If it walks like a mutual fund and quacks like a mutual fund, it must be a mutual fund, right? Not if it's a variable annuity. Several important differences exist between mutual funds and variable annuities.

The long and short of it
Mutual funds may be suitable for investors with either a long-term or short-term investment horizon. The investor has only to find a fund suitable to his or her goal. Variable annuities, on the other hand, are intended as long-term investment vehicles for the purpose of financing a person's retirement. They are not designed for, nor are they marketed to investors as, short-term investments. The federal government encourages the use of variable annuities as retirement savings vehicles by allowing returns to accumulate on a tax-deferred basis — taxes are not levied against earnings until they are withdrawn. Investors who withdraw assets from variable annuities before reaching 59-1/2 years of age are, in most cases, subject to early withdrawal penalties imposed by the federal government. Mutual fund share gains, with the exception of gains earned from shares which fund individual retirement accounts (IRAs), cannot be deferred and are taxed annually. Therefore, mutual fund shareholders are not subject to early withdrawal penalties, except if their shares are held in IRAs. Although you may not withdraw an investment in a variable annuity without incurring tax penalties before age 59-1/2 (rollovers to an IRA are an exception), remember that Mutual of America allows you unlimited transfers among the investment alternatives we offer at no charge to you and without any tax implications.

When payback time comes
The annuitization, or payout, stage also sets variable annuities apart from mutual funds. Payments from a variable annuity can be arranged so that you will never outlive the money in your account. This doesn't necessarily mean that you'll be guaranteed enough money to live comfortably. It does mean that the insurance company combines actuarial assumptions with an expected rate of return to determine a payment amount, which is guaranteed to be paid periodically for the duration of the investor's life and, if desired, the life of a designated person, usually a spouse. Mutual funds do not offer such a feature, although investors in both variable annuities and mutual funds have the option of receiving their money in either a lump sum or through regular withdrawals, by which payments are made until the assets are depleted. It should be noted, however, that some variable annuities assess charges for mortality guarantees and related expenses that are not charged by mutual funds.

Ownership distinctions
Another difference between mutual funds and variable annuities involves ownership. If you invest in a mutual fund, you are the owner of the fund shares. This is not the case where variable annuities are concerned. Investors in the separate accounts of Mutual of America do not actually own shares of the investment company funds in which their money is invested. These investors own pieces (known as "units") of the respective separate account(s) through which they invest. The separate account is the actual owner of the investment company fund shares.

What is a separate account? It is a pool of money that a life insurance company invests in funds of investment companies that are formed exclusively for life insurance company separate accounts. The quarterly statements for our variable accumulation annuities will never refer to a holding's net asset value, the commonly used term for the per share price of a mutual fund. Rather, you will see a column that notes the unit value, which is the value per unit of the investment alternative in which you have directed Mutual of America to place your money.

Even if the name is similar ...
You should also be aware that in some cases the investment companies in which separate accounts invest are affiliated with other investment companies that sell mutual funds to the general public. These affiliated companies may sometimes use a similar name for a mutual fund and for a separate account fund. Although the similarly named funds may share certain investment objectives, they are, in actuality, unique entities unto themselves. Their portfolios may vary to such an extent that their respective returns differ noticeably, even before respective fees and expenses are applied, because the amounts of cash flow and total assets are significantly different.

Where to find performance information
If you want to track the performance of the investment alternatives available through Mutual of America, what are your options? The first and easiest method is to refer to the fund performance section of this Web site. Another option is to check the performance sheet included with your quarterly statement. Both options will show you the year-to-date, one-year, three-year, five-year and 10-year performance results in terms of percentage gain or loss for each investment alternative. (For funds that have not been operational for as long as five and/or 10 years, results since inception of the fund are shown.)

You may also call 1-800-468-3785 to track the daily change in unit values for our separate accounts. Please note that you cannot track performance of any of our investment alternatives in the mutual fund tables of a daily newspaper.

The above article is for general information only and is not intended to provide specific advice or recommendations for any individual. Consult your attorney, accountant, or financial or tax advisor with regard to your individual situation.

Mutual of America Life Insurance Company is a Registered Broker-Dealer.