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An alternative risk-financing method that FMR Corp. officials say they never intended to publicly announce could end up bolstering the company's money market funds sales.

To protect both subsidiary FMR Co. and the shareholders of the Fidelity Investments money market funds it manages against the risk of share prices falling below par, Judy Lindenmayer and her risk management team, her broker, a reinsurer and FMR Corp.'s legal office joined forces to create a captive insurer that would restore a Fidelity fund's share price to par value if the share price ever falls below $1.

The effort, which awaits approval from federal securities officials, was driven purely by the company's desire to protect itself against such a mishap, said Ms. Lindenmayer, vp-Fidelity insurance and risk management.

Money market fund managers are not required to make up losses that "break the buck"-or drive down a fund's net asset value below $1 a share. But, in the few cases when a fund has broken the buck, the fund managers typically made up those losses with cash infusions, which were not covered by insurance.

While that problem has not beset any of Fidelity's money market funds, FMR Corp. still wanted some protection.

In its third attempt in five years at affordable protection against the risk, Ms. Lindenmayer and the others developed a solution in 1995.

In the prior attempts, the insurance industry offered only a form of financial guarantee coverage that required FMR essentially to make the insurer whole. "We wanted real risk transfer," said Donna M. Manzo, corporate risk manager.

That kind of coverage now is available. But, at a cost of 1.5 to 2 basis points of the net assets under management, that coverage for such an uncommon problem is too expensive for FMR Corp.

The cost of the captive arrangement FMR has developed to cover potential money market fund losses sufficiently to restore share prices to par value is much cheaper.

Under the arrangement, the captive-Bermuda-based Fidfunds Mutual Ltd.-would provide $100 million of coverage. The captive would retain $30 million of a loss and cede the remaining $70 million to a group of four reinsurers, led by American International Group Inc.

Fidfunds' retained limit would be supported by a combination of the initial capitalization of the captive, an assessable additional premium on the captive's owners, retained earnings and a commitment from FMR Corp.

Ms. Lindenmayer would not disclose the captive's initial capital and surplus.

So far, about 40, or nearly all, of the money market funds Fidelity manages have committed to the captive. The government funds are not included, because those already are backed by the government.

That strong commitment by the funds was essential in gaining an Internal Revenue Service private letter ruling last year that the arrangement constitutes real risk transfer. That means the premiums would be tax deductible.

Ms. Lindenmayer explained that the IRS first addressed that risk transfer issue in 1988 when many mutual fund complexes sought approval to form Bermuda -based group captive Investment Co. Institute Mutual Insurance Co. to cover their financial bond and errors and omissions risks. The IRS determined then that at least 31 fund complexes would have to participate before the agency would consider the facility an association captive that would provide captive participants with the favorable premium tax treatment they sought.

"It set a precedent for these kind of ventures," Ms. Lindenmayer said.

The IRS afforded Fidelity's money market funds the same treatment because each mutual fund is a legal entity unto itself, Ms. Lindenmayer explained. Fidelity is an investment adviser and manager; it does not own the funds. "So we followed that guideline" established by the IRS in 1988, she said.

FMR, though, has been waiting about a year to hear whether the Securities and Exchange Commission will approve the captive. The SEC must "test the fairness of the transaction" under the terms of the Investment Company Act of 1940, according to Liz Osterman, an assistant director in the SEC's office of investment company regulation.

If the SEC signs off on the captive, FMR Co. and the approximately 40 money market funds it manages could emerge with more than a tax-effective way to protect themselves and their shareholders. It also could give it a competitive advantage over other non-government funds, which typically do not purchase such insurance protection.

Ms. Lindenmayer noted that critics of the captive say the arrangement is self-serving and that it unfairly saddles shareholders with an additional cost. She said the premium for the shareholder protection is low and that the funds recover part of that cost anyway since the premium is tax deductible.