Q. I am disappointed with my Microsoft Corp. shares. What are the prospects? - RC, via the Internet

A. The world's largest software company must cope with a world in recession. A slowdown in personal computer sales, frustration in the Internet search business and fierce competition are taking a toll.

In January, the firm said it would eliminate up to 5,000 jobs over the next 18 months in its first companywide lay-offs. But it is adding up to 2,000 employees in divisions such as Internet search.

Net income fell 11 percent, to $4.17 billion, in its fiscal second quarter, which ended in December. Chief executive Steve Ballmer predicted sales and profits in the second half of the fiscal year will be lower than the same period in fiscal 2008.

Shares of Microsoft (MSFT) are down 18 percent this year after last year's 45 percent decline.

On the positive side, the Windows 7 operating system scheduled for release this year could correct annoyances that gave Windows Vista a bad name - but won't add a batch of new features. It is designed to be easy to upgrade to Windows 7 from Vista, and the system is expected to run well on netbooks, those laptops used for surfing the web and checking e-mail.

Windows and Office account for about 60 percent of Microsoft revenue, with 22 percent coming from enterprise server software. Other businesses include the Xbox video console, Internet service and software for mobile phones.

Recommendations on Microsoft shares consist of 15 "strong buys", nine "buys" and 10 "holds", according to Thomson Reuters.

Winning the Internet market-share and advertising battle against Google Inc. does not look promising. Ballmer said he remains interested in a relationship with Internet firm Yahoo Inc., though not a full acquisition. Former Yahoo CEO Jerry Yang was replaced by Carol Bartz, and that could reopen the door to talks.

Microsoft faces competition from Firefox and Linux, as well as anti-trust scrutiny at home and abroad. It sold its 7.26 percent stake in Comcast Corp. after it did not increase use of its software in TV set-top boxes.

Earnings for the fiscal year ending in June are expected to decline five percent and in the following fiscal year increase 12 percent. The five-year annualised return is projected to be 10 percent versus 12 percent forecast for the application software industry.

Q. Please review Vanguard Dividend Growth Fund for me. - BV, via the Internet

A. It is a solid fund that buys stock in companies with a long history of paying and increasing dividends. It also has a low annual expense ratio of 0.32 percent.

Until December 2002 it was a utilities stock fund, but it now spreads its holdings across industries.

The $1.7 billion Vanguard Dividend Growth Fund (VDIGX) is down 35 percent over the past 12 months and has a three-year annualised decline of 10 percent. Both results rank in the top three percent of all large growth and value funds.

"I recommend this fund for its disciplined strategy of investing in high-quality, profitable companies with defensible market positions, though it could look sluggish whenever investors shed their aversion to risk," said Dan Culloton, analyst with Morningstar Inc. in Chicago. "It doesn't focus so much on absolute dividend yield, but rather on whether a company pays a dividend and can increase it over time."

Donald Kilbride cut the fund's financial stock holdings in half shortly after becoming portfolio manager in 2006 because of his qualms about the credit cycle inhibiting dividends. Although the financial services sector represents 12 percent of the portfolio, it is considerably less than many of the fund's peers.

Kilbride is price-conscious, buying stocks near historic lows. He wants companies that generate enough cash flow to increase dividends. He also holds for the long term and has below-average portfolio turnover.

"Dividend growth can be a signal of financial health, consistent growth and management discipline," Mr. Culloton said. "While the fund's relative performance has been good the past couple of years, it still had losses because everything has been hit."

Health care represents about 15 percent of portfolio, with other concentrations in energy, industrial materials and consumer goods. Top holdings include Total SA, Automatic Data Processing Inc., Marathon Oil Corp., Medtronic Inc., Chevron Corp., General Electric Co., Exxon Mobil Corp., American Express Co., Ace Ltd. and State Street Corp.

The "no-load" (no sales charge) fund has a $3,000 minimum initial investment.

Q. I am 62 years old, retired and drawing from a traditional IRA. In converting some of my current traditional IRA to a Roth IRA, would I still come under the five-year waiting period? - JS, via the Internet

A. The five-year waiting period applies. To take a qualified distribution, you must be 59-and-a-half and must have waited five years from the time of your initial contribution or the time of conversion. If you take a distribution before the waiting period is up, you pay a 10 percent penalty.

A Roth conversion basically takes money treated as tax-deferred and converts it into a Roth account that allows tax-free withdrawals. To make the conversion, you must pay tax on the amount you convert.

"It sounds like you want to do a series of conversions, which a lot of people do," said Molly Balunek, certified financial planner with Spero-Smith Investment Advisers in Cleveland. "Every year, they convert an amount that doesn't push them into the next tax bracket."

While a full conversion to a Roth IRA is common, a partial conversion may also make sense if you don't have enough cash outside your retirement account to pay the tax on a full conversion.

Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, 555 N. Central Ave., Suite 302, Phoenix, AZ 85004-1248, or by e-mail at andrewinv@aol.com

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