Updated from 5:42 p.m. EDT

Microsoft

(MSFT) - Get Report

reported 9.5% earnings growth Tuesday, surpassing analysts' predictions, as gains from investments surged and operating expenses grew faster than revenues.

The company said it was comfortable with earnings projections for 2001, currently at $1.88 a diluted share. In a conference call with analysts, company officials said they would not re-institute a stock buyback program even though there are no legal or regulatory barriers to doing so.

Shares of the Redmond, Wash.-based company edged up 5/16 to close regular trading at 78 1/2. Microsoft rose to 80 in after-hours trading as company officials fielded questions in the conference call, according to

Instinet

.

For the fourth fiscal quarter ended June 30, the software giant posted net income of $2.41 billion, or 44 cents a diluted share. In the comparable period last year, net income was $2.2 billion, or 40 cents a diluted share. Analysts polled by

First Call/Thomson Financial

had predicted earnings of 42 cents a share in the latest quarter.

Revenues for the quarter rose to $5.8 billion, from $5.76 billion in the fourth quarter of 1999. Wall Street was expecting around $5.66 billion, according to brokerage firm reports and interviews with analysts.

Investment income more than doubled, to $1.127 billion, from $485 million in the year-earlier quarter. The company had warned it would be high, but analysts were expecting $900 million to $1 billion.

"It added about 2 cents," said Chris Mortenson, an analyst for

Deutsche Banc Alex Brown

, who rates the stock buy and whose firm has not done underwriting for the company. "If you back that out, they did the Street consensus," he added, referring to earnings.

At the same time, operating expenses rose to $3.28 billion from $2.86 billion in the comparable quarter.

"These expenses will continue to grow at rates greater than revenue as we make big investments in the new platform and services around our .NET initiative," said John Connors, Microsoft's chief financial officer, referring to the company's plans to market software online.

After Microsoft officials finished their presentation during the conference call, analysts pressed for details of sales results for Windows 2000, the server operating systems that debuted in February.

The company said organizations including

Royal Dutch/Shell

,

Xerox

,

Reed Elsevier

and

Motorola

are deploying Windows 2000. In the conference call, one analyst noted that

General Motors

was conspicuously missing from that list.

More pointedly, Microsoft said

Compaq

,

Dell

,

Hewlett-Packard

,

IBM

and

Toshiba

-- all of the top hardware makers -- "are deploying" the professional version of the system within their organizations. Microsoft said the top boxmakers' use of the system constitutes an endorsement. Microsoft said it will "remain guarded in the near term about business PC growth rates."

For its fiscal year, Microsoft reported that its net income rose 20.9%, to $9.42 billion, or $1.70 a diluted share, compared with 1999 earnings of $7.79 billion, or $1.42 a diluted share. Analysts had expected earnings of $1.69 a share, according to First Call. Revenues rose 16.2%, to $22.96 billion, from $19.75 billion in 1999.