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Co-founder of Microsoft shielded billions in stock

Billionaire Paul Allen entered into contracts last month that would protect the value of about $3.5-billion of his Microsoft Corp. common stock if the company's shares continue falling.

Allen, who helped Microsoft chairman Bill Gates start the Redmond, Wash., software giant, has arranged to use stock options in what are known as "zero-cost" collars covering 66.8-million common shares. The arrangements were disclosed in documents filed with the Securities and Exchange Commission.

Allen's moves were prescient, preceding by more than five weeks this month's announcement that Microsoft's quarterly revenue and earnings won't meet the company's earlier estimates. Microsoft shares have lost about a quarter of their value since Nov. 8, when the most recent of the options arrangements were completed.

Using sets of options that give Allen the right to sell Microsoft shares at specified prices in the years 2003 to 2005, the collars essentially set a floor for 46 percent of the 143.9-million Microsoft shares Allen has reported holding, guaranteeing that he gets a minimum price for the stock several years from now. In return, Allen entered into options agreements that would require him to surrender some gains if Microsoft shares nearly double or in some cases triple from their current level.

Allen's use of these techniques, commonly known as hedging, comes after Microsoft shares already have fallen more than 52 percent in 2000. Microsoft shares closed Thursday at $44.56, down $1.88.

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