1 Page 1 of 19 Pages SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 11-K [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PLAN YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER 0-11527 . A. MPSI SYSTEMS INC. MATCHING INVESTMENT PLAN B. MPSI SYSTEMS INC. 4343 SOUTH 118TH EAST AVENUE TULSA, OKLAHOMA 74146 2 INDEX Page No. (a) Financial Statements: (1) Independent Auditors' Report.............................................................. 3 (2) Statements of Net Assets Available for Benefits, With Fund Information at December 31, 1997 and 1996 ............................................................... 4 (3) Statements of Changes in Net Assets Available for Benefits, With Fund Information for the years ended December 31, 1997, 1996 and 1995 ......................... 7 (4) Notes to Financial Statements ............................................................ 10 (5) Schedules to Financial Statements: Line 27d - Schedule of Reportable Transactions................................... 16 Line 27a - Schedule of Assets Held for Investment Purposes....................... 17 (b) Signatures....................................................................................... 18 (c) Exhibits 23.1 Auditors' Consent......................................................................... 19 2 3 INDEPENDENT AUDITORS' REPORT Administrative Committee MPSI Systems Inc. Matching Investment Plan We have audited the accompanying statements of net assets available for benefits of the MPSI Systems Inc. Matching Investment Plan (the "Plan") as of December 31, 1997 and 1996, and the related statements of changes in net assets available for benefits for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 1997 and 1996, and the changes in its net assets available for benefits for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedules of assets held for investment purposes as of December 31, 1997, and reportable transactions for the year then ended, are presented for purposes of complying with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, and are not a required part of the basic financial statements. The Fund Information in the statements of net assets available for benefits and the statements of changes in net assets available for benefits is presented for the purposes of additional analysis rather than to present the net assets available for benefits and changes in net assets available for benefits of each fund. The supplemental schedules and Fund Information have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. ERNST & YOUNG LLP Tulsa, Oklahoma June 12, 1998 3 4 MPSI SYSTEMS INC. MATCHING INVESTMENT PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1997 - ----------------------------------------------------------------------------------------------------------------------------------- J. HANCOCK GLOBAL MERRILL LYNCH SPECIAL PHOENIX ALLOCATION MPSI STOCK CORPORATE MLRP TRUST EQUITY INDEX EQUITIES FUND FUND FUND BOND FUND FUND TRUST FUND - ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENTS AT FAIR VALUE: ML PHOENIX FUND INC (51,768 UNITS VALUED AT $12.09 PER UNIT) $ 625,879 -- -- -- -- -- -- ML GLOBAL ALLOCATION FUND INC. (86,772 UNITS VALUED AT $13.94 PER UNIT) -- 1,209,604 -- -- -- -- -- COMMON STOCK ($.05 PAR VALUE) OF MPSI SYSTEMS INC.. (139,256 SHARES VALUED AT $4.63/SHARE) -- -- 644,061 -- -- -- -- ML CORPORATE BOND FUND (7,257 UNITS AT $11.56 PER UNIT) -- -- -- 83,898 -- -- -- ML RETIREMENT PRESERVA- TION TRUST FUND -- -- -- -- 459,886 -- -- ML EQUITY INDEX TRUST (3,813 UNITS VALUED AT $65.37 PER UNIT) -- -- -- -- -- 249,259 -- JOHN HANCOCK SPECIAL EQUITIES FUND (3,474 UNITS VALUED AT $25.92 PER UNIT) -- -- -- -- -- -- 90,051 ML GROWTH FUND (CLASS B) (4,654 UNITS VALUED AT $26.42 PER UNIT) -- -- -- -- -- -- -- OPPENHEIMER TOTAL RETURN (6,853 UNITS VALUED AT $11.00 PER UNIT) -- -- -- -- -- -- -- AIM BALANCED (3,460 UNITS VALUED AT $25.78 PER UNIT) -- -- -- -- -- -- -- LOANS TO PARTICIPANTS -- -- -- -- -- -- -- --------- --------- ------- ------ ------- ------- ------ TOTAL INVESTMENTS $ 625,879 1,209,604 644,061 83,898 459,886 249,259 90,051 - ----------------------------------------------------------------------------------------------------------- ML GROWTH FUND OPPENHEIMER AIM (CLASS B) TOTAL RETURN BALANCED LOAN FUND TOTAL - ----------------------------------------------------------------------------------------------------------- INVESTMENTS AT FAIR VALUE: ML PHOENIX FUND INC (51,768 UNITS VALUED AT $12.09 PER UNIT) -- -- -- -- $ 625,879 ML GLOBAL ALLOCATION FUND INC. (86,772 UNITS VALUED AT $13.94 PER UNIT) -- -- -- -- 1,209,604 COMMON STOCK ($.05 PAR VALUE) OF MPSI SYSTEMS INC.. (139,256 SHARES VALUED AT $4.63/SHARE) -- -- -- -- 644,061 ML CORPORATE BOND FUND (7,257 UNITS AT $11.56 PER UNIT) -- -- -- -- 83,898 ML RETIREMENT PRESERVA- TION TRUST FUND -- -- -- -- 459,886 ML EQUITY INDEX TRUST (3,813 UNITS VALUED AT $65.37 PER UNIT) -- -- -- -- 249,259 JOHN HANCOCK SPECIAL EQUITIES FUND (3,474 UNITS VALUED AT $25.92 PER UNIT) -- -- -- -- 90,051 ML GROWTH FUND (CLASS B) (4,654 UNITS VALUED AT $26.42 PER UNIT) 122,969 -- -- -- 122,969 OPPENHEIMER TOTAL RETURN (6,853 UNITS VALUED AT $11.00 PER UNIT) -- 75,383 -- -- 75,383 AIM BALANCED (3,460 UNITS VALUED AT $25.78 PER UNIT) -- -- 89,210 -- 89,210 LOANS TO PARTICIPANTS -- -- -- 164,814 164,814 ------- ------ ------ ------- ---------- TOTAL INVESTMENTS 122,969 75,383 89,210 164,814 $3,815,014 4 5 Statement of Net Assets Available for Benefits December 31, 1997 (continued) - ---------------------------------------------------------------------------------------------------------------------------- J. HANCOCK GLOBAL MERRILL LYNCH SPECIAL PHOENIX ALLOCATION MPSI CORPORATE MLRP TRUST EQUITY INDEX EQUITIES FUND FUND STOCK FUND BOND FUND FUND TRUST FUND - ---------------------------------------------------------------------------------------------------------------------------- RECEIVABLES: EMPLOYER CONTRIBUTION 39,013 57,833 -- 3,800 24,906 11,219 7,648 EMPLOYEE CONTRIBUTIONS 9,510 13,871 -- 943 5,774 2,532 1,726 ACCRUED INTEREST / DIVIDENDS 35,923 13,523 -- 365 2,159 -- -- --------- --------- ------- ------ ------- ------- ------ TOTAL RECEIVABLES 84,446 85,227 -- 5,108 32,839 13,751 9,374 --------- --------- ------- ------ ------- ------- ------ NET ASSETS AVAILABLE FOR BENEFITS AT 12/31/97 $ 710,325 1,294,831 644,061 89,006 492,725 263,010 99,425 ========= ========= ======= ====== ======= ======= ====== - -------------------------------------------------------------------------------------------------- ML GROWTH FUND OPPENHEIMER AIM (CLASS B) TOTAL RETURN BALANCED LOAN FUND TOTAL - -------------------------------------------------------------------------------------------------- RECEIVABLES: EMPLOYER CONTRIBUTION 6,292 3,247 2,742 -- 156,700 EMPLOYEE CONTRIBUTIONS 1,420 733 619 -- 37,128 ACCRUED INTEREST / DIVIDENDS 2,404 2,232 933 -- 57,539 ------- ------ ------ ------- ----------- TOTAL RECEIVABLES 10,116 6,212 4,294 -- 251,367 ------- ------ ------ ------- ----------- NET ASSETS AVAILABLE FOR BENEFITS AT 12/31/97 133,085 81,595 93,504 164,814 $ 4,066,381 ======= ====== ====== ======= =========== See accompanying notes to financial statements 5 6 MPSI SYSTEMS INC. MATCHING INVESTMENT PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION DECEMBER 31, 1996 - ------------------------------------------------------------------------------------------------------ Global MPSI Phoenix Allocation Stock Capital Fund Fund Fund Fund - ------------------------------------------------------------------------------------------------------ Investments at fair value: Merrill Lynch Phoenix Fund Inc. (47,445 units valued at $12.83 per unit) $ 608,723 -- -- -- Merrill Lynch Global Allocation Fund Inc. (82,127 units valued at $14.36 per unit) -- 1,179,363 -- -- 154,838 shares of $.05 par value Common Stock of MPSI Systems Inc. valued at $1.75 per share -- -- 270,967 -- Merrill Lynch Corporate Bond Fund Inc. (8,595 units at $11.32 per unit) -- -- -- -- Merrill Lynch Capital Fund Inc. (13,472 units valued at $30.46 per unit) -- -- -- 410,374 Merrill Lynch Retirement Preservation Trust fund -- -- -- -- Loans to participants -- -- -- -- ----------- --------- ------- ------- Total investments 608,723 1,179,363 270,967 410,374 Receivables: Employer contribution -- -- 137,394 -- Employee contributions 8,612 9,998 834 5,517 Accrued interest and dividends 22,987 9,509 -- 12,769 ----------- --------- ------- ------- Total receivables 31,599 19,507 138,228 18,286 Cash and cash equivalents (3,800) (24,584) (15,296) (201) ----------- --------- ------- ------- Net assets available for benefits at December 31, 1996 $ 636,522 1,174,286 393,899 428,459 =========== ========= ======= ======= - ------------------------------------------------------------------------------------------------------- Corporate MLRP Bond Trust Loan Fund Fund Fund Total - ------------------------------------------------------------------------------------------------------- Investments at fair value: Merrill Lynch Phoenix Fund Inc. (47,445 units valued at $12.83 per unit) -- -- -- $ 608,723 Merrill Lynch Global Allocation Fund Inc. (82,127 units valued at $14.36 per unit) -- -- -- 1,179,363 154,838 shares of $.05 par value Common Stock of MPSI Systems Inc. valued at $1.75 per share -- -- -- 270,967 Merrill Lynch Corporate Bond Fund Inc. (8,595 units at $11.32 per unit) 97,302 -- -- 97,302 Merrill Lynch Capital Fund Inc. (13,472 units valued at $30.46 per unit) -- -- -- 410,374 Merrill Lynch Retirement Preservation Trust fund -- 290,152 -- 290,152 Loans to participants -- -- 106,742 106,742 ------ ------- ------- ----------- Total investments 97,302 290,152 106,742 2,963,623 Receivables: Employer contribution -- -- -- 137,394 Employee contributions 1,036 1,863 2,897 30,757 Accrued interest and dividends 478 1,193 -- 46,936 ------ ------- ------- ----------- Total receivables 1,514 3,056 2,897 215,087 Cash and cash equivalents (1,298) (1,356) 33,012 (13,523) ------ ------- ------- ----------- Net assets available for benefits at December 31, 1996 97,518 291,852 142,651 $ 3,165,187 ====== ======= ======= =========== See accompanying notes to financial statements 6 7 MPSI SYSTEMS INC. MATCHING INVESTMENT PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1997 - ---------------------------------------------------------------------------------------------------------------------------------- Global MPSI Phoenix Allocation Stock Corporate MLRP Trust Fund Fund Fund Capital Fund Bond Fund Fund - ----------------------------------------------------------------------------------------------------------------------------------- Investment income: Dividends and interest $ 145,938 157,278 -- -- 4,264 24,645 Contributions: Employer 39,013 57,833 -- -- 3,800 24,906 Employees 107,490 159,342 -- 17,507 10,470 68,623 Rollovers -- 5,977 -- -- -- -- Distributions: -- Cash (70,988) (116,002) (29) (30,903) (6,421) (130,064) In kind (40,045) (54,784) -- -- -- -- MPSI Systems Inc. $.05 Common Stock -- -- (26,609) -- -- -- Other income (expense): Net appreciation (depreciation) in fair value of investments (42,420) (37,022) 409,392 10,846 489 -- Other expense -- -- (834) (12,720) -- -- Interfund transfers in (out) (65,185) (52,077) (131,758) (413,189) (21,114) 212,763 ----------- ----------- ----------- ----------- ----------- ----------- Change in net assets available for benefits during 1997 73,803 120,545 250,162 (428,459) (8,512) 200,873 Net assets available for benefits at December 31, 1996 636,522 1,174,286 393,899 428,459 97,518 291,852 ----------- ----------- ----------- ----------- ----------- ----------- Net assets available for benefits at December 31, 1997 $ 710,325 1,294,831 644,061 -- 89,006 492,725 =========== =========== =========== =========== =========== =========== - ---------------------------------------------------------------------------------------------------------------------------------- Merrill Lynch J. Hancock ML Growth Equity Index Special Fund (Class Oppenheimer AIM Trust Equities Fund B) Total Return Balanced Loan Fund - ---------------------------------------------------------------------------------------------------------------------------------- Investment income: Dividends and interest -- -- 12,125 10,382 4,523 10,555 Contributions: Employer 11,219 7,648 6,292 3,247 2,742 -- Employees 30,911 21,073 17,336 8,945 6,187 -- Rollovers 5,977 -- -- 5,977 5,977 -- Distributions: Cash (1,215) (1,499) (9,116) (502) -- -- In kind -- -- -- -- -- -- MPSI Systems Inc. $.05 Common Stock -- -- -- -- -- -- Other income (expense): Net appreciation (depreciation) in fair value of investments 33,391 19,291 2,744 2,465 5,547 -- Other expense -- -- -- -- -- -- Interfund transfers in (out) 182,727 52,912 103,704 51,081 68,528 11,608 ----------- ----------- ----------- ----------- ----------- ----------- Change in net assets available for benefits during 263,010 99,425 133,085 81,595 93,504 22,163 Net assets available for benefits at December 31, 1996 -- -- -- -- -- 142,651 ----------- ----------- ----------- ----------- ----------- ----------- Net assets available for benefits at December 31, 1997 263,010 99,425 133,085 81,595 93,504 164,814 =========== =========== =========== =========== =========== =========== - --------------------------------------------- Total - --------------------------------------------- Investment income: Dividends and interest $ 369,710 Contributions: Employer 156,700 Employees 447,884 Rollovers 23,908 Distributions: Cash (366,739) In kind (94,829) MPSI Systems Inc. $.05 Common Stock (26,609) Other income (expense): Net appreciation (depreciation) in fair value of investments 404,723 Other expense (13,554) Interfund transfers in (out) -- ----------- Change in net assets available for benefits during 901,194 Net assets available for benefits at December 31, 1996 3,165,187 ----------- Net assets available for benefits at December 31, 1997 $ 4,066,381 =========== See accompanying notes to financial statements 7 8 MPSI SYSTEMS INC. MATCHING INVESTMENT PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1996 - ------------------------------------------------------------------------------------------------------------------------------------ MPSI Global Corporate MLHP Stock Phoenix Allocation Capital Bond Trust Loan Fund Fund Fund Fund Fund Fund Fund Total - ------------------------------------------------------------------------------------------------------------------------------------ Investment income: Dividends and interest $ -- 79,467 107,775 45,189 5,671 14,978 4,189 $ 257,269 Contributions: Employers 137,394 -- -- -- -- -- -- 137,394 Employees 12,988 129,378 148,545 82,625 15,250 27,451 -- 416,237 Distributions: Cash -- (52,968) (70,908) (42,877) (2,488) (20,933) -- (190,174) In kind -- (1,501) (4,072) -- -- -- -- (5,573) MPSI Systems Inc.$.05 Common Stock (38,295) -- -- -- -- -- -- (38,295) Other income (expense): Net appreciation (depreciation) in fair value of investments (453,318) 13,094 48,461 6,546 (3,546) -- -- (388,763) Other income -- -- -- -- -- -- (29) (29) Interfund transfers in (out) (1,499) (18,488) (68,126) (27,870) (1,168) 18,334 98,817 -- - ------------------------------------------------------------------------------------------------------------------------------------ Change in net assets available for benefits during 1996 (342,730) 148,982 161,675 63,613 13,719 39,830 102,977 188,066 Net assets available for benefits at December 31, 1995 736,629 487,540 1,012,611 364,846 83,799 252,022 39,674 2,977,121 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets available for benefits at December 31, 1996 $ 393,899 636,522 1,174,286 428,459 97,518 291,852 142,651 $3,165,187 ==================================================================================================================================== See accompanying notes to financial statements 8 9 MPSI SYSTEMS INC. MATCHING INVESTMENT PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1995 - ------------------------------------------------------------------------------------------------------------------------------------ MPSI Global Corporate MLHP Stock Phoenix Allocation Capital Bond Trust Loan Fund Fund Fund Fund Fund Fund Fund Total - ------------------------------------------------------------------------------------------------------------------------------------ Investment income: Dividends and interest $ -- 27,346 76,427 36,919 4,472 15,504 2,354 $ 163,022 Contributions: Employers 136,792 -- -- -- -- -- -- 136,792 Employees 9,981 110,595 135,652 54,394 14,397 26,696 -- 351,715 Distributions: Cash (10,147) (69,321) (37,525) (20,831) (5,755) (122,742) -- (266,321) In kind -- (6,149) (5,761) -- -- -- -- (11,910) MPSI Systems Inc. $.05 Common Stock (96,860) -- -- -- -- -- -- (96,860) Other income (expense): Net appreciation (depreciation) in fair value of investments 311,224 57,636 101,189 46,995 7,987 -- -- 525,031 Other income -- -- -- 706 -- -- -- 706 Interfund transfers in (out) (1,203) (2,420) (3,440) (841) (1,496) -- 9,400 -- - ------------------------------------------------------------------------------------------------------------------------------------ Change in net assets available for benefits during 1995 349,787 117,687 266,542 117,342 19,605 (80,542) 11,754 802,175 Net assets available for benefits at December 31, 1994 386,842 369,853 746,069 247,504 64,194 332,564 27,920 2,174,946 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets available for benefits at December 31, 1995 $ 736,629 487,540 1,012,611 364,846 83,799 252,022 39,674 $ 2,977,121 ==================================================================================================================================== See accompanying notes to financial statements. 9 10 MPSI SYSTEMS INC. MATCHING INVESTMENT PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS The investment in $.05 par value Common Stock of MPSI Systems Inc. (hereinafter "Common Stock") was stated at the average bid and offer prices quoted by the National Quotation Bureau. Investments in equity and bond funds were stated at aggregate unit values as published in a widely accepted financial journal and as set forth in the periodic valuation of each fund. Investments in money market funds were stated at par value, which approximates fair value. The fair market value per share of MPSI Systems Inc. Common Stock was $4.63, $1.75, and $5.00 at December 31, 1997, 1996, and 1995, respectively. At June 12, 1998, the estimated market value of 139,256 shares of MPSI Systems Inc. Common Stock was approximately $278,512. INVESTMENT FUNDS For 1995 and 1996, six investment funds as set forth below were maintained by Merrill Lynch and were available to plan participants. Phoenix Fund: The primary objective of the mutual fund is long term capital growth through a diversified portfolio of equity and fixed income securities, including municipal securities, of issuers in weak financial condition or experiencing poor operating results, that the management of the fund believes to be undervalued relative to fund management's assessment of the current or prospective condition of the issuer. Global Allocation Fund: The fund is a non-diversified mutual fund seeking high total investment return, consistent with prudent risk, through a fully managed investment policy utilizing United States and foreign equity, debt, and money market securities, the combination of which will be varied from time to time both with respect to types of securities and markets in response to changing market and economic trends. MPSI Systems Inc. Common Stock Fund: This fund invests solely in the common stock of the registrant, MPSI Systems Inc. Common stock may be purchased by the Trustee on the open market or through private transactions, including direct purchases from the company. Capital Fund: This mutual fund seeks to achieve the highest total investment return consistent with prudent risk through a fully managed investment policy utilizing equity, debt, and convertible securities. This permits management of the fund to vary investment policy based on its evaluation of changes in economic and market trends. 10 11 Corporate Bond Fund: The fund is a professionally managed, diversified, open end investment company consisting of three separate portfolios. The primary objective of each Portfolio is to provide shareholders with as high a level of current return as is consistent with the investment policies of such Portfolio and with prudent investment management. Merrill Lynch Retirement Preservation Trust ("MLRP Trust Fund") The fund is maintained by Merrill Lynch Trust Company, which receives nondiscretionary advice from Merrill Lynch Asset Management. The fund is a collective trust fund that invests primarily in Guaranteed Investment Contracts and U.S. government and U.S. government agency securities, as well as high quality money market instruments. The fund seeks to provide safety of principal, fiduciary comfort and administrative ease. Beginning January 1, 1997, five new fund options were added to the Plan and were available to participants. The fund options are described below. Merrill Lynch Equity Index Trust This mutual fund seeks to provide results that replicate the total return of the Standard and Poor's 500 Composite Stock Price Index. In order to manage the Trust's cash flows efficiently, management will utilize the Standard and Poor's 500 Index Futures or combinations of index options as a method of investment. Management will also participate in index arbitrage transactions where deemed prudent. John Hancock Special Equities Fund This mutual fund seeks long-term capital appreciation. To pursue this goal, the fund invests in small capitalization companies and companies offering unusual or non-recurring opportunities. The fund looks for companies that dominate an emerging industry or hold a growing market share in a fragmented industry and that have demonstrated annual earnings and revenue growth of at least 25%, self financing capabilities, and strong management. Merrill Lynch Growth Fund (Class B) The investment objectives of this mutual fund is to seek growth of capital and, secondarily, income by investing in a diversified portfolio of primarily equity securities placing principal emphasis on those securities that management of the fund believes to be undervalued. Undervalued issues include securities selling at discounts from the price to book value ratios and price/earnings ratios computed with respect to the popular stock market averages (primarily Standard and Poors 400 Industrials stock price index). Oppenheimer Total Return The fund is a mutual fund with the investment objective of seeking high total return through investment in securities which it believes will provide a high return, including investments which are expected to provide opportunities for growth or to produce income, or both. The fund is not restricted to any specific type of security and may also use certain hedging instruments to try to reduce risks of market fluctuations that affect the value of the securities the fund holds. AIM Balanced This mutual fund's objective is to achieve as high a total return to investors as possible, consistent with preservation of capital, by investing in a broadly diversified portfolio of high yielding securities, including common stocks, preferred stocks, convertible securities and bonds. Although equity 11 12 securities will be purchased primarily for capital appreciation and fixed income securities primarily for income purposes, income and capital appreciation potential will be considered in connection with all investments. Effective January 1, 1997, MPSI Systems Inc. Matching Investment Plan closed the Capital Fund as an elective fund option available to participants. As a result, existing account balances were transferred to other fund options as directed by the participant. Also, effective January 1, 1997, the Plan closed the MPSI Stock Fund to new contributions. Existing account balances were permitted to remain in the fund or transferred to other fund options as directed by the participant. The following table shows the employee participation in the various investment options: - ------------------------------------------------------------------------ Number of Participants at December 31, 1997 1996 - ------------------------------------------------------------------------ Phoenix Fund 93 110 Global Allocation Fund 120 135 MPSI Systems Inc. Common Stock Fund 130 164 Capital Fund -- 98 Corporate Bond Fund 34 37 Merrill Lynch Retirement Preservation Trust 25 51 Merrill Lynch Equity Index Trust 26 -- John Hancock Special Equities Fund 22 -- Merrill Lynch Growth Fund (Class B) 29 -- Oppenheimer Total Return 24 -- AIM Balanced 17 -- Total Participants 160 176 - ------------------------------------------------------------------------ INCOME TAXES The Internal Revenue Service has determined by notice dated April 24, 1986 that the Plan as amended and restated effective January 1, 1985 was in compliance with the Retirement Equity Act of 1984 and the Tax Reform Act of 1984 and was qualified under Section 401 of the Internal Revenue Code. The Plan, as amended in compliance with the Tax Reform Act of 1986 and as amended and restated effective January 1, 1990 is intended to comply with Section 401(a) of the Internal Revenue Code. The Company was notified on June 8, 1995 that the Plan (adopted on May 11, 1994) was deemed to be a qualified plan under the applicable code section. The Company is not aware of anything that would adversely impact the qualified status of the Plan. Under a qualified plan, amounts contributed by the Company including salary deferrals will not be taxed to the employee until the employee receives a distribution from the Plan and further, any appreciation in value of Common Stock distributed to an employee upon termination of employment will not be taxed to the employee until disposal of such shares. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. (2) PARTICIPANTS AND CONTRIBUTIONS All employees of MPSI Systems Inc. (herein after referred to as the "Company") meeting eligibility requirements set forth in the Plan participate in the Plan as of January 1 and July 1 of the Plan year next following their completion of a six-month period of service. Participants may contribute as salary deferrals 12 13 up to 16% of their annual earnings. Participant contributions in excess of 9% of a participant's salary may also be made subject to certain limitations as designed to prevent the Plan from failing Annual Tax Compliance Testing. A participant's interest in salary deferrals and voluntary contributions is at all times fully vested. A participant's interest in amounts attributable to employer contributions is fully vested when employment terminates due to (1) retirement at age 65, (2) total and permanent disability or (3) death. When a participant's employment terminates prior to meeting the above conditions, the participant is fully vested in employer contributions only if the participant either has completed five years of vesting service or has satisfied one of the Plan's grandfathered vesting rules. The remaining balance in the participant's "Company Contributions Account" is forfeited and used to reduce Company contributions, although if the participant is rehired within five years, the forfeited amounts may be restored to the participant's accounts under certain circumstances. MPSI Systems Inc. (the "Employer") made contributions under the Plan during the three years ended December 31, 1997 based upon a Matching Percentage applied to the participants' qualifying contributions. Participants' qualifying contributions equal the aggregate of each participant's salary deferral, contributions up to 6% of that participant's earnings for the Plan year. The Employers' Matching Percentage relative to qualifying participant contributions is based upon the Operating Income Ratio of the Employers (the ratio of the operating income for the Employers' fiscal year ending with or within the Plan year to the average operating income in the three prior fiscal years), is as follows: Matching Operating Income Ratio Percentage ---------------------- ---------- Under 1.01 50% 1.01, but less than 1.50 60% 1.50, but less than 1.75 70% 1.75, but less than 2.00 80% 2.00, but less than 2.25 90% 2.25 or over 100% During 1995 and 1996 the Employers Match was made in the form of newly issued shares of MPSI common stock. In 1997, the Employer Match was made in cash and allocated to participant accounts based upon contribution elections made by the participant. Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100 percent vested in their accounts. The Company's matching percentage was 50 percent for Plan years 1997, 1996, and 1995 resulting in contributions of $156,700, $137,394, and $136,792, respectively, as calculated below: -------------------------------------------------------------------------------------------------- Year Ended December 31, 1997 1996 1995 -------------------------------------------------------------------------------------------------- Net employee contributions (including nonelective contributions) $ 447,884 $ 416,237 $ 351,715 Nonqualifying contributions (134,484) (141,449) (78,131) -------------------------------------------------------------------------------------------------- Qualifying employee contributions 313,400 274,788 273,584 Applicable matching percentage x 50% x 50% x 50% -------------------------------------------------------------------------------------------------- Required company contribution $ 156,700 $ 137,394 $ 136,792 ================================================================================================== 13 14 (3) EXPENSES All costs and expenses incurred in administering the Plan, including the expenses of the Administrative Committee, the fees and expenses of the Trustee, the fees of its counsel, and other administrative expenses, are borne by the Company and amounted to approximately $13,786, $16,158, and $11,567 for 1997, 1996, and 1995, respectively. (4) INVESTMENTS The fair value of individual investments that represent 5% or more of the Plan's net assets are as follows: ------------------------------------------------------------------------------------------------- December 31, December 31, 1997 1996 ------------------------------------------------------------------------------------------------- Phoenix Fund $ 625,879 $ 608,723 Global Allocation Fund 1,209,604 1,179,363 MPSI Systems Inc. Common Stock Fund 644,061 270,967 Capital Fund -- 410,374 Corporate Bond Fund 83,898 97,302 Merrill Lynch Retirement Preservation Trust 459,886 290,152 Merrill Lynch Equity Index Trust 249,259 -- John Hancock Special Equities Fund 90,051 -- Merrill Lynch Growth Fund (Class B) 122,969 -- Oppenheimer Total Return 75,383 -- AIM Balanced 89,210 -- MPSI Matching Investment Plan Employee Loan Fund 164,814 106,742 ------------------------------------------------------------------------------------------------- (5) DIFFERENCES BETWEEN FINANCIAL STATEMENTS AND FORM 5500 The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500: ----------------------------------------------------------------------------------- December 31, 1997 ----------------------------------------------------------------------------------- Net assets available for benefits per the financial statements $ 4,066,381 Amounts shown on the Form 5500 Benefit Claims Payable (13,987) ----------------------------------------------------------------------------------- Net assets available for benefits per the Form 5500 $ 4,052,394 =================================================================================== 14 15 The following is a reconciliation of benefits paid per the financial statements to the Form 5500: - -------------------------------------------------------------------------------- Year Ended December 31, 1997 Benefits Paid - -------------------------------------------------------------------------------- Amounts distributed to participants per statement of changes in net assets $ 488,177 Add amounts allocated to withdrawing participants at December 31, 1997 13,987 Less amounts allocated to withdrawing participants at December 31, 1996 (245,742) - -------------------------------------------------------------------------------- Amounts distributed to participants per the Form 5500 $ 256,422 ================================================================================ Amounts allocated to withdrawing participants are recorded on the Form 5500 for benefit claims that have been processed and approved for payment prior to December 31 but not yet paid as of that date. (6) YEAR 2000 ISSUE (UNAUDITED) The Company has developed a plan to modify its internal information technology to be ready for the year 2000 and has begun converting critical data processing systems. The project also includes determining whether third party service providers have reasonable plans in place to become year 2000 compliant. The Company currently expects the project to be substantially complete by early 1999. The Company does not expect this project to have a significant effect on plan operations. 15 16 MPSI SYSTEMS INC. MATCHING INVESTMENT PLAN LINE 27d - SCHEDULE OF REPORTABLE TRANSACTIONS YEAR ENDED DECEMBER 31, 1997 - ---------------------------------------------------------------------------------------------------------------------- (a) (b) (c) (d) (g) Identity of Party Description No. of Purchase Selling Cost of Involved* of Assets Shares Price Price Asset - ---------------------------------------------------------------------------------------------------------------------- Category (iii) - Series of Transactions in Excess of 5% of Plan Assets Merrill Lynch Retirement Preservation Trust 222,919 $ -- $222,919 $222,919 MPSI Systems Inc. Common Stock 17,708 -- 38,794 32,327 Merrill Lynch Phoenix Fund - Class B 18,835 -- 240,025 242,262 Merrill Lynch Global Allocation Fund 23,510 -- 349,951 339,358 Merrill Lynch Capital Fund 14,309 -- 447,408 436,562 Merrill Lynch Equity Index Trust 34 -- 2,182 2,050 John Hancock Special Equities Fund 1,766 -- 43,956 35,240 Merrill Lynch Growth Fund (Class B) 382 -- 10,559 10,007 Oppenheimer Total Return 364 -- 4,265 3,750 Merrill Lynch Corporate Bond Fund 3,167 -- 35,476 36,082 Merrill Lynch Retirement Preservation Trust 392,653 392,653 MPSI Systems Inc. Common Stock 2,126 2,496 Merrill Lynch Phoenix Fund - Class B 23,158 299,602 Merrill Lynch Global Allocation Fund 28,155 417,214 Merrill Lynch Capital Fund 837 26,188 Merrill Lynch Equity Index Trust 3,847 218,050 John Hancock Special Equities Fund 5,240 114,716 Merrill Lynch Growth Fund (Class B) 5,036 130,784 Oppenheimer Total Return 7,217 77,183 AIM Balanced 3,460 83,663 Merrill Lynch Corporate Bond Fund 10,425 21,583 - -------------------------------------------------------------------------------------------- (a) (b) (h) (i) Identity Current Value of Party Description of Asset on Net Gain Involved* of Assets Transaction Date or (Loss) - -------------------------------------------------------------------------------------------- Category (iii) - Series of Transactions in Excess of 5% of Plan Assets Merrill Lynch Retirement Preservation Trust $222,919 $ 0 MPSI Systems Inc. Common Stock 38,794 6,467 Merrill Lynch Phoenix Fund - Class B 240,025 (2,237) Merrill Lynch Global Allocation Fund 349,951 10,593 Merrill Lynch Capital Fund 447,408 10,846 Merrill Lynch Equity Index Trust 2,182 132 John Hancock Special Equities Fund 43,956 8,716 Merrill Lynch Growth Fund (Class B) 10,559 552 Oppenheimer Total Return 4,265 515 Merrill Lynch Corporate Bond Fund 35,476 (606) Merrill Lynch Retirement Preservation Trust $392,653 MPSI Systems Inc. Common Stock 2,496 Merrill Lynch Phoenix Fund - Class B 299,602 Merrill Lynch Global Allocation Fund 417,214 Merrill Lynch Capital Fund 26,188 Merrill Lynch Equity Index Trust 218,050 John Hancock Special Equities Fund 114,716 Merrill Lynch Growth Fund (Class B) 130,784 Oppenheimer Total Return 77,183 AIM Balanced 83,663 Merrill Lynch Corporate Bond Fund 21,583 There were no Category (i), (ii), or (iv) Reportable Transactions During 1997. Columns (e) and (f) are not applicable. *Party in Interest 16 17 MPSI SYSTEMS INC. MATCHING INVESTMENT PLAN LINE 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES DECEMBER 31, 1997 - --------------------------------------------------------------------------------------------------------------------------------- Description of Investment, Identity of Issue, Borrower, Lessor Including Maturity Date, Rate of Current of Similar Party* Interest, Par or Maturity Value Cost Value - --------------------------------------------------------------------------------------------------------------------------------- MUTUAL FUNDS Merrill Lynch Phoenix Fund 51,768 Class B Shares $ 657,709 $ 625,879 Merrill Lynch Global Allocation Fund 86,772 Class B Shares 1,183,448 1,209,604 Merrill Lynch Corporate Bond Fund 7,257 Class B Shares 81,638 83,898 Merrill Lynch Equity Index Trust 3,813 Class B Shares 216,000 249,259 John Hancock Special Equities Fund 3,474 Class A Shares 79,476 90,051 Merrill Lynch Growth Fund (Class B) 4,654 Class B Shares 120,777 122,969 Oppenheimer Total Return 6,853 Class A Shares 73,432 75,383 AIM Balanced 3,460 Class A Shares 83,663 89,210 MONEY FUNDS Merrill Lynch Retirement Preservation Trust 459,886 Units 459,886 459,886 COMMON STOCKS MPSI Systems Inc. 139,256 Common Shares 1,042,846 644,061 LOANS TO PARTICIPANTS 7.75% to 9.50% interest rate -- 164,814 *Party in Interest 17 18 SIGNATURES The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the Administrative Committee of the MPSI Systems Inc. Matching Investment Plan has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. MPSI SYSTEMS INC. MATCHING INVESTMENT PLAN Name of Plan Date June 23, 1998 By /s/ William H. Webb, Jr. ---------------------------------------- William H. Webb, Jr., Chairman Administrative Committee 18 19 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------ ----------- 23.1 Auditor's Consent