Wrap a mutual-fund investment in a tax-shelter package and what do you have?

Variable annuities, a financial product that its backers are billing as a natural for the 1990s.But before you rush to get in on this seeming good thing, you should do some detailed spadework - and ask yourself whether the costs you must pay and the time commitment you must make won't outweigh the benefits.

"The advantages sound very compelling, but be sure you consider all the variables," says William Brennan in the newsletter Financial Planning Reporter, published by the accounting firm of Ernst & Young.

Unless you hold mutual fund shares in a tax-favored plan such as an individual retirement account, fund investments can often present tax headaches. Income taxes must be paid each year on capital gains and dividends you receive, even if you reinvest the proceeds in additional fund shares.

But you can get around this problem if you invest in a variable annuity. This is a contract issued by a firm such as an insurance company through which your money is invested in a pool or pools of money operating precisely along the lines of a mutual fund.

The law permits the "inside buildup" in annuities, just as in life insurance policies, to go untaxed until you start withdrawing money from the account, perhaps many years from now.

As of mid-1993, CDA-Wies-enberger, a firm that tracks developments in the mutual fund industry, tallied 791 funds operating within annuity programs that had total assets of $87.4 billion.

"Annuities, traditionally a retirement tool popular among older people, are emerging in this climate of rising taxes as a popular tax-deferral tool for taxpayers of all ages," says the Institute of Certified Financial Planners, a national trade group.

But an annuity should never be bought without a close look at fees - for administration and insuring mortality risk, as well as for investment management. These often run to well over 2 percent a year, or about double what is charged at the typical straight mutual fund.

"The higher costs of annuities offset their tax benefits for a decade or more," says John Bogle, chairman of the Vanguard Group of Investment Cos., in his book Bogle on Mutual Funds.

That factor by itself makes variable annuities suitable only for money you can afford to tie up for very long periods of time.

On top of that, you may face early withdrawal charges imposed by the annuity's sponsor if you need to take money out in the early years of the account's life - and a 10 percent penalty tax if you make a withdrawal before you reach age 591/2.

"Annuities are a lifetime commitment," says the financial planners' institute.

Annuities have an edge on IRAs, Keogh plans and company-sponsored 401 retirement plans, in that the law sets no limit on how much you can invest each year. But your annuity contribution can't be deducted on your current tax return, no matter what your income level.

"Maximize contributions to retirement savings plans first," counsels Brennan.

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In many variable-annuity packages, you have the choice of a series of fund portfolios in which to put your money, often including money-market and bond funds as well as stocks.

But advisers generally agree that your selection must emphasize stocks to give you a reasonable hope of overcoming the cost disadvantage. "The fees that you pay won't be justified unless you achieve above-average returns," Brennan says.

Variable annuities' tax-deferral feature is of greatest value to investors in the highest tax brackets, which were raised to 36 percent and 39.6 percent by the 1993 tax bill.

If you are in just the 15 percent bracket, or even the 28 percent bracket, a variable annuity investment will have to achieve very strong results just to pay its own freight.

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