products are not introduced
when planned or do not achieve  anticipated  revenues,  the Company's  operating
results  could be  materially  adversely  affected.  In  addition,  the  Company
believes  that  electronic  or internet  products  and  services  will become an
increasingly important platform and distribution media, the Company's failure to
timely and successfully  adapt to and utilize such technologies could materially
and adversely affect its competitive position and its fiscal results.

Marketing and Distribution

     Broderbund  sells its products  through  distributors,  software  specialty
retail chains,  computer  superstores,  mass  merchandisers,  discount warehouse
stores,  educational  dealers  and  directly to end users.  Broderbund  commonly
participates in and provides financial assistance for its retailers' promotional
efforts, such as in-store displays or catalog  advertisements.  The Company also
provides its retailers with demonstration  disks and other collateral  marketing
materials.  Broderbund's two largest  distributors in fiscal 1996 each accounted
for  approximately  11% of the  Company's  net  revenues  in the fiscal  year as
compared  to 13% and 22% in fiscal  1995.  The  Company  expects to  continue to
increase its direct sales to retailers in fiscal 1997.

     Sales to a limited number of  distributors  and retailers have  constituted
and are  anticipated  to  constitute a  substantial  amount of the Company's net
revenues.  Generally,  arrangements with these distributors and retailers may be
terminated by either party at any time. The loss of, or significant reduction in
sales  volume  attributable  to any  of the  Company's  principal  resellers  or
accounts  sold through such  resellers  could  materially  adversely  affect the
Company's results of operations. In addition, certain distributors and retailers
have  experienced  business  difficulties  and  there can be no  assurance  such
difficulties  for  these  or  additional  distributors  and  retailers  will not
continue  which  could  have an  adverse  effect on the  operating  results  and
financial condition of the Company.

     The distribution channels through which consumer software products are sold
are  characterized  by  rapid  change,  including  consolidations  and  business
difficulties  of certain  distributors  and  retailers  and the emergence of new
retailers such as warehouse clubs, mass merchants and computer  superstores.  In
addition,  there is an  increasing  number of companies  competing for access to
these  channels.  As a result of this activity,  the Company has  experienced an
increase in product  returns and credit  risks and has adjusted its reserves for
product returns and doubtful accounts accordingly.

     In addition,  retailers of the Company's  products typically have a limited
amount  of  shelf  space  and  promotional  resources,   and  there  is  intense
competition  for high quality and adequate levels of shelf space and promotional
support from retailers.  To the extent that the number of software  products and
consumer  platforms  increases,  this  competition  for  shelf  space  may  also
increase. As large computer and software manufacturers, entertainment companies,
media  companies  and print  publishers  enter or  increase  their  focus on the
consumer  software  market,  the  competition  for shelf  space will become more
intense. There can be no assurance that distributors and retailers will continue
to  purchase  the  Company's  products or provide the  Company's  products  with
adequate levels of shelf space and promotional support.

     At the time of product shipment the Company  establishes  reserves that are
an estimate of future  returns of products.  The  Company's  estimates of future
returns takes into account the anticipated growth

                                                                               9

<PAGE>


in revenue,  the current level of  distributor  and retailer  inventories of its
products in relation to the seasonally  adjusted rate of  sell-through  for each
product,  the impact of planned product releases on sales of previously released
products,  the  proportion  of sales  attributable  to new  outlets of  existing
retailers and new channels,  the effects of shifts in consumer preferences,  and
other factors.  Broderbund  monitors the volume of its sales to distributors and
retailers to attempt to avoid  over-stocking  of its products by such customers.
The Company  maintains a stock  balancing  policy that allows  distributors  and
retailers to return  products  according to negotiated  terms or pursuant to any
promotional  terms  that may be in effect  and the  Company  accepts  returns of
defective,  shelf-worn  and  damaged  products  at any time in  accordance  with
negotiated terms.  Product returns that differ from the Company's reserves could
affect the Company's  operating  results.  Broderbund  believes that the rate of
product returns will increase as mass merchants become an increasing  percentage
of the  Company's  sales.  Additionally,  the Company  believes that higher than
normal returns may be experienced  whenever  significant shifts occur within the
distribution  channel and  whenever  significant  shifts  occur with  respect to
consumer preferences for new technologies.

     Broderbund  also  promotes its products  directly to  consumers.  Marketing
activities   include   direct   mailings  of   catalogs,   brochures,   in-store
demonstrations  and  presentations  to  computer  user  groups,  advertising  in
computer  publications and the circulation of newsletters to specific audiences.
As the Company increases its product offering in the entertainment  category, it
is likely that the Company will pursue a strategy to significantly  increase the
amount that it spends on consumer  advertising,  thus  adversely  affecting  the
Company's  profit margin if there is no  corresponding  significant  increase in
revenues generated by those products.  The entertainment sector in particular is
characterized   by   significant   marketing,    promotional   and   advertising
expenditures,  and  there  can be no  assurance  that  a  strategy  to  increase
marketing and promotional  activities  will be successful,  or that the revenues
generated by the  affected  products  will offset the  increased  marketing  and
promotional expenditures. Further, the Company expects to increase significantly
its direct-to-consumers marketing, via direct mailings to customers, among other
things.  Such  marketing  efforts can be extremely  costly,  and there can be no
assurance that these activities will be cost-effective.  The Company maintains a
substantial  mailing  list  currently  comprising  over 3  million  users of the
Company's products.

     The Company's  38-person  national sales staff covers the United States and
Canada and operates out of ten offices located in California (2),  Illinois (2),
Maryland,  Massachusetts,  Ohio,  Pennsylvania,  Texas and Ontario,  Canada. The
Company  has  established  a  subsidiary  in the  United  Kingdom  to market and
distribute  localized  versions of the Company's  products to the major European
markets.  In addition,  the Company has distribution  arrangements in Australia,
Southeast Asia and Japan.  The Company's  international  distributor  agreements
generally  grant the  exclusive  right to distribute  the Company's  products in
specific  geographic  territories.  In some  cases,  the  distributor  purchases
finished  goods from the Company for resale.  In other  cases,  the  distributor
develops a foreign  language  version and pays the Company a royalty on sales of
such products.  In fiscal 1996,  international sales accounted for approximately
11% of the Company's net revenues.

     The Company has a separate 8-person  education sales and marketing group to
focus on sales to schools. The Company believes that sales to this market are an
important  element  in its  overall  success  because  schools  often  introduce
children to Broderbund's products.

Competition

     The consumer software  industry is intensely and increasingly  competitive.
The Company expects that existing consumer software companies can be expected to
broaden  their  product  lines or increase  their focus to compete more directly
with its  products.  Moreover,  large  corporations  with  substantial  bases of
intellectual  property content in the motion picture and media industries and/or
substantial financial

                                                                              10

<PAGE>


resources  without the need for immediate  profit or return,  have  increasingly
entered or announced their intention to enter the market for consumer  software.
Certain of the Company's existing and future competitors have greater financial,
technical,  marketing,  sales and customer  support  resources than  Broderbund.
There can be no  assurance  that the Company will  compete  successfully  in the
future.

     Only a small  percentage of products  introduced  in the consumer  software
market achieve any degree of sustained market  acceptance.  Broderbund  believes
that the principal competitive factors in the consumer software industry include
product  features  and  quality,   reliability  and   ease-of-use,   brand  name
recognition,  strength in distribution channels, quality of support services and
price.  The Company  believes  that its  products  compete most  favorably  with
respect to product features and quality, reliability and ease-of-use, brand name
recognition and strength in distribution  channels and, to a lesser extent, with
quality of  support  services  and  price.  Broderbund  also  believes  that the
increased  technical  sophistication  required in new consumer software products
has caused the availability of significant  financial resources to become a more
important   competitive   factor.   Broderbund  believes  that  the  competitive
environment  has increased  pressure to reduce the prices of its products  which
would reduce profit  margins.  In response to such  competitive  pressures,  the
Company  has  reduced  the  price of some of its  products,  including  its best
selling  series,  The Print Shop,  and there can be no  assurance  that  product
prices will not continue to decline or that the Company will not respond to such
declines with additional  product price reductions.  Prolonged price competition
would have a material adverse effect on the Company's operating results.

International Sales and Expansion

     Over the last  year and  one-half  Broderbund  has taken  several  steps to
enhance  its  presence  in  international   markets,   including  the  Company's
establishment  of a  wholly-owned  subsidiary in the United  Kingdom in February
1995 and an  increase  in the number of  international  and  localized  products
developed  by the  Company.  As a result,  international  revenues  amounted  to
approximately  11% of net  revenue  for fiscal  1996.  Although  the Company did
experience  significant  growth  in its  international  operations  and sales in
fiscal 1996, and expects that such operations  will continue to grow,  there can
be no assurance  that  international  sales of products will continue to grow at
the rate experienced during fiscal 1996, or that other  difficulties,  including
the timely and successful launch of foreign products, will not be encountered in
the future.  In  addition,  international  sales are subject to inherent  risks,
including  unexpected  regulatory  requirements,  tariffs  and  other  barriers,
difficulties  managing foreign operations,  currency fluctuations and difficulty
in collection of accounts receivable.

Proprietary Rights

     Generally, the Company does not have signed license agreements with the end
users of its products and does not copy-protect its software;  rather, it relies
on the copyright laws to prevent unauthorized  distribution of its software. The
Company also relies on a combination of trade secret,  patent and trademark laws
and  nondisclosure  agreements  to  protect  its  proprietary  rights.  Existing
copyright  laws  afford  only  limited  protection.   It  may  be  possible  for
unauthorized third parties to copy the Company's products or to reverse engineer
or otherwise  obtain and use  information  it regards as  proprietary.  Policing
unauthorized use of the Company's  products is difficult,  and while the Company
is unable to  determine  the  extent to which  software  piracy of its  products
exists,  software piracy can be expected to be a persistent problem. The Company
is a member of the SPA and supports the SPA's anti-piracy  efforts to police the
unauthorized  use of software.  In addition,  there can be no assurance that the
Company's  competitors  will not  independently  develop  technologies  that are
substantially  equivalent or superior to its technologies.  Further, the laws of
certain  countries in which the Company's  products are or may be distributed do
not protect products and intellectual  property rights to the same extent as the
laws of the United States.

                                                                              11

<PAGE>


Internet Opportunities and Strategies

     The Company  believes that the  proliferation  of on-line  networks and the
internet  has created new  opportunities  for the  consumer  software  industry,
including  opportunities for the Company to strengthen  customer  relationships,
direct distribution,  broaden its reach to new customers,  add value to existing
products and to develop new products and markets. Broderbund has initiated steps
to take advantage of these opportunities, including the expansion of its on-line
web  site  presence,  infrastructure  and  capabilities,  incorporating  on-line
functionality into existing  products,  such as The Print Shop, Carmen Sandiego,
Family Tree Maker and 3D Home Architect  products,  and started  development of,
and  investment  in, new internet  centric  businesses  and products,  including
multi-user  entertainment  products.  The Company  expects to incur  significant
costs in connection with its internet infrastructure, including costs associated
with the  acquisition  of hardware and  software  necessary to allow for on-line
commerce and multi-user games. Although the Company expects that these platforms
and technologies will be an integral element of its overall business,  there can
be no assurance that the Company's internet strategy will be successful, or that
the costs and investments will provide adequate, or any, returns.

Product Concentration

     During  fiscal 1996,  approximately  45%, 20% and 20% of the  Company's net
revenues were derived from sales of  productivity,  entertainment  and education
products, respectively. These products are expected to continue to account for a
material percentage of net revenues in fiscal 1997 and thereafter.  There can be
no  assurance  that  sales  levels of any of these  families  of  products  will
increase or be sustained,  especially in the light of increased  competition  in
the market  place.  The  failure of new  products  in these  families to achieve
market  acceptance,  or an  overall  decline  in sales of any one or more of the
products  in  these  families,  could  have a  material  adverse  effect  on the
Company's financial condition and operating results.

Acquisitions, Investments and Joint Ventures

     The Company believes that its future success and growth will depend in part
on its ability to identify, acquire and integrate technologies, content products
and/or  businesses.   The  Company  continues  to  actively  explore  additional
product-driven and technology-driven acquisition,  investment, and joint venture
opportunities  consistent  with  Broderbund's  overall  product  and  publishing
strategies.  In the past  these  opportunities  have  included  acquisitions  of
external  technologies,  content products and businesses,  investments in shared
technologies and various start-up internet businesses,  and joint ventures, such
as Living Books.  There can be no assurance  that the Company will be successful
in  identifying  suitable  opportunities,  or if  identified,  there  can  be no
assurance that the Company will be successful in completing, or integrating, the
acquired properties, investments or joint ventures.

Fluctuations in Results and Stock Price

     The  Company  has  experienced,  and  expects to  continue  to  experience,
significant  fluctuations  in  operating  results  due to a variety of  factors,
including  but not  limited  to,  the rate of  growth of the  consumer  software
market,  fluctuations  in consumer  demand,  market  acceptance of the Company's
products or those of its competitors,  the timing of new product  introductions,
expenses relating to the development and promotion of new product introductions,
changes in pricing  policies by the Company or its  competitors,  projected  and
actual changes in platforms and technologies, timely and successfully adaptation
to such platforms or technologies, the accuracy of forecasts of consumer demand,
product returns,  market seasonality,  the timing of orders from major customers
and order cancellations,  the ability to timely manufacture and ship products in
response to fluctuating demand, and changes or disruptions in the

                                                                              12

<PAGE>


consumer software distribution channels. As a result of these and other factors,
the Company's results in any given period are inherently difficult to predict.

     In the event that the Company  should  experience a shortfall in sales in a
given  fiscal  quarter,  the  Company  does not expect  that it would be able to
reduce  its  operating  expenses  quickly  enough to prevent a decline in profit
margins.  As a result,  a  shortfall  in sales in any given  period  may have an
exaggerated  effect on the  Company's  earnings  for that  period.  Because  the
Company's stock trades at a relatively high price-earnings multiple, due in part
to analysts'  expectations of continued earnings growth, even a relatively small
shortfall  in  earnings  or a change  in  analysts'  expectations  may  cause an
immediate and substantial  decline in the Company's stock price.  Moreover,  the
Company's  stock  is  subject  to  the  volatility   generally  associated  with
technology  stocks  and may also be  affected  by broader  market  trends or the
results  reported by other market  participants.  There can be no assurance that
the Company's stock price will remain at or near its current level. Investors in
the Company's common stock must be willing to bear the risk of such fluctuations
in earnings and stock price.

Seasonality

     Although the Company's  business has generally been highly  seasonal,  with
net revenues and operating income generally  highest in the first fiscal quarter
during the calendar year-end holiday selling season,  lower in the second fiscal
quarter,  and lowest in the  seasonally  slow third and fourth fiscal  quarters.
During  fiscal 1997,  the Company  anticipates  that its results may differ from
that seasonal  pattern with results more heavily  weighted to the second half of
the fiscal year when  several new  entertainment  products  are  scheduled to be
released. The Company also believes that the market conditions which resulted in
the year-over-year decline in revenues and profitability experienced in the last
two  quarters  of fiscal  1996 will  continue  for at least the next two  fiscal
quarters.  Without  growth  in net  revenues  in  any  particular  quarter,  the
Company's  increasing  operating expenses would cause net income to decline when
compared to the same period in the previous year.

Employees

     As of August 31,  1996,  the Company had 638  employees,  including  241 in
product  development,  222 in sales,  marketing  and  customer  service,  103 in
manufacturing and shipping and 72 in administration  and finance.  The Company's
future  success  depends  in  large  part on the  continued  service  of its key
technical  and senior  management  personnel  and on its  ability to continue to
attract,  motivate and retain highly qualified  employees.  Competition for such
employees is intense, and the loss of the services of key personnel could have a
material adverse effect upon the Company's current operations and on new product
development  efforts.  None of the Company's employees is represented by a labor
union or is subject to a collective bargaining agreement.  The Company has never
experienced a work stoppage and believes that its employee relations are good.

Broderbund Foundation

     In 1988, the Company created the Broderbund  Foundation (the "Foundation"),
a non-profit  corporation.  Douglas  Carlston and William  McDonagh serve on the
three-member  Board of  Directors  of the  Foundation.  Each year,  the  Company
donates  to the  Foundation  a  percentage  of its  adjusted  pretax  profits as
determined by the Company's  Board of Directors.  For the preceding  three years
Broderbund has donated  approximately  2% of its adjusted  pretax  profits.  The
Foundation makes grants to qualified non-profit  organizations at the discretion
of the Foundation's Board of Directors.

                                                                              13

<PAGE>


Production

     The Company  prepares  master  software  diskettes and CD-ROM  discs,  user
manuals and  packaging,  and prints labels.  The Company  primarily uses outside
sources to procure and duplicate CD-ROM discs. Diskette duplication is performed
by the Company at its own  facilities.  Printing of the user manuals,  packaging
and   manufacture   of  related   materials   are  performed  to  the  Company's
specifications by outside sources,  and the completed  packages are assembled by
the Company.  To date the Company has not experienced any material  difficulties
or delays in the manufacture  and assembly of its products,  and has experienced
very low returns due to product defects,  however there can be no assurance that
such difficulties will not occur in the future.

Backlog

     The Company typically ships product within one to two days after receipt of
an order,  which is customary in the computer  software  business.  Accordingly,
backlog as of any particular date is not  representative of actual sales for any
succeeding period.

Item 2. PROPERTIES

     Broderbund  leases  approximately  111,000  square feet of office  space in
Marin County, California, approximately 134,000 square feet of manufacturing and
warehouse space in Sonoma County,  California,  approximately 15,000 square feet
of office space in Alameda County, California,  approximately 10,000 square feet
of office  space in Santa  Clara  County,  California  and 1,500  square feet of
office space in Provo, Utah. The Company also leases approximately 12,000 square
feet, a portion of which has been sublet to third  parties,  in Tempe,  Arizona.
Broderbund  leases  approximately  4,000  square  feet of  office  space for its
European  subsidiary  in the United  Kingdom,  and leases office space for sales
representatives  in the United States and Canada.  The Company  expects that its
office,  manufacturing  and  warehouse  space will be  sufficient  for its needs
through fiscal 1997.

Item 3. LEGAL PROCEEDINGS

     The Company is subject to various pending claims. Management,  after review
and consultation with counsel, considers that any liability from the disposition
of such lawsuits in the aggregate would not have a material  adverse effect upon
the consolidated financial position or results of operations of the Company.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters  submitted to a vote of security  holders  during the
quarter ended August 31, 1996.

                                                                              14

<PAGE>


Executive Officers of the Registrant

     The  executive  officers of the Company,  who are appointed by and serve at
the discretion of the Company's Board of Directors, are as follows:

   Name                    Age    Position with Company
   ----                    ---    ---------------------

   Joseph P. Durrett       51    Chief Executive Officer and Director

   William M. McDonagh     40    President, Chief Operating Officer and Director

   Jan L. Gullett          42    Senior Vice President, Marketing and Sales

   Harry R. Wilker         50    Senior Vice President, Broderbund Studios

   Thomas L. Marcus        43    Vice President, Business Development,
                                   General Counsel and Secretary

   Michael J. Shannahan    48    Vice President, Finance and Chief Financial
                                   Officer

   Rodney D. Haden         46    Vice President, Sales

     There are no family  relationships among directors or executive officers of
the Company.

     Mr. Durrett joined the Company in October 1996 as Chief Executive  Officer.
Prior to  joining  the  Company,  Mr.  Durrett  served  as  president  and chief
operating officer of ADVO, Inc., a direct marketing company, and has held senior
management  positions at Kraft General Foods and brand  management  positions at
Procter and Gamble.  Mr.  Durrett  received a B.A. from Duke  University  and an
M.B.A. from Wharton School, University of Pennsylvania.

     Mr.  McDonagh  joined the Company in October 1982 as  Controller.  In April
1987,  he was  promoted to Vice  President  of Finance.  In February  1992,  Mr.
McDonagh was appointed Senior Vice President and Chief Financial Officer.  Since
April  1994,  he has  served as  President  and  Chief  Operating  Officer.  Mr.
McDonagh, a certified public accountant,  received a B.A. from the University of
Notre Dame and an M.B.A. from Golden Gate University.

     Mr. Gullett  joined the Company in February 1995 as Senior Vice  President,
Marketing and Sales.  Prior to joining the Company,  Mr.  Gullett spent eighteen
years in the consumer products industry with Pepsico, Sara Lee Corp. and Procter
and Gamble. Mr. Gullett received a B.S. from Miami University and an M.B.A. from
Harvard University.

     Mr. Wilker joined the Company in March 1987 as Manager,  Technical Services
and served as an Executive  Publisher  between August 1987 and May 1990. In July
1990 he was appointed Vice President,  Product  Development for the productivity
group and in July 1992,  he was  appointed  Vice  President of  Publishing.  Mr.
Wilker was promoted to Senior Vice President,  Broderbund  Studios in June 1994.
Mr. Wilker  received a B.S.  from George  Washington  University  and an M.A. in
political science from the State University of New York at Buffalo.

                                                                              15

<PAGE>


     Mr.  Marcus  joined the Company in October 1986 as General  Counsel.  Since
1987,  he has served as Vice  President,  General  Counsel and  Secretary of the
Company.  In June 1994, Mr. Marcus was also appointed Vice  President,  Business
Development.  He had previously served as Vice President of Business Development
from  November  1989 to June  1991.  Mr.  Marcus  received  an  A.B.  from  Yale
University and a J.D. from University of California at Berkeley, Boalt Hall.

     Mr.  Shannahan  joined the  Company  in  February  1995 as Vice  President,
Finance and Chief Financial Officer. Prior to joining the Company, Mr. Shannahan
was  an  audit   partner  with  KPMG  Peat  Marwick  LLP  in  the   information,
communication and  entertainment  practice.  Mr. Shannahan  received a B.S. from
Rockhurst College in Kansas City, Missouri.  Mr. Shannahan is a certified public
accountant.

     Mr. Haden joined the Company in July 1985 as Director of Sales. Since April
1987, he has served as Vice  President,  Sales.  Mr. Haden oversees sales in the
United States and Canada. Mr. Haden received a B.A. from The American University
in Washington, D.C.

PART II

Item 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
         MATTERS

Common Stock Trading

     The Company's  common stock is traded on the NASDAQ  National Market System
under  the  symbol  BROD.  The  following  table  sets  forth,  for the  periods
indicated,  the high and low closing  prices for the  Company's  common stock as
reported by NASDAQ:

Fiscal 1996                     High              Low

First Quarter                 $76.88           $53.50
Second Quarter                 64.75            43.13
Third Quarter                  48.75            37.00
Fourth Quarter                 44.00            28.50

Fiscal 1995                     High              Low

First Quarter                 $35.75           $25.38
Second Quarter                 55.38            33.25
Third Quarter                  59.75            44.38
Fourth Quarter                 76.75            43.13

     The Company has not paid cash  dividends and has no present plans to do so.
There were 447 stockholders of record on August 31, 1996, excluding stockholders
whose stock is held in nominee or street name by brokers.

                                                                              16

<PAGE>


Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended August 31,                      1996         1995         1994        1993        1992
                                                      (In thousands, except per share data)
                                          ----------------------------------------------------------
<S>                                       <C>         <C>         <C>          <C>         <C>      
Statement of Income Data
Net revenues                              $ 186,207   $ 171,594   $ 111,774    $  95,583   $  75,085
Cost of revenues                             58,544      61,092      40,589       39,119      32,838
                                          ----------------------------------------------------------
     Gross margin                           127,663     110,502      71,185       56,464      42,247
                                          ----------------------------------------------------------
Operating expenses:
   Sales and marketing                       34,381      25,143      18,621       15,051      11,102
   Research and development                  29,244      22,784      16,016       13,671      10,624
   General and administrative                11,256      11,085       7,500        7,112       6,375
   Charge for acquired in-process
   technology                                 8,369        --          --           --          --
                                          ----------------------------------------------------------
     Total operating expenses                83,250      59,012      42,137       35,834      28,101
                                          ----------------------------------------------------------

Income from operations                       44,413      51,490      29,048       20,630      14,146

Interest and dividend income, net             6,499       6,364       1,791        1,295       1,318
Equity in earnings of joint venture             217       3,886        --           --          --
Terminated merger fees, net                  15,464        --       (11,000)        --          --
                                          ----------------------------------------------------------

Income before income taxes                   66,593      61,740      19,839       21,925      15,464
Provision for income taxes                   29,816      25,553       8,778        8,297       5,805
                                          ----------------------------------------------------------

Net income                                $  36,777   $  36,187   $  11,061    $  13,628   $   9,659
                                          ==========================================================

Net income per share                      $    1.71   $    1.72   $    0.55    $    0.68   $    0.49
                                          ==========================================================
Shares used in computing per share 
  data                                       21,509      21,037      20,145       20,006      19,582
                                          ==========================================================
Balance Sheet Data
  at August 31
Cash and short-term investments           $ 150,893   $ 126,547   $  75,000    $  54,316   $  31,409
Working capital                             142,493     119,894      73,005       54,770      37,462
Total assets                                200,432     161,551      97,651       77,229      56,226
Stockholders' equity                        165,548     128,882      80,179       62,010      44,170
</TABLE>

                                                                              17

<PAGE>


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

Results of Operations

NET REVENUES

(In thousands)        1996        Change         1995       Change        1994
--------------------------------------------------------------------------------
Net revenues        $186,207        9%         $171,594      54%        $111,774
--------------------------------------------------------------------------------

     The Company derives revenue from products which are published by Broderbund
(published  products)  and products  from other  software  publishers  which are
distributed by Broderbund  (affiliated  label  products).  The Company sells its
products in North America primarily through  distributors as well as directly to
retailers and consumers. The Company's international sales,  representing 11% of
revenues  in fiscal  1996 and less than 10% of revenues in fiscal 1995 and 1994,
are derived from a subsidiary in the United  Kingdom and licensing  arrangements
with foreign distributors.

     The Company's top three selling  products during fiscal 1996 were The Print
Shop Ensemble,  Myst, and Family Tree Maker.  Although each is a leading product
in its  segment,  each product is  encountering  increased  competition.  During
fiscal  1996,  the  Company  released  42 new titles in both the  published  and
affiliated  label areas,  as compared to 36 new titles in fiscal 1995 and 37 new
titles in fiscal 1994.

     Revenue growth rates from the Company's  major product  families  fluctuate
from  year  to  year,  depending  on the  timing  of  new  product  releases  or
acquisition  of new products or product  lines,  comparable  growth in the prior
year, and changes in consumer demand.  The productivity  product line showed the
highest growth rate, approximately 30% year over year in fiscal 1996 compared to
48% in  fiscal  1995.  Growth  in this  product  line was  primarily  due to the
addition  of Family  Tree Maker  products  from the  acquisition  of Banner Blue
Software in April 1995. The education line of products grew approximately 13% in
fiscal 1996 as compared to 4% in fiscal 1995 due mainly to the  introduction  of
the Advantage Library suites of products.  The  entertainment  category was down
15% in fiscal 1996 after increasing over 150% in fiscal 1995. This was primarily
due to the  significant  decline in Myst sales in fiscal  1996  compared  to the
significant   increase  experienced  in  fiscal  1995.  Net  revenues  from  the
affiliated label products  declined 9% in fiscal 1996,  following an increase of
61% in  fiscal  1995  primarily  due to a  decline  in  Living  Books  sales  as
competition increased in the children's  interactive  storybook category.  While
net  revenues  reached a record  high,  the net revenue  growth rate slowed when
compared  to prior year  growth,  particularly  in the second half of the fiscal
year, reflecting the increasingly  competitive and challenging consumer software
market, and in particular, the decreases in the rate of sales of Myst and Living
Books products.

     The growth in net revenues  during fiscal 1995 resulted  primarily from new
product   releases  among  both  published  and   affiliated   label   products.
Particularly  strong  products in fiscal 1995  included  Myst and The Print Shop
Ensemble II, as well as the Living Books series. Also contributing to the growth
in fiscal 1995 was the continued  expansion of software  into the  mass-merchant
retail channel,  expanding the number of locations where the Company's  software
could be purchased.

COST OF REVENUES

(In thousands)               1996         Change     1995       Change     1994
--------------------------------------------------------------------------------
Cost of revenues            $58,544         (4%)   $61,092         51%  $40,589
Percentage of net revenues       31%                    36%                  36%
--------------------------------------------------------------------------------

                                                                              18

<PAGE>


     Cost of revenues includes cost of goods sold,  royalties paid to developers
and accrued technical support costs, which relate primarily to telephone support
provided to consumers  after they  purchase the  software.  The Company does not
capitalize software  development costs as the impact on the financial statements
would be immaterial.  Affiliated label products carry significantly  higher cost
of revenues than published products.

     Cost of revenues  declined as a  percentage  of net revenues in fiscal 1996
after remaining constant in fiscal 1995 and 1994. The decrease was primarily due
to  changes  in the mix  between  sales of  published  products  and sales  from
affiliated  label  companies  and to a  decrease  in  royalties  paid to outside
developers.  Lower margin affiliated label revenues  represented 15% of revenues
in fiscal 1996 as compared to 18% in fiscal 1995 and 17% in fiscal 1994.

OPERATING EXPENSES
<TABLE>
<CAPTION>
(In thousands)                     1996        Change    1995       Change     1994
------------------------------------------------------------------------------------
<S>                              <C>             <C>   <C>             <C>   <C>    
Sales and marketing              $34,381         37%   $25,143         35%   $18,621
Percentage of net revenues            18%                   15%                   17%
                                 ---------------------------------------------------

Research and development         $29,244         28%   $22,784         42%   $16,016
Percentage of net revenues            16%                   13%                   14%
                                 ---------------------------------------------------

General and administrative       $11,256          2%   $11,085         48%   $ 7,500
Percentage of net revenues             6%                    6%                    7%
                                 ---------------------------------------------------

Charge for acquired in-process
    technology                   $ 8,369        100%      --         --         --
Percentage of net revenues             4%                 --                    --
------------------------------------------------------------------------------------
</TABLE>


     Sales and  marketing  expenses  increased  in fiscal  1996 from fiscal 1995
primarily due to an increased  emphasis on advertising  and promotions and other
sales and marketing  programs,  as well as a higher level of staffing to support
the additional  programs.  Sales and marketing  expenses also included the costs
from the Banner Blue division for all of fiscal 1996, whereas in the prior year,
expenses were only included  subsequent to the completion of the  acquisition in
April 1995. Sales and marketing  expenses  increased in fiscal 1995, as compared
to fiscal 1994,  primarily due to promotional  efforts and  additional  staffing
levels  associated with new product  releases,  special  marketing  programs for
certain products and costs associated with direct sales to customers.

     Research and development  expenses  increased in fiscal 1996 as compared to
fiscal 1995 primarily as a result of the increased number of new title releases,
expansion of the Company's  development  staff as part of its continued focus on
new product development and the publishing of more technologically sophisticated
multimedia products. The increase in research and development expenses in fiscal
1995 as compared to fiscal 1994 was due primarily to the  investment in staffing
and  technology  to convert the  Company's  product  line to Windows  95.  Also,
subsequent to April 1995, research and development expenses include the costs of
the Banner Blue division.

     General and  administrative  costs for fiscal 1996  remained  constant as a
percentage of net revenues when compared to fiscal 1995 as an effort was made to
maintain   expense  levels   consistent   with  the  prior  year.   General  and
administrative  expenses increased in fiscal 1995 as compared to fiscal 1994, as
a  result  of  increased  employee-related  expenses  associated  with  staffing
requirements needed to support higher


                                                                              19
<PAGE>


revenue  levels,  the creation of the Company's  wholly owned  subsidiary in the
United Kingdom, and the acquisition of Banner Blue Software.

     In August 1996, the Company charged to operations  in-process technology of
$8.4 million in connection with the acquisition of T/Maker Company.

NONOPERATING INCOME AND EXPENSES
<TABLE>
<CAPTION>
(In thousands)                           1996         Change      1995        Change       1994
-------------------------------------------------------------------------------------------------
<S>                                   <C>                <C>   <C>               <C>    <C>     
Interest and dividend income, net     $  6,499           2%    $  6,364          255%   $  1,791
Percentage of net revenues                   3%                       4%                       2%
                                      -----------------------------------------------------------

Equity in earnings of joint venture   $    217         (94)%   $  3,886          100%       --
Percentage of net revenues                   0%                       2%                    --
                                      -----------------------------------------------------------

Terminated merger fees, net           $ 15,464         100%        --           --      $(11,000)
Percentage of net revenues                   8%       --                                     (10)%
-------------------------------------------------------------------------------------------------
</TABLE>


     Investment  income  increased in fiscal 1996 as compared to fiscal 1995 and
1994 due to higher average  invested cash balances.  In fiscal 1995, the Company
had a gain of $1.6 million from the sale of a common stock  investment  that was
previously recorded as a non-current asset at no net value.

     In fiscal 1996, the contribution  from the Company's 50% equity interest in
Living Books, a joint venture  between  Broderbund  and Random House,  decreased
from fiscal 1995 due  primarily  to the decline in net  revenues of Living Books
products,  as  well as an  increase  in  operating  expenses  reflecting  higher
marketing and development costs.

     In  December  1995,  Broderbund  and The  Learning  Company  terminated  an
agreement to merge and  Broderbund  recognized a gain from the break-up fee paid
by The Learning Company. In May 1994,  Broderbund and Electronic Arts terminated
an agreement to merge.  Broderbund  recognized a charge in conjunction  with the
terminated merger.

PROVISION FOR INCOME TAXES

(In thousands)                  1996      Change     1995       Change    1994
--------------------------------------------------------------------------------
Provision for income taxes   $29,816      17%   $  25,553       191%   $8,778
Effective income tax rate      44.8%                41.4%               44.2%
--------------------------------------------------------------------------------

     The Company's effective income tax rate, as a percentage of pre-tax income,
increased  in fiscal  1996 as the  charge  for  acquired  in-process  technology
resulting  from the  acquisition  of T/Maker  Company  did not  provide  any tax
benefit.  The Company's  effective  income tax rate  decreased in fiscal 1995 as
compared to the prior year because in fiscal 1994 the Company recognized a lower
tax benefit on the terminated merger costs,  raising the overall effective rate.
A more complete  analysis of the differences  between the federal  statutory and
the  Company's  effective  income  tax  rates  is  presented  in  Note  7 to the
consolidated financial statements.

                                                                              20

<PAGE>


NET INCOME AND NET INCOME PER SHARE

(In thousands,
except per share data)         1996      Change   1995       Change     1994
--------------------------------------------------------------------------------

Net income                   $36,777       2%   $36,187        227%   $11,061
Percentage of net revenues        20%                21%                   10%
                             ---------------------------------------------------

Net income per share         $     1.71         $     1.72            $      .55
--------------------------------------------------------------------------------

     Exclusive of the one-time  charge from the  acquisition of T/Maker  Company
and of a one-time  gain relating to a terminated  merger,  net income for fiscal
1996  would have been  $35.9  million or $1.67 per share.  Net income for fiscal
1995 grew 93% over fiscal 1994,  which would have been $18.8 million or $.93 per
share,  exclusive of the one-time  charge for terminated  merger costs in fiscal
1994.

LIQUIDITY AND CAPITAL RESOURCES

(In thousands)               1996       Change     1995         Change     1994
--------------------------------------------------------------------------------

Cash and short-term
    investments            $150,893      19%     $126,547         69%   $ 75,000
                           -----------------------------------------------------

Working capital            $142,493      19%     $119,894         64%   $ 73,005
                           -----------------------------------------------------
Net cash provided by
    operating activities   $ 50,516      24%     $ 40,622        163%   $ 15,457
                           -----------------------------------------------------

     The Company's strong financial  position  improved in fiscal 1996. Cash and
short-term  investments  increased $24.3 million to $150.9 million at August 31,
1996. Cash and short-term  investments were provided by operating activities and
the receipt of a terminated merger break-up fee,  partially offset by the use of
cash to purchase T/Maker Company,  acquire a minority  interest in Live Picture,
Inc. and repurchase shares of the Company's common stock.  Accounts  receivable,
net of allowances of $27.6 million, decreased $1.9 million to $6.0 million.

     At this time, the Company is not committed to incur any significant capital
expenditures in fiscal 1997.

     In  addition  to cash and  short-term  investments,  the  Company  has $5.0
million available under an unsecured line of credit agreement with no borrowings
outstanding.  The line of credit bears  interest at the bank's prime rate and is
subject to renewal by the bank in January 1997.

     The Company uses its working capital to finance  ongoing  operations and to
fund the  expansion  and  development  of its product  lines.  In addition,  the
Company evaluates from time to time other  acquisitions of products or companies
that complement the Company's business.

     Management  believes the existing cash and short-term  investments and cash
generated  from  operations  will be sufficient  to meet the Company's  expected
liquidity and capital needs for the coming year.

                                                                              21

<PAGE>


FACTORS AFFECTING FUTURE OPERATING RESULTS

     Broderbund  operates in a rapidly  changing  environment that is subject to
many risks and  uncertainties.  Some of the  important  risks and  uncertainties
which may cause the  Company's  operating  results to differ  materially  and/or
adversely are discussed below and in the Company's Form 10-K for the 1996 fiscal
year.

Fluctuations in Operating Results

     The  Company  has  experienced,  and  expects to  continue  to  experience,
significant  fluctuations  in  operating  results  due to a variety of  factors,
including  but not  limited  to,  the rate of  growth of the  consumer  software
market, market acceptance of the Company's products or those of its competitors,
the timing of new product  introductions,  expenses  relating to the development
and promotion of new product  introductions,  changes in pricing policies by the
Company or its  competitors,  projected  and actual  changes  in  platforms  and
technologies,   timely  and   successful   adaptation   to  such   platforms  or
technologies,  the accuracy of forecasts of consumer  demand,  product  returns,
market  seasonality,  the  timing  of  orders  from  major  customers  and order
cancellations,  and changes or disruptions in the consumer software distribution
channels.

     Although the Company's  business has generally been highly  seasonal,  with
net revenues and operating income generally  highest in the first fiscal quarter
during the calendar year-end holiday selling season,  lower in the second fiscal
quarter,  and lowest in the  seasonally  slow third and fourth fiscal  quarters,
during  fiscal 1997,  the Company  anticipates  that its results may differ from
that seasonal  pattern with results more heavily  weighted to the second half of
the fiscal year when  several new  entertainment  products  are  scheduled to be
released. The Company also believes that the market conditions which resulted in
the year-over-year decline in revenues and profitability experienced in the last
two  quarters  of fiscal  1996 will  continue  for at least the next two  fiscal
quarters. Without growth in net revenues in the next two quarters, the Company's
increasing operating expenses would cause net income to decline when compared to
the same period in the previous year.

     Any  significant  shortfall in net  revenues  and earnings  from the levels
expected by securities  analysts and stockholders  could result in a substantial
decline in the trading  price of the  Company's  common  stock.  There can be no
assurance  that the  Company's  stock  price will  remain at or near its current
level.  Moreover,  the Company's  stock is subject to the  volatility  generally
associated  with  technology  stocks and may also be affected by broader  market
trends or the results reported by other market participants.

Industry and Competition

     Recent data indicates a slowdown in growth of end-user  demand for consumer
software and hardware during 1996 and there can be no assurance that such demand
will not continue to slow or to decline. In addition, the intense competition in
the consumer software  business  continues to accelerate as an increasing number
of companies,  many of which have financial,  managerial and technical resources
greater than those of the Company, offer products that compete directly with one
or more of the Company's products.  As a result, an increasingly large number of
products  are  competing  for limited  shelf  space.  In response to  increasing
product and price competition,  the Company has reduced the price of some of its
products,  including  its  best-selling  series,  The Print Shop,  which  places
negative pressures on net revenues and gross margins.  There can be no assurance
that product prices will not continue to decline as competition  increases,  and
if such conditions  persist,  the Company's net revenues and profitability could
be materially and adversely  affected.  Further,  there can be no assurance that
sales of the  Company's  existing  products  will  continue  to  sustain  market
acceptance and to generate  significant levels of revenue in subsequent quarters
or that a shortfall  in revenue  from any product  could be replaced in a timely
manner. In addition, sales of products on older platforms and in certain product
lines have declined,  and there can be no assurance that sales of these products
will not decline further or experience lower than expected sales levels. Because
a significant portion of the Company's expense levels are fixed and based on its

                                                                              22


<PAGE>


expectations   regarding   future   revenues,   operating   results   would   be
disproportionately  adversely affected by a decrease in sales or failure to meet
the Company's sales expectations. In addition,  competition for creative talent,
including independent developers,  has also intensified,  and the attraction and
retention of key personnel has become increasingly difficult.

Products and Platforms

     The  Company's  future  success will depend in large part on its ability to
develop  and release new  products on a timely  basis and to achieve  widespread
market acceptance for such products. There can be no assurance that expected new
product  introductions  will not experience  material delays,  that new products
introduced  by the  company  will  achieve  any  significant  degree  of  market
acceptance, or that such acceptance will be sustained for any length of time. In
addition,   because  the  Company  expects  that  the  cost  of  developing  and
introducing  new  products  will  continue  to  increase,  the  financial  risks
associated  with  new  product  development  will  increase  as will  the  risks
associated  with material delays in the  introduction of such new products.  The
substantial  year-over-year  decline in Myst revenues  during the second half of
fiscal  1996 was not fully  replaced,  and there  can be no  assurance  that the
shortfall  from the  continuing  decline in Myst  revenues will be replaced in a
timely manner or that Myst II's  introduction  will occur in fiscal 1997 or that
it will achieve widespread market acceptance.  In addition, the Company believes
that  electronic or internet  products and services will become an  increasingly
important  platform and distribution  media, the Company's failure to timely and
successfully  adapt  to and  utilize  such  technologies  could  materially  and
adversely affect its competitive position and its fiscal results.

Distribution

     The distribution channels through which consumer software products are sold
have been characterized by intense competition and continuing  uncertainties and
there can be no assurance  that  distributors  and  retailers  will  continue to
purchase the Company's  products or provide the Company's products with adequate
levels of shelf space and promotional support. In addition, certain distributors
and  retailers  have  experienced  business  difficulties  and  there  can be no
assurance such  difficulties for these or additional  distributors and retailers
will not continue  which could have an adverse  effect on the operating  results
and financial  condition of the Company.  The Company also permits  distributors
and retailers to return  products under certain  circumstances,  and the Company
believes that the rate of product  returns will increase as  competition  in the
distribution  channel  increases  and as mass  merchants,  office and  warehouse
stores become an  increasing  percentage  of the  Company's  sales.  The Company
establishes  allowances  based on  estimated  future  returns of  product  after
considering  various factors,  and  accordingly,  if the level of actual returns
exceed  management's  estimates,  it could have a material adverse impact on the
Company's  operating  results.   Further,  there  is  increasing  pressure  from
distributors  and  retailers  to  obtain  marketing  and  promotional  funds and
discounts in connection with access to shelf space,  in-store promotion and sale
of  products  which has an adverse  impact on the  Company's  net  revenues  and
profitability,  and there can be no  assurance  that  these  pressures  will not
continue or increase.


                                                                              23
<PAGE>


Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                         REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Stockholders
Broderbund Software, Inc.


We have  audited the  accompanying  consolidated  balance  sheets of  Broderbund
Software,  Inc.  as of August 31, 1996 and 1995,  and the  related  consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the  period  ended  August  31,  1996.  Our audits  also  included  the
financial statement schedule of Broderbund Software,  Inc. listed in Item 14(a).
These financial  statements and schedule are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Broderbund  Software,  Inc.  at August 31, 1996 and 1995,  and the  consolidated
results of its  operations and its cash flows for each of the three years in the
period ended August 31, 1996 in conformity  with generally  accepted  accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.



                                                               Ernst & Young LLP


San Francisco, California
October 8, 1996


                                                                              24
<PAGE>


<TABLE>
<CAPTION>


                                             Broderbund Software, Inc.

                                            Consolidated Balance Sheets

                                                                                           August 31,
                                                                                   1996                   1995
                                                                                 -------------------------------
                                                                                        (In thousands,
                                                                                       except share data)
<S>                                                                            <C>                      <C>     
Assets
Current assets:
   Cash and short-term investments                                             $150,893                 $126,547
   Accounts receivable, net of allowances of
   $27,611 in 1996 and $23,692 in 1995                                            5,956                    7,880
   Income tax prepayments                                                          --                        487
   Inventories                                                                    3,140                    2,562
   Deferred income taxes                                                         15,057                   13,880
   Other current assets                                                             869                    1,186
                                                                                --------------------------------
Total current assets                                                            175,915                  152,542

Equipment and improvements, net                                                   7,014                    5,570
Deferred income taxes                                                              --                        928
Purchased technology and advances, net                                           13,090                      761
Investments in affiliates                                                         4,053                    1,386
Other assets                                                                        360                      364

                                                                                --------------------------------
Total assets                                                                   $200,432                 $161,551
                                                                               =================================

Liabilities and stockholders' equity 
 Current liabilities:
   Accounts payable                                                            $  4,442                 $  6,094
   Accrued compensation                                                           8,794                   11,062
   Accrued income taxes                                                           8,966                     --
   Other accrued liabilities                                                     11,220                   15,513
                                                                                --------------------------------
Total current liabilities                                                        33,422                   32,669
                                                                                --------------------------------

Deferred income taxes                                                             1,462                     --

Stockholders' equity:
   Common stock, $.01 par value:
     Authorized shares - 40,000,000
     Issued and outstanding shares -
     20,670,060 in 1996 and 20,618,967 in 1995                                   31,383                   31,140
   Retained earnings                                                            134,165                   97,742
                                                                                --------------------------------
Total stockholders' equity                                                      165,548                  128,882
                                                                                --------------------------------

Total liabilities and stockholders' equity                                     $200,432                 $161,551
                                                                               =================================
</TABLE>

See accompanying notes.


                                                                              25
<PAGE>



                                             Broderbund Software, Inc.

                                         Consolidated Statements of Income
<TABLE>
<CAPTION>

                                                                        Years ended August 31,
                                                                 -------------------------------------
                                                                  1996           1995          1994
                                                                 -------------------------------------
                                                                            (In thousands,
                                                                        except per share data)
<S>                                                               <C>          <C>           <C>      
Net revenues                                                      $ 186,207    $ 171,594     $ 111,774
Cost of revenues                                                     58,544       61,092        40,589
                                                                 -------------------------------------
     Gross margin                                                   127,663      110,502        71,185
                                                                 -------------------------------------

Operating expenses:
   Sales and marketing                                               34,381       25,143        18,621
   Research and development                                          29,244       22,784        16,016
   General and administrative                                        11,256       11,085         7,500
   Charge for acquired in-process technology                          8,369         --            --
                                                                 -------------------------------------
     Total operating expenses                                        83,250       59,012        42,137
                                                                 -------------------------------------

Income from operations                                               44,413       51,490        29,048

Interest and dividend income, net                                     6,499        6,364         1,791
Equity in earnings of joint venture                                     217        3,886          --
Terminated merger fees, net                                          15,464         --         (11,000)
                                                                 -------------------------------------

Income before income taxes                                           66,593       61,740        19,839

Provision for income taxes                                           29,816       25,553         8,778
                                                                 -------------------------------------

Net income                                                        $  36,777    $  36,187     $  11,061
                                                                 =====================================

Net income per share                                              $    1.71    $    1.72     $    0.55
                                                                 =====================================

Shares used in computing per share data                              21,509       21,037        20,145
                                                                 =====================================


See accompanying notes.

</TABLE>
                                                                              26
<PAGE>


                                             Broderbund Software, Inc.

                 Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>


                                                                                                     
                                                            Common Stock                            Total     
                                                       ---------------------        Retained      Stockholders' 
                                                       Shares        Amount         Earnings         Equity
                                                       -------------------------------------------------------
                                                                          (In thousands)
<S>                                                    <C>           <C>           <C>               <C>      
Balances at August 31, 1993                            18,998        $13,213       $  48,797         $  62,010
   Exercise of stock options                              626          3,202               -             3,202
   Tax benefits relating to stock options                   -          3,906               -             3,906
   Net income                                               -              -          11,061            11,061
                                                     ----------------------------------------------------------
Balances at August 31, 1994                            19,624         20,321          59,858            80,179
   Exercise of stock options                              388          4,069               -             4,069
   Tax benefits relating to stock options                   -          6,213               -             6,213
   Adjustment for effect of pooling-of-interests
        on prior periods                                  607            537           1,688             2,225
   Foreign currency translation adjustment                  -              -             (20)              (20)
   Unrealized gain on short-term investments                -              -              29                29
   Net income                                               -              -          36,187            36,187
                                                     ----------------------------------------------------------
Balances at August 31, 1995                            20,619         31,140          97,742           128,882
   Exercise of stock options                              151          2,128               -             2,128
   Tax benefits relating to stock options                   -          1,548               -             1,548
   Repurchase of common stock                            (100)        (3,433)              -            (3,433)
   Foreign currency translation adjustment                  -              -             (78)              (78)
   Unrealized loss on short-term investments                -              -            (276)             (276)
   Net Income                                               -              -          36,777            36,777
                                                     ==========================================================
Balances at August 31, 1996                            20,670        $31,383        $134,165          $165,548
                                                     ==========================================================

See accompanying notes

</TABLE>

                                                                              27
<PAGE>


                                             Broderbund Software, Inc.

                                       Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                           Years ended August 31,
                                                                      1996         1995         1994
                                                                  -------------------------------------
                                                                          (In thousands)
<S>                                                               <C>          <C>           <C>      
Operating activities
Net income                                                        $  36,777    $  36,187     $  11,061
Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
     Equity in earnings of joint venture                               (217)      (3,886)         --
     Depreciation and amortization                                    2,804        2,258         3,028
     Deferred income taxes                                             (120)      (5,394)       (4,325)
     Charge for acquired in-process technology                        8,369         --            --
     Write-off of purchased technology                                 --          1,678          --
     Changes in current assets and liabilities:
       Accounts receivable                                            1,924       (5,582)        2,958
       Inventories                                                     (578)        (201)          850
       Other current assets                                             317         (429)          (79)
       Income taxes                                                   9,453          669        (2,394)
       Accounts payable                                              (1,652)         438         1,419
       Accrued compensation                                          (2,268)       5,709         1,087
       Other accrued liabilities                                     (4,293)       9,175         1,852
                                                                  -------------------------------------
Net cash provided by operating activities                            50,516       40,622        15,457
                                                                  -------------------------------------

Investing activities

Net additions to equipment and improvements                          (3,963)      (3,383)       (1,041)
Dividends received from joint venture                                 1,000        2,500          --
Short-term investments                                              (17,702)      33,842       (21,844)
Purchased technology and advances                                   (21,020)        --            --
Investments in affiliates                                            (3,450)        --            --
Adjustment for effect of pooling-of-interests on prior
 periods                                                               --          2,225          --
Other                                                                 1,374         (708)         (840)
                                                                  -------------------------------------
Net cash provided (used) for investing activities                   (43,761)      34,476       (23,725)
                                                                  -------------------------------------

Financing activities
Exercise of stock options                                             2,128        4,069         3,202
Tax benefit from exercise of stock options                            1,548        6,213         3,906
Repurchase of common stock                                           (3,433)        --            --
                                                                  -------------------------------------
Net cash provided by financing activities                               243       10,282         7,108
                                                                  -------------------------------------

Translation adjustment                                                  (78)         (20)         --
                                                                  -------------------------------------
Increase (decrease) in cash                                           6,920       85,360        (1,160)
Cash and equivalents, beginning of year                             102,079       16,719        17,879
                                                                  -------------------------------------
Cash and equivalents, end of year                                   108,999      102,079        16,719
Short-term investments                                               41,894       24,468        58,281
                                                                  -------------------------------------
Cash and short-term investments, end of year                      $ 150,893    $ 126,547     $  75,000
                                                                  =====================================

Supplemental disclosure of cash flow information
Income tax payments, net                                          $  18,857    $  24,168     $  11,591
                                                                  =====================================

Interest payments                                                 $      81    $      39     $      30
                                                                  =====================================
</TABLE>

See accompanying notes.

                                                                              28

<PAGE>



                            Broderbund Software, Inc.

                   Notes to Consolidated Financial Statements
                         August 31, 1996, 1995, and 1994


1.   Accounting Policies

Operations

The Company  currently  operates in one business  segment,  the  development and
publishing of consumer software for personal computers.

Basis of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  subsidiaries.  The Company has export sales from the United  States and has
operations in the United  Kingdom.  All  significant  intercompany  accounts and
transactions have been eliminated.

Investments in Affiliates

The Company and Random House, Inc. (collectively, the "Partners") formed a joint
venture to publish  story-based  multimedia  software  for  children.  The joint
venture,  Living Books,  combines  resources of these two  publishers and is 50%
owned by each. The Company's  contribution to the joint venture consisted of the
existing Living Books product line and the technology and people to produce more
Living Books.  Random House, Inc.  contributed cash and access to its library of
children's books and authors.  The joint venture is responsible for all research
and  development,  manufacturing  and marketing costs associated with the Living
Books products. The Partners are each distributing Living Books products through
their respective  distribution  channels under an affiliated label  arrangement.
The Company had revenues of  $18,041,000,  $22,393,000  and  $14,667,000  during
fiscal 1996,  1995, and 1994,  respectively,  from  distribution of Living Books
products.

The Company  reports its share in earnings  and losses of Living Books under the
equity method of accounting.  The Company's share is based on the  partnership's
most recent  quarter end results,  which are reported on a calendar  year basis.
The  Company's  equity in the earnings of the joint  venture for the years ended
June 30, 1996 and 1995 amounted to $217,000 and  $3,886,000,  respectively,  and
for the six months ended June 30, 1994 was not  material.  The Company  received
distributions  from the joint venture  during fiscal 1996 and 1995 of $1,000,000
and  $2,500,000,  respectively,  which reduced the  Company's  investment in the
joint venture.

The  Partners  have  jointly  and  severally  guaranteed  payment  of  royalties
aggregating $656,000 at August 31,1996 and certain future royalty obligations on
behalf of Living Books.  Additionally,  the Partners have guaranteed the payment
of Living Books'  facilities lease which has a remaining term of three years and
an aggregate commitment of $997,000 at August 31, 1996.

The Company has a minority  interests in Live Picture,  Inc.  which develops and
markets high end imaging  software  products  and  Classified  Projects,  Inc. a
development stage enterprise developing on-line applications.  These investments
are recorded at cost.

                                                                              29
<PAGE>


1.   Accounting Policies (continued)

Cash and Short-Term Investments

Cash and cash  equivalents  consist of cash in banks and  investments  in highly
liquid short-term instruments with original maturities of 90 days or less.

The  Company  adopted  the  provisions  of  Statement  of  Financial  Accounting
Standards  No.  115,  Accounting  for  Certain  Investments  in Debt and  Equity
Securities  ("SFAS  No.  115") as of  September  1, 1994.  Under  SFAS No.  115,
investments in equity and debt securities are classified in three categories and
accounted  for based upon the  classification.  The  Company has  accounted  for
investments in debt securities as "available-for  sale" pursuant to SFAS No. 115
and has recorded such investments at fair value with unrealized gains and losses
reported as a component of stockholders equity.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of
credit risk  consist  primarily  of cash,  short-term  investments  and accounts
receivable.  The Company's  investment  portfolio  consists of investment  grade
securities.  Accounts receivable are principally from distributors and retailers
of the Company's  products.  The Company performs ongoing credit  evaluations of
its customers' financial condition and maintains allowances for potential credit
losses.

Inventories

Inventories,  which  consist  primarily of software  media,  manuals and related
packaging materials, are recorded at standard cost, which approximates the lower
of cost, determined on the first-in,  first-out basis, or market. Provisions are
made in each period for the effect of inventory obsolescence.

Equipment and Improvements

Equipment and improvements  are recorded at cost.  Depreciation and amortization
are provided using the straight-line  method over estimated useful lives ranging
from three to seven years.

Purchased Technology and Advances

Purchased  technology,  net of  amortization,  at  August  31,  1996 and 1995 of
$11,570,000  and $761,000,  respectively,  includes  costs of obtaining  product
technology  which are amortized  using the straight line method over periods not
exceeding three years.  Management evaluates the future realization of purchased
technology  quarterly and writes down any amounts that management deems unlikely
to be recovered through future products sales.  Amortization  expense for fiscal
1996, 1995, and 1994 was $646,000,  $110,000,  and $600,000  respectively.  As a
result  of  weakness  in sales of PC Globe  products  during  the 1994  calendar
year-end holiday selling season,  the Company wrote off the remaining balance of
$1,678,000  resulting  from the 1992  acquisition in the first quarter of fiscal
1995.

Advances at August 31, 1996 of  $1,520,000  represent  prepayments  of royalties
made to independent  software  developers under  development  agreements.  These
advances are charged to cost of revenues at the  contractual  royalty rate based
on actual net product sales.  Management evaluates the future realization of the
advances  quarterly and charges to research and development  expense any amounts
that management deems unlikely to be recovered through future products sales.

Software Development Costs

Financial  accounting  standards  provide  for  the  capitalization  of  certain
software  development costs after  technological  feasibility of the software is
attained.  No such costs were  capitalized in fiscal 1996, 1995, or 1994 because
the impact on the financial statements would not be material.


                                                                              30
<PAGE>


1.   Accounting Policies (continued)

Net Revenues

Revenue  from  product  sales is  recognized  upon  shipment of product,  net of
allowances  for  returns,  in  accordance  with the  provisions  of the American
Institute of Certified Public Accountants' Statement of Position 91-1, "Software
Revenue  Recognition."  Net revenues from sales to two major  distributors  were
$21,086,000  and $20,808,000 in fiscal 1996. Net revenues from sales to the same
two  distributors  were  $21,914,000 and $37,259,000 in fiscal 1995. Net revenue
from sales to one of these distributors were $23,668,000 in fiscal 1994.

Royalties

Royalties are accrued based on net revenues,  pursuant to contractual agreements
with developers of software  products  published by the Company.  Royalty costs,
which are  included  in cost of  revenues,  were  $11,999,000,  $13,424,000  and
$6,864,000 in fiscal 1996, 1995 and 1994, respectively.

Advertising Costs

The  Company  charges  advertising  costs  to sales  and  marketing  expense  as
incurred. Advertising costs were $6,383,000, $3,025,000 and $2,534,000 in fiscal
1996, 1995 and 1994, respectively.

Foreign Currency Translation

The  functional  currency  of the  Company's  foreign  subsidiary  is its  local
currency.  Assets and  liabilities of this  operation are  translated  into U.S.
dollars using current  exchange rates,  and revenues and expenses are translated
in U.S.  dollars using average  exchange rates.  The effects of foreign currency
translation   adjustments   are   deferred   and  included  as  a  component  of
stockholder's equity.

Foreign  currency  transaction  gains and  losses  are a result of the effect of
exchange rate changes on transactions  denominated in currencies  other than the
functional  currency.  Such amounts  were not  material in fiscal 1996,  1995 or
1994.

Recently Issued Accounting Standards

In  March  1995,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 121,  "Accounting for
the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
of." SFAS No. 121  requires  that  long-lived  assets and  certain  identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.  The Company will adopt SFAS No. 121 effective September
1, 1996. Based on current circumstances,  management does not believe the effect
of adoption will be material to the consolidated financial statements.

In October  1995,  the FASB  issued SFAS No.  123,  "Accounting  for Stock Based
Compensation",  which  establishes a fair value based method of  accounting  for
stock based  compensation  plans.  SFAS No. 123 is effective for years beginning
after December 15, 1995. The Company intends to continue to account for employee
stock options under Accounting  Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" but will be required to make pro forma disclosures of
net income and  earnings  per share as if the fair value  based  method had been
applied.


                                                                              31
<PAGE>


1.   Accounting Policies (continued)

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  reported  amounts  of assets  and  liabilities  and  disclosures  of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.  Such
estimates include  allowances for doubtful  accounts,  product returns and price
protection,  and  estimates  regarding  the  recoverability  of prepaid  royalty
advances and inventories. Actual results could differ from those estimates.

Net Income Per Share

Net  income  per share data is based on the  weighted  average  number of common
shares and dilutive common stock equivalents  outstanding for the period.  There
are no significant  differences  between primary and fully diluted  earnings per
share.

Reclassifications

Certain amounts reported in prior years have been reclassified to conform to the
fiscal 1996 presentation.

2.   Business Combinations

T/Maker Company

On August 6, 1996,  the Company  completed its  acquisition  of T/Maker  Company
("T/Maker"),  a leading developer of clip art software. The acquisition has been
accounted for under the purchase method,  and had an aggregate purchase price of
approximately $19,900,000, including acquisition costs. Approximately $8,000,000
of the excess of the  purchase  price  over the fair  value of the net  tangible
assets  acquired  was  allocated to  in-process  research  and  development  and
approximately  $11,500,000  to  purchased  technology.  The amount  allocated to
in-process  research and  development  was charged to  operations at the time of
acquisition.  The purchased  technology is being amortized over three years from
the date of  acquisition.  The  operating  results  of  T/Maker,  which  are not
material  in  relation  to those  of the  Company,  have  been  included  in the
consolidated  financial  statements  for the  period  subsequent  to the date of
acquisition.

Banner Blue Software, Inc.

On April 28,  1995,  the  Company  acquired  Banner Blue  Software  Incorporated
("Banner Blue"),  a leading  developer of genealogy  software,  in a transaction
accounted for under the pooling-of-interests  method. The Company issued 607,000
shares of common stock in exchange for all the outstanding stock of Banner Blue.
The operating  results for Banner Blue were not material to the combined results
of the two  companies  for all periods  prior to the  acquisition  and therefore
results for those  periods  have not been  restated.  The  operating  results of
Banner Blue have been included in the consolidated  financial statements for all
periods subsequent to the date of acquisition.

3.   Fair Value of Financial Instruments

The  carrying  amount  approximates  fair  value  for each  class  of  financial
instruments which include cash and equivalents,  accounts  receivable,  accounts
payable  and  accrued  liabilities  because  of  the  short  maturity  of  these
instruments. The carrying values of short-term investments are based upon quoted
market prices.

                                                                              32
<PAGE>


3.   Fair Value of Financial Instruments (continued)

Cash and short-term investments, at fair value, consist of the following:

                                                                August 31,
                                                          1996              1995
                                                       -------------------------
                                                               (In thousands)
Cash and equivalents:
   Cash and money market funds                         $  1,149         $  2,310
   Municipal securities                                  53,812           29,919
   Commercial paper                                       1,500             --
   Money market preferreds                               49,200           69,850
   Corporate notes                                        3,338             --
                                                       --------         --------
                                                        108,999          102,079
                                                       --------         --------
                                                                     
Short-term investments:
   Money market preferreds                                2,675            7,300
   Municipal securities                                  22,831           16,577
   U.S. government agencies                              15,884             --
   Corporate equity fund                                    504              591
                                                       --------         --------
                                                         41,894           24,468
                                                       --------         --------
Cash and short-term investments                        $150,893         $126,547
                                                       ========         ========

Cash and  short-term  investments  had an  aggregate  cost of  $151,140,000  and
$126,518,000 at August 31, 1996 and 1995, respectively.  At August 31, 1996 cash
and short-term investments included gross unrealized gains of $139,000 and gross
unrealized  losses  of  $386,000.   At  August  31,  1995  cash  and  short-term
investments  included gross unrealized gains of $157,000 and losses of $128,000.
At August 31, 1996 short-term  investments of $11,775,000 were contractually due
within one year with the balance due after one year but before two years.

4.   Equipment and Improvements

Equipment and improvements consist of the following:
                                                               August 31,
                                                           1996            1995
                                                       ------------------------
                                                             (In thousands)
Computer equipment                                     $ 10,169        $  6,934
Furniture                                                 6,134           4,947
Leasehold improvements                                    1,947           1,648
                                                       ------------------------
                                                         18,250          13,529
Accumulated depreciation and amortization               (11,236)         (7,959)
                                                        ------------------------
                                                       $  7,014        $  5,570
                                                       ========================

5.   Other Accrued Liabilities

Other accrued liabilities consist of the following:

                                                               August 31,
                                                           1996            1995
                                                       ------------------------
                                                             (In thousands)
Accrued marketing and sales costs                      $ 3,288         $ 6,226
Accrued royalties                                        4,101           4,625
Other accrued expenses                                   3,831           4,662
                                                        ------------------------
                                                       $11,220         $15,513
                                                       ========================

                                                                              33
<PAGE>



6.   Bank Line of Credit

The Company has available a $5,000,000  unsecured bank line of credit.  Interest
on borrowings is computed at the bank's prime rate (9% at August 31, 1996).  The
line of credit agreement  requires that the Company maintain minimum current and
net worth ratios. The agreement is subject to renewal by the bank on January 31,
1997.  There were no outstanding  borrowings  under the line of credit at August
31, 1996 or 1995.

7.   Income Taxes

The Company's pretax income from foreign operations for fiscal 1996 and 1995 was
$1,648,000 and $88,000, respectively.

Significant components of the provision for income taxes are as follows:

                                                  Year ended August 31,
                                   --------------------------------------------
                                       1996                1995            1994
                                   --------------------------------------------
                                                    (In thousands)
Current:
   Federal                         $ 22,392            $ 23,920        $ 10,201
   State                              7,002               6,789           2,806
   Foreign                              542                 238              96
                                   --------------------------------------------
Total current                        29,936              30,947          13,103

Deferred:
   Federal                              (93)             (4,299)         (3,517)
   State                                (27)             (1,095)           (808)
                                   --------------------------------------------
Total deferred                         (120)             (5,394)         (4,325)
                                   --------------------------------------------
                                   $ 29,816            $ 25,553        $  8,778
                                   ============================================

The principal reasons that the aggregate income tax provisions differ from taxes
computed at the applicable federal statutory rate are reflected below:


<TABLE>
<CAPTION>

                                                                        Year ended August 31,
                                                          -----------------------------------------------
                                                               1996           1995            1994
                                                          -----------------------------------------------
                                                                          (In thousands)
<S>                                                           <C>            <C>            <C>     
Income tax provision at federal statutory rate                $23,308        $21,609        $  6,944
State income taxes, net of federal tax benefit                  4,533          3,701           1,299
Charge for acquired in-process technology                       2,803              -               -
Other                                                            (828)           243             535
                                                          -----------------------------------------------
                                                              $29,816        $25,553        $  8,778
                                                          ===============================================

</TABLE>

                                                                              34
<PAGE>


7.   Income Taxes (continued)

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 assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                                                   August 31,
                                                                              1996             1995
                                                                        -----------------------------------
                                                                                  (In thousands)
<S>                                                                           <C>           <C>        
Deferred tax assets:
   Accruals and reserves not currently deductible                             $ 14,900      $    13,192
   Other, net                                                                    2,723            1,786
                                                                        -----------------------------------
                                                                                17,623           14,978
                                                                        -----------------------------------
Deferred tax liabilities:
   Purchased technology and advances                                             3,855                -
   Other, net                                                                      173              170
                                                                        ===================================
                                                                                 4,028              170
                                                                        ===================================
                                                                        ===================================
Net deferred tax assets                                                       $ 13,595      $    14,808
                                                                        ===================================
</TABLE>


Income  tax  benefits   which  accrue  to  the  Company  from  the  exercise  of
nonqualified  stock options and  disqualifying  dispositions  of incentive stock
options have been recorded as increases to common stock.

The Company  does not provide for U.S.  taxes on  undistributed  earnings of its
foreign  subsidiary.  If these earnings were  distributed to the parent company,
foreign tax credits  available under current law would  substantially  eliminate
the resulting Federal tax liability.

8.   Stockholders' Equity

Preferred Stock

The  Company's  Certificate  of  Incorporation  authorizes  1,000,000  shares of
preferred  stock,  none of which is issued or outstanding at August 31, 1996 and
1995.  The Board of Directors has the authority to issue the preferred  stock in
one or more series and to fix the rights,  voting  rights,  terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series,  without further vote or action by
the stockholders.

Employee Stock Purchase Plan

In April 1996,  the Company  established an Employee Stock Purchase Plan whereby
eligible  employees  may  authorize  payroll  deductions  of up to 10% of  their
compensation  to purchase shares at 85% of the lower of the fair market value of
the Common Stock on the first or the last day of each six-month purchase period.
At August 31, 1996,  the Company had 250,000 shares of its Common Stock reserved
for future issuance under the Plan.

Stock Option Plans

Under the Company's  Employee and Consultant  Stock Option Plans,  incentive and
nonqualified   stock  options  may  be  granted  to  employees,   directors  and
consultants to purchase a maximum of 4,750,000  common  shares.  All options are
granted  at an amount  equal to or  greater  than the fair  market  value of the
common stock at the date of grant.  In connection with the acquisition of Banner
Blue  Software,  the  Company  assumed  the  outstanding  options of Banner Blue
Software and converted  such options into options under the Plans based upon the
merger  exchange  ratio.  Options vest in annual 20% increments from the date of
grant,  according  to the  vesting  schedule  at the date of grant.  The options
generally expire ten years from the date of grant.


                                                                              35
<PAGE>


8.   Stockholders' Equity (continued)

Stock Option Plan (continued)

Changes in options outstanding during the three years ending August 31, 1996 are
as follows:

<TABLE>
<CAPTION>

                                                                  Number of            Exercise Price
                                                                   Shares                Per Share
                                                                 ----------------------------------------
<S>                                                                <C>             <C>      
Options outstanding at August 31, 1993                             2,186,000       $  1.00  -  $ 21.88
   Granted                                                           464,000       $ 16.66  -  $ 28.32
   Exercised                                                        (626,000)      $  1.00  -  $ 21.88
   Forfeited                                                        (232,000)      $  2.50  -  $ 28.32
                                                                 ---------------
Options outstanding at August 31, 1994                             1,792,000       $  1.00  -  $ 28.32
   Granted                                                           660,000       $ 32.25  -  $ 72.00
   Assumed in the acquisition
      of Banner Blue Software                                         42,000       $  3.97  -  $ 27.54
   Exercised                                                        (388,000)      $  1.50  -  $ 28.32
   Forfeited                                                        (150,000)      $ 10.62  -  $ 32.25
                                                                 ---------------
Options outstanding at August 31, 1995                             1,956,000       $  1.00  -  $ 72.00
   Granted                                                         1,042,000       $ 33.13  -  $ 76.73
   Exercised                                                        (151,000)      $  1.00  -  $ 32.25
   Forfeited                                                        (138,000)      $ 10.63  -  $ 72.00
                                                                 ===============
Options outstanding at August 31, 1996                             2,709,000       $  1.00  -  $ 76.73
                                                                 ===============

Outstanding options exercisable at August 31, 1996                   745,000
                                                                 ===============

Options available for grant at August 31, 1996                     1,081,000
                                                                 ===============

</TABLE>


At August  31,  1996,  a total of  3,790,000  shares of common  stock  have been
reserved for issuance  upon  exercise of  outstanding  stock options and options
available for issuance under the Company's plans.

9.   Profit Sharing and Retirement Plan

The  Company  has a  401(k)  Profit  Sharing  Plan  covering  substantially  all
employees.  The Company  contributes  $.25 for every $1.00  contributed  by Plan
participants  subject to certain  limitations on individual  contributions.  The
Company  also  funds  annually  its  profit  sharing  expense  which  is at  the
discretion  of the  Board  of  Directors.  The  Company's  cost of the  Plan was
$2,141,000,   $2,306,000   and   $1,328,000  in  fiscal  1996,   1995  and  1994
respectively.

10.  Lease Commitments

The Company  leases  office and warehouse  space under  operating  leases.  Rent
expense under  operating  leases was $3,628,000,  $2,808,000,  and $2,803,000 in
fiscal 1996,  1995 and 1994,  respectively.  Future minimum lease payments under
operating leases are as follows:

                                         Year ended August 31,
                                        ----------------------
                                           (In thousands)
1997                                       $    3,810
1998                                            3,685
1999                                            3,742
2000                                            3,739
2001                                            3,852
2002 and thereafter                             2,062
                                        ----------------------
                                           $   20,890
                                        ======================

                                                                              36
<PAGE>


11.  Terminated Merger Costs

In December 1995, the Company and The Learning  Company  terminated an agreement
to merge. The Company  recognized  pre-tax income of $15,464,000 which consisted
of an  $18,000,000  payment  received to terminate the merger and  $2,536,000 of
associated expenses.

In May 1994, the Company and Electronic  Arts  terminated an agreement to merge.
The Company  recognized a pre-tax  charge of  $11,000,000  which  consisted of a
$10,000,000 payment to Electronic Arts to terminate the merger and $1,000,000 of
associated costs.

12.  Operations by Geographic Area

Prior to  fiscal  1996,  revenues  from  foreign  sources  were less than 10% of
consolidated  net revenues.  Information  about the Company's  operations in the
United States and foreign areas is presented below:

                                              Year ended August 31,
                                                   (In thousands)
Net revenue
North America
       Customers in the United States                  $166,426
       Customers in Canada                                5,664
       Customers in Asia/Pacific                          3,312
       Other exports                                        157
       Intercompany revenues                              2,055
                                                  -------------
                                                        177,614
Europe                                                   10,648
Consolidating eliminations                               (2,055)
                                                  -------------
                                                      $ 186,207
                                                  ===============

Income from Operations
North America                                          $ 42,823
Europe                                                    1,590
                                                  -------------
                                                       $ 44,413
                                                  ===============

                                                      August 31,
                                                    (In thousands)
Identifiable Assets
North America                                          $195,347
Europe                                                    5,085
                                                       $200,432
                                                  ===============


                                                                              37
<PAGE>


13.      Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>

                                                            Quarter ended
                                         -----------------------------------------------------
                                          November 30    February       May         August       Fiscal
                                                          28/29          31           31          Year
                                         ------------------------------------------------------------------
                                                       (In thousands, except per share data)
<S>                                        <C>           <C>          <C>          <C>          <C>      

Fiscal year 1996:
   Net revenues                            $   70,961    $  48,044    $ 34,993     $  32,209    $ 186,207
   Gross margin                                46,041       33,009      24,706        23,907      127,663
   Net income (loss)                           15,936       18,839       6,180        (4,178)      36,777
   Net income (loss)
      per share                                  0.73         0.87        0.29        (0.20)         1.71
Fiscal year 1995:
   Net revenues                            $   53,089    $  45,208    $ 36,114     $  37,183    $ 171,594
   Gross margin                                29,561       30,702      24,037        26,202      110,502
   Net income                                  11,593       10,367       7,035         7,192       36,187
   Net income
      per share                                  0.57         0.50        0.33          0.33         1.72

</TABLE>


Item 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURES

     Not  applicable.

PART III

Item 10 to Item 13 inclusive.

         These items have been omitted in accordance  with  instructions to Form
10-K Annual Report.  The  registrant  will file with the Securities and Exchange
Commission  not later than 120 days after the end of the fiscal year  covered by
this Report,  a  definitive  proxy  statement  pursuant to  Regulation  14A with
respect to the 1997 Annual Meeting of Stockholders.

PART IV

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

(a)  Financial Statements and Financial Statement Schedules

     The following documents are filed as a part of this Report:
<TABLE>
<CAPTION>

Page 1. Index to Financial Statements.

<S>                                                                                       <C>
Report of Independent Auditors                                                            24
Consolidated Balance Sheets - August 31, 1996 and 1995                                    25
Consolidated Statements of Income - Years Ended August 31, 1996, 1995 and 1994            26
Consolidated Statements of Stockholders' Equity - Years Ended August 31, 1996,
 1995 and 1994                                                                            27
Consolidated Statements of Cash Flows - Years Ended August 31, 1996, 1995 and 1994        28
Notes to Consolidated Financial Statements                                                29

</TABLE>



                                                                              38
<PAGE>







2.   Financial Statement  Schedules.  The following financial statement schedule
     of  Broderbund  Software,  Inc. for the fiscal years ended August 31, 1996,
     1995  and  1994 is  filed  as part of this  Report  and  should  be read in
     conjunction  with  the  Consolidated  Financial  Statements  of  Broderbund
     Software, Inc.

                            Schedule                                        Page

         Schedule II - Valuation and Qualifying Accounts                     42

         Schedules  not listed  above  have been  omitted  because  they are not
applicable  or are not  required  or the  information  required  to be set forth
therein is included in the Consolidated Financial Statements or Notes thereto.

3.   Exhibits


3.1  (1) Restated Certificate of Incorporation.
3.2      Amended and Restated Bylaws.
4.1  (1) Second Amended and Restated 1986 Employee and  Consultant  Stock Option
         Plan, as amended.
4.2  (2) Form of Incentive Stock Option Agreement.
4.3  (2) Form of Non-qualified Stock Option Agreement.
4.4  (5) Broderbund Software, Inc. 1996 Employee Stock Purchase Plan.
4.5  (5) Broderbund Software, Inc. 1996 Employee Stock Purchase Plan 
         Subscription Agreement.
4.6  (5) Broderbund  Software,  Inc. 1996 Employee  Stock Purchase Plan Notice 
         of Withdrawal.
4.7  (5) 1996 Employee and Consultant Stock Option Plan of Broderbund  Software,
         Inc.
10.1 (3) Broderbund Software, Inc. 401(k) Profit Sharing Plan, as amended.
10.3 (4) Trade Finance Credit Agreement made by and between registrant and Union
         Bank, as amended.
10.5 (4) Form of Indemnification Agreement.
10.10(3) Living Books  Partnership  Agreement  dated  September 9, 1993 between
         registrant,  Random  House,  Inc.,  Random  House New Media  Inc.  and
         Broderbund Living Books, Inc.
11.1     Computation of net income per share (see page 43).
21.1     List of subsidiaries.
23.1     Consent of Ernst & Young LLP, Independent Auditors (see page 44).
24.1     Power of Attorney (included on page 41).
 ---------------------

(1)  Incorporated by reference to the exhibit filed with the registrant's Annual
     Report on Form 10-K for the year ended August 31, 1994.

(2)  Incorporated  by  reference  to the  exhibit  filed  with the  registrant's
     Registration Statement on Form S-8 (File No. 33-45928),  effective February
     24, 1992.
         
(3)  Incorporated by reference to the exhibit filed with the registrant's Annual
     Report on Form 10-K for the year ended August 31, 1993.

(4)  Incorporated  by  reference  to the  exhibit  filed  with the  registrant's
     Registration Statement on Form S-1 (File No. 33-43232),  effective November
     25, 1991.

(5)  Incorporated   by  reference  to  exhibits  filed  with  the   registrant's
     Registration Statement on Form S-8 (File No. 333-13803), effective October,
     9, 1996.

                                                                              39
<PAGE>


(b)  Reports on Form 8-K

     No reports on Form 8-K have been filed  with the  Securities  and  Exchange
Commission during the fourth quarter of the period covered by this Report.

(c)  Exhibits

     See item 14 (a) 3 above.

(d)  Financial Statement Schedules

     See item 14 (a) 2 above.

                                                                              40
<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,  in the City of Novato,
State of California, on this 29th day of November, 1996.

                          BRODERBUND SOFTWARE, INC.

                          By: /s/ Joseph P. Durrett
                              -------------------------------------------
                               Joseph P. Durrett, Chief Executive Officer

                                POWER OF ATTORNEY

         KNOW ALL  THESE  PERSONS  BY THESE  PRESENTS,  that each  person  whose
signature appears below constitutes and appoints Thomas L. Marcus and William M.
McDonagh and each of them acting individually,  as such person's true and lawful
attorneys-in-fact  and agents,  each with full power of  substitution,  for such
person,  in any and all  capacities,  to sign any and all amendments  (including
post-effective  amendments)  to this report on Form 10-K, and to file with same,
with all exhibits thereto and other documents in connection therewith,  with the
Securities and Exchange  Commission,  granting unto said  attorneys-in-fact  and
agents,  and each of them,  full power and  authority to do and perform each and
every act and thing requisite and necessary to be done in connection  therewith,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said  attorneys-in-fact  and agents, or
any of them, or their or his or her  substitutes,  may do or cause to be done by
virtue hereof.
         Pursuant to the  requirements  of the  Securities  and  Exchange Act of
1934, this Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>

<S>                                                                                              <C> <C> 
         Signature                          Title                                       Date               
---------------------------         --------------------------------------------       --------------------
/s/ Joseph P. Durrett               Chief Executive Officer (Principal Executive        November 29, 1996
---------------------------         Officer) and Director
Joseph P. Durrett                   

/s/ William M. McDonagh             President, Chief Operating Officer and               November 29, 1996
---------------------------         Director
William M. McDonagh                 

/s/ Michael J. Shannahan            Vice President and Chief Financial Officer          November 29, 1996
---------------------------         (Principal Financial and Accounting Officer)
Michael J. Shannahan                

/s/ Douglas G. Carlston             Chairman, Board of Directors                        November 29, 1996
---------------------------
Douglas G. Carlston        

/s/ Edmund R. Auer                  Director                                            November 29, 1996
---------------------------
Edmund R. Auer

/s/ Gary L. Buckmiller              Director                                            November 29, 1996
---------------------------
Gary L. Buckmiller

/s/ Scott D. Cook         .         Director                                            November 29, 1996
---------------------------
Scott D. Cook

/s/ William P. Egan.      .         Director                                            November 29, 1996
---------------------------
William P. Egan

/s/ David E. Liddle, PhD            Director                                            November 29, 1996
---------------------------
David E. Liddle, PhD

/s/ Lawrence H. Wilkinson           Director                                            November 29, 1996
---------------------------
Lawrence H. Wilkinson



</TABLE>


                                                                              41
<PAGE>




                                   Schedule II


                            BRODERBUND SOFTWARE, INC.

                        Valuation and Qualifying Accounts
                                 (In thousands)


<TABLE>
<CAPTION>

                                                     Balance at                         Deductions,                Balance
                                                     Beginning         Additions-       Returns and                 at End
Description                                          of Year           Provisions       Write-offs      Other (1)   of Year
-----------                                          -------           ----------       ----------      ---------   -------
<S>                        <C> <C>                   <C>                 <C>              <C>            <C>       <C>    

Allowance for returns:
         Year ended August 31, 1996                  $19,130             $24,970          $24,541        $ 1,809   $21,368
         Year ended August 31, 1995                   10,336              25,744           17,875            925    19,130
         Year ended August 31, 1994                    6,436              15,116           11,216                   10,336

Allowance doubtful accounts:
         Year ended August 31, 1996                  $ 4,563             $ 1,111          $   281        $   850   $ 6,243
         Year ended August 31, 1995                    3,029               1,900              481            115     4,563
         Year ended August 31, 1994                    2,540               2,903            2,414                    3,029


</TABLE>

(1) Represents  balance assumed from T/Maker Company  acquisition in fiscal 1996
and the Banner Blue Software acquisition in fiscal 1995.


                                                                              42
<PAGE>




                                       43

                                  Exhibit 11.1


                            BRODERBUND SOFTWARE, INC.

                       Computation of Net Income Per Share

<TABLE>
<CAPTION>

                                                                      Year ended August 31,
                                                          -----------------------------------------------
                                                               1996           1995            1994
                                                          -----------------------------------------------
                                                             (In thousands, except per share amounts)
<S>                                                            <C>            <C>             <C>   
Primary:
    Weighted average common shares outstanding
        for the period                                         20,682         20,027          19,293
    Common equivalent shares assuming conversion
        of stock options                                          827          1,010             852
                                                          -----------------------------------------------
Shares used in per share calculation                           21,509         21,037          20,145
                                                          ===============================================
Net income used in per share calculation                      $36,777        $36,187         $11,061
                                                          ===============================================
Net income per share                                            $1.71          $1.72           $0.55
                                                          ===============================================

</TABLE>






                                                                              43
<PAGE>



                         CONSENT OF INDEPENDENT AUDITORS



We consent to the  incorporation  by  reference in the  Registration  Statements
(Form S-3 No.  33-92326 and No.  333-7921)  pertaining to the  Broderbund/Banner
Blue Stock Plan and (Form S-8 No. 333-13803) pertaining to the 1996 Employee and
Consultant  Stock  Option  Plan and the 1996  Employee  Stock  Purchase  Plan of
Broderbund  Software,  Inc. of our report dated October 8, 1996, with respect to
the consolidated financial statements and schedule of Broderbund Software,  Inc.
included in the Annual Report (Form 10-K) for the year ended August 31, 1996.



                                                               Ernst & Young LLP


San Francisco, California
November 27, 1996


                                                                              44