The revenue growth rate in 1999 may not approach the level

attained in prior years.  As discussed previously, operating expenses are

expected to increase in 1999.  Because of the fixed nature of a significant

portion of such expenses, coupled with the possibility of slower revenue growth,

operating margins in 1999 may decrease from those in 1998.

LITIGATION.  Litigation regarding intellectual property rights, patents, and

copyrights occurs in the PC software industry.  In addition, there are

government regulation and investigation risks along with other general corporate

legal risks.



YEAR 2000.  The Year 2000 presents potential concerns for business and consumer

computing.  The consequences of this issue may include systems failures and

business process interruption.  It may also include additional business and

competitive differentiation.  Aside from the well-known calculation problems

with the use of 2-digit date formats as the year changes from 1999 to 2000, the

Year 2000 is a special case leap year and in many organizations using older

technology, dates were used for special programmatic functions.

The problem exists for many kinds of software and hardware, including

mainframes, mini computers, PCs, and embedded systems.  Microsoft is in the

process of gathering, testing, and producing information about Microsoft

technologies impacted by the Year 2000 transition.  First, Microsoft classified

its core products into categories of compliance: compliant, compliant with minor

issues, and not compliant.  Second, if a product is stated to be non-compliant,

Microsoft will provide information as to how an organization could bring that

product into compliance.  Microsoft is issuing patches and/or workarounds at no

additional charge for most issues.  Third, Microsoft is working to help

organizations find solutions to Year 2000 problems.  The technologies and

services offered by Microsoft and companies it works with can be components in

overall Year 2000 solutions.  Microsoft is assisting companies with the task of

recognizing how disparate technologies can fit together to create a viable

solution set.

Current information about the Company's product, business, and technical

concerns is available at the Microsoft Year 2000 Resource Center Web site

(www.microsoft.com/year2000).  The Web site also contains information about

obtaining software patches to resolve various Year 2000 issues in certain Microsoft products.  Information on the Company's Web site is provided to

customers for the sole purpose of assisting in planning for the transition to

the Year 2000.  Such information is the most currently available concerning the

behavior of the Company's products in the next century and is provided "as is"

without warranty of any kind.  However, variability of definitions of

"compliance" with the Year 2000 and of different combinations of software,

firmware, and hardware will likely lead to lawsuits against the Company.  The

outcome of such lawsuits and the impact on the Company are not estimable at this

time.

The Year 2000 issue also affects the Company's internal systems, including

information technology (IT)