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This paper presents the analysis and performance of a three-phase AC generator with an inset, neodymium-iron-boron (NdFeB) permanent-magnet (PM) rotor. Such a rotor construction gives rise to an inverse saliency effect (i.e., the direct-axis synchronous reactance is less than the quadrature-axis synchronous reactance). This feature results in an improvement in the voltage regulation characteristics when the generator supplies an isolated, unity-power-factor load. By solving the equations derived from the two-axis theory, it is found that there exists, in general, two values of load current at which zero voltage regulation is obtained. The relationship between armature resistance, inverse saliency ratio, and the operating speed to give zero voltage regulation is investigated. The finite-element method (FEM) is used for computing the pertinent generator parameters for performance evaluation, namely the no-load voltage and the synchronous reactances. Flux plots are presented to confirm the origin of inverse saliency in the inset PM rotor. The theoretical analysis is validated by experiments carried out on a 2.5-kVA prototype generator.