MSFT Annual Report 1995

3/7/2017 https://www.sec.gov/Archives/edgar/data/789019/000089102095000433.
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ACCESSIONNUMBER: 000089102095000433
CONFORMEDSUBMISSIONTYPE: 10K
PUBLICDOCUMENTCOUNT: 8
CONFORMEDPERIODOFREPORT: 19950630
FILEDASOFDATE: 19950925
SROS: NASD
FILER:
COMPANYDATA:
COMPANYCONFORMEDNAME: MICROSOFTCORP
CENTRALINDEXKEY: 0000789019
STANDARDINDUSTRIALCLASSIFICATION: SERVICESPREPACKAGEDSOFTWARE[7372]
IRSNUMBER: 911144442
STATEOFINCORPORATION: DE
FISCALYEAREND: 0630
FILINGVALUES:
FORMTYPE: 10K
SECACT: 1934Act
SECFILENUMBER: 00014278
FILMNUMBER: 95575998
BUSINESSADDRESS:
STREET1: ONEMICROSOFTWAY#BLDG8
STREET2: NORTHOFFICE2211
CITY: REDMOND
STATE: WA
ZIP: 98052
BUSINESSPHONE: 2068828080
MAILADDRESS:
STREET1: ONEMICROSOFTWAYBLDG8
CITY: REDMOND
STATE: WA
ZIP: 980526399
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STATEOFINCORPORATION: DE
FISCALYEAREND: 0630
FILINGVALUES:
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SECACT: 1934Act
SECFILENUMBER: 00014278
FILMNUMBER: 95575998
BUSINESSADDRESS:
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https://www.sec.gov/Archives/edgar/data/789019/000089102095000433.txt 1/47
3/7/2017 https://www.sec.gov/Archives/edgar/data/789019/000089102095000433.txt
CITY: REDMOND
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ZIP: 98052
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<TYPE>10K
<SEQUENCE>1
<DESCRIPTION>FORM10K
<TEXT>
<PAGE>1

UNITEDSTATES
SECURITIESANDEXCHANGECOMMISSION
WASHINGTON,D.C.20549

FORM10K

/X/ANNUALREPORTPURSUANTTOSECTION13OR15(D)OFTHE
SECURITIESEXCHANGEACTOF1934

FORTHEFISCALYEARENDEDJUNE30,1995

//TRANSITIONREPORTPURSUANTTOSECTION13OR15(D)OFTHE
SECURITIESEXCHANGEACTOF1934

FORTHETRANSITIONPERIODFROMTO

COMMISSIONFILENUMBER:014278

MICROSOFTCORPORATION
(EXACTNAMEOFREGISTRANTASSPECIFIEDINITSCHARTER)

<TABLE>
<S><C>
WASHINGTON911144442
(STATEOROTHERJURISDICTIONOF(I.R.S.EMPLOYER
INCORPORATIONORORGANIZATION)IDENTIFICATIONNO.)
ONEMICROSOFTWAY,REDMOND,WASHINGTON980526399
(ADDRESSOFPRINCIPALEXECUTIVEOFFICE)(ZIPCODE)
</TABLE>

REGISTRANT'STELEPHONENUMBER,INCLUDINGAREACODE:(206)8828080

SECURITIESREGISTEREDPURSUANTTOSECTION12(B)OFTHEACT:NONE

SECURITIESREGISTEREDPURSUANTTOSECTION12(G)OFTHEACT:COMMONSTOCK

Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreports
requiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof
1934duringthepreceding12months(orforsuchshorterperiodthatthe
registrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuch
filingrequirementsforthepast90days.Yes/X/No//

IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem
405ofRegulationSKisnotcontainedherein,andwillnotbecontained,tothe
bestofregistrant'sknowledge,indefinitiveproxyorinformationstatements
incorporatedbyreferenceinPartIIIofthisForm10Koranyamendmenttothis
Form10K.//

Theaggregatemarketvalueofthecommonstockheldbynonaffiliatesof
theregistrantasofSeptember8,1995was$34,330,611,220.

Thenumberofsharesoutstandingoftheregistrant'scommonstockasof
September8,1995was589,952,132.

DOCUMENTSINCORPORATEDBYREFERENCE

PortionsofthedefinitiveProxyStatementdatedSeptember25,1995tobe
deliveredtoshareholdersinconnectionwiththeAnnualMeetingofShareholders
tobeheldOctober27,1995areincorporatedbyreferenceintoPartIII.

<PAGE>2


FORM10K

FORTHEFISCALYEARENDEDJUNE30,1995

INDEX

<TABLE>
<CAPTION>
PAGE

<S><C><C>
PARTI
Item1.Business.....................................................................1
Item2.Properties...................................................................10
Item3.LegalProceedings............................................................11
Item4.SubmissionofMatterstoaVoteofSecurityHolders..........................11
ItemE.O.ExecutiveOfficersoftheRegistrant.........................................11
PARTII
Item5.MarketforRegistrant'sCommonStockandRelatedStockholderMatters.........13
Item6.SelectedFinancialData......................................................14
Item7.Management'sDiscussionandAnalysisofFinancialConditionandResultsof
Operations...................................................................14
Item8.FinancialStatementsandSupplementaryData..................................18
Item9.ChangesinandDisagreementswithAccountantsonAccountingandFinancial
Disclosures..................................................................18
PARTIII
Item10.DirectorsandExecutiveOfficersoftheRegistrant...........................30
Item11.ExecutiveCompensation.......................................................30
Item12.SecurityOwnershipofCertainBeneficialOwnersandManagement...............30
Item13.CertainRelationshipsandRelatedTransactions...............................30
PARTIV
Item14.Exhibits,FinancialStatementSchedulesandReportsonForm8K..............31
Signatures...............................................................................33
</TABLE>
<PAGE>3

PARTI
ITEM1.BUSINESS

GENERAL

MicrosoftCorporation(the"Company"or"Microsoft")wasfoundedasa
partnershipin1975andincorporatedin1981.Microsoftdevelops,manufactures,
licenses,sells,andsupportsawiderangeofsoftwareproducts,including
operatingsystemsforpersonalcomputers(PCs),workstations,andservers;
businessandconsumerprogramsforproductivity,reference,education,and
entertainment;anddevelopmenttools.Microsoftalsomarketspersonalcomputer
booksandinputdevicesandisengagedintheresearchanddevelopmentofonline
andadvancedtechnologysoftwareproducts.Microsoft(R)productsareavailable
formostPCs,includingInteltypemicroprocessorbasedcomputersandApple
computers.

Microsoft'sbusinessstrategyemphasizesthedevelopmentofabroadlineof
microcomputersoftwareproductsforbusinessandpersonaluse,marketedthrough
multiplechannelsofdistribution.TheCompanyisdividedintofourmaingroups:
thePlatformsProductGroup;theApplicationsandContentProductGroup;the
SalesandSupportGroup;andtheOperationsGroup.

ThePlatformsProductGroupiscomprisedoffourdivisions,each
responsibleforaparticularareaofplatformssoftwaredevelopmentand
marketing.ThePersonalSystemsDivisiondesignsanddevelopsoperatingsystems
andtechnologies(suchasmultimedia,userinterface,andonlinebrowsers)for
generalandhomePCusers.TheBusinessSystemsDivisionisresponsiblefor
computingsolutionsforcorporateandenterpriseuse,includingclientserver
operatingsystems,networkingproducts,andserverandworkgroupapplications.
TheDeveloperDivisioncreatesdatabaseproducts,aswellasprogramming
languageproductsandsoftwaredevelopmenttools.TheConsumerSystemsDivision
isdevelopingsoftwareproductsandtechnologiesforuseontheemergingpublic
networks,includingfutureinteractivetelevisionnetworks,andforcreating
advancedmultimediaapplications,suchas3Dtitles.

TheApplicationsandContentProductGrouphastwodivisionsthatcreate
andmarketproductivityprogramsforPCsandmultimediacontenttitles.The
groupalsoincludesonlinesystemsandresearch.TheDesktopApplications
Divisioncreatesproductivityapplications.TheConsumerDivisiondevelops
productsdesignedforthehome,school,andsmallbusinessmarket,including
multimediaconsumerproductsandPCinputdevices.TheMSNDivisionis
responsibleforanonlineandInternetservice.MicrosoftResearchisaresearch
labdedicatedtocreatingnewtechnologyinsupportoftheCompany'svisionfor
theevolutionofpersonalcomputing.

TheSalesandSupportGroupisresponsibleforbuildinglongtermbusiness
relationshipswithcustomers.Thisgroupisorganizedtoservethreecustomer
types:OEMs(originalequipmentmanufacturers),endusers,andorganizations.
TheSalesandSupportGroupmanagesthechannelsthatservethosecustomers.
TheseincludetheOEMchannelandthefollowinggeographicchannels:U.S.and
Canada,Europe,andOtherInternational.Thegroupalsoprovidessupportforthe
Company'sproductsthroughProductSupportServices,ConsultingServices,and
SolutionsProviders.

TheOperationsGroupisresponsibleformanagingbusinessoperationsand
overallbusinessplanning.Thisincludestheprocessofmanufacturingand
deliveringfinishedgoods,licenses,subscriptions,andfulfillmentorders;the
publishingeffortsofMicrosoftPress;andothercorporatefunctions.

PRODUCTS

PERSONALSYSTEMS

ThePersonalSystemsDivisiondevelopsdesktopoperatingsystemssoftware,
whichperformsoperationssuchasallocatingcomputermemory,schedulingthe
executionofapplicationssoftware,andmanagingtheflowofinformationand
communicationamongthevariouscomponentsofthePC.Thedivision'sprimary
desktopoperatingsystemsforPCsare:MicrosoftWindows(R)95,Microsoft
MSDOS(R),MicrosoftWindows3.1,andMicrosoftWindowsforWorkgroups.(Windows
3.1andWindowsforWorkgroups3.11arehereafterreferredtocollectivelyas
"Windows3.x.")

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Windows95:Microsoft'snewpersonaloperatingsystem,designedtobethe
successortoMSDOSandWindows3.x,wasreleasedcommerciallyonAugust24,
1995.Windows95isafullyintegrated,multitasking32bitoperatingsystem,
compatiblewithmainstreamPCsandmostWindows3.xandMSDOSsoftware
applications.Windows95wasalsodesignedforthenextgenerationof
applications,games,PCs,andperipherals.

MSDOS:MicrosoftMSDOSisasingleuser,singletaskingoperatingsystem
designedforPCsthatutilizeIntelmicroprocessorchips.Sincetheintroduction
ofMSDOSin1981,theCompanyhasenhancedMSDOSasnewtechnologieshave
developedandnewuserneedshavearisen.MSDOShasbeenpreinstalledbyOEMs
onmostPCs.

Windows3.1:MicrosoftWindows3.1isagraphicaloperatingsystemfor
MSDOSbasedPCs.MicrosoftWindows3.1supportshighperformanceWindowsbased
applications,andofferseaseofuseandaestheticappeal,scalableTrueType(R)
fonts,builtinmultimediafunctionality,andstraightforwardintegrationinto
corporatecomputingenvironments.

WindowsforWorkgroups3.11:WindowsforWorkgroups3.11integratesnetwork
andworkgroupfunctionalitydirectlyintotheWindowsoperatingsystem.With
WindowsforWorkgroups,userscansharefiles,data,andprinters,witheaseof
accessandsecurity.

BUSINESSSYSTEMS

TheBusinessSystemsDivisionisfocusedondeliveringabroadrangeof
businesscomputingsolutionsfororganizations.Thedivisiondevelopsand
marketsanintegratedproductlineofsoftwareforcreatingbusinesssolutions,
includingfoundationoperatingsystemsforserversandworkstations,aswellas
applicationsforbusinessservers.Serverapplicationsdevelopmentisdivided
intotheareasofdatabases,connectivity,systemsmanagement,andworkgroup
applications.Serversoftwareproductsaremarketedseparatelyorasapartof
anintegratedfamilyofproducts,theMicrosoftBackOffice(TM).TheBackOffice
familyincludesthefollowingkeyproducts.

WindowsNTWorkstationandServer:MicrosoftWindowsNT(TM)Workstationis
apowerfuldesktopoperatingsystemdesignedfordemandingbusinessneeds.Itis
a32bit,multithreadedoperatingsystemformissioncriticalcomputingwhich
providesthesamefeatureandapplicationsprogramminginterface(API)set
acrossfourhardwareplatforms:Intel,AlphaAXP,MIPS,andPowerPC.The
operatingsystemprovidesintegratedmailandnetworkingwithremoteaccess,
preemptivemultitasking,andsupportforbackgroundcommunicationsessions.The
WindowsNTServerisdesignedtobethenetworkfoundationforanewgeneration
ofbusinessapplications.Itprovidesextensivenetworkmanagementfeatures,
administrationtools,security,andfaulttolerance.Itisaplatformfor
businesscriticalapplicationsanddatabase,connectivity,systemmanagement,
andmailservers.

SQLServer:MicrosoftSQLServerisahighperformancerelationaldatabase
managementsystemdesignedspecificallyfordistributedcomputing.SQLServer
supportstheStructuredQueryLanguage,whichisacommonlyusedlanguage
throughwhichapplicationprogramscommunicatewithrelationaldatabases.The
CompanyprovidesSQLServerforWindowsNTsystems.Thisproductisdevelopedin
theDeveloperDivisionandmarketedaspartofBackOfficebytheBusiness
SystemsDivision.

SNAServer:MicrosoftSNAServerisarobust,highlyfaulttolerant,and
easytomaintaingatewayproductthatconnectsPClocalareanetworks(LANs)
withIBMhostsystemsusingSNAprotocols.

SystemsManagementServer:MicrosoftSystemsManagementServerisa
softwaretoolthathelpsinformationtechnologydepartmentscentrallymanage
distributedcomputingenvironments.WithSystemsManagementServer,system
administratorscandistributeandinstallsoftwaretoPCsthroughoutan
enterprise,metersoftwarelicenses,conductremotediagnostics,andperforma
detailedinventoryofhardwareandsoftwareresources.

MailServer:MicrosoftMailServerforPCnetworksisasystemfor
distributingmessagesandinformation.Itprovidesadministrativeutilitiesfor
managingmessagefiles,addresses,andmailsystem

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<PAGE>5

capabilities.MicrosoftMailServersupportsusersofpopulardesktopplatforms,
includingWindows95,Windows3.x,MSDOS,Macintosh,andOS/2.

Mail:MicrosoftMailforPCnetworksincludesclientaccesssoftwarefor
Windows95,Windows3.x,MSDOS,Macintosh,andOS/2platforms.Inaddition,
thisworkgroupapplicationofferslargecorporateuserssupportformultiple
networkenvironments.Acompanionproduct,MicrosoftMailforAppleTalk
networks,isusedbycompanieswithMacintoshservers.MicrosoftMailRemotefor
Windowsofferssoftwareforremoteclientsusedbytravelersorthoseworkingat
hometostayintouchwiththeofficemailsystem.

Schedule+:MicrosoftSchedule+isacalendarandschedulingprogramthat
helpsindividualsandgroupsmanagetheirtimeandresources.Theprogramcan
searchotherworkgroupmembers'schedulestodeterminemeetingavailability
times,provideinviteesthemeanstoaccept,decline,ortentativelyaccept
invitationstomeetings,andautomaticallynotifyattendeesifameetingis
canceledorrescheduled.

DEVELOPERPRODUCTS

TheDeveloperDivisionprovidessoftwaredevelopmenttools,database
products,andtechnicalinformationtoWindowsdevelopersworldwide.These
productsandserviceshelpindependentsoftwaredevelopers,corporate
developers,solutionsdevelopers,andhobbyistscreateawidevarietyof
applications,primarilyforWindows95,Windows3.x,andWindowsNT.

DatabaseProducts:Databaseproductscontrolthemaintenanceand
utilizationofstructureddataorganizedintoasetofrecordsorfiles.The
Companyoffersdatabaseproductswhichspantheneedsofawidevarietyof
users,fromindividualstolargecorporations.TheseproductsincludeMicrosoft
Access,MicrosoftFoxPro(R),MicrosoftSQLServer,andavarietyofdatabase
connectivitytechnologies.MicrosoftAccessisarelationaldatabasemanagement
application,alsoofferedinconjunctionwithMicrosoftOffice,whichprovides
accesstostructuredbusinessdata.MicrosoftFoxProisadesktopdatabase
developmenttoolwhichiscompatiblewiththeindustrystandardxBase
developmentlanguage.FoxProsupportsxBaseapplicationsonMSDOS,Windows3.x,
Windows95,WindowsNT,Macintosh,andUNIX.TheOpenDatabaseConnectivity
(ODBC)productprovidesaccessandconnectivitytoreadandwritetovarious
databasesfromothercomputerindustryvendorsfromwithinMicrosoftWindows
applications.

SoftwareDevelopmentToolsandComputerLanguages:Softwaredevelopment
toolsandcomputerlanguagesallowsoftwaredeveloperstowriteprogramsina
particularcomputerlanguageandtranslateprogramsintoabinary
machinereadablesetofcommandsthatactivateandinstructthehardware.The
Companydevelopsandmarketsanumberofsoftwaredevelopmentenvironments,
languagecompilers,andsoftwaretestingtools.MicrosoftVisualC++(TM)isthe
Company'sdevelopmentsystemfor16and32bitapplicationdevelopmenton
Windows3.x,Windows95,andWindowsNT.TheMicrosoftVisualBasic(TM)
programmingsystemforWindows95,Windows3.x,andWindowsNToperatingsystems
provideseasyaccesstoawidevarietyofdatasourcesbyintegratingthe
MicrosoftAccessdatabaseengineandtheabilitytoleverageinvestmentsin
commercialapplicationsthroughOLE2.0.Additionally,theCompanyoffers
professional,highlyintegrateddevelopmentenvironmentsintheFORTRANlanguage
forMSDOS,Windows3.x,andWindowsNT.

DeveloperInformationProducts:TheCompanyprovidesthirdpartysoftware
developerswithawiderangeoftechnicalandsupportinformationthatassists
themindevelopingsoftwareproductsintendedtorunonWindows3.x,Windows95,
andWindowsNT.DeveloperssubscribetotheMicrosoftDeveloperNetwork(MSDN)
informationserviceandreceiveperiodicupdatesviaCDROMs,magazines,and
severalonlineinformationservices.

CONSUMERSYSTEMS

TheConsumerSystemsDivisionisdevelopingadvancedsystemsoftware.Core
technologiesunderdevelopmentincludebroadbandnetworkingandmultimedia
operatingsystemarchitecture,advancedvideoandgraphics,andnewauthoring
systemtechnologiesforinteractivetelevision.Thegroupisalsoresponsible

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<PAGE>6

forthedevelopmentandmarketingactivitiesoftheCompany'sSoftImage
products,whichincludeauthoringandeditingsystemsforfilmandvideo.

DESKTOPAPPLICATIONSSOFTWARE

TheDesktopApplicationsDivisiondevelopsapplicationssoftware,which
providesthePCwithinstructionsfortheperformanceofendusertasks.The
Company'sdesktopapplicationssoftwareisdesignedforusebyabroadclassof
endusers,regardlessofbusiness,industry,ormarketsegment.Primaryexamples
ofdesktopapplicationssoftwarearewordprocessing,spreadsheet,and
presentationgraphicsprograms.TheCompany'sdesktopapplicationsprogramsare
developedprincipallyforWindows95,Windows3.x,andMacintoshoperating
systems.

MicrosoftOffice:MicrosoftOffice(R)isasuiteofsoftwareprograms
featuringseamlessintegrationofthemostcommonlyuseddesktopapplications.
MicrosoftOfficeisbaseduponadocumentcentricconcept,withcommoncommands
andextensiveuseofobjectlinkingandembedding(OLE)crossapplication
capabilities.MicrosoftOfficeisavailableintwoeditions,Standardand
Professional.TheStandardEditionincludesMicrosoftWord,MicrosoftExcel,and
theMicrosoftPowerPoint(R)presentationgraphicsprogram.TheMicrosoftOffice
forWindows95versionalsoincludesSchedule+,whileearlierversionsofthe
StandardEditionincludedaclientaccesslicenseforMicrosoftMail.The
StandardEditionisavailableforWindows95,Windows3.x,andMacintosh
operatingsystems.TheMicrosoftOfficeProfessionalEditionforWindowsadds
theMicrosoftAccess(R)database.

MicrosoftWord:TheCompany'sprincipalwordprocessingprogramis
MicrosoftWord.VersionsofMicrosoftWordforWindows95andforWindows3.x
provideallthefeaturesthatusersofwordprocessingproductsexpectinthe
Windowsgraphicalenvironment,plustheabilitytohandlegraphics,tables,
spreadsheetdata,charts,andimagesimportedfromotherWindowsbasedsoftware
programs.TheCompanyalsohasWindowsNTandMacintoshversionsofMicrosoft
Word.

MicrosoftExcel:TheCompany'sspreadsheetprogramisMicrosoftExcel,
whichisavailableforWindows95,Windows3.x,WindowsNT,andMacintosh
operatingsystems.Itisanintegratedspreadsheetwithpivottable,database,
andbusinessgraphicscapabilities.MicrosoftExcelallowsfulllinkingand
embeddingofobjectsthatpermitsuserstoviewandeditgraphicsorchartsfrom
otherWindowsbasedprogramsfromtheworksheetinwhichtheobjectisstored.
MicrosoftExcelgraphicscapabilitiescanbelinkedtoitsspreadsheetstoallow
simultaneouschangestochartsaschangesaremadetothespreadsheets.

MicrosoftPowerPoint:MicrosoftPowerPointisapresentationgraphics
programforproducingslides,overheads,transparencies,andprints.TheCompany
marketsversionsofPowerPointforWindows95,Windows3.x,andtheMacintosh.

MicrosoftProject:MicrosoftProjectisacriticalpathprojectscheduling
andresourceallocationprogramthatrunsonWindows95,Windows3.x,and
Macintoshoperatingsystems.Theproductcanperformasabudgeting,monitoring,
andcostestimatingtoolforlargebusinessprojectsandasacriticalpathand
scheduleplanningtool.

ONLINESERVICES

TheMSNDivisionmanagesMSN,TheMicrosoftNetwork,anew,interactive
onlineservice.MSNprovideseasyandinexpensiveaccessforuserstoawide
rangeofgraphicallyrichonlinecontent,acompellingbusinessmodeland
platformforindependentcontentproviders(ICPs),andrichandpowerful
developmenttools.

TheMicrosoftNetwork:ClientaccesssoftwareforMSNisincludedasa
featureofWindows95,whichwasreleasedcommerciallyonAugust24,1995.The
onlineserviceprovidesaccesstotheInternet,electronicmail,bulletin
boards,andmyriadadditionalservicesofferedbyMicrosoftandbyindependent
contentproviders.TheMicrosoftInternetExplorer,anInternetbrowser,takes
advantageofvarioustechnicaladvancesinWindows95andincludesrealtime
audiocapabilities.ContentandserviceprovidersalignedwithMSN

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haveflexibilityincreatingproductsandpricingtheirservices,suchas
subscriptions,onlinetransactions,andticketevents.Servicesmaybesupported
byadvertisingandcommerce.

MSNisownedbyTheMicrosoftNetwork,LLC(formerlytheMicrosoftOnline
ServicesPartnership).Microsoftowns80%oftheentityandawhollyowned
subsidiaryofTeleCommunications,Inc.(TCI)ownstheremaining20%.

CONSUMERPRODUCTS

TheMicrosoftConsumerDivisiondevelopsandmarketsuseful,enjoyable,and
fundamentalsoftwareandservicesforsmallbusinesses,schools,andhomes.The
divisionisdevelopingandmanagingasynergisticproductlinefocusingonthe
followingcategoriesofconsumerusage:Information,Productivity,Kids,
PersonalFinance,Entertainment,andPCInputDevices.Manyofthetitlesare
availableonCDROM.

Information:ReferencetitlesincludeMicrosoftEncarta(TM)andMicrosoft
Bookshelf(R),whicharebothavailableforWindows3.xandMacintoshoperating
systems.TheEncartamultimediaencyclopediadatabaseblendstextinarticles
withawealthofinnovative,interactiveinformationpresentedthrough
animations,videos,maps,charts,sounds,andpictures.Bookshelfisa
multimediareferencelibrarythatintegratessevenwellrespectedand
authoritativeworksononecompactdisc,includingadictionary,worldatlas,
worldalmanac,thesaurus,conciseencyclopedia,andtwobooksofquotations.

PersonalinteresttitlesincludeMicrosoftCinemania(TM),aninteractive
guidetothemovieswithentriesfor19,000films,MicrosoftDinosaurs,andmany
musicaltitles.

GeographyandtravelproductsincludeAutomapRoadAtlas,acomprehensive
routeplanningprogramwithdetailedmapsandroadinformationforroutesin
NorthAmerica.

Productivity:TheCompany'sleadingconsumerproductivityproductsare
MicrosoftWorksandMicrosoftPublisher.TheCompanymarketsversionsof
MicrosoftWorksthatrunonWindows95,Windows3.x,MSDOS,andMacintosh
operatingsystems.MicrosoftWorksisanintegratedsoftwareprogramthat
containsbasicwordprocessing,spreadsheet,anddatabasecapabilitiesthat
allowstheeasyexchangeofinformationfromonetooltoanother.Microsoft
Publisherisaneasytouse,entryleveldesktoppublishingtoolforWindows95
andWindows3.xoperatingsystems.Publisherfeaturesaninteractivetoolthat
automatesthedesignprocessof12custompublications,includingnewsletters,
calendars,greetingcards,andinvitations.

Kids:TitlesforchildrenincludeMicrosoftCreativeWriterandMicrosoft
FineArtist.CreativeWriterisafullfeaturedcreativewritingandpublishing
program;FineArtistisacomprehensiveartprogram.Bothproductstake
advantageofthecomputer'sabilitytointegratetext,highqualitygraphics,
sound,andanimationtoproduceanenrichingcreativeexperienceforchildren.
TheCompanyalsohasaseriesofproductsbasedonthepopularchildren'sbooks
andtelevisionseries,TheMagicSchoolBus.

PersonalFinance:MicrosoftMoneyisafinancialorganizationproductthat
allowsuserstocomputerizetheirhouseholdfinances.MicrosoftMoneyis
availableforsystemsrunningWindows95andbecameavailableAugust24,1995.
Itisvisuallyappealing,easytouse,andfocusesonthefinancialtasksthat
peopledomostoften.MicrosoftMoneyprovidesenhancedonlinehomebanking
serviceswith17differentbanksintheU.S.Userswhoarecustomersof
participatingbankswillbeabletopaybillsonline,accessuptodate
statementsandbalances,transferfunds,andsendemailmessagesandinquiries
totheirbanks.

Entertainment:TheCompanyalsohasalineofentertainmentproducts.
MicrosoftFlightSimulator,whichwasdevelopedbyBruceArtwickOrganization
Ltd.,isapopularairplaneflyinggameavailableforMSDOSandMacintosh
operatingsystems.MicrosoftGolf,licensedfromAccessSoftware,Inc.,isa
realisticsimulationofthesportofgolfforWindows95andWindows3.x
operatingsystems.

PCInputDevices:TheCompany'smajorinputdeviceistheMicrosoftMouse,
ahandheldpointingdevicethatfacilitatesuseofaPC.Itcanbeusedwith
MSDOS,Windows95,andWindows3.xoperatingsystemsandworkswithmany
applicationsproductsfromMicrosoftandothercompanies.TheMicrosoft
BallPoint(R)Mouseisdesignedespeciallyforusewithlaptopandnotebook
computers.TheBallPointMouseisshippedwithauniversalclampthatfitson
thekeyboardsofmostlaptopcomputersandapositionerthatallows

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theusertoadjusttheangleofthemousetothekeyboard.TheCompanyalso
designedandmarketstheMicrosoftNaturalKeyboard(TM),an
ergonomicallydesignedkeyboard.

MICROSOFTPRESS

MicrosoftPresspublishesbooksaboutsoftwareproductsfromMicrosoftand
othersoftwaredevelopersandaboutcurrentdevelopmentsintheindustry.Books
publishedbyMicrosoftPresstypicallyarewrittenandcopyrightedby
independentauthorswhosubmittheirmanuscriptstotheCompanyforpublication
andwhoreceiveroyaltiesbasedonnetrevenuesgeneratedbythebook.

MicrosoftPresscontractswithanindependentcommercialprinterforthe
manufacturingofitsbooks.Publisher'sResources,Inc.actsastheCompany's
mainfulfillmenthouseintheUnitedStates,maintainingthemajorityofthe
inventoryofMicrosoftPressbooks.Booksaremarketedbyindependentsales
representativesandbyMicrosoftPresssalespersonnel.Internationally,
MicrosoftPresshasnumerousinternationalagreementswithpublishersforthe
worldwidedistributionofitsbooks.MicrosoftPresshasgrantedapublisherin
EnglandtherighttodistributeEnglishlanguageversionsofitsbooksinall
countriesexcepttheUnitedStates,Canada,CentralandSouthAmerica,and
certainAsiancountries.Inmostcases,MicrosoftPressprovideseachpublisher
withabook'smanuscript,andthepublisherarrangesforitstranslationandthe
printing,marketing,anddistributionofthetranslatedversion.

PRODUCTDEVELOPMENT

ThePCsoftwareindustryischaracterizedbyextremelyrapidtechnological
change,whichrequiresacontinuousandhighlevelofexpendituresforenhancing
existingproductsanddevelopingnewproducts.TheCompanyiscommittedto
continuedhighexpendituresforresearchandproductdevelopment.

MostoftheCompany'ssoftwareproductsaredevelopedinternally.The
Companyalsopurchasestechnology,licensesintellectualpropertyrights,and
overseesthirdpartydevelopmentforcertainproducts.Productdocumentationis
alsocreatedinternally.InternaldevelopmentenablesMicrosofttomaintain
closertechnicalcontrolovertheproductsandgivestheCompanythefreedomto
designatewhichmodificationsandenhancementsaremostimportantandwhenthey
shouldbeimplemented.TheCompanyhascreatedasubstantialbodyofproprietary
developmenttoolsandhasevolvedadevelopmentmethodologyforcreatingand
enhancingitsproducts.Thesetoolsandmethodologyarealsodesignedto
simplifyaproduct'sportabilityamongdifferentoperatingsystemsorcomputers.

TheCompanybelievesthatacrucialfactorinthesuccessofanewproduct
isgettingittomarketquicklytorespondtonewuserneedsoradvancesin
hardwaredesign,withoutcompromisingproductquality.TheCompanystrivesto
becomeasinformedaspossibleattheearliestpossibletimeaboutchanging
usagepatternsandhardwareadvancesthatmayaffectsoftwaredesign.

Duringfiscalyears1993,1994,and1995,theCompanyspent$470million,
$610million,and$860million,respectively,onproductresearchand
developmentactivities.Thoseamountsrepresented12.5%,13.1%,and14.5%,
respectively,ofnetrevenuesineachofthoseyears.

LOCALIZATION

Inordertobestservetheneedsofusersinforeigncountries,Microsoft
"localizes"manyofitsproductstoreflectlocallanguagesandconventions.In
France,forexample,allusermessagesanddocumentationareinFrenchandall
monetaryreferencesareinFrenchfrancs,andintheUnitedKingdom,monetary
referencesareinBritishpoundsandusermessagesanddocumentationreflect
certainBritishconventions.VariousMicrosoftproductshavebeenlocalizedinto
morethan30languages.

MANUFACTURING

TheCompanyhasmanufacturingfacilitieslocatedintheUnitedStates,
PuertoRico,andIreland.TheCompany'smanufacturingoperationsinvolvedisk
replication,assemblyofpurchasedparts,andfinalpackaging.Qualitycontrol
testsareperformedonpurchasedparts,finisheddisks,andotherproducts.The

6
<PAGE>9

chiefmaterialsandcomponentsusedinMicrosoftproductsincludedisksor
CDROMs,books,andmulticolorprintedmaterials.TheCompanyisoftenableto
acquirecomponentpartsandmaterialsonavolumediscountbasis.TheCompany
hasmultiplesourcesforrawmaterials,supplies,andcomponents.

TheCompanycontractsasubstantialportionofitsmanufacturingactivity
tothirdparties.Outsidemanufacturersproducevarioussoftwareproducts,
documentation,andhardwaresuchasmousepointingdevicesandkeyboards.There
areothercustommanufacturersintheeventthatoutsourcedmanufacturing
becomesunavailablefromcurrentsources.

MARKETINGANDDISTRIBUTION

Microsoftalignsitssalesandmarketingpeoplewiththreecustomertypes:
endusers,organizations,andOEMs.TheCompany'ssalesandmarketingstaff
seekstobuildlongtermrelationshipswiththesecustomersofMicrosoft
products.Microsofthasfourmajorchannelsofdistributionwhichdeliver
producttoendusers:finishedgoodsintheU.S.andCanada,Europe,andOther
International;andOEM.

Theendusercustomerunithasresponsibilityforactivitiesthattarget
enduserswhomakeindividualbuyingdecisionsforthePCstheyuseatworkor
home.Allsalesandmarketingactivitiesaimedatendusercustomersare
performedbythisunit,includingdevelopingandadministeringdistributorand
resellerrelationships;resellersalestermsandconditions;channelmarketing
andpromotions;endusermarketingprograms;supportpolicies;andseminars,
events,andsalestrainingforresellers.Thekeyproductslicensedandsoldare
theCompany'spersonaloperatingsystemsandconsumeranddesktopapplications.

Theorganizationcustomerunithasresponsibilityforactivitiesthat
targetgroupsofusersinorganizationsofallsizes.Theunitworkswith
SolutionsProviders,theMicrosoftConsultingServicesdivision,anddirectly
withorganizationstocreateenterprisewidesolutionstobusinesscomputing
problems.Theunit'ssalesandmarketingactivitiesincludeprovidingtechnical
trainingofSolutionsProvidersandchannelresellers;developingsupport
policies;andsupportingandprovidingseminars,events,andsalestrainingfor
resellersandSolutionsProviders.KeyproductsaretheCompany'sbusiness
systems,developersoftware,andsoftwaresoldviavolumelicensingprograms.In
theU.S.,theorganizationcustomerunitisfurthersegregatedintoan
enterprisecustomerunit,whichservicesonlylargeorganizationcustomers,and
amorespecializedunitwhichservicessmallandmediumcustomers.

TheOEMcustomerunitincludesthesalesforcewhichworkswithoriginal
equipmentmanufacturersthatincludeMicrosoftsoftwareontheirPCs.

FINISHEDGOODSCHANNELS

DistributorsandResellers:TheCompanymarketsitsproductsinthe
finishedgoodschannelsprimarilythroughindependentnonexclusivedistributors
andresellers.DistributorsincludeComputer2000,IngramMicro,andMerisel.
ResellersincludeEggheadSoftware,Softbank,SoftwareSpectrum,andStream
International(formerlyCorporateSoftware).Microsofthasanetworkoffield
salesrepresentativesandfieldsupportpersonnelwhosolicitordersfrom
distributorsandresellersandprovideproducttrainingandsalessupport.

LargeAccounts:TheCompanyhasaprogramdesignedtomakeiteasierfor
largeorganizationstoacquireandmaintainMicrosoftproducts.Theprogram,
MicrosoftSelect,offersflexiblesoftwareacquisition,licensing,and
maintenanceoptionsspeciallydesignedtomeettheneedsoflargemultinational
organizations.Targetedaudiencesincludetechnologyspecialistsandinfluential
endusersinlargeenterprises.Marketingeffortsandfulfillmentaregenerally
coordinatedwiththeMicrosoftnetworkoflargeaccountresellers.

SolutionsProviders:Microsoft'sSolutionsProvidersprogramisa
comprehensivesupportrelationshipwithindependentorganizationsthatprovide
networkandsystemintegration,customdevelopment,training,andtechnical
supportforbusinesscomputingsolutions.Theprogramsupportsvalueadded
resellers(VARs),systemintegrators,consultants,anddevelopers,aswellas
technicalsupportandtrainingorganizations.Underthisbusinesspartnership
strategy,theCompanyprovidessalesandproductinformation,development
services,earlyaccesstoMicrosoftproducts,andcustomersupporttools
includingprioritytelephonesupport,education,

7
<PAGE>10

andbusinessdevelopmentsupport.Toensurehighqualitytechnicalservicesfor
theCompany'sproducts,MicrosoftSolutionsProvidersarerequiredtohave
Microsoftcertifiedprofessionalsonstaff.

ConsultingServices:TheCompany'sConsultingServicesDivisionassists
customersinusingtheCompany'scomputeroperatingsystems,applications,and
communicationsproducts.ThegroupworkswithSolutionsProvidersandhelps
createenterprisewidecomputingsolutionsforlargecorporateaccounts.

DirectMarketing:Microsoftpromotessomeofitsproductsthroughdirect
marketingtechniquesdirectedtowardexistingandpotentialusersofthe
Company'sproducts.Promotionalmaterialsaretypicallydeliveredthroughthe
mail,utilizinglistsoftargetedindividuals.Fulfillmentofproducttotheend
userisaccomplishedbyeitherdirectshipmentorthroughresellers.

InternationalSalesSites:TheCompanyhasestablishedmarketing,support,
and/ordistributionsubsidiariesinArgentina,Australia,Austria,Belgium,
Brazil,Canada,Chile,Colombia,CostaRica,theCzechRepublic,Denmark,
Ecuador,Finland,France,Germany,Greece,HongKong,Hungary,India,Ireland,
Israel,Italy,Japan,Malaysia,Mexico,Morocco,theNetherlands,NewZealand,
Norway,thePeople'sRepublicofChina,Peru,thePhilippines,Poland,Portugal,
PuertoRico,Russia,Singapore,Slovakia,Slovenia,SouthAfrica,SouthKorea,
Spain,Sweden,Switzerland,Taiwan,Thailand,Turkey,UnitedArabEmirates,the
UnitedKingdom,andVenezuela.

TheCompany'sinternationaloperations,bothOEMandfinishedgoods,are
subjecttocertainriskscommontoforeignoperationsingeneral,suchas
governmentalregulations,importrestrictions,andforeignexchangerate
fluctuations.Microsofthedgesaportionofitsforeignexchangerisk.

OEMCHANNEL

TheCompany'soperatingsystemsarelicensedprimarilytoOEMsunder
agreementsthatgranttheOEMstherighttodistributecopiesofMicrosoft's
productswiththeircomputers.TheCompanyalsomarketscertainlanguageand
applicationsprogramstoOEMsundersimilararrangements.Inaddition,the
CompanymarketstheMicrosoftMouse,BallPointMouse,andNaturalKeyboardto
OEMsfordistributiontobuyersoftheircomputers.Inalmostallcases,the
productsaredistributedunderMicrosofttrademarks.TheCompanyhasOEM
agreementscoveringoneormoreofitsproductswithvirtuallyallofthemajor
microcomputerOEMs,includingASTResearch,Acer,DigitalEquipmentCorporation,
Dell,Compaq,Gateway2000,HewlettPackard,IBM,NEC,Olivetti,PackardBell,
andToshiba.

ADVERTISING

TheCompanyworkscloselywithlargeadvertisinganddirectmarketing
firms.Advertising,directmarketing,worldwidepackaging,andmarketing
materialsaretargetedtovariousendusersegments.TheCompanyutilizesbroad
consumermedia(television,radio,andbusinesspublications)andtrade
publications.MicrosofthasprogramsunderwhichqualifyingresellersandOEMs
arereimbursedforcertainadvertisingexpenditures.Microsoftalsoinvests
heavilyindirectmarketingandcustomersatisfactionareas.In1996,the
Companyplanstospendmorethan$150milliononabroadcampaignemphasizing
theMicrosoftbrandidentity.

CUSTOMERS

Asdescribedabove,Microsofthasthreecustomertypes:endusers,
organizations,andOEMs.MostendusersofMicrosoftproductsareindividualsin
businesses,governmentagencies,educationalinstitutions,andathome.These
endusersobtainMicrosoftproductsprimarilythroughdistributors,resellers,
andOEMs,whichincludecertainMicrosoftproductswiththeirhardware.Notesto
FinancialStatementsdescribecustomersthatrepresentmorethan10%ofthe
Company'srevenues.TheCompany'spracticeistoshipitsproductspromptlyupon
receiptofpurchaseordersfromitscustomersand,consequently,backlogisnot
significant.

8
<PAGE>11

PRODUCTSUPPORTSERVICES

TheCompany'sProductSupportServicesgroup,withlocationsintheU.S.
andinvariousMicrosoftsubsidiaries,providesproductsupportcoverageoptions
tomeettheneedsofusersofMicrosoftproducts.TheCompanyhiresindividuals
withprovenproductexpertiseandprovidesthemwithproductivitytools,
continuousproducteducationandtraining,andconsistentprocessestodeliver
qualitysupportforMicrosoftproducts.Certaintelephonesupportisalso
suppliedbyqualifiedthirdpartysupportorganizations.Coverageoptionsrange
fromstandardnochargetolltelephonesupporttofeebasedofferingsproviding
unlimited800numbertelephoneandelectronictechnicalsupportacrossall
Microsoftproducts24hoursperday,7daysperweek.

UsershaveaccesstoMicrosoftKnowledgeBase,alibraryofthousandsof
technicalarticlesthatisupdatedregularlywithusefulinformationregarding
Microsoftproducts.MicrosoftprovidesaccesstoKnowledgeBaseviaMSN,America
Online,CompuServe(R),GEnie(TM),Prodigy,andtheInternet.Additionally,the
Companyofferstwoinformationsubscriptionservices:MicrosoftTechNetand
MicrosoftDeveloperNetwork.

Asasupplementoralternativetodirectsupport,theCompanyenhancesthe
thirdpartysupportchannelbyprovidingMicrosoftSolutionsProviderswith
education,training,tools,andsupport.MicrosoftSolutionsProvidersinclude
AuthorizedTrainingCenters,whichofferadvancedproducteducationand
certificationonMicrosoftproducts;andAuthorizedSupportCenters,which
provideawidespectrumofmultinationalsupport,multivendorsupport,and
integrationservices.

COMPETITION

Themicrocomputersoftwarebusinessisintenselycompetitiveandsubjectto
extremelyrapidtechnologicalchange.Microsoftfacesformidablecompetitionin
allareasofitsbusinessactivity,includingcompetitionfrommanycompanies
whoserevenuesandresourcesaremuchlargerthanMicrosoft's.

Operatingsystems.Microsoft'soperatingsystemsproductsfacesubstantial
competitionfromanumberofsources.MajorcompetitorssuchasIBM,Apple
Computer,DigitalEquipmentCorporation,andothers,whicharevertically
integratedinbothsoftwaredevelopmentandhardwaremanufacture,havedeveloped
operatingsystemsthattheypreinstalloncomputersoftheirownmanufacture.
Manyoftheseoperatingsystemsoftwareproductsarealsolicensedtothird
partyOEMsforpreinstallationontheirmachines.Microsoft'soperatingsystems
productscompetewithUNIXbasedoperatingsystemsfromawiderangeof
companiesincludingIBM,AT&T,HewlettPackard,SunMicrosystems,Novell,The
SantaCruzOperation,andothers.VariantsofUNIXrunonawidevarietyof
computerplatformsandaregainingincreasingacceptanceasdesktopoperating
systems.Asmicrocomputertechnologyincreasinglymovestowardconnectivityand
communications,Microsoft'soperatingsystemsproductswillfaceincreased
competitionfromnetworkserveroperatingsystems,suchasNovellNetWare,and
"middleware"productssuchasLotusNotesfromIBM.Microsoft'soperating
systemsproductsalsofaceconstantcompetitionfromsoftwarepirateswho
unlawfullycopyanddistributeMicrosoft'scopyrightedsoftwareproducts.

Businesssystems.TheCompanyisafairlyrecententrantinto
enterprisewidecomputingsolutions.Assuch,competitorsenjoylargermarket
sharesandinstalledbases.Softwaredevelopersthatprovidecompetingserver
applicationsincludeOracle,Sybase,andInformix.Therearealsoseveral
softwarevendorswhoofferconnectivityservers.Additionally,LotusDevelopment
(nowownedbyIBM)hasalargeinstalledbaseofLotusNotesandcc:Mail,which
competewiththeCompany'sworkgroupproducts.

Desktopapplications.TheCompany'scompetitorsincludemanysoftware
applicationvendors,suchasLotus,Oracle,Claris,andNovell.Someofthe
competitorsinthisarenadonotofferproductsineverymajordesktop
applicationcategory(e.g.,spreadsheet,wordprocessors,databases,etc.)and
asaresultmaybeabletomoreeffectivelyfocustheireffortsonenhancing
particularproductofferings.

Onlineservices.Anenormousrangeofcompanies,includingmedia
conglomerates,telephonecompanies,cablecompanies,retailers,hardware
manufacturers,andsoftwaredevelopers,arecompetingtomakeonlineservices
widelyavailabletocomputerusers.Microsoft'snewonlineservicesnetwork,
MSN,faces

9
<PAGE>12

formidablecompetitionfrombothestablishedonlinenetworks,suchasCompuServe
(ownedbyH&RBlock),Prodigy(ownedbyIBMandSears),AmericaOnline,and
others,andimpendingentrants,suchasanumberofnewonlinenetworksthat
willbeofferedbyAT&T.MSNandotheronlinenetworksalsofacecompetition
fromonlineservicesthatareofferedtousersdirectlyviatheInternet,
including,inparticular,theWorldWideWebportionoftheInternet.
Additionally,Netscape,Adobe,SunMicrosystems,andmanyothercompaniesoffer
softwareforInternetserversandforusernavigationoftheInternet.

Developer.TheCompany'sdeveloperproductscompeteagainstofferingsfrom
Sybase,Borland,andmanyothercompanies.

Consumer.Microsoft'sConsumerdivisionfacesmanysmallerbutfocused
competitors,particularlyintheareasofentertainmentandeducation.Examples
includeIntuit,Broderbund,ElectronicArts,Softkey,TheLearningCompany,
DavidsonAssociates,Voyager,Comptons,Edmark,SierraOnLine,andDorling
Kindersley.Stillothercompetitorsownbrandedcontent,suchasWaltDisneyand
LucasArts.Additionally,asplatformsbecomemorepowerful,PCbasedgameswill
competeheadtoheadwithgamescreatedforproprietarysystemssuchasNintendo
andSega.TheConsumerDivision'sinputdevicesfacesubstantialcompetition
fromcomputermanufactures,sincecomputersaretypicallysoldwithakeyboard
andmouse,andothermanufacturersofthesedevices.

TheCompanybelievesthattheprincipalcompetitivefactorsinmarketingPC
softwarearetheproduct'sreputation,featuresandfunctions,easeofuse,
reliability,pricerelativetoperformance,timelinessofdelivery,and
availabilityandqualityofsupportservices.Thereisnoassurancethatthe
Company'scompetitivepositionwillnotbeadverselyaffectedbyoneormoreof
thesefactorsinthefuture,particularlyinviewofthefastpaceof
technologicalchangeinthesoftwareindustry.

EMPLOYEES

AsofJune30,1995,theCompanyemployed17,801people,12,193
domesticallyand5,608internationally.Ofthetotal,5,397wereinproduct
researchanddevelopment,9,166insales,marketing,andsupport,1,639in
manufacturinganddistribution,and1,599infinanceandadministration.
Microsoft'ssuccessishighlydependentonitsabilitytoattractandretain
qualifiedemployees.Competitionforemployeesisintenseinthesoftware
industry.Todate,theCompanybelievesithasbeensuccessfulinitseffortsto
recruitqualifiedemployees,butthereisnoassurancethatitwillcontinueto
beassuccessfulinthefuture.NoneoftheCompany'semployeesaresubjectto
collectivebargainingagreements.TheCompanybelievesthatrelationswithits
employeesareexcellent.

ITEM2.PROPERTIES

TheCompany'scorporateofficesconsistofapproximately2.2millionsquare
feetofofficebuildingspacelocatedinRedmond,Washington.Therearetwo
sitesthattotalapproximately300acresofland.TheCompanyisconstructinga
225,000squarefootofficebuilding,whichisexpectedtobecompletedinthe
springof1996.Additionally,constructioniscontinuingonanotherseriesof
officebuildingswithapproximately685,000squarefeetofspace.Occupancyon
thissitewillbephasedstartinginthefallof1995andcompletedbyspringof
1996.TheCompanyownsallofitscorporatecampus.

TheCompany'sdomesticmanufacturinganddistributionoperationconsistsof
a265,000squarefootfacilitysituatedon23acresinnearbySnohomishCounty,
Washington,anda45,000squarefootdiskduplicationfacilityinHumacao,
PuertoRico.ThePuertoRicanfacility,whichbeganoperationinApril1990,is
leasedundera10yearlease,withanoptiontorenewforanadditional10
years.TheCompany'sEuropeanmanufacturingoperationconsistsofa155,000
squarefootfacilitysituatedon12acresinDublin,Ireland.TheIrelandsite
alsoincludesa25,000squarefootofficebuildingforinternational
localization.Anadditional80,000ofsquarefeetofofficespacefor
localizationisbeingconstructedinIreland.

TheCompanyownsa65,000squarefootofficebuildingonsevenacresof
landplusanother33acresnearLondon,England.InLesUlis,France,the
Companyownsa110,000squarefootofficebuildingonfouracresofland.

10
<PAGE>13

Inaddition,theCompanyleasesofficespaceinnumerouslocationsinthe
UnitedStatesandmanyothercountries.

ITEM3.LEGALPROCEEDINGS

SeeNotestoFinancialStatementsContingencies.

ITEM4.SUBMISSIONOFMATTERSTOAVOTEOFSECURITYHOLDERS

Nomattersweresubmittedtoavoteofsecurityholdersduringthefourth
quarteroffiscal1995.

ITEME.O.EXECUTIVEOFFICERSOFTHEREGISTRANT

TheexecutiveofficersofMicrosoftasofSeptember8,1995wereas
follows:

<TABLE>
<CAPTION>
NAMEAGEPOSITIONWITHTHECOMPANY

<S><C><C>
WilliamH.Gates39ChairmanoftheBoard;ChiefExecutiveOfficer
StevenA.Ballmer39ExecutiveVicePresident,WorldwideSalesandSupport
RobertJ.Herbold53ExecutiveVicePresident;ChiefOperatingOfficer
FrankM.(Pete)Higgins37GroupVicePresident,ApplicationsandContentGroup
PaulA.Maritz40GroupVicePresident,PlatformsGroup
NathanP.Myhrvold36GroupVicePresident,ApplicationsandContentGroup
JamesE.Allchin43SeniorVicePresident,BusinessSystemsDivision
RogerJ.Heinen,Jr.44SeniorVicePresident,DeveloperDivision
JoachimKempin53SeniorVicePresident,WorldwideOEMSales
CraigJ.Mundie46SeniorVicePresident,ConsumerSystemsDivision
WilliamH.Neukom53SeniorVicePresident,LawandCorporateAffairs;
Secretary
JeffreyS.Raikes37SeniorVicePresident,NorthAmerica
BradA.Silverberg41SeniorVicePresident,PersonalSystemsDivision
PatriciaQ.Stonesifer39SeniorVicePresident,ConsumerDivision
BernardP.Vergnes50SeniorVicePresident,Microsoft;President,Microsoft
Europe
MichaelW.Brown49VicePresident,Finance;ChiefFinancialOfficer
</TABLE>

Mr.GatescofoundedMicrosoftin1975andhasbeenitsChiefExecutive
OfficerandChairmanoftheBoardsincetheoriginalpartnershipwas
incorporatedin1981.

Mr.BallmerwasnamedExecutiveVicePresident,WorldwideSalesandSupport
inFebruary1992.HehadbeenSeniorVicePresident,SystemsSoftwaresince
1989.From1984until1989,Mr.BallmerservedasVicePresident,Systems
Software.HejoinedMicrosoftin1980.

Mr.HerboldjoinedMicrosoftasExecutiveVicePresidentandChief
OperatingOfficerinNovember1994.HerboldhadbeenwithTheProcter&Gamble
Companysince1968,withexperienceininformationservices,advertisingand
marketresearch.Mostrecently,hewasP&G'sSeniorVicePresident,Information
ServicesandAdvertising.

Mr.HigginswasnamedGroupVicePresident,ApplicationsandContentGroup
inMay1995.HewasnamedSeniorVicePresident,DesktopApplicationsDivision
inMarch1993.HehadbeenVicePresident,DesktopApplicationsDivisionsince
1992andpreviously,VicePresident,AnalysisBusinessUnitsince1991.Mr.
HigginsjoinedMicrosoftin1983.

Mr.MaritzwasnamedGroupVicePresident,PlatformsGroupinMay1995.He
wasnamedSeniorVicePresident,ProductandTechnologyStrategyinNovember
1994andhadbeenSeniorVicePresident,Systems

11
<PAGE>14

DivisionsinceFebruary1992.HehadbeenVicePresident,AdvancedOperating
Systemssince1989.Mr.MaritzjoinedMicrosoftin1986.

Mr.MyhrvoldwasnamedGroupVicePresident,ApplicationsandContentGroup
inMay1995.HewasnamedSeniorVicePresident,AdvancedTechnologyinJuly
1993.HehadbeenVicePresident,AdvancedTechnologyandBusinessDevelopment
since1989.Mr.MyhrvoldjoinedMicrosoftin1986.

Mr.AllchinwasnamedSeniorVicePresident,BusinessSystemsDivisionin
November1994.HehadbeenVicePresident,BusinessSystemsDivision,sinceJuly
1991.PriortojoiningMicrosoftin1991,Mr.Allchinspentsevenyearsat
BanyanSystems,Inc.,whereheheldnumerouspositions,mostrecentlySenior
VicePresidentandChiefTechnologyOfficer.

Mr.HeinenjoinedMicrosoftasSeniorVicePresident,DeveloperDivisionin
January1993.HehadbeenSeniorVicePresidentandGeneralManagerofthe
MacintoshSoftwareDivisionatAppleComputer,Inc.from1990to1993.Priorto
1990,HeinenwasacorporateconsultingengineerforsoftwareatDigital
EquipmentCorporation.

Mr.KempinwasnamedSeniorVicePresident,WorldwideOEMSalesinAugust
1993.HehadbeenVicePresident,OEMSalessince1987.Mr.Kempinhadservedas
GeneralManagerofMicrosoft'sGermansubsidiarysinceitsinceptionin1983.

Mr.MundiewasnamedSeniorVicePresident,ConsumerSystemsDivisionin
May1995.HehadbeenVicePresident,AdvancedConsumerTechnologysinceJuly
1993.HejoinedMicrosoftasGeneralManager,AdvancedConsumerTechnologyGroup
inDecember1992.Previously,Mr.MundiehadbeenCEOofAlliantComputer
SystemsCorporation,whichdeclaredbankruptcyonMay25,1992andwas
liquidated.

Mr.NeukomwasnamedSeniorVicePresident,LawandCorporateAffairsin
February1994.HejoinedMicrosoftin1985asVicePresident.Mr.Neukom
formerlywasamemberoftheSeattlelawfirmofShidlerMcBroomGates&Lucas
(nowPrestonGates&Ellis),Microsoft'sprimaryoutsidelawfirm.

Mr.RaikeswasnamedSeniorVicePresident,MicrosoftNorthAmericain
January1992.HehadbeenVicePresident,OfficeSystemssince1990.Mr.Raikes
cametoMicrosoftin1981.

Mr.SilverbergwasnamedSeniorVicePresident,PersonalSystemsDivision
inNovember1994.HejoinedMicrosoftinAugust1990asVicePresident,Personal
OperatingSystemsDivision.From1987untiljoiningMicrosoft,Mr.Silverberg
servedasVicePresident,EngineeringforBorlandInternational,Inc.

Ms.StonesiferwasnamedSeniorVicePresident,ConsumerDivisionin
November1994,afterhavingbeenVicePresident,ConsumerDivisionsinceJune
1993.ShehadbeenVicePresident,Supportsince1992andGeneralManagerof
ProductSupportServicessince1991.Previously,shewasGeneralManagerof
MicrosoftCanadaandbeforethat,GeneralManagerforMicrosoftPress.Priorto
joiningMicrosoftin1988,Ms.StonesiferwaswithQueCorporation,apublisher
ofbooksforcomputerusers.

Mr.VergnesisaSeniorVicePresidentofMicrosoftandwasnamed
President,MicrosoftEuropeinApril1992.HehadbeenVicePresident,Europe
since1989.Mr.VergnesservedasGeneralManagerofMicrosoft'sFrench
subsidiarysinceitsinceptionin1983.

Mr.BrownwasnamedChiefFinancialOfficerinAugust1994andVice
President,FinanceinApril1993.HehadbeenTreasurersinceFebruary1990,
afterjoiningMicrosoftinJanuary1990.Previously,Mr.Brownwasapartnerin
theaccountingfirmDeloitte&Touche,Microsoft'sindependentauditors.

12
<PAGE>15

PARTII

ITEM5.MARKETFORREGISTRANT'SCOMMONSTOCKANDRELATEDSTOCKHOLDERMATTERS

TheCompany'scommonstockistradedonTheNasdaqStockMarketunderthe
symbolMSFT.OnSeptember8,1995,therewere35,643holdersofrecordofthe
Company'scommonstock.TheCompanyhasnotpaidcashdividendsonitscommon
stock.

QUARTERLYFINANCIALANDSTOCKPRICEINFORMATION
(INMILLIONS,EXCEPTPERSHAREDATA)

<TABLE>
<CAPTION>
QUARTERENDED

SEPTEMBER30DECEMBER31MARCH31JUNE30YEAR

<S><C><C><C><C><C>
1993
Netrevenues........................$818$938$958$1,039$3,753
Operatingincome....................2893263383731,326
Netincome..........................209236243265953
Earningspershare..................0.350.390.400.431.57
Commonstockpricepershare:
High..............................41471/2471/84949
Low...............................323/4377/8383/8397/8323/4
1994
Netrevenues........................$983$1,129$1,244$1,293$4,649
Netincome..........................2392892563621,146
High..............................441/4431/4445/8545/8545/8
Low...............................351/8383941351/8
1995
Netrevenues........................$1,247$1,482$1,587$1,621$5,937
Netincome..........................3163733963681,453
High..............................591/4651/8741/8923/8923/8
Low...............................467/8537/8581/4683/4467/8
</TABLE>

13
<PAGE>16

ITEM6.SELECTEDFINANCIALDATA

FINANCIALHIGHLIGHTS
(INMILLIONS,EXCEPTEARNINGSPERSHARE)

<TABLE>
<CAPTION>
YEARENDEDJUNE30

19911992199319941995

<S><C><C><C><C><C>
Netrevenues..................................$1,843$2,759$3,753$4,649$5,937
Netincome....................................4637089531,1461,453
Earningspershare............................0.821.201.571.882.32
Returnonnetrevenues........................25.1%25.7%25.4%24.7%24.5%
Cashandshortterminvestments...............$686$1,345$2,290$3,614$4,750
Totalassets..................................1,6442,6403,8055,3637,210
Stockholders'equity..........................1,3512,1933,2424,4505,333
</TABLE>

ITEM7.MANAGEMENT'SDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTS
OFOPERATIONS

RESULTSOFOPERATIONSFOR1993,1994,AND1995

Microsoftdevelops,manufactures,licenses,sells,andsupportsawide
rangeofsoftwareproducts,includingoperatingsystemplatformsforpersonal
computers(PCs),workstations,andservers;businessandconsumerapplications
forproductivity,reference,education,andentertainment;anddevelopment
tools.Microsoftalsosellspersonalcomputerbooksandinputdevices,andis
engagedintheresearchanddevelopmentofonlineandadvancedtechnology
softwareproducts.

NETREVENUES

Microsoft'snetrevenuesgrew24%inthefiscalyearendedJune30,1994
and28%infiscalyear1995.Softwarelicensevolume(asopposedtoprice)
increaseshavebeentheprincipalfactorinMicrosoftrevenuegrowth.The
averagesellingpriceperlicensehasdecreased,primarilybecauseofgeneral
shiftsinthesalesmixfromretailpackagedproductstolicensingprograms,
fromnewproductstoproductupgrades,andfromstandalonedesktopapplications
tointegratedproductsuites.Averagerevenueperlicensefromoriginal
equipmentmanufacturer(OEM)licensesandcorporatelicenseprograms,suchas
MicrosoftSelect,islowerthanaveragerevenueperlicensefromretail
versions.Likewise,productupgradeshavelowerpricesthannewproducts.Also,
pricesofintegratedsuites,e.g.,MicrosoftOffice,arelessthanthesumof
thepricesfortheindividualprogramsincludedintheseproductswhensuch
programsarelicensedseparately.

Productgroups.Microsofthasaplatformsproductgroupandanapplications
andcontentproductgroup.

Platformsproductgrouprevenueswere$1.52billion,$1.83billion,and
$2.36billionin1993,1994,and1995.

PrincipalpersonalsystemsproductshavebeentheMSDOSandMicrosoft
Windowsoperatingsystems.MSDOSispreinstalledonPCsbymostOEMs,and
revenuesfromsuchlicensesincreasedsteadilyinboth1994and1995.Revenues
fromretailupgradeversionsofMSDOSdecreasedinboth1994and1995aftera
strongincreasein1993whentheMSDOS6Upgradewasreleased.Therewereno
majorupgradesofMSDOSin1994or1995.TheMicrosoftWindowsoperatingsystem
wasanincreasinglystrongcontributortorevenuesasthenumberofnewPCs
preinstalledwithWindowsincreasedrapidlyduringthethreeyearperiod.
Windowsunitslicensedtonewuserswere15million,30million,and40million
in1993,1994,and1995.

Businesssystemsproductsofferanenterprisewidedistributed
client/serverenvironmentbasedontheMicrosoftWindowsNToperatingsystemand
theserverapplicationsintheMicrosoftBackOfficefamilyofproducts.Revenues
fromtheseproductsincreasedstronglyin1994and1995.

14
<PAGE>17

Revenuesfromdeveloperproductsincreasedsteadilyinallthreeyears,as
moreindependentsoftwarevendors,corporatedevelopers,andsolutions
developerslicensedtoolstodevelopsoftwareforWindowsandWindowsNT.

Applicationsandcontentproductgrouprevenueswere$2.24billion,$2.82
billion,and$3.58billionin1993,1994,and1995.

Increasesindesktopapplicationsrevenueswereledbystrongsalesof
MicrosoftOffice.TheMicrosoftOfficeStandardproductincludestheMicrosoft
Excelspreadsheet,theMicrosoftWordwordprocessor,theMicrosoftPowerPoint
presentationgraphicsprogram,andaMicrosoftMailclientaccesslicense,while
theMicrosoftOfficeProfessionalversionalsoincludestheMicrosoftAccess
databasemanagementsystem.SalesofstandaloneversionsofMicrosoftExceland
MicrosoftWorddecreasedin1994and1995asthesalesmixcontinuedtoshiftto
integratedproductsuites.

MicrosoftHome,abroadrangeofconsumerproducts,alsoshowedcontinued
growth.TheMicrosoftHomebrandincludesCDROMmultimediareferencetitlesand
softwareproductsforhomeandsmallofficeproductivity,children'screativity,
andentertainment.MicrosoftalsomarketstheMicrosoftMouseandMicrosoft
NaturalKeyboard.Mousesaleswereflatduringthethreeyearperiod,whilethe
initialintroductionofthekeyboardincreasedrevenuesin1995.

Saleschannels.MicrosoftdistributesitsproductsprimarilythroughOEM
licenses,corporatelicenses,andretailpackagedproducts.OEMchannelrevenues
arelicensefeesfromoriginalequipmentmanufacturers.Microsofthasthree
majorgeographicsalesandmarketingorganizations:U.S.andCanada,Europe,and
elsewhereintheworld(OtherInternational).Salesofcorporatelicensesand
packagedproductsinthesechannelsareprimarilytodistributorsandresellers.

OEMchannelrevenueswere$731millionin1993,$1.18billionin1994,and
$1.65billionin1995.TheprimarysourceofOEMrevenuesisthelicensingof
operatingsystems,particularlyMSDOSandMicrosoftWindows.Assuch,OEM
channelrevenuesarehighlydependentonPCshipmentvolume.

U.S.andCanadachannelrevenueswere$1.37billion,$1.58billion,and
$1.88billionin1993,1994,and1995.

RevenuesinEuropewere$1.26billion,$1.36billion,and$1.49billionin
1993,1994,and1995.GrowthrateshavebeenlowerinEuropethaninother
geographicareasduetogeneraleconomicslowness,higherexistingmarket
shares,andamoredramaticshifttocorporatelicensingprograms.

OtherInternationalchannelrevenueswere$392millionin1993,$532
millionin1994,and$924millionin1995.Growthratescontinuetobestrong
duetocustomeracceptanceofnewlylocalizedproducts,particularlyinJapan,
andearlyentranceintoemergingmarkets.

Microsoft'soperatingresultsareaffectedbyforeignexchangerates.
Approximately44%,40%,and37%ofMicrosoft'srevenueswerecollectedin
foreigncurrenciesduring1993,1994,and1995.SincemuchofMicrosoft's
internationalmanufacturingcostsandoperatingexpensesarealsoincurredin
localcurrencies,theimpactofexchangeratesonnetincomeislessthanon
revenues.

OPERATINGEXPENSES

Costofrevenues.Asapercentageofrevenues,costofrevenueswas16.9%
in1993,16.4%in1994,and14.8%in1995.Thepercentagedecreasedduetoa
greaterproportionoflicensestoOEMsandcorporations,lowerdiskpricesfrom
vendors,andahigherproportionofCDROMversions.Thesefactorswereoffset
somewhatbyincreasedsalesoflowermarginproductssuchasintegratedsuites
andupgrades.

Researchanddevelopment.MicrosoftmadesubstantialinvestmentsinR&Din
1994,andtherateofgrowthacceleratedin1995.Expenseincreasesresulted
primarilyfromdevelopmentstaffheadcountgrowthandhigherlevelsof
thirdpartydevelopmentcostsinmanyareas,includingdevelopmenteffortsfor
Windows95andTheMicrosoftNetwork.R&Dcostsalsoincreasedforbusiness
systems,consumersystems,desktopapplications,andconsumerproducts.

15
<PAGE>18

Salesandmarketing.Theincreaseintheabsolutedollaramountofsales
andmarketingexpensein1995wasdueprimarilytoincreasedproductspecific
marketingprograms,aMicrosoftbrandadvertisingcampaign,andcontinued
expansionofProductSupportServices.In1994,salesandmarketingexpenses
increasedataslowerratethanrevenuesduetoaconcertedperformance
orientationatallsalessites.

Generalandadministrative.Increasesingeneralandadministrative
expensesin1994and1995wereprimarilyattributabletohigherlegalcostsand
growthinthecomputersystemsandthenumberofpeoplenecessarytosupport
overallincreasesinthescopeofMicrosoft'soperations.

NONOPERATINGITEMS

Interestincome,whichwas$83million,$104million,and$193millionin
1993,1994,and1995,increasedprimarilyasaresultofalargerinvestment
portfoliogeneratedbycashfromoperations.

Inthefourthquarterof1995,Microsoftpaida$46millionbreakupfeeto
IntuitInc.inconnectionwiththeterminationofaplannedmerger.

Inthethirdquarterof1994,Microsoftrecordeda$120millionchargeto
reflecttheestimatedimpactofajuryverdictintheStacElectronicspatent
litigationandrelatedexpenses.InJune1994,Microsoftreachedanagreement
withStactosettlethelitigationandadjusteditsestimateaccordingly,
resultinginacreditof$30millioninthefourthquarterandanetpretax
chargeof$90millionfor1994.

PROVISIONFORINCOMETAXES

Theeffectivetaxrateincreasedfrom32.0%in1993to33.5%in1994and
33.0%in1995primarilybecauseofanincreaseintheU.S.statutoryincometax
rate.

NETINCOME

Netincomeasapercentofrevenuesdecreasedin1995duetoincreased
relativeresearchanddevelopment,salesandmarketing,andgeneraland
administrativeexpenses,offsetbythelowerrelativecostofrevenuesandthe
higherrelativenetnonoperatingincome.Thenetincomepercentagedecreasedin
1994,primarilyduetothepatentlitigationchargeandincreasedresearchand
developmentexpenses,offsetbythelowerrelativelevelofsalesandmarketing
expenses.

FINANCIALCONDITION

Microsoft'scashandshortterminvestmentstotaled$4.75billionatJune
30,1995.Theportfolioisdiversifiedamongsecuritytypes,industries,and
individualissuers.Microsoft'sinvestmentsareinvestmentgradeandliquid.The
portfolioisinvestedpredominantlyinU.S.dollardenominatedsecurities,but
alsoincludesforeigncurrencypositionsinanticipationofcontinued
internationalexpansion.Microsoft'sportfolioisinvestedinshortterm
securitiestominimizeinterestrateriskandfacilitaterapiddeploymentinthe
eventofimmediatecashneeds.Microsofthasnomateriallongtermdebt.
Microsofthas$70millionofstandbymulticurrencylinesofcreditthatsupport
foreigncurrencyhedgingandinternationalcashmanagement.

Stockholders'equityatJune30,1995exceeded$5.3billion.

Cashgeneratedfromoperationshasbeensufficienthistoricallytofund
Microsoft'sinvestmentinresearchanddevelopmentactivitiesandfacilities
expansion.AsMicrosoftgrows,investmentswillcontinueinresearchand
developmentinexistingandadvancedareasoftechnology.Microsoft'scashwill
alsobeusedtoacquiretechnologyandtofundventuresandotherstrategic
opportunities.Additionstoproperty,plant,andequipmentareexpectedto
continue,includingfacilitiesandcomputersystemsforresearchand
development,salesandmarketing,productsupport,andadministrativestaff.For
example,onJune30,1995,commitmentsrelatedtotheconstructionofnew
buildingsapproximated$150million.

Theexerciseofstockoptionsbyemployeesprovidesadditionalcash.These
proceedshavebeenusedinMicrosoft'sopenmarketstockrepurchaseprogram
throughwhichMicrosoftprovidessharesforstockoptionandstockpurchase
plans.Thisprogramwillcontinuein1996.

16
<PAGE>19

During1995,toenhanceitsstockrepurchaseprogram,Microsoftsoldequity
putwarrantstoindependentthirdparties.Theseputwarrantsentitlethe
holderstosellsharesofMicrosoftcommonstocktoMicrosoftoncertaindates
atspecifiedprices.

Alsoduring1995,asubsidiaryofTeleCommunications,Inc.(TCI)purchased
a20%minorityinterestinthenewlyformedMicrosoftOnlineServices
Partnership.TCIcontributed$125millionofTCIcommonstock,andMicrosoft
contributedthebusinessassetsofitsonlineservice,TheMicrosoftNetwork,
whichwasindevelopment.

Managementbelievesexistingcashandshortterminvestmentstogetherwith
fundsgeneratedfromoperationswillbesufficienttomeetoperating
requirementsin1996.Microsoft'scashandshortterminvestmentsarealso
managedtobeavailableforstrategicinvestmentopportunitiesorother
potentiallargescalecashneedsthatmayariseinpursuitofMicrosoft's
longtermstrategies.

Microsoftshareholdershavealsoauthorizedtheissuanceofupto100
millionsharesofpreferredstock,whichmaybeusedforanypropercorporate
purpose.

Microsofthasnotpaidcashdividendsonitscommonstock.

OUTLOOKANDUNCERTAINTIES

Microsoftdoesnotprovideforecastsofpotentialfuturefinancial
performance.WhilemanagementofMicrosoftisoptimisticaboutMicrosoft's
longtermprospects,thefollowingissuesanduncertainties,amongothers,
shouldbeconsideredinevaluatingitsgrowthoutlook.

Rapidtechnologicalchange.Thepersonalcomputersoftwareindustryis
characterizedbyrapidtechnologicalchangeanduncertaintyastotheimpactof
emergingareassuchastheInternetandonlineservices,theinformation
highway,networkedcollaborationproducts,andelectroniccommerce.

Longterminvestmentcycle.Developingandlocalizingsoftwareisexpensive
andtheinvestmentinproductdevelopmentofteninvolvesalongpaybackcycle.
Microsoft'splansfor1996includesignificantinvestmentsinsoftwareresearch
anddevelopmentandrelatedproductopportunitiesfromwhichsignificant
revenuesarenotanticipatedforanumberofyears.Managementexpectstotal
spendingforresearchanddevelopmentin1996toincreaseoverspendingin1995.

Customeracceptance.WhileMicrosoftperformsextensiveusabilityandbeta
testingofnewproducts,useracceptanceandcorporatepenetrationrates
ultimatelydictatethesuccessofdevelopmentandmarketingeffortsofproducts
suchasWindows95,MicrosoftOfficeforWindows95,ortheMicrosoftBackOffice
familyofproducts.

Productshipschedules.Delaysinthereleaseofnewproductscancause
operationalinefficienciesthatimpactmanufacturinganddistributionlogistics,
independentsoftwarevendor(ISV)andOEMrelationships,andtelephonesupport
staffing.

Prices.FuturepricesMicrosoftisabletoobtainforitsproductsmay
decreasefromhistoricallevelsdependingoncompetitivemarketorcostfactors.
PricesofsoftwareinEuropearegenerallyhigherthanintheU.S.tocover
localizationcostsandhighercostsofdistribution.Suchpriceupliftscould
erodeinthefuture.

Integratedsuites.ThepriceofintegratedsuitessuchasMicrosoftOffice,
islessthanthesumofthepricesfortheindividualprogramsincludedinthis
productwhensuchprogramsarelicensedseparately.RevenuesfromMicrosoft
Officemaycontinuetoincreaseasapercentageoftotalrevenues.

Saturation.Productupgrades,enablinguserstoupgradefromearlier
versionsofMicrosoft'sproductsorfromcompetitors'products,havelower
pricesandmarginsthannewproducts.Asthedesktopapplicationsmarketbecomes
saturated,thesalesmixshiftsfromstandardproductstoupgradeproducts.This
trendisexpectedtocontinue.

17
<PAGE>20

Channelmix.AveragerevenueperlicenseislowerfromOEMlicensesthan
fromretailversions,reflectingtherelativelylowerdirectcostsofoperations
intheOEMchannel.Anincreasinglyhigherpercentageofrevenueswasachieved
throughtheOEMchannelduring1994and1995.

Corporatelicenses.Averagerevenueperunitfromcorporatelicense
programsislowerthanaveragerevenueperunitfromretailversionsshipped
throughthefinishedgoodschannels.Unitsalesundercorporatelicensing
programsmaycontinuetoincrease.

Costofrevenues.Althoughcostofrevenuesasapercentageofnetrevenues
decreasedin1994and1995,itvarieswithchannelmixandproductmixwithin
channels.Changesinchannelandproductmix,includingthepotentialretail
upgradecycleofWindows95,mayincreasecostofrevenuesasapercentageof
netrevenuesin1996.

Salesandmarketingandsupportinvestments.Microsoft'splansfor1996
includecontinuedinvestmentsinitssalesandmarketingandsupportgroups.
Microsoftbrandadvertisingisalsoexpectedtoincrease.

Foreignexchange.AlargepercentageofMicrosoft'ssalesandcostsof
manufacturingandmarketingaretransactedinlocalcurrencies.Asaresult,
Microsoft'sinternationalresultsofoperationsaresubjecttoforeignexchange
ratefluctuations.

Intellectualpropertyrights.Microsoftdiligentlydefendsitsintellectual
propertyrights,butunlicensedcopyingofsoftwarerepresentsalossof
revenuestoMicrosoft.WhilethisadverselyaffectsU.S.revenues,revenueloss
isevenmoresignificantoutsideoftheU.S.,particularlyincertaincountries
wherelawsarelessprotectiveofintellectualpropertyrights.Throughoutthe
world,Microsoftactivelyeducatesconsumersonthebenefitsoflicensing
genuineproductsandeducateslawmakersontheadvantagesofabusinessclimate
whereintellectualpropertyrightsareprotected.Therecanbenoassurancethat
continuedeffortswillaffectrevenuespositively.

Futuregrowthrates.IfasubstantialnumberofusersupgradetoWindows
95,revenuegrowthratesintheinitialshippingquartersof1996couldbeat
relativelyhighlevels.Revenuegrowthratesinthecomparablequartersof1997
maynotapproachsuchlevels.Asdiscussedabove,operatingexpensesare
expectedtoincreasein1996.Becauseofthefixednatureofasignificant
portionofsuchexpenses,coupledwiththepossibilityofslowerrevenuegrowth,
operatingmarginsin1997maydecreasefromthosein1996.

Litigation.Litigationregardingintellectualpropertyrights,patents,and
copyrightsisincreasinginthePCsoftwareindustry.Inaddition,thereare
governmentregulationandinvestigationrisksalongwithothergeneralcorporate
legalrisks.

ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA

INDEXTOFINANCIALSTATEMENTS

<TABLE>
<S><C>
IncomeStatementsforthethreeyearsendedJune30,1995...............................19
CashFlowsStatementsforthethreeyearsendedJune30,1995...........................20
BalanceSheetsasofJune30,1995and1994.............................................21
Stockholders'EquityStatementsforthethreeyearsendedJune30,1995.................22
NotestoFinancialStatements...........................................................23
IndependentAuditors'Report............................................................29
ScheduleIIValuationandQualifyingAccountsforthethreeyearsendedJune30,
1995..................................................................................32
</TABLE>

ITEM9.CHANGESINANDDISAGREEMENTSWITHACCOUNTANTSONACCOUNTINGAND
FINANCIALDISCLOSURES

None.

18
<PAGE>21

INCOMESTATEMENTS
(INMILLIONS,EXCEPTEARNINGSPERSHARE)

<TABLE>
<CAPTION>
YEARENDEDJUNE30

199319941995

<S><C><C><C>
Netrevenues.....................................................$3,753$4,649$5,937
Operatingexpenses:
Costofrevenues...............................................633763877
Researchanddevelopment.......................................470610860
Salesandmarketing............................................1,2051,3841,895
Generalandadministrative.....................................119166267

Totaloperatingexpenses...............................2,4272,9233,899

Operatingincome.................................................1,3261,7262,038
Interestincomenet...........................................82102191
Noncontinuingitems..............................................(90)(46)
Otherexpenses...................................................(7)(16)(16)

Incomebeforeincometaxes.......................................1,4011,7222,167
Provisionforincometaxes.......................................448576714

Netincome.......................................................$953$1,146$1,453
==================
Earningspershare...............................................$1.57$1.88$2.32
==================
Weightedaveragesharesoutstanding..............................606610627
==================
</TABLE>

Seeaccompanyingnotes.

19
<PAGE>22

CASHFLOWSSTATEMENTS
(INMILLIONS)

<TABLE>
<CAPTION>
YEARENDEDJUNE30

199319941995

<S><C><C><C>
CASHFLOWSFROMOPERATIONS
Netincome...................................................$953$1,146$1,453
Depreciationandamortization................................151237269
Currentliabilities..........................................177360419
Accountsreceivable..........................................(121)(146)(91)
Inventories..................................................(51)2315
Othercurrentassets.........................................(35)(27)(75)

Netcashfromoperations.............................1,0741,5931,990

CASHFLOWSFROMFINANCING
Commonstockissued..........................................229280332
Commonstockrepurchased.....................................(250)(348)(649)
Stockoptionincometaxbenefits.............................207151179

Netcashfromfinancing..............................18683(138)

CASHFLOWSUSEDFORINVESTMENTS
Additionstoproperty,plant,andequipment..................(236)(278)(495)
Otherassets.................................................(17)(64)(230)
Shortterminvestments.......................................(723)(860)(651)

Netcashusedforinvestments........................(976)(1,202)(1,376)

Netchangeincashandequivalents.............................284474476
Effectofexchangeratesoncash...............................(62)(10)9
Cashandequivalents,beginningofyear........................7911,0131,477

Cashandequivalents,endofyear..............................1,0131,4771,962
Shortterminvestments.........................................1,2772,1372,788

Cashandshortterminvestments................................$2,290$3,614$4,750
====================
</TABLE>


20
<PAGE>23

BALANCESHEETS
(INMILLIONS)

<TABLE>
<CAPTION>
JUNE30

19941995

<S><C><C>
ASSETS
Currentassets:
Cashandshortterminvestments..........................................$3,614$4,750
Accountsreceivablenetofallowancesof$92and$139.................475581
Inventories..............................................................10288
Other....................................................................121201

Totalcurrentassets.............................................4,3125,620
Property,plant,andequipmentnet......................................9301,192
Otherassets...............................................................121398

Totalassets................................................$5,363$7,210
============
LIABILITIESANDSTOCKHOLDERS'EQUITY
Currentliabilities:
Accountspayable.........................................................$324$563
Accruedcompensation.....................................................96130
Incometaxespayable.....................................................305410
Other....................................................................188244

Totalcurrentliabilities........................................9131,347

Minorityinterest..........................................................125

Putwarrants...............................................................405

Commitmentsandcontingencies
Stockholders'equity:
Commonstockandpaidincapitalsharesauthorized2,000;
issuedandoutstanding581and588....................................1,5002,005
Retainedearnings........................................................2,9503,328

Totalstockholders'equity.......................................4,4505,333

Totalliabilitiesandstockholders'equity..................$5,363$7,210
============
</TABLE>


21
<PAGE>24

STOCKHOLDERS'EQUITYSTATEMENTS
(INMILLIONS)

<TABLE>
<CAPTION>
YEARENDEDJUNE30

199319941995

<S><C><C><C>
COMMONSTOCKANDPAIDINCAPITAL
Balance,beginningofyear.....................................$657$1,086$1,500
Commonstockissued............................................229280332
Commonstockrepurchased.......................................(7)(17)(30)
Proceedsfromsaleofputwarrants.............................49
Reclassificationofputwarrantobligation.....................(25)
Stockoptionincometaxbenefits...............................207151179

Balance,endofyear...................................1,0861,5002,005

RETAINEDEARNINGS
Balance,beginningofyear.....................................1,5362,1562,950
Commonstockrepurchased.......................................(243)(331)(668)
Reclassificationofputwarrantobligation.....................(380)
Netincome.....................................................9531,1461,453
Translationadjustment.........................................(90)(21)(27)

Balance,endofyear...................................2,1562,9503,328

Totalstockholders'equity........................$3,242$4,450$5,333
==================
</TABLE>


22
<PAGE>25

NOTESTOFINANCIALSTATEMENTS
(INMILLIONS)

SIGNIFICANTACCOUNTINGPOLICIES

Principlesofconsolidation.Thefinancialstatementsincludetheaccounts
ofMicrosoftanditssubsidiaries.Significantintercompanytransactionsand
balanceshavebeeneliminated.

Foreigncurrencies.Assetsandliabilitiesrecordedinforeigncurrencies
onthebooksofforeignsubsidiariesaretranslatedattheexchangerateonthe
balancesheetdate.Translationadjustmentsresultingfromthisprocessare
chargedorcreditedtoequity.Revenues,costs,andexpensesaretranslatedat
averageratesofexchangeprevailingduringtheyear.Gainsandlosseson
foreigncurrencytransactionsareincludedinotherexpenses.

Revenuerecognition.Revenuefromsalestodistributorsandresellersis
recognizedwhenrelatedproductsareshipped.Revenuefromcorporatelicense
programsgenerallyisrecognizedwhentheproductisinstalledbytheuser.
Finishedgoodsrevenueattributabletosignificantsupport(telephonesupport
andspecifiedandunspecifiedenhancements)isrecognizedwhensuchobligations
arefulfilled.Costsrelatedtoinsignificantobligations,whichincludes
telephonesupportforcertainproducts,areaccrued.

Revenuefromproductslicensedtooriginalequipmentmanufacturersis
recognizedwhenthelicensedproductsareshippedbytheOEM.

Revenuefromsoftwaremaintenance,service,andsupportcontractsis
recognizedratablyoverthecontractperiod.

Provisionsarerecordedforreturnsandbaddebts.

Researchanddevelopment.Researchanddevelopmentcostsareexpensedas
incurred.Thecurrentaccountingrule,AccountingfortheCostsofComputer
SoftwaretoBeSold,Leased,orOtherwiseMarketed,doesnotmateriallyaffect
theCompany.

Telephonesupport.Telephonesupportcostsareincludedinsalesand
marketing.

Incometaxes.IncometaxexpenseincludesU.S.andinternationalincome
taxes,plusanaccrualforU.S.taxesonundistributedearningsofinternational
subsidiaries.Certainitemsofincomeandexpensearenotreportedintax
returnsandfinancialstatementsinthesameyear.Thetaxeffectofthis
differenceisreportedasdeferredincometaxes.Taxcreditsareaccountedfor
asareductionoftaxexpenseintheyearinwhichthecreditsreducetaxes
payable.

Earningspershare.Earningspershareiscomputedonthebasisofthe
weightedaveragenumberofcommonsharesoutstandingplustheeffectof
outstandingstockoptions,computedusingthetreasurystockmethod.

Financialinstruments.TheCompanyconsidersallliquidinvestmentswitha
maturityofthreemonthsorlessatthedateofpurchasetobecashequivalents.
Shortterminvestmentsgenerallymaturebetweenthreemonthsandthreeyears
fromthepurchasedate.Allcashandshortterminvestmentsareclassifiedas
availableforsale.Costapproximatesmarketvalueforallclassificationsof
cashandshortterminvestments;realizedandunrealizedgainsandlossesare
notmaterial.

StatementofFinancialAccountingStandardAccountingforCertain
InvestmentsinDebtandEquitySecuritieswasadoptedin1995anddidnothavea
materialimpactonthefinancialstatements.

Inventories.Inventoriesarestatedatthelowerofcostormarket.Costis
determinedusingthefirstin,firstoutmethod.

Property,plant,andequipment.Property,plant,andequipmentisstatedat
costanddepreciatedusingthestraightlinemethod.Estimatedlivesareas
follows:buildings,30years;leaseholdimprovements,theleaseterm;computer
equipmentandother,principallythreeyears.

23
<PAGE>26

NOTESTOFINANCIALSTATEMENTS(CONTINUED)
(INMILLIONS)

Diversificationofrisk.TheCompany'sinvestmentportfolioisdiversified
andconsistsofshortterminvestmentgradesecurities.AtJune30,1994and
1995,approximately40%ofaccountsreceivablerepresentedamountsduefromten
channelpurchasers.Twooftheseeachaccountedforapproximately10%,13%,and
12%ofrevenuesin1993,1994,and1995.

FinishedgoodssalestointernationalcustomersinEurope,Japan,
Australia,andCanadaareprimarilybilledinlocalcurrencies.Paymentcycles
arerelativelyshort,generallylessthan90days.Europeanmanufacturingcosts
andinternationalselling,distribution,andsupportcostsaregenerally
disbursedinlocalcurrencies.Localcurrencycashbalancesinexcessof
shorttermoperatingneedsaregenerallyconvertedintoU.S.dollarcashand
shortterminvestmentsuponreceipt.Therefore,foreignexchangerate
fluctuationsgenerallydonotcreateariskofmaterialtransactiongainsor
losses.Asaresult,Microsoft'shedgingactivitiesfortransactionexposures
havebeenminimal.NomaterialhedgecontractswereoutstandingatJune30,
1995.

TranslatedresultsofoperationsoftheCompany'sforeignsubsidiariesare
affectedbyforeignexchangerates.During1995andfor1996,theCompanyhedged
apercentageofplannedtranslatedinternationalfinishedgoodsrevenuesby
purchasingoptionsontheapplicablecurrencies.Premiumspaidfortheoptions,
whichwerenotmaterial,arebeingamortizedoverthelivesoftheoptions.Any
gainswillberecognizedwhenandifrealized.

Reclassifications.Certainreclassificationshavebeenmadeforconsistent
presentation.

CASHANDSHORTTERMINVESTMENTS

<TABLE>
<CAPTION>
JUNE30

19941995

<S><C><C>
Cashandequivalents:
Cash.....................................................$263$135
Commercialpaper.........................................6191,035
Moneymarketpreferreds..................................180255
Certificatesofdeposit..................................218492
Bankloanparticipations.................................19745

Cashandequivalents.....................................1,4771,962

Shortterminvestments:
Municipalsecurities.....................................1,2451,291
Corporatenotesandbonds................................423866
U.S.Treasurysecurities.................................417444
Commercialpaper.........................................52187

Shortterminvestments...................................2,1372,788

Cashandshortterminvestments..................$3,614$4,750
============
</TABLE>

PROPERTY,PLANT,ANDEQUIPMENT

<TABLE>
<CAPTION>
JUNE30

19941995

<S><C><C>
Land.......................................................$162$206
Buildings..................................................440607
Computerequipment.........................................532707
Other......................................................311387

Property,plant,andequipmentatcost..................1,4451,907
Accumulateddepreciation...................................(515)(715)

Property,plant,andequipmentnet......................$930$1,192
============
</TABLE>

24
<PAGE>27

(INMILLIONS)

INCOMETAXES

Theprovisionforincometaxeswascomposedof:

<TABLE>
<CAPTION>
199319941995

<S><C><C><C>
Currenttaxes:
U.S.andstate.................................$352$470$518
International..................................12394151

Currenttaxes..................................475564669
Deferredtaxes...................................(27)1245

Provisionforincometaxes.......................$448$576$714
============
</TABLE>

DifferencesbetweentheU.S.statutoryandeffectivetaxrateswere:

<TABLE>
<CAPTION>
199319941995

<S><C><C><C>
U.S.statutoryrate..............................34.0%35.0%35.0%
Taxexemptincome................................(0.6)(0.9)(1.1)
Foreignsalescorporation........................(1.0)(1.0)(0.7)
Taxcredits......................................(0.9)(2.1)(1.6)
Statetaxesandothernet.....................0.52.51.4

Effectivetaxrate...............................32.0%33.5%33.0%
============
</TABLE>

Deferredincometaxbalanceswere:

<TABLE>
<CAPTION>
JUNE30

19941995

<S><C><C>
Deferredincometaxassets:
Revenueitems..................................$61$68
Expenseitems..................................143221

Deferredincometaxassets.....................204289

Deferredincometaxliabilities:
Internationalearnings.........................(147)(276)
Other..........................................(4)(5)

Deferredincometaxliabilities................(151)(281)

Netdeferredincometaxasset.............$53$8
==========
</TABLE>

U.S.andinternationalcomponentsofincomebeforeincometaxeswere:

<TABLE>
<CAPTION>
199319941995

<S><C><C><C>
U.S..............................................$960$1,281$1,549
International....................................441441618

Incomebeforeincometaxes.......................$1,401$1,722$2,167
==================
</TABLE>

TheInternalRevenueServiceisexaminingtheCompany'sU.S.incometax
returnsfor1990and1991.TheCompanybelievesanyadjustmentsfromthe
examinationwillnotbematerialtothefinancialstatements.Incometaxespaid
were$187million,$247million,and$430millionin1993,1994,and1995.

25
<PAGE>28

(INMILLIONS)

COMMONSTOCK

Sharesofcommonstockoutstandingwereasfollows:

<TABLE>
<CAPTION>
199319941995

<S><C><C><C>
Balance,beginningofyear..............................544565581
Issued..................................................272519
Repurchased.............................................(6)(9)(12)

Balance,endofyear....................................565581588
=========
</TABLE>

TheCompanyrepurchasesitscommonstockintheopenmarkettoprovide
sharesforissuancetoemployeesunderstockoptionandstockpurchaseplans.
TheCompany'sBoardofDirectorsauthorizedcontinuationofthisprogramin
1996.

PUTWARRANTS

InconnectionwiththeCompany'sstockrepurchaseprogram,putwarrants
weresoldtoindependentthirdpartiesduring1995.Theputwarrantsentitlethe
holderstosellsharesofMicrosoftcommonstocktotheCompanyatspecified
prices.OnJune30,1995,8.0millionwarrantswereoutstandingwithastrike
priceof$69.75pershare.ThewarrantsexpireatvariousdatesbetweenFebruary
1996andNovember1996,areexercisableonlyatmaturity,andaresettleablein
cashatMicrosoft'soption.Themaximumpotentialrepurchaseobligationof$405
millionhasbeenreclassifiedfromstockholders'equitytoputwarrantsasof
June30,1995.Therewasnoimpactonearningspersharein1995.

EMPLOYEESTOCKANDSAVINGSPLANS

Employeestockpurchaseplan.TheCompanyhasanemployeestockpurchase
planforalleligibleemployees.Undertheplan,sharesoftheCompany'scommon
stockmaybepurchasedatsixmonthintervalsat85%ofthelowerofthefair
marketvalueonthefirstorthelastdayofeachsixmonthperiod.Employees
maypurchaseshareshavingavaluenotexceeding10%oftheirgrosscompensation
duringanofferingperiod.During1993,1994,and1995,employeespurchased1.0
million,1.1million,and1.0millionsharesataveragepricesof$33.29,
$34.16,and$46.76pershare.AtJune30,1995,2.1millionshareswerereserved
forfutureissuance.

Savingsplan.TheCompanyhasasavingsplan,whichqualifiesunderSection
401(k)oftheInternalRevenueCode.Undertheplan,participatingU.S.
employeesmaydeferupto15%oftheirpretaxsalary,butnotmorethan
statutorylimits.TheCompanycontributesfiftycentsforeachdollar
contributedbyaparticipant,withamaximumcontributionof3%ofa
participant'searnings.TheCompany'smatchingcontributionstothesavingsplan
were$7million,$9million,and$12millionin1993,1994,and1995.

Stockoptionplans.TheCompanyhasstockoptionplansfordirectors,
officers,andallemployees,whichprovidefornonqualifiedandincentivestock
options.TheBoardofDirectorsdeterminestheoptionprice(nottobelessthan
fairmarketvalueforincentiveoptions)atthedateofgrant.Optionsgranted
priorto1995generallyvestoverfourandonehalfyearsandexpiretenyears
fromthedateofgrant.Optionsgrantedduringandafter1995generallyvest
overfourandonehalfyearsandexpiresevenyearsfromthedateofgrant,
whilecertainoptionsvestoversevenandonehalfyearsandexpireafterten
years.AtJune30,1995,optionsfor58.5millionshareswerevestedand92.8
millionshareswereavailableforfuturegrantsundertheplans.

26
<PAGE>29

(INMILLIONS)

Stockoptionsoutstandingwereasfollows:

<TABLE>
<CAPTION>
PRICEPERSHARE

WEIGHTED
NUMBERRANGEAVERAGE

<S><C><C><C>
Balance,June30,1992.....................120.3$0.3139.79$12.44
Granted....................................24.430.8844.2534.30
Exercised..................................(26.2)0.3136.927.95
Canceled...................................(4.4)4.9744.1314.23

Balance,June30,1993.....................114.10.3144.2518.06
Granted....................................26.235.5050.1337.47
Exercised..................................(20.9)1.5144.2511.42
Canceled...................................(5.5)5.0144.1328.67

Balance,June30,1994.....................113.90.3150.1323.29
Granted....................................21.747.7583.1350.50
Exercised..................................(17.6)0.3147.7515.81
Canceled...................................(4.2)5.1175.0035.40

Balance,June30,1995.....................113.81.5483.1329.12
=====
</TABLE>

LEASES

TheCompanyhasoperatingleasesformostU.S.andinternationalsalesand
supportofficesandcertainequipment.Rentalexpenseforoperatingleaseswas
$54million,$68million,and$86millionin1993,1994,and1995.Future
minimumrentalcommitmentsundernoncancelableleases,inmillionsofdollars,
are:1996,$78;1997,$65;1998,$56;1999,$44;2000,$28;andthereafter,$13.

THEMICROSOFTNETWORK

During1995,awhollyownedsubsidiaryofTeleCommunications,Inc.(TCI)
purchaseda20%minorityinterestinthenewlyformedMicrosoftOnlineServices
Partnership.TCIcontributed$125millionofTCIcommonstockandMicrosoft
contributedthebusinessassetsofitsonlineservice,TheMicrosoftNetwork,
whichwasindevelopment.Microsoftowns80%oftheentity,whoseoperations
havenotbeenmaterialtothefinancialresultsofMicrosoft.Theentitywas
subsequentlyreorganizedintoTheMicrosoftNetwork,LLC.

NONCONTINUINGITEMS

Inthefourthquarterof1995,theCompanypaida$46millionbreakupfee
toIntuitInc.inconnectionwiththeterminationofaplannedmerger.

Inthethirdquarterof1994,theCompanyrecordeda$120millionchargeto
reflecttheestimatedimpactofajuryverdictintheStacElectronicspatent
litigationandrelatedexpenses.InJune1994,theCompanyreachedanagreement
withStactosettlethelitigationandadjusteditsestimateaccordingly,
resultinginacreditof$30millioninthefourthquarterandanetpretax
chargeof$90millionfor1994.

CONTINGENCIES

OnJuly15,1994,MicrosoftandtheU.S.DepartmentofJustice(DOJ)
enteredintoaconsentdecreeresolvingtheDOJ'snonpublicinvestigationof
Microsoft.Intheconsentdecree,whichinvolvesnoadmissionofwrongdoingon
Microsoft'spart,MicrosoftagreedtomakecertainchangesinitsOEMlicensing
practices.Microsoftalsoagreedtoemployauniformdurationinits
nondisclosureagreementforprecommercialversions

27
<PAGE>30

(INMILLIONS)

ofcertainoperatingsystemproducts,andclarifiedtherightsand
responsibilitiesofthosesigningsuchnondisclosureagreements.Theconsent
decreewasapprovedbytheU.S.DistrictCourtfortheDistrictofColumbiaon
August21,1995.

TheAntitrustDivisionoftheDOJhasstatedthatitisconductingan
investigationconcerningMicrosoft'sinclusionofclientaccesssoftwareforThe
MicrosoftNetworkinWindows95.Althoughthereisnoassurancethatthismatter
willberesolvedfavorablyandthatMicrosoft'sfuturefinancialstatementswill
notbeadverselyaffected,Microsoftcurrentlybelievesthatresolutionofthis
matterwillnothaveamaterialadverseeffectonitsfinancialconditionor
resultsofoperations.

INFORMATIONBYGEOGRAPHICAREA

<TABLE>
<CAPTION>
199319941995

<S><C><C><C>
Netrevenues
U.S.operations................................$2,655$3,472$4,495
Europeanoperations............................1,2891,4011,575
Otherinternationaloperations.................395375558
Eliminations...................................(586)(599)(691)

Totalnetrevenues.....................$3,753$4,649$5,937
==================
Operatingincome
U.S.operations................................$961$1,394$1,709
Europeanoperations............................360346412
Eliminations...................................(13)(45)(174)

Totaloperatingincome.................$1,326$1,726$2,038
==================
Identifiableassets
U.S.operations................................$2,944$4,397$5,862
Europeanoperations............................1,1331,3661,806
Eliminations...................................(582)(823)(1,147)

Totalidentifiableassets..............$3,805$5,363$7,210
==================
</TABLE>

Intercompanysalesbetweengeographicareasareaccountedforatprices
representativeofunaffiliatedpartytransactions."U.S.operations"include
shipmentstocustomersintheU.S.,licensingtoOEMs,andexportsoffinished
goodsdirectlytointernationalcustomers,primarilyinCanada,SouthAmerica,
andAsia.ExportsandinternationalOEMtransactionsareprimarilyinU.S.
dollarsandtotaled$426million,$787million,and$1,263millionin1993,
1994,and1995."Otherinternationaloperations"primarilyincludesubsidiaries
inAustralia,Japan,Korea,andTaiwan.Internationalrevenues,whichinclude
Europeanoperations,otherinternationaloperations,exports,andOEM
distribution,were55.3%,54.0%,and55.3%oftotalrevenuesin1993,1994,and
1995.

28
<PAGE>31

INDEPENDENTAUDITORS'REPORT

TotheBoardofDirectorsandStockholdersofMicrosoftCorporation:

WehaveauditedtheaccompanyingbalancesheetsofMicrosoftCorporation
andsubsidiariesasofJune30,1994and1995,therelatedstatementsofincome,
cashflows,andstockholders'equityforeachofthethreeyearsendedJune30,
1995.Ourauditsalsoincludedthefinancialstatementschedulelistedinthe
IndexatItem8.Thesefinancialstatementsandschedulearetheresponsibility
oftheCompany'smanagement.Ourresponsibilityistoexpressanopinionon
thesefinancialstatementsandschedulebasedonouraudits.

Weconductedourauditsinaccordancewithgenerallyacceptedauditing
standards.Thosestandardsrequirethatweplanandperformtheaudittoobtain
reasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterial
misstatement.Anauditincludesexamining,onatestbasis,evidencesupporting
theamountsanddisclosuresinthefinancialstatements.Anauditalsoincludes
assessingtheaccountingprinciplesusedandsignificantestimatesmadeby
management,aswellasevaluatingtheoverallfinancialstatementpresentation.
Webelievethatourauditsprovideareasonablebasisforouropinion.

Inouropinion,suchfinancialstatementspresentfairly,inallmaterial
respects,thefinancialpositionofMicrosoftCorporationandsubsidiariesasof
June30,1994and1995,andtheresultsoftheiroperationsandtheircashflows
foreachofthethreeyearsendedJune30,1995inconformitywithgenerally
acceptedaccountingprinciples.Also,inouropinionthefinancialstatement
schedule,whenconsideredinrelationtothebasicfinancialstatementstakenas
awhole,presentsfairlyinallmaterialrespectstheinformationsetforth
therein.

/s/DELOITTE&TOUCHELLP

Seattle,Washington
July17,1995
(August21,1995asto
ContingenciesNote)

29
<PAGE>32

PARTIII

ITEM10.DIRECTORSANDEXECUTIVEOFFICERSOFTHEREGISTRANT

InformationwithrespecttoDirectorsmaybefoundunderthecaption
"ElectionofDirectorsandManagementInformation"onpages1and2ofthe
Company'sProxyStatementdatedSeptember25,1995,fortheAnnualMeetingof
ShareholderstobeheldOctober27,1995(the"ProxyStatement").Such
informationisincorporatedhereinbyreference.Informationwithrespectto
ExecutiveOfficersmaybefoundonpages11and12hereof,underthecaption
"ExecutiveOfficersoftheRegistrant."

ITEM11.EXECUTIVECOMPENSATION

TheinformationintheProxyStatementsetforthunderthecaptions
"InformationRegardingExecutiveOfficerCompensation"onpages4through8and
"InformationRegardingtheBoardanditsCommittees"onpage2isincorporated
hereinbyreference.

ITEM12.SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENT

Theinformationsetforthunderthecaption"InformationRegarding
BeneficialOwnershipofPrincipalShareholders,Directors,andManagement"on
page3oftheProxyStatementisincorporatedhereinbyreference.

ITEM13.CERTAINRELATIONSHIPSANDRELATEDTRANSACTIONS

Theinformationsetforthunderthecaption"CertainTransactions"onpage
8oftheProxyStatementisincorporatedhereinbyreference.

30
<PAGE>33

PARTIV

ITEM14.EXHIBITS,FINANCIALSTATEMENTSCHEDULESANDREPORTSONFORM8K

(a)FinancialStatementsandSchedules

ThefinancialstatementsofMicrosoftassetforthunderItem8are
filedaspartofthisreport.

SupplementalScheduleIIValuationandQualifyingAccountsisfiled
onpage32ofthisreport.

Financialstatementschedulesotherthanthoselistedabovehavebeen
omittedsincetheyareeithernotrequired,notapplicable,orthe
informationisotherwiseincluded.

Theindependentauditors'reportwithrespecttotheabovelisted
financialstatementsandscheduleappearsonpage29ofthisreport.

(b)ReportsonForm8K

NoreportsonForm8Kwerefiledduringthelastquarteroffiscal
1995.

(c)ExhibitListing

<TABLE>
<CAPTION>
EXHIBIT
NUMBERDESCRIPTION

<S><C>
3.1RestatedArticlesofIncorporation(1)
3.2Bylaws(1)
10.1MicrosoftCorporation1991StockOptionPlan(1)
10.2MicrosoftCorporation1981StockOptionPlan(2)
10.3MicrosoftCorporationStockOptionPlanforNonEmployeeDirectors(1)
10.4MicrosoftCorporationStockOptionPlanforConsultantsandAdvisor(1)
10.5MicrosoftCorporation1991EmployeeStockPurchasePlan
10.6MicrosoftCorporationSavingsPlusPlan(1)
10.7TrustAgreementdatedJune1,1993betweenMicrosoftCorporationandFirst
InterstateBankofWashington(3)
10.8FormofIndemnificationAgreement(3)
11.ComputationofEarningsPerShare
21.Subsidiaries
23.IndependentAuditors'Consent
27.FinancialDataSchedule
99.1FinancialStatementsfortheMicrosoftCorporation1991EmployeeStock
PurchasePlanfortheThreeYearsEndedJune30,1995
99.2FinancialStatementsfortheMicrosoftCorporationSavingsPlusPlanfor
theTwoYearsEndedDecember31,1994andtheNineMonthsEndedDecember
31,1992
</TABLE>

(1)IncorporatedbyreferencetoAnnualReportonForm10KForTheFiscalYear
EndedJune30,1994.

(2)IncorporatedbyreferencetoRegistrationStatement3337623onFormS8.

(3)IncorporatedbyreferencetoAnnualReportonForm10KForTheFiscalYear
EndedJune30,1993.

31
<PAGE>34

SCHEDULEIIVALUATIONANDQUALIFYINGACCOUNTS

ALLOWANCEFORDOUBTFULACCOUNTS
(INMILLIONS)

<TABLE>
<CAPTION>
YEARENDEDJUNE30

199319941995

<S><C><C><C>
Balance,beginningofyear............................................$57$76$92
Additionschargedtoexpense..........................................472751
Deductions............................................................(28)(11)(4)

Balance,endofyear..................................................$76$92$139
============
</TABLE>

32
<PAGE>35

SIGNATURES

PursuanttotherequirementsofSection13or15(d)oftheSecurities
ExchangeActof1934,theRegistranthasdulycausedthisreporttobesignedon
itsbehalfbytheundersigned,thereuntodulyauthorized,intheCityof
Redmond,StateofWashington,onSeptember13,1995.


By/s/MICHAELW.BROWN

MichaelW.Brown,
VicePresident,Finance;
ChiefFinancialOfficer

PursuanttotherequirementsoftheSecuritiesExchangeActof1934,this
reporthasbeensignedbelowbythefollowingpersonsonbehalfofRegistrant
andinthecapacitiesindicatedonSeptember13,1995.

<TABLE>
<CAPTION>
SIGNATURETITLE

<S><C>
/s/WILLIAMH.GATESChairmanoftheBoardofDirectors
andChiefExecutiveOfficer
WilliamH.Gates
/s/PAULG.ALLENDirector

PaulG.Allen
/s/RICHARDA.HACKBORNDirector

RichardA.Hackborn
/s/DAVIDF.MARQUARDTDirector

DavidF.Marquardt
/s/ROBERTD.O'BRIENDirector

RobertD.O'Brien
Director

Wm.G.Reed,Jr.
/s/JONA.SHIRLEYDirector

JonA.Shirley
/s/MICHAELW.BROWNVicePresident,Finance;
ChiefFinancialOfficer
MichaelW.Brown(PrincipalFinancialandAccountingOfficer)
</TABLE>

33
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX10.5
<SEQUENCE>2
<DESCRIPTION>1991EMPLOYEESTOCKPURCHASEPLAN
<TEXT>
<PAGE>1
EXHIBIT10.5
1991EMPLOYEESTOCKPURCHASEPLAN
AsapprovedbytheBoardofDirectors
onAugust11,1990andthe
ShareholdersonOctober26,1990,
andamendedbytheBoardofDirectors
onApril23,1994andMay13,1995
<PAGE>2
MicrosoftCorporation(the"Company")doesherebyestablishits1991
EmployeeStockPurchasePlanasfollows:
1.PurposeofthePlan.ThepurposeofthisPlanistoprovide
eligibleemployeeswhowishtobecomeshareholdersintheCompanyaconvenient
methodofdoingso.Itisbelievedthatemployeeparticipationinthe
ownershipofthebusinesswillbetothemutualbenefitofboththeemployees
andtheCompany.ItistheintentionoftheCompanytohavethePlanqualify
asan"employeestockpurchaseplan"underSection423oftheInternalRevenue
Codeof1986.TheprovisionsofthePlanshall,accordingly,beconstruedsoas
toextendandlimitparticipationinamannerconsistentwiththerequirements
ofthatSectionoftheCode.
2.Definitions.
2.1"Basepay"meansregularstraighttimeearnings,plus
reviewcyclebonusesandovertimepayments,paymentsforincentive
compensation,andotherspecialpaymentsexcepttotheextentthatanysuch
itemisspecificallyexcludedbytheBoardofDirectorsoftheCompany(the
"Board").
2.2"Account"shallmeanthefundsaccumulatedwithrespect
toanindividualemployeeasaresultofdeductionsfromhispaycheckforthe
purposeofpurchasingstockunderthisPlan.Thefundsallocatedtoan
employee'saccountshallremainthepropertyoftherespectiveemployeeatall
timesbutmaybecommingledwiththegeneralfundsoftheCompany.
3.EmployeesEligibletoParticipate.Anyregularemployeeof
theCompanyoranyofitssubsidiarieswhoisintheemployoftheCompanyon
oneormoreofferingdatesiseligibletoparticipateinthePlan,except(a)
employeeswhosecustomaryemploymentislessthan20hoursperweek,and(b)
employeeswhosecustomaryemploymentisfornotmorethanfivemonthsinany
calendaryear.
4.Offerings.Therewillbetwelveseparateconsecutive
sixmonthofferingspursuanttothePlan.Thefirstofferingshallcommenceon
January1,1991.Thereafter,offeringsshallcommenceoneachsubsequentJuly1
andJanuary1,andthefinalofferingunderthisPlanshallcommenceonJuly1,
1996andterminateonDecember31,1996.Inordertobecomeeligibleto
purchaseshares,anemployeemustsignanEnrollmentAgreement,andanyother
necessarypapersonorbeforethecommencementdate(January1orJuly1)of
theparticularofferinginwhichhewishestoparticipate.Participationin
oneofferingunderthePlanshallneitherlimit,norrequire,participationin
anyotheroffering.
5.Price.Thepurchasepricepershareshallbethelesserof
(1)85%ofthefairmarketvalueofthestockontheofferingdate;or(2)85%
ofthefairmarketvalueofthestockonthelastbusinessdayoftheoffering.
FairmarketvalueshallmeantheclosingbidpriceasreportedontheNational
AssociationofSecuritiesDealersAutomatedQuotationSystemor,ifthestock
istradedonastockexchange,theclosingpriceforthestockontheprincipal
suchexchange.
6.OfferingDate.The"offeringdate"asusedinthisPlanshall
bethecommencementdateoftheoffering,ifsuchdateisaregularbusiness
day,orthefirstregularbusinessdayfollowingsuchcommencementdate.A
differentdatemaybesetbyresolutionoftheBoard.
7.NumberofSharestobeOffered.Themaximumnumberofshares
thatwillbeofferedunderthePlanis6,750,000.Thesharestobesoldto
participantsunderthePlanwillbecommonstockoftheCompany.Ifthetotal
numberofsharesforwhichoptionsaretobegrantedonanydateinaccordance
withSection10exceedsthenumberofsharesthenavailableunderthePlan
(afterdeduction
<PAGE>3
ofallsharesforwhichoptionshavebeenexercisedorarethenoutstanding),
theCompanyshallmakeaprorataallocationofthesharesremainingavailable
inasnearlyauniformmannerasshallbepracticableandasitshalldetermine
tobeequitable.Insuchevent,thepayrolldeductionstobemadepursuantto
theauthorizationsthereforshallbereducedaccordinglyandtheCompanyshall
givewrittennoticeofsuchreductiontoeachemployeeaffectedthereby.
8.Participation.
8.1Aneligibleemployeemaybecomeaparticipantby
completinganEnrollmentAgreementprovidedbytheCompanyandfilingitwith
ShareholderServicespriortotheCommencementoftheofferingtowhichit
relates.
8.2Payrolldeductionsforaparticipantshallcommenceon
theofferingdate,andshallendontheterminationdateofsuchoffering
unlessearlierterminatedbytheemployeeasprovidedinParagraph14.
9.PayrollDeductions.
9.1Atthetimeaparticipantfileshisauthorizationfora
payrolldeduction,heshallelecttohavedeductionsmadefromhispayoneach
paydayduringthetimeheisaparticipantinanofferingattherateof2%,
4%,6%,8%,or10%ofhisbasepay.
9.2Allpayrolldeductionsmadeforaparticipantshallbe
creditedtohisaccountunderthePlan.Aparticipantmaynotmakeany
separatecashpaymentintosuchaccountnormaypaymentforsharesbemade
otherthanbypayrolldeduction.
9.3Aparticipantmaydiscontinuehisparticipationinthe
PlanasprovidedinSection14,butnootherchangecanbemadeduringan
offeringand,specifically,aparticipantmaynotaltertherateofhispayroll
deductionsforthatoffering.
10.GrantingofOption.Ontheofferingdate,thisPlanshallbe
deemedtohavegrantedtotheparticipantanoptionforasmanyfullsharesas
hewillbeabletopurchasewiththepayrolldeductionscreditedtohisaccount
duringhisparticipationinthatoffering.Notwithstandingtheforegoing,no
participantmaypurchasemorethan2,250sharesofstockduringanysingle
offering.
11.ExerciseofOption.Eachemployeewhocontinuestobea
participantinanofferingonthelastbusinessdayofthatofferingshallbe
deemedtohaveexercisedhisoptiononsuchdateandshallbedeemedtohave
purchasedfromtheCompanysuchnumberoffullsharesofcommonstockreserved
forthepurposeofthePlanashisaccumulatedpayrolldeductionsonsuchdate
willpayforattheoptionprice.
12.Employee'sRightsasaShareholder.Noparticipatingemployee
shallhaveanyrightasashareholderwithrespecttoanysharesuntilthe
shareshavebeenpurchasedinaccordancewithSection11aboveandthestock
hasbeenissuedbytheCompany.
13.EvidenceofStockOwnership.
13.1Promptlyfollowingtheendofeachoffering,thenumber
ofsharesofcommonstockpurchasedbyeachparticipantshallbedepositedinto
anaccountestablishedintheparticipant'snameatastockbrokerageorother
financialservicesfirmdesignatedbytheCompany(the"ESPPBroker").
13.2Theparticipantmaydirect,bywrittennoticetothe
CompanyatthetimeofhisenrollmentinthePlan,thathisESPPBrokeraccount
beestablishedinthenamesoftheparticipantandoneotherpersondesignated
bytheparticipant,asjointtenantswithrightofsurvivorship,tenantsin
common,orcommunityproperty,totheextentandinthemannerpermittedby
applicablelaw.
3
<PAGE>4
13.3Aparticipantshallbefreetoundertakeadisposition
(asthattermisdefinedinSection424(c)oftheCode)ofthesharesinhis
accountatanytime,whetherbysale,exchange,gift,orothertransferof
legaltitle,butintheabsenceofsuchadispositionoftheshares,theshares
mustremainintheparticipant'saccountattheESPPBrokeruntiltheholding
periodsetforthinSection423(a)oftheCodehasbeensatisfied.With
respecttosharesforwhichtheSection423(a)holdingperiodhasbeen
satisfied,theparticipantmaymovethosesharestoanotherbrokerageaccount
ofparticipant'schoosingorrequestthatastockcertificatebeissuedand
deliveredtohim.
13.4AparticipantwhoisnotsubjecttopaymentofU.S.
incometaxesmaymovehissharestoanotherbrokerageaccountofhischoosing
orrequestthatastockcertificatebeissuedanddeliveredtohimatanytime,
withoutregardtothesatisfactionoftheSection423(a)holdingperiod.
14.Withdrawal.
14.1Anemployeemaywithdrawfromanoffering,inwholebut
notinpart,atanytimepriortothelastbusinessdayofsuchofferingby
deliveringaWithdrawalNoticetotheCompany,inwhicheventtheCompanywill
refundtheentirebalanceofhisdeductionsassoonaspracticablethereafter.
14.2ToreenterthePlan,anemployeewhohaspreviously
withdrawnmustfileanewEnrollmentAgreementinaccordancewithSection8.1.
Theemployee'sreentryintothePlanwillnotbecomeeffectivebeforethe
beginningofthenextofferingfollowinghiswithdrawal,andifthewithdrawing
employeeisanofficeroftheCompanywithinthemeaningofSection16ofthe
SecuritiesExchangeActof1934hemaynotreenterthePlanbeforethe
beginningofthesecondofferingfollowinghiswithdrawal.
15.CarryoverofAccount.Attheterminationofeachofferingthe
Companyshallautomaticallyreenrolltheemployeeinthenextoffering,and
thebalanceintheemployee'saccountshallbeusedforoptionexercisesinthe
newoffering,unlesstheemployeehasadvisedtheCompanyotherwise.Upon
terminationofthePlan,thebalanceofeachemployee'saccountshallbe
refundedtohim.
16.Interest.Nointerestwillbepaidorallowedonanymoneyin
theaccountsofparticipatingemployees.
17.RightsNotTransferable.Noemployeeshallbepermittedto
sell,assign,transfer,pledge,orotherwisedisposeoforencumbereitherthe
payrolldeductionscreditedtohisaccountoranyrightswithregardtothe
exerciseofanoptionortoreceivesharesunderthePlanotherthanbywillor
thelawsofdescentanddistribution,andsuchrightandinterestshallnotbe
liablefor,orsubjectto,thedebts,contracts,orliabilitiesofthe
employee.Ifanysuchactionistakenbytheemployee,oranyclaimis
assertedbyanyotherpartyinrespectofsuchrightandinterestwhetherby
garnishment,levy,attachmentorotherwise,suchactionorclaimwillbe
treatedasanelectiontowithdrawfundsinaccordancewithSection14.
18.TerminationofEmployment.Uponterminationofemploymentfor
anyreasonwhatsoever,includingbutnotlimitedtodeathorretirement,the
balanceintheaccountofaparticipatingemployeeshallbepaidtothe
employeeorhisestate.
19.AmendmentorDiscontinuanceofthePlan.TheBoardshallhave
therighttoamend,modify,orterminatethePlanatanytimewithoutnotice,
providedthatnoemployee'sexistingrightsunderanyofferingalreadymade
underSection4hereofmaybeadverselyaffectedthereby,andprovidedfurther
thatnosuchamendmentofthePlanshall,exceptasprovidedinSection20,
increaseabove6,750,000thetotalnumberofsharestobeofferedunless
shareholderapprovalisobtainedtherefor.
4
<PAGE>5
20.ChangesinCapitalization.Intheeventofreorganization,
recapitalization,stocksplit,stockdividend,combinationofshares,merger,
consolidation,offeringsofrights,oranyotherchangeinthestructureofthe
commonsharesoftheCompany,theBoardmaymakesuchadjustment,ifany,asit
maydeemappropriateinthenumber,kind,andthepriceofsharesavailablefor
purchaseunderthePlan,andinthenumberofshareswhichanemployeeis
entitledtopurchase.
21.ShareOwnership.Notwithstandinganythinghereintothe
contrary,noemployeeshallbepermittedtosubscribeforanysharesunderthe
Planifsuchemployee,immediatelyaftersuchsubscription,ownsshares
(includingallshareswhichmaybepurchasedunderoutstandingsubscriptions
underthePlan)possessing5%ormoreofthetotalcombinedvotingpoweror
valueofallclassesofsharesoftheCompanyorofitsparentorsubsidiary
corporations.FortheforegoingpurposestherulesofSection425(d)ofthe
InternalRevenueCodeof1986shallapplyindeterminingshareownership.In
addition,noemployeeshallbeallowedtosubscribeforanysharesunderthe
Planwhichpermitshisrightstopurchasesharesunderall"employeestock
purchaseplans"oftheCompanyanditssubsidiarycorporationstoaccrueata
ratewhichexceeds$25,000ofthefairmarketvalueofsuchshares(determined
atthetimesuchrighttosubscribeisgranted)foreachcalendaryearinwhich
suchrighttosubscribeisoutstandingatanytime.
22.Administration.ThePlanshallbeadministeredbytheBoard.
TheBoardshallbevestedwithfullauthoritytomake,administer,and
interpretsuchrulesandregulationsasitdeemsnecessarytoadministerthe
Plan,andanydetermination,decision,oractionoftheBoardinconnection
withtheconstruction,interpretation,administration,orapplicationofthe
Planshallbefinal,conclusive,andbindinguponallparticipantsandanyand
allpersonsclaimingunderorthroughanyparticipant.
TheBoardmaydelegateanyorallofitsauthorityhereundertosuch
committeeasitmaydesignate.
23.Notices.Allnoticesorothercommunicationsbyaparticipant
totheCompanyunderorinconnectionwiththePlanshallbedeemedtohave
beendulygivenwhenreceivedbyShareholderServicesoftheCompanyorwhen
receivedintheformspecifiedbytheCompanyatthelocation,orbythe
person,designatedbytheCompanyforthereceiptthereof.
24.TerminationofthePlan.ThisPlanshallterminateatthe
earliestofthefollowing:
24.1December31,1996;
24.2ThedateofthefilingofaStatementofIntentto
DissolvebytheCompanyortheeffectivedateofamergerorconsolidation
whereintheCompanyisnottobethesurvivingcorporation,whichmergeror
consolidationisnotbetweenoramongcorporationsrelatedtotheCompany.
Priortotheoccurrenceofeitherofsuchevents,onsuchdateastheCompany
maydetermine,theCompanymaypermitaparticipatingemployeetoexercisethe
optiontopurchasesharesforasmanyfullsharesasthebalanceofhisaccount
willallowatthepricesetforthinaccordancewithSection5.Iftheemployee
electstopurchaseshares,theremainingbalanceofhisaccountwillbe
refundedtohimaftersuchpurchase.
24.3ThedatetheBoardactstoterminatethePlanin
accordancewithSection19above.
24.3ThedatewhenallsharesreservedunderthePlanhave
beenpurchased.
25.LimitationsonSaleofStockPurchasedUnderthePlan.The
Planisintendedtoprovidecommonstockforinvestmentandnotforresale.
TheCompanydoesnot,however,intendtorestrictorinfluenceanyemployeein
theconductofhisownaffairs.Anemployee,therefore,maysellstock
purchasedunderthePlanatanytimehechooses,subjecttocompliancewithany
applicableFederalorstatesecuritieslaws.THEEMPLOYEEASSUMESTHERISKOF
ANYMARKETFLUCTUATIONSINTHEPRICEOFTHESTOCK.
5
<PAGE>6
26.GovernmentalRegulation.TheCompany'sobligationtoselland
deliversharesoftheCompany'scommonstockunderthisPlanissubjecttothe
approvalofanygovernmentalauthorityrequiredinconnectionwiththe
authorization,issuance,orsaleofsuchshares.
[ThenumberofsharessetforthinSections7,10,and19havebeen
changedtoreflecttheeffectofthreefortwostocksplitsin1991and1992,
andatwoforonestocksplitin1994.]
6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX11
<SEQUENCE>3
<DESCRIPTION>COMPUTATIONOFEARNINGSPERSHARE
<TEXT>
<PAGE>1
EXHIBIT11.
COMPUTATIONOFEARNINGSPERSHARE
(Inmillions,exceptearningspershare)
<TABLE>
<CAPTION>
YearEndedJune30

199319941995

<S><C><C><C>
Weightedaveragecommonsharesoutstanding556571582
Commonequivalentsharesfromstockoptions503945

Averagecommonandequivalentsharesoutstanding(1)606610627
=================
Netincome$953$1,146$1,453
=================
Earningspershare(1)$1.57$1.88$2.32
=================
</TABLE>
__________________
(1)Fullydilutedearningspersharehavenotbeenpresentedbecausethe
effectsarenotmaterial.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX21
<SEQUENCE>4
<DESCRIPTION>SUBSIDIARIES
<TEXT>
<PAGE>1
EXHIBIT21.
SUBSIDIARIES
<TABLE>
<S><C>
AnturaS.A.R.L.MicrosoftInformaticaLimitada(Brazil)
ASCIINetworkTechnology,Inc.(JapanJV)MicrosoftInstitutePTYLimited
CorporacionMicrosoftDelEcuadorS.A.MicrosoftInternationalBV(TheNetherlands)
CorporationMS90deVenezuelaSAMicrosoftIsraelLtd.
DramRealty,Inc.MicrosoftKft(Hungary)
DreamworksInteractiveL.L.C.(U.S.JV)MicrosoftLimited(U.K.)
ForethoughtInc.Microsoft(Thailand)Limited
FoxSoftwareGmbH(Germany)Microsoft(S.A.)(Proprietary)Limited(SouthAfrica)
FoxSoftware,Inc.MicrosoftManufacturingB.V.(Irelandmanufacturing)
FoxSoftware(U.K.)LimitedMicrosoftMarocS.A.R.L.(Morocco)
FoxSoftwareS.A.R.L.(France)MicrosoftMexico,S.A.deC.V.
GraceMacCorporationMicrosoftNewZealandLimited
HomePlate,Inc.MicrosoftNorgeAS(Norway)
ImageWareResearchandDevelopment,Inc.(Canada)MicrosoftN.V.(Belgium)
MicrosoftA.O.(Russia)MicrosoftOy(Finland)
MicrosoftAG(Switzerland)MicrosoftPerc,S.A.
MicrosoftAktiebolag(Sweden)MicrosoftPhillipines,Inc.
MicrosoftB.V.(TheNetherlands)MicrosoftPropertiesFranceS.A.R.L.
MicrosoftBilgisayarYazilimHizmetleriLimitedMicrosoftPropertiesUKLimited
Sirketi(Turkey)
MicrosoftCanadaInc.MicrosoftPtyLimited(Australia)
MicrosoftCaribbean,Inc.(PuertoRico)MicrosoftPuertoRico,Inc.(Manufacturing)
MicrosoftCH(Korea)MicrosoftRendermorphicsLimited(U.K.)
MicrosoftChileS.A.Microsoft(Malaysia)Sdn.Bhd.
MicrosoftColombiaInc.MicrosoftSingaporePteLtd
MicrosoftCompany,Limited(Japan)MicrosoftSlovakias.r.o.
MicrosoftCoris,S.P.A.(ItalyJV)MSFTSoftwareParaMicrocomputadores,LDA(Portugal)
MicrosoftCorporationBeijingRepresentativeOfficeMicrosoftS.p.A.(Italy)
(ThePeoplesRepublicofChina)
MicrosoftCorporation(DubaiBranch)Microsoftsp.z.o.o.(Poland)
MicrosoftCorporationLimitada(Colombia)Microsofts.r.o.(CzechRepublic)
MicrosoftCorporation(India)PrivateLimitedMicrosoftTaiwanCorporation
Microsoftd.o.o.,Ljubljana(Slovenia)MicrosoftVenezuela,S.A.
MicrosoftDanmarkApS(Denmark)MicrosoftWorkgroupCanada,Inc.
MicrosoftdeArgentinaS.A.MSHCInc.(HoldingCompany)
MicrosoftDeCentroamericaS.A.(CostaRica)NRIIndia,Inc.
MicrosoftDistributionLimited(Ireland)OnAustraliaPty.Limited(AustraliaJV)
MicrosoftEuropeS.A.R.L.(EuropeanHeadquaters)SoftCapital,Inc.
MicrosoftFranceS.A.R.L.SOFTIMAGEFranceS.A.R.L.
MicrosoftFSCCorp.SOFTIMAGE,Inc.(Canada)
MicrosoftGesellschaftm.b.H.(Austria)SOFTIMAGE,ItalyS.R.L.
MicrosoftG.m.b.H.(Germany)SOFTIMAGEU.K.Limited
MicrosoftHellasS.A.(Greece)TechnologyResourcesManagementCorporation
MicrosoftHongKongLimitedTheMonotypeCorporation
MicrosoftIbericaS.R.L.(Spain)
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX23
<SEQUENCE>5
<DESCRIPTION>INDEPENDENTAUDITORS'CONSENT
<TEXT>
<PAGE>1
EXHIBIT23.
INDEPENDENTAUDITORS'CONSENT
MicrosoftCorporation:
WeconsenttotheincorporationbyreferenceinRegistrationStatementNumbers
3306335,3318381,3325575,3333695,and3337623(MicrosoftCorporation
1981StockOptionPlan),3344302and3351583(MicrosoftCorporation1991
StockOptionPlan),3337622(MicrosoftCorporation1991EmployeeStock
PurchasePlan),3310732(MicrosoftCorporationSavingsPlusPlan),3336498
(MicrosoftCorporationStockOptionPlanforNonEmployeeDirectors)and
3345617(MicrosoftCorporationStockOptionPlanforConsultantsandAdvisors)
ofMicrosoftCorporationonFormsS8and3329823,3334794,3336347,
3346958,3349496,3356039,3357277,3357899,3358867,3362725,and
3364870ofMicrosoftCorporationonFormsS3ofourreportdatedJuly17,
1995(August21,1995astoContingenciesNote)appearinginandincorporated
byreferenceinthisAnnualReportonForm10KofMicrosoftCorporationforthe
yearendedJune30,1995.

/S/DELOITTE&TOUCHELLP
Seattle,Washington
September25,1995
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX27
<SEQUENCE>6
<DESCRIPTION>FINANCIALDATASCHEDULE
<TEXT>
<TABLE><S><C>
<ARTICLE>5
<MULTIPLIER>1,000,000

<S><C>
<PERIODTYPE>YEAR
<FISCALYEAREND>JUN301995
<PERIODEND>JUN301995
<CASH>4,750
<SECURITIES>0
<RECEIVABLES>720
<ALLOWANCES>139
<INVENTORY>88
<CURRENTASSETS>5,620
<PP&E>1,907
<DEPRECIATION>715
<TOTALASSETS>7,210
<CURRENTLIABILITIES>1,347
<BONDS>0
<COMMON>2,005
<PREFERREDMANDATORY>0
<PREFERRED>0
<OTHERSE>3,328
<TOTALLIABILITYANDEQUITY>7,210
<SALES>5,937
<TOTALREVENUES>5,937
<CGS>877
<TOTALCOSTS>3,848
<OTHEREXPENSES>16
<LOSSPROVISION>51
<INTERESTEXPENSE>2
<INCOMEPRETAX>2,167
<INCOMETAX>714
<INCOMECONTINUING>1,453
<DISCONTINUED>0
<EXTRAORDINARY>0
<CHANGES>0
<NETINCOME>1,453
<EPSPRIMARY>2.32
<EPSDILUTED>2.32

</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX99.1
<SEQUENCE>7
<DESCRIPTION>1991EMPLOYEESTOCKPURCHASEPLANFINANCIALSTMTS
<TEXT>
<PAGE>1
EXHIBIT99.1
FINANCIALSTATEMENTSFORTHE
THREEYEARSENDEDJUNE30,1995,
1994,AND1993,AND
<PAGE>2
PlanAdministrator
MicrosoftCorporation
1991EmployeeStockPurchasePlan
Redmond,Washington
Wehaveauditedtheaccompanyingstatementsofassetsavailableforbenefitsof
theMicrosoftCorporation1991EmployeeStockPurchasePlan(thePlan)asof
June30,1995and1994,andtherelatedstatementsofchangesinassets
availableforbenefitsfortheyearsendedJune30,1995,1994,and1993.
ThesefinancialstatementsaretheresponsibilityofthePlanAdministrator.
Ourresponsibilityistoexpressanopiniononthesefinancialstatementsbased
onouraudits.
standards.Thosestandardsrequirethatweplanandperformtheauditto
obtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeof
materialmisstatement.Anauditincludesexamining,onatestbasis,evidence
supportingtheamountsanddisclosuresinthefinancialstatements.Anaudit
alsoincludesassessingtheaccountingprinciplesusedandsignificant
estimatesmadebythePlanAdministrator,aswellasevaluatingtheoverall
financialstatementpresentation.Webelievethatourauditsprovidea
reasonablebasisforouropinion.
respects,theassetsavailableforbenefitsofthePlanasofJune30,1995and
1994,andthechangesinassetsavailableforbenefitsfortheyearsendedJune
30,1995,1994,and1993,inconformitywithgenerallyacceptedaccounting
principles.
Seattle,Washington
August11,1995
<PAGE>3
STATEMENTSOFASSETSAVAILABLEFORBENEFITS
JUNE30,1995AND1994
<TABLE>
<CAPTION>
19951994

<S><C><C>
ASSETS:
Cash$295,579$492,243

ASSETSAVAILABLEFORBENEFITS$295,579$492,243
================
</TABLE>
Seenotetofinancialstatements.2
<PAGE>4
STATEMENTSOFCHANGESINASSETSAVAILABLEFORBENEFITS
YEARSENDEDJUNE30,1995,1994,AND1993
<TABLE>
<CAPTION>
199519941993

<S><C><C><C>
ASSETSAVAILABLEFORBENEFITS,
beginningofperiod$492,243$961,962$366,638
ADDITIONS:
Employeecontributions48,835,43248,614,99034,114,121
DEDUCTIONS:
Costofsharespurchased49,032,09539,084,70933,518,797

CHANGESINASSETSAVAILABLEFOR
BENEFITS(196,664)(469,719)595,324

ASSETSAVAILABLEFORBENEFITS,
endofperiod$295,579$492,243$961,962
=================================
</TABLE>
Seenotetofinancialstatements.3
<PAGE>5
NOTETOFINANCIALSTATEMENTS
YEARSENDEDJUNE30,1995,1994,AND1993
NOTE1:THEPLAN
ThefollowingdescriptionoftheMicrosoftCorporation1991EmployeeStock
PurchasePlan(thePlan)providesonlygeneralinformation.Participants
shouldrefertothePlanagreementforacompletedescriptionofthePlan's
provisions.
GENERAL:ThePlanAdministratorbelievesthePlanmeetsthequalification
standardsofSection423oftheInternalRevenueCodeof1986.ThePlanis
notsubjecttotheprovisionsoftheEmployeeRetirementIncomeSecurity
Actof1974(ERISA).
ThePlancoverssubstantiallyallemployeesofMicrosoftCorporation(the
Company)whosecustomaryemploymentisgreaterthan20hoursperweek,and
morethanfivemonthsinanycalendaryear.
CONTRIBUTIONS:ParticipantsmaymakecontributionstothePlanthrough
payrolldeductions(notexceeding10%oftheircompensation)forthe
purposeofpurchasingtheCompany'scommonstock.ThePlancommencedon
January1,1991,andparticipantsaregiventheopportunitytopurchase
sharesoneachJune30andDecember31untilsuchtimeasthePlanis
terminated(seeTerminationofthePlan).Themaximumnumberofshares
thatwillbeofferedunderthePlanis6,750,000.
OPTIONSGRANTEDANDWITHDRAWALS:Participantsaregrantedtheoptionto
purchasesharesofMicrosoftCorporationcommonstockfromtheCompanyat
85%ofthelesserofthefairmarketvalueonthefirstorlastdayofeach
sixmonthperiodendingJune30orDecember31.Iftheparticipantdoes
notexercisetheoption,theCompanyrefundstheparticipantforamounts
withheld.ThePlanpurchased1,049,695,1,147,508,and1,006,988,shares
duringtheyearsendedJune30,1995,1994,and1993,respectively.A
totalof4,686,060shareshavebeenpurchasedunderthePlansince
inceptionwith2,063,940sharesreservedforfutureissue.
ASSETSAVAILABLEFORBENEFITS:Assetsavailableforbenefitsrepresent
cashinparticipantaccountsthatwaslessthantheamountnecessaryto
purchaseafullshareandcashcontributedtothePlangreaterthanthe
costofthemaximumnumberofsharesallowedtobepurchasedinasixmonth
period(seeLimitations).Participantsmaycarryoversuchamountstothe
nextperiod.
LIMITATIONS:Noemployeeshallbepermittedtosubscribeforanyshares
underthePlanifsuchemployeeownssharesrepresenting5%ormoreofthe
totalcombinedvotingpowerorvalueofallclassesofsharesofthe
Company.Additionally,noparticipantmaypurchasemorethan2,250shares
ofstockduringasixmonthperiod,orpurchasesharesthroughthePlan
withanaggregatefairmarketvalueinexcessof$25,000inanyone
calendaryear.
TERMINATIONOFTHEPLAN:ThePlanshallterminateattheearliestofthe
following:
oDecember31,1996
4
<PAGE>6
oThedateofthefilingofastatementofintenttodissolvebythe
Companyortheeffectivedateofamergerorconsolidation(except
witharelatedcompany)wheretheCompanyisnottobethesurviving
corporation
oThedatetheBoardactstoterminatethePlan
oThedatewhenallsharesreservedunderthePlanhavebeenpurchased
Intheeventofadissolution,merger,oracquisition,theCompanymay
permitaparticipatingemployeetoexerciseoptionstotheextentthat
employeepayrolldeductionshaveaccumulated.Intheeventoftermination,
Planassetswillbedistributedtotheparticipants.
PLANADMINISTRATION:AllexpensesforadministrationofthePlanarepaid
bytheCompany,andarenotreflectedintheaccompanyingstatements.
5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX99.2
<SEQUENCE>8
<DESCRIPTION>SAVINGSPLUSPLANFINANCIALSTATEMENTS
<TEXT>
<PAGE>1
EXHIBIT99.2
SAVINGSPLUSPLAN
FINANCIALSTATEMENTSFORTHE
TWOYEARSENDEDDECEMBER31,1994,AND
NINEMONTHSENDEDDECEMBER31,1992,AND

<PAGE>2
PlanAdministrator
MicrosoftCorporationSavingsPlusPlan
Redmond,Washington
Wehaveauditedtheaccompanyingstatementsofassetsavailableforbenefitsof
theMicrosoftCorporationSavingsPlusPlan(thePlan)asofDecember31,1994
and1993,andtherelatedstatementsofchangesinassetsavailablefor
benefitsforthetwoyearsendedDecember31,1994,andtheninemonthsended
December31,1992.Thesefinancialstatementsaretheresponsibilityofthe
Planadministrator.Ourresponsibilityistoexpressanopiniononthese
financialstatementsbasedonouraudits.
standards.Thosestandardsrequirethatweplanandperformtheauditto
obtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeof
materialmisstatement.Anauditincludesexamining,onatestbasis,evidence
supportingtheamountsanddisclosuresinthefinancialstatements.Anaudit
alsoincludesassessingtheaccountingprinciplesusedandthesignificant
estimatesmadebythePlanadministrator,aswellasevaluatingtheoverall
financialstatementpresentation.Webelievethatourauditsprovidea
reasonablebasisforouropinion.
respects,theassetsavailableforbenefitsofthePlanasofDecember31,1994
and1993,andtherelatedstatementsofchangesinassetsavailablefor
benefitsforthetwoyearsendedDecember31,1994,andtheninemonthsended
December31,1992,inconformitywithgenerallyacceptedaccountingprinciples.
Ourauditsweremadeforthepurposeofforminganopiniononthebasic
financialstatementstakenasawhole.Thesupplementalschedulesofassets
heldforinvestmentasofDecember31,1994,andreportabletransactionsfor
theyearthenendedarepresentedforthepurposeofadditionalanalysisand
arenotarequiredpartofthebasicfinancialstatementsbutaresupplementary
informationrequiredbytheDepartmentofLabor'sRulesandRegulationsfor
ReportingandDisclosureundertheEmployeeRetirementIncomeSecurityActof
1974.Thesesupplementalscheduleshavebeensubjectedtotheauditing
proceduresappliedintheauditsofthebasicfinancialstatementsand,inour
opinion,arefairlystatedinallmaterialrespectsinrelationtothebasic
financialstatementstakenasawhole.
Seattle,Washington
July10,1995

<PAGE>3
MICROSOFTCORPORATIONSAVINGSPLUSPLAN
STATEMENTSOFASSETSAVAILABLEFORBENEFITS
DECEMBER31,1994AND1993
<TABLE>
<CAPTION>
19941993

<S><C><C>
ASSETS:
Investmentsheldbytrusteeatfairvalue:
MicrosoftCorporationStockFund$96,047,305$57,717,671
FidelityMagellanFund30,791,84619,930,432
FidelityU.S.EquityIndexFund23,368,12920,685,406
FidelityRetirementMoneyMarketFund19,881,40216,776,143
FidelityGrowthCompanyFund17,814,12811,638,038
FidelityIntermediateBondFund15,775,41114,653,568
FidelityOverseasFund11,290,1715,292,574
Participantloansreceivable1,867,6251,122,588

ASSETSAVAILABLEFORBENEFITS$216,836,017$147,816,420
========================
</TABLE>
Seenotestofinancialstatements.2
<PAGE>4
STATEMENTSOFCHANGESINASSETS
AVAILABLEFORBENEFITS
NINEMONTHSENDEDDECEMBER31,1992
<TABLE>
<CAPTION>
19941993
1992

<S><C><C><C>
ADDITIONS:
Investmentincome:
Interestanddividends$4,440,600$4,978,058$
2,530,108
Netappreciationinfairvalueof
investments25,559,250328,116
4,705,139

Totalnetinvestmentincome29,999,8505,306,174
7,235,247
Contributions:
Employer10,616,7368,539,976
5,003,882
Employee35,374,52226,901,086
16,310,632

Totalcontributions45,991,25835,441,062
21,314,514

Totaladditions75,991,10840,747,236
28,549,761
DEDUCTIONS:
Benefitspaidtoparticipants6,971,5112,734,102
1,320,423

CHANGESINASSETSAVAILABLE
FORBENEFITS69,019,59738,013,134
27,229,338
ASSETSAVAILABLEFORBENEFITS:
Beginningofyear147,816,420109,803,286
82,573,948

Endofyear$216,836,017$147,816,420
$109,803,286
========================
============
</TABLE>
Seenotestofinancialstatements.3
<PAGE>5
NOTESTOFINANCIALSTATEMENTS
NINEMONTHSENDEDDECEMBER31,1992
NOTE1:DESCRIPTIONOFTHEPLANAND
SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES
PLANDESCRIPTION:TheMicrosoftCorporationSavingsPlusPlan(thePlan)
isadefinedcontributionplan.AllemployeesofMicrosoftCorporation
(theCompany)whohavereached18yearsofagemayenrollduringthemonth
followingcompletionofsixmonthsofserviceorduringanysubsequent
quarterlyenrollmentperiod.ThePlanissubjecttotheprovisionsofthe
EmployeeRetirementIncomeSecurityActof1974(ERISA).ThePlanis
administeredbytheVicePresidentofHumanResourcesandAdministrationof
MicrosoftCorporation.
CONTRIBUTIONS:Participantsmaycontributefrom1%to15%oftheir
compensation,taxdeferred,throughpayrolldeductionsuptoamaximumof
$9,240undercurrentlaw.Theamountofaparticipant'staxdeferred
contributionsmaybesubjecttolimitations.Participantcontributionsmay
besuspendedatanytime.Contributionsmaybereinstatedonthefirstday
ofthequarterthatisatleastsixmonthsaftercontributionswere
suspended.
TheCompanymakesamatchingcontributionequalto50%ofaparticipant's
contributionsupto6%oftheparticipant'sindividualcompensation.
Companycontributionsarefundedonasemimonthlybasis.
VESTING:Employeecontributionsarefullyvestedimmediately.Employer
contributionsvestfullyuponcompletionoftwoyearsofservicebya
participant,orwhenaparticipantreachesage65,dies,orbecomes
disabled.
DISTRIBUTIONS:Participantsmaymakeawithdrawalfromthevestedportion
oftheiraccountifthePlanadministratordeterminesawithdrawalis
necessarytoavoidafinancialhardshiporiftheparticipantisatleast
591/2yearsofage.
FORFEITURES:Anynonvestedinterestofaterminatedemployeeshallnotbe
forfeitedtothePlanuntilaoneyearperiodofseveranceservicehas
passed.Atthistime,theforfeitedamountisdistributedtothePlan.If
aterminatedemployeeisreemployedbeforefiveconsecutiveoneyear
periodsofseverancehavepassed,theforfeitedamountwillbereallocated
totheindividual'saccount.
ADMINISTRATIVEEXPENSES:ExpensesforadministrationofthePlanarepaid
bytheCompany.
PLANAMENDMENTANDTERMINATION:TheCompanyhastherighttomodify,
amend,suspendorterminatethePlanatanytimeandforanyreason.If
thePlanisterminated,accountbalanceswillbefullyvestedandwillbe
distributedintheformandmannerdeterminedbythePlanadministrator.
VALUATIONOFINVESTMENTSANDPARTICIPANTLOANS:Investmentsarerecorded
atfairvalue.Securitytransactionsareaccountedforasofthetrade
date.Fairmarketvalueisbasedonquotedprices.Loanstoparticipants
arerecordedatcontractvalue,whichapproximatesfairvalue.Dividend
incomeisrecordedontheexdividenddateandinterestincomeisrecorded
asearned.
4
<PAGE>6
NOTE2:INVESTMENTS
FidelityInvestments(Fidelity)istrusteeofthePlan.AllPlaninvestments
areheldbyFidelity.Investmentfundsavailabletoparticipantsare
summarizedasfollows:
MICROSOFTCORPORATIONSTOCKFUND:TheMicrosoftCorporationStockFund
consistsentirelyoftheCompany'scommonstock.
FIDELITYU.S.EQUITYINDEXFUND:TheFidelityU.S.EquityIndexFund
consistsmainlyofcommonstocksofthecompaniesthatmakeupStandard&
Poor's500Index.Thefundseeksinvestmentresultsthatcorrespondtothe
totalreturnperformanceofUnitedStatespubliclytradedcommonstocks.
FIDELITYRETIREMENTMONEYMARKETFUND:TheFidelityRetirementMoney
MarketFundstrivestomaintainastable$1sharepricewhileitsyield
willfluctuatewithchangesinmarketconditions.Thefundseeksashigha
levelofcurrentincomeasisconsistentwiththepreservationofcapital
andliquidity.
FIDELITYINTERMEDIATEBONDFUND:TheFidelityIntermediateBondFund
consistsofinvestmentgradefixedincomeobligations.Thefundseeksa
highlevelofcurrentincome.
FIDELITYMAGELLANFUND:TheFidelityMagellanFundconsistsofcommon
stocks,andsecuritiesconvertibletocommonstock,issuedbycompanies
operatingintheUnitedStatesorabroad.Thefundseekslongtermcapital
appreciation.
FIDELITYGROWTHCOMPANYFUND:TheFidelityGrowthCompanyFundconsists
mainlyofinvestmentsincompanieswithaboveaveragegrowth
characteristicsasdemonstratedinearningsorgrosssales.Thefundseeks
longtermcapitalappreciation.
FIDELITYOVERSEASFUND:TheFidelityOverseasFundconsistsofinvestments
insecuritiesofissuerswhoseprincipalactivitiesareoutsidetheUnited
States.Thefundseekslongtermcapitalappreciation.
5
<PAGE>7
Thefollowingdetailsactivityforeachoftheparticipantdirectedinvestment
accountsatfairvalue.
<TABLE>
<CAPTION>
Fidelity
MicrosoftFidelityFidelityRetirement
CorporationMagellanU.S.EquityMoneyMarket
StockFundFundIndexFundFund

<S><C><C><C><C>
Balance,December31,1993$57,717,671$19,930,432$20,685,406$16,776,143

Netinvestmentincome(loss)30,227,408(534,447)235,253753,604
Employercontributions2,965,5312,303,8441,207,8401,055,766
Employeecontributions9,650,6747,649,7243,981,6333,294,995
Benefitspaidtoparticipants(2,610,753)(712,176)(940,002)(1,177,295)
Transfers(1,903,226)2,154,469(1,802,001)(821,811)

Balance,December31,1994$96,047,305$30,791,846$23,368,129$19,881,402
============================================
</TABLE>
<TABLE>
<CAPTION>
FidelityTotal
GrowthFidelityFidelityParticipantassets
CompanyIntermediateOverseasLoanavailable
FundFundFundFundforbenefits

<S><C><C><C><C><C>
Balance,December31,1993$11,638,038$14,653,568$5,292,574$1,122,588$147,816,420

Netinvestmentincome(loss)(300,914)(286,380)(94,674)29,999,850
Employercontributions1,304,567964,777814,41110,616,736
Employeecontributions4,729,6573,052,7503,015,08935,374,522
Benefitspaidtoparticipants(606,881)(646,537)(277,867)(6,971,511)
Transfers1,049,661(1,962,767)2,540,638745,037

Balance,December31,1994$17,814,128$15,775,411$11,290,171$1,867,625$216,836,017
=======================================================
</TABLE>
6
<PAGE>8
NOTE3:PARTICIPANTLOANS
EffectiveJanuary1,1993,Planparticipantsarepermittedtoborrowupto50%
ofthetotalvestedaccountbalance.Participantsarelimitedtoone
residentialloanandonenonresidentialloanoutstanding.Theinterestrate
forresidentialloansisbasedontheyieldfortheFederalHomeLoanMortgage
Corporation30yearmortgagecommitmentforastandardconventionalfixedrate
mortgage,plus1%.Theinterestratefornonresidentialloanswillbethe
primerateoncorporateloansplus1%.Therangeofinterestrateswas7%
9.5%fornonresidentialloansand8.78%10.26%forresidentialloansforthe
yearendedDecember31,1994.Loanrepaymentismadethroughaftertax
semimonthlypayrolldeductionsoveraperiodofupto15yearsforresidential
loansandfiveyearsfornonresidentialloans.Ifaparticipant'semployment
terminatesforanyreasonandtheloanbalanceisnotpaidinfullbythe
participantinthemonthoftermination,theloanbalancewillbecancelledand
becometaxableincometotheparticipant.
NOTE4:TAXSTATUS
TheInternalRevenueServicehasdeterminedandinformedthePlanbyaletter
datedJune18,1990,thatthePlanistaxexemptundertheappropriatesections
oftheInternalRevenueCode(theCode).ThePlanhasbeenamendedsubsequent
tothedateofthedeterminationletter.ThePlanadministrator,however,
believesthatthePlanisincompliancewiththeapplicablerequirementsofthe
Code.Assuch,theybelievethePlanistaxexemptasofthefinancial
statementdate.Accordingly,noprovisionforincometaxeshasbeenrecorded.
7
<PAGE>9
ITEM27(a)SUPPLEMENTALSCHEDULEOFASSETSHELDFORINVESTMENT
DECEMBER31,1994
<TABLE>
<CAPTION>
SharesFair
orunitsCostvalue

<S><C><C><C>
DESCRIPTIONOFASSETS:
MicrosoftCorporationStockFund1,571,326$45,542,299$96,047,305
FidelityU.S.EquityIndexFund1,381,91221,918,21823,368,129
FidelityRetirementMoneyMarketFund19,881,40219,881,40219,881,402
FidelityIntermediateBondFund1,604,82316,602,39615,775,411
FidelityMagellanFund460,95531,616,99630,791,846
FidelityGrowthCompanyFund653,49018,421,93817,814,128
FidelityOverseasFund413,55911,132,56611,290,171
Participantloansreceivable1,867,6251,867,625

$166,983,440$216,836,017
========================
</TABLE>
8
<PAGE>10
ITEM27(d)SUPPLEMENTALSCHEDULEOFREPORTABLETRANSACTIONS
YEARENDEDDECEMBER31,1994
<TABLE>
<CAPTION>
PurchasesSales

Fairvalue
PurchaseSellingCostofassetonNet
gain
pricepriceofassettransactiondate
(loss)

<S><C><C><C><C><C>
SERIESOFTRANSACTIONS:
MicrosoftCorporationStockFund$16,657,341$8,526,670$5,020,086$8,526,670
$3,506,584
FidelityMagellanFund15,318,0822,938,3713,001,4482,938,371
(63,077)
FidelityIntermediateBondFund5,573,4903,089,6753,153,3713,089,675
(63,696)
FidelityOverseasFund7,510,2091,227,8291,164,1101,227,829
63,719
FidelityRetirementMoneyMarketFund7,921,2604,816,0014,816,0014,816,001
FidelityU.S.EquityIndexFund6,457,8703,306,8763,050,7053,306,876
256,171
FidelityGrowthCompanyFund9,157,8781,990,6652,004,3961,990,665
(13,731)
</TABLE>

9

</TEXT>
</DOCUMENT>
</SECDOCUMENT>
</SECDOCUMENT>
ENDPRIVACYENHANCEDMESSAGE

MSFT Annual Report 1995

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MSFT Annual Report 1995

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3/7/2017 https://www.sec.gov/Archives/edgar/data/789019/000089102095000433.

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