With the Securities and Exchange Commission beginning to post money market funds' shadow net asset values last Monday on Form N-MFP, fund companies and even the Investment Company Institute have been actively trying to educate investors about small variances in value down to the fourth decimal point to prevent investor concerns and possible redemptions.
A shadow NAV is essentially mark-to-market pricing of a money market fund. However, unlike a regular mutual fund, it is based on amortized accounting of securities that can be purchased at a premium or a discount from a $1 NAV. The amount of this premium is then amortized, or spread out, daily over the remaining life of the security. This method of accounting brings the security's value closer to par as the security approaches its maturity date-and almost ensures that the price will not be exactly $1.