INVESTORS NEED TO "EXERCISE caution and ask hard questions" of their financial professional when considering several aspects of variable annuities as an investment vehicle, says a top Securities and Exchange Commission official.

            The use of a variable annuity in an IRA or other tax-deferred vehicle, fees and charges, tax-free exchanges, and bonus payments must all be carefully scrutinized, according to Paul Roye, director of the SEC's Division of Investment Management.  He made his comments while promoting a new online brochure, Variable Annuities: What You Should Know, which is one of a number of SEC Investor Alerts.  The brochure is certain to become a must-read for investors who regularly visit the SEC Web site.

           Here are the "cautions" explained to investors in the online brochure:

o Tax considerations:
        For most investors, it will be beneficial to make the maximum allowable contributions to IRAs and 401(k) plans before investing in a variable annuity.  Investing in a variable annuity through a tax-advantaged retirement plan will not result in an additional tax advantage from the variable annuity.  Under these circumstances, investors are told to consider buying a variable annuity only if it makes sense because of other features such as lifetime income payments and death benefit protection.

o Benefits: 
            Investors will pay for each benefit.  Be sure you understand the charges and carefully consider whether you need the benefit, advises the brochure.  If the benefit is needed, an investor should think about a less costly alternative than a variable annuity.

o Exchanges:
            When considering an exchange under the provisions of Section 1035 of the Internal Revenue Code, investors are told to carefully compare the annuities.  Holding the new annuity only for the short-term may not be beneficial because it likely will impose a new surrender charge period.

o Bonus credits:
            Variable annuities with bonus credits may carry a downside, such as higher surrender charges, longer surrender periods and higher mortality and expense risk charges.

        Financial professionals who sell variable annuities have an obligation to be sure the product is suitable for the particular investor.  The SEC has loaded the online brochure with questions they want investors to ask themselves to ensure that a variable annuity is the right product for them at the right time.

        For example, in a self-imposed suitability test investors should consider: Will the variable annuity be used primarily to save for retirement or a similar long-term goal?  Is it worth taking the risk that the account value may decrease if the underlying mutual fund investments perform badly?

        "Before purchasing a variable annuity, you owe it to yourself to learn as much as possible about how they work, the benefits they provide and the charges you will pay," the brochure reminds investors."

        It is available on the Investor Assistance section of the SEC Web site at www.sec.gov.