<PAGE> 1
ANNUAL REPORT
DECEMBER 31, 1997
THE TRAVELERS FUND BD II
FOR VARIABLE ANNUITIES
[TRAVELERS LIFE & ANNUITY LOGO]
The Travelers Insurance Company
The Travelers Life and Annuity Company
One Tower Square
Hartford, CT 06183
<PAGE> 2
THE TRAVELERS FUND BD II
FOR VARIABLE ANNUITIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in eligible funds at market value:
Travelers Series Fund Inc., 57,523,433 shares (cost $484,268,916) .............. $548,663,720
The Travelers Series Trust, 2,057,916 shares (cost $24,142,052) ............... 25,847,424
Greenwich Street Series Fund, 4,020,841 shares (cost $63,997,071) ............. 70,847,226
Smith Barney Concert Allocation Series Inc., 1,463,310 shares (cost $15,797,172) 16,327,070
Total Investments (cost $588,205,211) ...................................... $661,685,440
Receivables:
Dividends ...................................................................... 55,325
Purchase payments and transfers from other Travelers accounts .................. 8,265,175
Other assets ..................................................................... 316
------------
Total Assets ................................................................. 670,006,256
------------
LIABILITIES:
Payable for contract surrenders and transfers to other Travelers accounts ........ 7,462,710
Accrued liabilities .............................................................. 43,471
------------
Total Liabilities ............................................................ 7,506,181
------------
NET ASSETS: ......................................................................... $662,500,075
============
</TABLE>
See Notes to Financial Statements
-1-
<PAGE> 3
THE TRAVELERS FUND BD II
FOR VARIABLE ANNUITIES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Dividends ........................................... $ 4,719,028
EXPENSES:
Insurance charges ................................... $ 4,591,948
Administrative fees ................................. 668,938
-------------
Total expenses .................................... 5,260,886
-------------
Net investment loss ............................. (541,858)
-------------
REALIZED GAIN AND CHANGE IN UNREALIZED GAIN ON
INVESTMENTS:
Realized gain from investment transactions:
Proceeds from investments sold .................... 236,812,432
Cost of investments sold .......................... 233,076,182
-------------
Net realized gain ............................... 3,736,250
Change in unrealized gain on investments:
Unrealized gain at December 31, 1996 .............. 13,880,806
Unrealized gain at December 31, 1997 .............. 73,480,229
-------------
Net change in unrealized gain for the year ...... 59,599,423
-------------
Net realized gain and change in unrealized gain 63,335,673
-------------
Net increase in net assets resulting from operations $ 62,793,815
=============
</TABLE>
See Notes to Financial Statements
-2-
<PAGE> 4
THE TRAVELERS FUND BD II
FOR VARIABLE ANNUITIES
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income (loss) .................................... $ (541,858) $ 4,583,320
Net realized gain from investment transactions .................. 3,736,250 598,325
Net change in unrealized gain (loss) on investments ............. 59,599,423 14,005,980
------------- -------------
Net increase in net assets resulting from operations .......... 62,793,815 19,187,625
------------- -------------
UNIT TRANSACTIONS:
Participant purchase payments
(applicable to 212,510,724 and 182,948,181 units, respectively) 305,552,932 226,873,244
Participant transfers from other Travelers accounts
(applicable to 304,613,637 and 55,121,934 units, respectively) 370,995,750 65,242,361
Administrative charges
(applicable to 49,225 and 15,382 units, respectively) ......... (76,062) (18,946)
Contract surrenders
(applicable to 7,258,742 and 1,897,753 units, respectively) ... (10,937,049) (2,337,255)
Participant transfers to other Travelers accounts
(applicable to 285,276,584 and 50,981,143 units, respectively) (331,281,698) (55,932,256)
Other payments to participants
(applicable to 2,772,990 and 810,905 units, respectively) ..... (3,790,797) (1,058,035)
------------- -------------
Net increase in net assets resulting from unit transactions . 330,463,076 232,769,113
------------- -------------
Net increase in net assets ................................ 393,256,891 251,956,738
NET ASSETS:
Beginning of year ............................................... 269,243,184 17,286,446
------------- -------------
End of year ..................................................... $ 662,500,075 $ 269,243,184
============= =============
</TABLE>
See Notes to Financial Statements
-3-
<PAGE> 5
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Travelers Fund BD II for Variable Annuities ("Fund BD II") is a separate
account of The Travelers Life and Annuity Company ("Travelers Life"), which is a
wholly owned subsidiary of The Travelers Insurance Company ("The Travelers"), an
indirect wholly owned subsidiary of Travelers Group Inc., and is available for
funding certain variable annuity contracts issued by Travelers Life. Fund BD II
is registered under the Investment Company Act of 1940, as amended, as a unit
investment trust.
Participant purchase payments applied to Fund BD II are invested in one or more
eligible funds in accordance with the selection made by the contract owner. As
of December 31, 1997, the eligible funds available under Fund BD II are:
Alliance Growth Portfolio, Van Kampen American Capital Enterprise Portfolio, TBC
Managed Income Portfolio, G.T. Global Strategic Income Portfolio, Smith Barney
High Income Portfolio, Smith Barney International Equity Portfolio, Smith Barney
Income and Growth Portfolio, Smith Barney Money Market Portfolio, Putnam
Diversified Income Portfolio, Smith Barney Pacific Basin Portfolio, MFS Total
Return Portfolio, and AIM Capital Appreciation Portfolio of Travelers Series
Fund Inc.; MFS Emerging Growth Portfolio of The Travelers Series Trust; Total
Return Portfolio of Greenwich Street Series Fund (formerly Smith Barney Series
Fund); and Select High Growth Portfolio, Select Growth Portfolio, Select
Balanced Portfolio, Select Conservative Portfolio and Select Income Portfolio of
Smith Barney Concert Allocation Series Inc. Travelers Series Fund Inc. and Smith
Barney Concert Allocation Series Inc. are incorporated under Maryland law. The
Travelers Series Trust and Greenwich Street Series Fund are registered as
Massachusetts business trusts. All eligible funds are managed by affiliates of
The Travelers. Not all funds may be available in all states or to all contract
owners.
The following is a summary of significant accounting policies consistently
followed by Fund BD II in the preparation of its financial statements.
SECURITY VALUATION. Investments are valued daily at the net asset values per
share of the underlying funds.
SECURITY TRANSACTIONS. Security transactions are accounted for on the trade
date. Dividend income is recorded on the ex-dividend date.
FEDERAL INCOME TAXES. The operations of Fund BD II form a part of the total
operations of Travelers Life and are not taxed separately. Travelers Life is
taxed as a life insurance company under the Internal Revenue Code of 1986, as
amended (the "Code"). Under existing federal income tax law, no taxes are
payable on the investment income of Fund BD II. Fund BD II is not taxed as a
"regulated investment company" under Subchapter M of the Code.
OTHER. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments were
$568,123,809 and $236,812,432, respectively, for the year ended December 31,
1997. Realized gains and losses from investment transactions are reported on an
identified cost basis. The cost of investments in eligible funds was
$588,205,211 at December 31, 1997. Gross unrealized appreciation for all
investments at December 31, 1997 was $76,194,239. Gross unrealized depreciation
for all investments at December 31, 1997 was $2,714,010.
-4-
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. CONTRACT CHARGES
Insurance charges are paid for the mortality and expense risks assumed by
Travelers Life. For contracts with a standard death benefit provision, these
charges are equivalent to 1.02% of the average net assets of Fund BD II on an
annual basis. For contracts with an enhanced death benefit provision, these
charges are equivalent to 1.30% of the average net assets of Fund BD II on an
annual basis.
Administrative fees are paid for administrative expenses incurred by Travelers
Life. This charge is equivalent to 0.15% of the average net assets of Fund BD II
on an annual basis.
For contracts in the accumulation phase with a contract value less than $40,000,
an annual charge of $30 (prorated for partial periods) is deducted from
participant account balances and paid to Travelers Life to cover contract
administrative charges.
No sales charge is deducted from participant purchase payments when they are
received. However, Travelers Life generally assesses a contingent deferred sales
charge of up to 6% if a participant's purchase payment is surrendered within six
years of its payment date. Contract surrender payments include $217,306 and
$26,151 of contingent deferred sales charges for the years ended December 31,
1997 and 1996, respectively.
-5-
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. NET CONTRACT OWNERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, 1997
ACCUMULATION UNIT NET
UNITS VALUE ASSETS
----- ----- ------
<S> <C> <C> <C>
TRAVELERS SERIES FUND INC
Alliance Growth Portfolio
Standard ..................................... 47,935,239 $ 2.276 $109,109,519
Enhanced ..................................... 8,482,408 2.254 19,117,414
Van Kampen American Capital Enterprise Portfolio
Standard ..................................... 24,635,450 2.103 51,814,773
Enhanced ..................................... 4,384,826 2.083 9,131,702
TBC Managed Income Portfolio
Standard ..................................... 4,488,528 1.261 5,658,877
Enhanced ..................................... 1,001,269 1.248 1,249,997
G.T. Global Strategic Income Portfolio
Standard ..................................... 5,016,054 1.397 7,006,562
Enhanced ..................................... 953,563 1.383 1,318,867
Smith Barney High Income Portfolio
Standard ..................................... 21,213,238 1.463 31,027,036
Enhanced ..................................... 2,639,907 1.448 3,823,149
Smith Barney International Equity Portfolio
Standard ..................................... 31,311,119 1.240 38,834,723
Enhanced ..................................... 4,871,826 1.228 5,982,887
Smith Barney Income and Growth Portfolio
Standard ..................................... 27,117,422 1.913 51,863,526
Enhanced ..................................... 4,645,333 1.894 8,796,921
Smith Barney Money Market Portfolio
Standard ..................................... 25,661,233 1.140 29,257,532
Enhanced ..................................... 2,416,650 1.129 2,728,197
Putnam Diversified Income Portfolio
Standard ..................................... 19,504,257 1.332 25,984,875
Enhanced ..................................... 3,953,118 1.319 5,214,743
Smith Barney Pacific Basin Portfolio
Standard ..................................... 5,124,475 0.700 3,584,968
Enhanced ..................................... 862,053 0.693 597,141
MFS Total Return Portfolio
Standard ..................................... 34,927,831 1.648 57,566,200
Enhanced ..................................... 6,138,961 1.632 10,018,397
AIM Capital Appreciation Portfolio
Standard ..................................... 48,942,401 1.206 59,021,877
Enhanced ..................................... 8,844,768 1.198 10,599,956
THE TRAVELERS SERIES TRUST
MFS Emerging Growth Portfolio
Standard ..................................... 17,294,943 1.204 20,826,373
Enhanced ..................................... 4,255,983 1.200 5,108,293
GREENWICH STREET SERIES FUND
Total Return Portfolio
Standard ..................................... 33,686,043 1.790 60,304,524
Enhanced ..................................... 5,975,192 1.775 10,604,186
SMITH BARNEY CONCERT ALLOCATION SERIES INC
Select High Growth Portfolio
Standard ..................................... 2,656,918 1.090 2,894,856
Enhanced ..................................... 391,357 1.087 425,434
Select Growth Portfolio
Standard ..................................... 3,396,120 1.099 3,733,000
Enhanced ..................................... 1,191,020 1.097 1,306,201
Select Balanced Portfolio
Standard ..................................... 4,148,291 1.093 4,534,330
Enhanced ..................................... 1,788,610 1.091 1,950,633
Select Conservative Portfolio
Standard ..................................... 863,063 1.108 955,967
Enhanced ..................................... 105,113 1.105 116,177
Select Income Portfolio
Standard ..................................... 364,454 1.106 403,062
Enhanced ..................................... 24,647 1.104 27,200
------------
Net Contract Owners' Equity ....................... $662,500,075
============
</TABLE>
-6-
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
INVESTMENT OPTIONS NO. OF MARKET
SHARES VALUE
------ -----
<S> <C> <C>
TRAVELERS SERIES FUND INC. (82.9%)
Alliance Growth Portfolio (Cost $101,511,528) 5,917,034 $128,103,779
Van Kampen American Capital Enterprise Portfolio (Cost $50,600,654) 2,994,601 60,880,239
TBC Managed Income Portfolio (Cost $6,475,449) 588,529 6,909,335
G.T. Global Strategic Income Portfolio (Cost $7,878,432) 650,051 8,294,655
Smith Barney High Income Portfolio (Cost $32,187,580) 2,585,924 34,858,251
Smith Barney International Equity Portfolio (Cost $52,687,729) 3,895,323 50,249,661
Smith Barney Income and Growth Portfolio (Cost $51,231,882) 3,178,223 60,608,709
Smith Barney Money Market Portfolio (Cost $24,531,613) 24,531,613 24,531,613
Putnam Diversified Income Portfolio (Cost $29,505,953) 2,503,168 31,189,474
Smith Barney Pacific Basin Portfolio (Cost $6,246,577) 825,814 5,970,635
MFS Total Return Portfolio (Cost $58,707,937) 4,229,489 67,502,647
AIM Capital Appreciation Portfolio (Cost $62,703,582) 5,623,664 69,564,722
------------ ------------
Total (Cost $484,268,916) 57,523,433 548,663,720
------------ ------------
THE TRAVELERS SERIES TRUST (3.9%)
MFS Emerging Growth Portfolio
Total (Cost $24,142,052) 2,057,916 25,847,424
------------ ------------
GREENWICH STREET SERIES FUND (10.7%)
Total Return Portfolio
Total (Cost $63,997,071) 4,020,841 70,847,226
------------ ------------
SMITH BARNEY CONCERT ALLOCATION SERIES INC. (2.5%)
Select High Growth Portfolio (Cost $3,213,308) 301,590 3,320,507
Select Growth Portfolio (Cost $4,899,940) 449,284 5,027,487
Select Balanced Portfolio (Cost $6,235,760) 579,322 6,488,408
Select Conservative Portfolio (Cost $1,024,737) 94,592 1,060,378
Select Income Portfolio (Cost $423,427) 38,522 430,290
------------ ------------
Total (Cost $15,797,172) 1,463,310 16,327,070
------------ ------------
TOTAL INVESTMENT OPTIONS (100%)
(COST $588,205,211) $661,685,440
============
</TABLE>
-7-
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND BD II OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN CAPITAL
ALLIANCE GROWTH PORTFOLIO ENTERPRISE PORTFOLIO
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ -- $ 1,749,884 $ -- $ 65,661
------------- ------------ ------------ ------------
EXPENSES:
Insurance charges ..................................... 881,791 239,371 417,556 107,644
Administrative fees ................................... 124,597 33,611 59,444 15,377
------------- ------------ ------------ ------------
Net investment income (loss) .................... (1,006,388) 1,476,902 (477,000) (57,360)
------------- ------------ ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 732,086 115,510 232,006 179,400
Cost of investments sold .......................... 553,312 97,909 161,526 156,110
------------- ------------ ------------ ------------
Net realized gain (loss) ........................ 178,774 17,601 70,480 23,290
------------- ------------ ------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 4,561,590 (42,615) 1,791,072 (18,558)
Unrealized gain (loss) end of year ................ 26,592,251 4,561,590 10,279,585 1,791,072
------------- ------------ ------------ ------------
Net change in unrealized gain (loss) for the year 22,030,661 4,604,205 8,488,513 1,809,630
------------- ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ....................... 21,203,047 6,098,708 8,081,993 1,775,560
------------- ------------ ------------ ------------
UNIT TRANSACTIONS:
Participant purchase payments ......................... 47,077,956 34,649,407 25,093,955 16,501,913
Participant transfers from other Travelers accounts ... 18,767,525 7,299,315 8,649,103 2,552,870
Administrative charges ................................ (16,453) (3,897) (6,057) (1,313)
Contract surrenders ................................... (1,971,086) (387,974) (1,128,220) (141,838)
Participant transfers to other Travelers accounts ..... (5,373,999) (1,038,182) (1,045,309) (587,799)
Other payments to participants ........................ (755,258) (147,805) (198,607) (87,345)
------------- ------------ ------------ ------------
Net increase in net assets resulting
from unit transactions .......................... 57,728,685 40,370,864 31,364,865 18,236,488
------------- ------------ ------------ ------------
Net increase in net assets ...................... 78,931,732 46,469,572 39,446,858 20,012,048
NET ASSETS:
Beginning of year ................................. 49,295,201 2,825,629 21,499,617 1,487,569
------------- ------------ ------------ ------------
End of year ....................................... $ 128,226,933 $ 49,295,201 $ 60,946,475 $ 21,499,617
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
TBC MANAGED
INCOME PORTFOLIO
1997 1996
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ -- $ 144,329
----------- -----------
EXPENSES:
Insurance charges ..................................... 49,769 20,601
Administrative fees ................................... 7,098 2,972
----------- -----------
Net investment income (loss) .................... (56,867) 120,756
----------- -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 420,772 443,906
Cost of investments sold .......................... 413,801 463,432
----------- -----------
Net realized gain (loss) ........................ 6,971 (19,526)
----------- -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... (21,610) (13,530)
Unrealized gain (loss) end of year ................ 433,886 (21,610)
----------- -----------
Net change in unrealized gain (loss) for the year 455,496 (8,080)
----------- -----------
Net increase (decrease) in net assets
resulting from operations ....................... 405,600 93,150
----------- -----------
UNIT TRANSACTIONS:
Participant purchase payments ......................... 2,833,792 3,072,427
Participant transfers from other Travelers accounts ... 925,966 349,692
Administrative charges ................................ (719) (212)
Contract surrenders ................................... (94,062) (12,989)
Participant transfers to other Travelers accounts ..... (486,399) (491,338)
Other payments to participants ........................ (45,750) --
----------- -----------
Net increase in net assets resulting
from unit transactions .......................... 3,132,828 2,917,580
----------- -----------
Net increase in net assets ...................... 3,538,428 3,010,730
NET ASSETS:
Beginning of year ................................. 3,370,446 359,716
----------- -----------
End of year ....................................... $ 6,908,874 $ 3,370,446
=========== ===========
</TABLE>
-8-
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
G.T. GLOBAL STRATEGIC SMITH BARNEY SMITH BARNEY
INCOME PORTFOLIO HIGH INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$ -- $ 239,292 $ -- $ 625,383 $ -- $ 22,493
- ----------- ----------- ------------ ------------ ------------- ------------
60,882 14,195 213,529 54,325 306,167 107,608
8,670 1,970 30,465 7,674 54,224 16,122
- ----------- ----------- ------------ ------------ ------------- ------------
(69,552) 223,127 (243,994) 563,384 (360,391) (101,237)
- ----------- ----------- ------------ ------------ ------------- ------------
250,620 12,114 377,090 118,732 74,413,842 4,446,920
218,454 11,608 344,965 118,637 70,693,976 3,960,097
- ----------- ----------- ------------ ------------ ------------- ------------
32,166 506 32,125 95 3,719,866 486,823
- ----------- ----------- ------------ ------------ ------------- ------------
33,836 (1,453) 138,086 (21,008) 754,036 20,347
416,223 33,836 2,670,671 138,086 (2,438,068) 754,036
- ----------- ----------- ------------ ------------ ------------- ------------
382,387 35,289 2,532,585 159,094 (3,192,104) 733,689
- ----------- ----------- ------------ ------------ ------------- ------------
345,001 258,922 2,320,716 722,573 167,371 1,119,275
- ----------- ----------- ------------ ------------ ------------- ------------
4,062,420 2,320,799 19,554,203 9,279,640 16,944,027 17,392,360
1,319,922 331,095 3,746,308 1,222,919 104,954,168 10,287,941
(653) (164) (2,715) (580) (6,694) (1,790)
(120,207) (13,081) (506,524) (76,933) (641,705) (168,200)
(215,137) (6,536) (1,479,106) (462,926) (99,450,511) (6,285,736)
(82,404) -- (67,720) (65,308) (182,508) (104,568)
- ----------- ----------- ------------ ------------ ------------- ------------
4,963,941 2,632,113 21,244,446 9,896,812 21,616,777 21,120,007
- ----------- ----------- ------------ ------------ ------------- ------------
5,308,942 2,891,035 23,565,162 10,619,385 21,784,148 22,239,282
3,016,487 125,452 11,285,023 665,638 23,033,462 794,180
- ----------- ----------- ------------ ------------ ------------- ------------
$ 8,325,429 $ 3,016,487 $ 34,850,185 $ 11,285,023 $ 44,817,610 $ 23,033,462
=========== =========== ============ ============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
SMITH BARNEY INCOME
AND GROWTH PORTFOLIO
1997 1996
---- ----
<S> <C>
$ -- $ 455,102
- ------------ ------------
401,449 97,155
56,935 13,920
- ------------ ------------
(458,384) 344,027
- ------------ ------------
542,887 82,485
399,665 69,287
- ------------ ------------
143,222 13,198
- ------------ ------------
1,308,970 1,435
9,376,827 1,308,970
- ------------ ------------
8,067,857 1,307,535
- ------------ ------------
7,752,695 1,664,760
- ------------ ------------
25,405,607 15,205,943
10,329,030 3,567,741
(5,831) (1,280)
(1,199,451) (178,977)
(2,080,124) (444,378)
(172,269) (140,840)
- ------------ ------------
32,276,962 18,008,209
- ------------ ------------
40,029,657 19,672,969
20,630,790 957,821
- ------------ ------------
$ 60,660,447 $ 20,630,790
============ ============
</TABLE>
-9-
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND BD II OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
<TABLE>
<CAPTION>
SMITH BARNEY PUTNAM
MONEY MARKET PORTFOLIO DIVERSIFIED INCOME PORTFOLIO
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ 1,460,052 $ 734,489 $ -- $ 775,071
------------- ------------ ------------ ------------
EXPENSES:
Insurance charges ..................................... 309,270 161,431 227,383 77,461
Administrative fees ................................... 44,027 22,917 32,184 11,041
------------- ------------ ------------ ------------
Net investment income (loss) .................... 1,106,755 550,141 (259,567) 686,569
------------- ------------ ------------ ------------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 129,557,007 22,760,375 454,711 361,079
Cost of investments sold .......................... 129,557,007 22,760,375 450,698 356,390
------------- ------------ ------------ ------------
Net realized gain (loss) ........................ -- -- 4,013 4,689
------------- ------------ ------------ ------------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... -- -- 11,889 (29,630)
Unrealized gain (loss) end of year ................ -- -- 1,683,521 11,889
------------- ------------ ------------ ------------
Net change in unrealized gain (loss) for the year -- -- 1,671,632 41,519
------------- ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations ....................... 1,106,755 550,141 1,416,078 732,777
------------- ------------ ------------ ------------
UNIT TRANSACTIONS:
Participant purchase payments ......................... 37,218,989 44,038,947 13,450,688 12,719,514
Participant transfers from other Travelers accounts ... 144,063,574 16,886,657 3,933,503 1,427,681
Administrative charges ................................ (2,414) (945) (3,655) (1,014)
Contract surrenders ................................... (918,683) (461,230) (514,487) (283,811)
Participant transfers to other Travelers accounts ..... (176,681,199) (36,332,462) (1,811,753) (827,078)
Other payments to participants ........................ (580,295) (277,845) (134,175) (15,839)
------------- ------------ ------------ ------------
Net increase in net assets resulting
from unit transactions ........................... 3,099,972 23,853,122 14,920,121 13,019,453
------------- ------------ ------------ ------------
Net increase in net assets ...................... 4,206,727 24,403,263 16,336,199 13,752,230
NET ASSETS:
Beginning of year ................................. 27,779,002 3,375,739 14,863,419 1,111,189
------------- ------------ ------------ ------------
End of year ....................................... $ 31,985,729 $ 27,779,002 $ 31,199,618 $ 14,863,419
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SMITH BARNEY
PACIFIC BASIN PORTFOLIO
1997 1996
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ -- $ 19,513
------------ -----------
EXPENSES:
Insurance charges ..................................... 158 17,947
Administrative fees ................................... 6,618 2,375
------------ -----------
Net investment income (loss) .................... (6,776) (809)
------------ -----------
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 26,053,417 7,758,018
Cost of investments sold .......................... 27,025,264 7,712,954
------------ -----------
Net realized gain (loss) ........................ (971,847) 45,064
------------ -----------
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... 53,691 1,836
Unrealized gain (loss) end of year ................ (275,942) 53,691
------------ -----------
Net change in unrealized gain (loss) for the year (329,633) 51,855
------------ -----------
Net increase (decrease) in net assets
resulting from operations ....................... (1,308,256) 96,110
------------ -----------
UNIT TRANSACTIONS:
Participant purchase payments ......................... 2,205,368 2,993,075
Participant transfers from other Travelers accounts ... 33,843,799 8,020,835
Administrative charges ................................ (954) (370)
Contract surrenders ................................... (79,311) (11,727)
Participant transfers to other Travelers accounts ..... (33,605,393) (7,984,301)
Other payments to participants ........................ (38,406) --
------------ -----------
Net increase in net assets resulting
from unit transactions .......................... 2,325,103 3,017,512
------------ -----------
Net increase in net assets ...................... 1,016,847 3,113,622
NET ASSETS:
Beginning of year ................................. 3,165,262 51,640
------------ -----------
End of year ....................................... $ 4,182,109 $ 3,165,262
============ ===========
</TABLE>
-10-
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
AIM CAPITAL MFS EMERGING
MFS TOTAL RETURN PORTFOLIO APPRECIATION PORTFOLIO GROWTH PORTFOLIO TOTAL RETURN PORTFOLIO
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 832,634 $ -- $ 35,100 $ 439,667 $ 13,776 $ 2,819,309 $ 394,497
- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------
449,112 121,785 565,729 197,164 141,590 2,585 503,712 114,672
63,766 17,434 80,459 27,944 20,232 351 71,448 16,252
- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------
(512,878) 693,415 (646,188) (190,008) 277,845 10,840 2,244,149 263,573
- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------
1,195,009 122,229 796,430 189,761 684,958 -- 501,439 107,077
991,043 113,231 669,177 187,142 633,928 -- 396,281 92,109
- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------
203,966 8,998 127,253 2,619 51,030 -- 105,158 14,968
- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------
1,072,467 140 1,950,900 (25,475) (93,591) -- 2,319,470 3,337
8,794,710 1,072,467 6,861,140 1,950,900 1,705,372 (93,591) 6,850,155 2,319,470
- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------
7,722,243 1,072,327 4,910,240 1,976,375 1,798,963 (93,591) 4,530,685 2,316,133
- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------
7,413,331 1,774,740 4,391,305 1,788,986 2,127,838 (82,751) 6,879,992 2,594,674
- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------
29,292,210 19,949,329 24,085,122 27,035,886 16,234,637 2,458,877 29,547,521 19,255,127
9,887,470 3,146,849 9,106,236 5,567,585 6,184,899 622,001 11,320,000 3,959,180
(6,249) (1,570) (13,062) (4,115) (1,929) -- (8,180) (1,696)
(1,064,999) (144,598) (1,468,796) (343,921) (167,796) (647) (1,002,438) (111,329)
(3,008,984) (517,750) (2,435,679) (636,435) (1,315,407) (10,312) (1,698,306) (307,023)
(312,103) (55,560) (696,990) (53,445) (114,744) -- (409,568) (109,480)
- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------
34,787,345 22,376,700 28,576,831 31,565,555 20,819,660 3,069,919 37,749,029 22,684,779
- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------
42,200,676 24,151,440 32,968,136 33,354,541 22,947,498 2,987,168 44,629,021 25,279,453
25,383,921 1,232,481 36,653,697 3,299,156 2,987,168 -- 26,279,689 1,000,236
- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------
$ 67,584,597 $ 25,383,921 $ 69,621,833 $ 36,653,697 $ 25,934,666 $ 2,987,168 $ 70,908,710 $ 26,279,689
============ ============ ============ ============ ============ =========== ============ ============
</TABLE>
-11-
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. SCHEDULE OF FUND BD II OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
<TABLE>
<CAPTION>
SELECT HIGH GROWTH PORTFOLIO SELECT GROWTH PORTFOLIO
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ -- $- $ -- $-
----------- -- ----------- --
EXPENSES:
Insurance charges ..................................... 15,141 - 17,499 -
Administrative fees ................................... 2,177 - 2,398 -
----------- -- ----------- --
Net investment income (loss) .................... (17,318) - (19,897) -
----------- -- ----------- --
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 11,871 - 119,596 -
Cost of investments sold .......................... 10,454 - 105,666 -
----------- -- ----------- --
Net realized gain (loss) ........................ 1,417 - 13,930 -
----------- -- ----------- --
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... -- - -- -
Unrealized gain (loss) end of year ................ 107,199 - 127,547 -
----------- -- ----------- --
Net change in unrealized gain (loss) for the year 107,199 - 127,547 -
----------- -- ----------- --
Net increase (decrease) in net assets
resulting from operations ....................... 91,298 - 121,580 -
----------- -- ----------- --
UNIT TRANSACTIONS:
Participant purchase payments ......................... 1,961,168 - 4,140,789 -
Participant transfers from other Travelers accounts ... 1,271,640 - 937,045 -
Administrative charges ................................ (82) - (227) -
Contract surrenders ................................... (3,734) - (10,285) -
Participant transfers to other Travelers accounts ..... -- - (149,701) -
Other payments to participants ........................ -- - -- -
----------- -- ----------- --
Net increase in net assets resulting
from unit transactions .......................... 3,228,992 - 4,917,621 -
----------- -- ----------- --
Net increase in net assets ...................... 3,320,290 - 5,039,201 -
NET ASSETS:
Beginning of year ................................. -- - -- -
----------- -- ----------- --
End of year ....................................... $ 3,320,290 $- $ 5,039,201 $-
=========== == =========== ==
</TABLE>
<TABLE>
<CAPTION>
SELECT BALANCED PORTFOLIO
1997 1996
---- ----
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ -- $--
----------- ---
EXPENSES:
Insurance charges ..................................... 26,874 --
Administrative fees ................................... 3,580 --
----------- ---
Net investment income (loss) .................... (30,454) --
----------- ---
REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) from investment transactions:
Proceeds from investments sold .................... 288,850 --
Cost of investments sold .......................... 277,252 --
----------- ---
Net realized gain (loss) ........................ 11,598 --
----------- ---
Change in unrealized gain (loss) on investments:
Unrealized gain (loss) beginning of year .......... -- --
Unrealized gain (loss) end of year ................ 252,648 --
----------- ---
Net change in unrealized gain (loss) for the year 252,648 --
----------- ---
Net increase (decrease) in net assets
resulting from operations ....................... 233,792 --
----------- ---
UNIT TRANSACTIONS:
Participant purchase payments ......................... 5,194,754 --
Participant transfers from other Travelers accounts ... 1,371,868 --
Administrative charges ................................ (156) --
Contract surrenders ................................... (20,071) --
Participant transfers to other Travelers accounts ..... (295,224) --
Other payments to participants ........................ -- --
----------- ---
Net increase in net assets resulting
from unit transactions .......................... 6,251,171 --
----------- ---
Net increase in net assets ...................... 6,484,963 --
NET ASSETS:
Beginning of year ................................. -- --
----------- ---
End of year ....................................... $ 6,484,963 $--
=========== ===
</TABLE>
-12-
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
SELECT CONSERVATIVE PORTFOLIO SELECT INCOME PORTFOLIO COMBINED
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ 4,719,028 $ 6,107,224
------------ ----- --------- ----- -------------- -------------
3,516 - 821 - 4,591,948 1,333,944
499 - 117 - 668,938 189,960
------------ ----- --------- ----- -------------- -------------
(4,015) - (938) - (541,858) 4,583,320
------------ ----- --------- ----- -------------- -------------
136,242 - 43,599 - 236,812,432 36,697,606
131,428 - 42,285 - 233,076,182 36,099,281
------------ ----- --------- ----- -------------- -------------
4,814 - 1,314 - 3,736,250 598,325
------------ ----- --------- ----- -------------- -------------
- - - - 13,880,806 (125,174)
35,641 - 6,863 - 73,480,229 13,880,806
------------ ----- --------- ----- -------------- -------------
35,641 - 6,863 - 59,599,423 14,005,980
------------ ----- --------- ----- -------------- -------------
36,440 - 7,239 - 62,793,815 19,187,625
------------ ----- --------- ----- -------------- -------------
881,469 - 368,257 - 305,552,932 226,873,244
299,232 - 84,462 - 370,995,750 65,242,361
(25) - (7) - (76,062) (18,946)
(13,817) - (11,377) - (10,937,049) (2,337,255)
(131,155) - (18,312) - (331,281,698) (55,932,256)
- - - - (3,790,797) (1,058,035)
------------ ----- --------- ----- -------------- -------------
1,035,704 - 423,023 - 330,463,076 232,769,113
------------ ----- --------- ----- -------------- -------------
1,072,144 - 430,262 - 393,256,891 251,956,738
- - - - 269,243,184 17,286,446
------------ ----- --------- ----- -------------- -------------
$ 1,072,144 $ - $430,262 $ - $ 662,500,075 $269,243,184
============ ===== ========= ===== ============== =============
</TABLE>
-13-
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF ACCUMULATION UNITS FOR FUND BD II
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
VAN KAMPEN
AMERICAN CAPITAL TBC MANAGED
ALLIANCE GROWTH PORTFOLIO ENTERPRISE PORTFOLIO INCOME PORTFOLIO
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation units beginning of year 27,644,095 2,026,405 13,004,616 1,093,664 2,901,133 315,445
Accumulation units purchased and
transferred from other Travelers
accounts ........................ 32,819,155 26,601,698 17,226,005 12,436,976 3,113,712 3,034,567
Accumulation units redeemed and
transferred to other Travelers
accounts ........................ (4,045,603) (984,008) (1,210,345) (526,024) (525,048) (448,879)
----------- ----------- ----------- ----------- ---------- ----------
Accumulation units end of year ..... 56,417,647 27,644,095 29,020,276 13,004,616 5,489,797 2,901,133
=========== =========== =========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
G.T. GLOBAL STRATEGIC SMITH BARNEY SMITH BARNEY INTERNATIONAL
INCOME PORTFOLIO HIGH INCOME PORTFOLIO EQUITY PORTFOLIO
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation units beginning of year 2,295,810 112,291 8,689,256 574,114 18,864,868 757,069
Accumulation units purchased and
transferred from other Travelers
accounts ........................ 3,980,326 2,200,023 16,642,827 8,612,189 94,826,692 23,544,001
Accumulation units redeemed and
transferred to other Travelers
accounts ........................ (306,519) (16,504) (1,478,938) (497,047) (77,508,615) (5,436,202)
---------- ---------- ----------- ---------- ----------- -----------
Accumulation units end of year ..... 5,969,617 2,295,810 23,853,145 8,689,256 36,182,945 18,864,868
========== ========== =========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SMITH BARNEY INCOME SMITH BARNEY PUTNAM DIVERSIFIED
AND GROWTH PORTFOLIO MONEY MARKET PORTFOLIO INCOME PORTFOLIO
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation units beginning of year 13,512,027 742,670 25,323,950 3,193,779 11,885,359 950,243
Accumulation units purchased and
transferred from other Travelers
accounts ........................ 20,180,381 13,297,626 161,814,352 56,287,533 13,499,883 11,872,273
Accumulation units redeemed and
transferred to other Travelers
accounts ........................ (1,929,653) (528,269) (159,060,419) (34,157,362) (1,927,867) (937,157)
----------- ----------- ------------ ----------- ----------- -----------
Accumulation units end of year ..... 31,762,755 13,512,027 28,077,883 25,323,950 23,457,375 11,885,359
=========== =========== ============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SMITH BARNEY MFS AIM CAPITAL
PACIFIC BASIN PORTFOLIO TOTAL RETURN PORTFOLIO APPRECIATION PORTFOLIO
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation units beginning of year 3,221,715 56,822 18,460,646 1,014,097 33,706,796 3,444,998
Accumulation units purchased and
transferred from other Travelers
accounts ........................ 39,296,051 11,406,814 25,519,291 17,996,071 28,053,552 31,258,008
Accumulation units redeemed and
transferred to other Travelers
accounts ........................ (36,531,238) (8,241,921) (2,913,145) (549,522) (3,973,179) (996,210)
----------- ----------- ----------- ----------- ----------- -----------
Accumulation units end of year ..... 5,986,528 3,221,715 41,066,792 18,460,646 57,787,169 33,706,796
=========== =========== =========== =========== =========== ===========
</TABLE>
-14-
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS - CONTINUED
7. SCHEDULE OF ACCUMULATION UNITS FOR FUND BD II
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
<TABLE>
<CAPTION>
MFS EMERGING TOTAL RETURN SELECT HIGH
GROWTH PORTFOLIO PORTFOLIO GROWTH PORTFOLIO
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation units beginning of year ....... 2,971,654 -- 16,964,938 800,334 -- --
Accumulation units purchased and
transferred from other Travelers accounts 20,021,481 2,982,336 24,576,075 16,540,000 3,051,712 --
Accumulation units redeemed and
transferred to other Travelers accounts . (1,442,209) (10,682) (1,879,778) (375,396) (3,437) --
----------- ---------- ----------- ----------- ---------- -
Accumulation units end of year ............. 21,550,926 2,971,654 39,661,235 16,964,938 3,048,275 --
=========== ========== =========== =========== ========== ==
</TABLE>
<TABLE>
<CAPTION>
SELECT GROWTH SELECT BALANCED SELECT CONSERVATIVE
PORTFOLIO PORTFOLIO PORTFOLIO
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Accumulation units beginning of year ....... -- - -- - -- --
Accumulation units purchased and
transferred from other Travelers accounts 4,733,409 - 6,244,028 - 1,108,928 --
Accumulation units redeemed and
transferred to other Travelers accounts . (146,269) - (307,127) - (140,752) --
---------- - ---------- - ---------- -
Accumulation units end of year ............. 4,587,140 - 5,936,901 - 968,176 --
========== = ========== = ========== =
</TABLE>
<TABLE>
<CAPTION>
SELECT INCOME
PORTFOLIO COMBINED
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Accumulation units beginning of year ....... -- - 199,446,863 15,081,931
Accumulation units purchased and
transferred from other Travelers accounts 416,501 - 517,124,361 238,070,115
Accumulation units redeemed and
transferred to other Travelers accounts . (27,400) - (295,357,541) (53,705,183)
-------- ------------ ------------
Accumulation units end of year ............. 389,101 - 421,213,683 199,446,863
======== = ============ ============
</TABLE>
-15-
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Owners of Variable Annuity Contracts of The Travelers Fund BD II for
Variable Annuities:
We have audited the accompanying statement of assets and liabilities of The
Travelers Fund BD II for Variable Annuities as of December 31, 1997, and the
related statement of operations for the year then ended and the statement of
changes in net assets for each of the two years in the period then ended. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of shares owned as of December 31, 1997, by correspondence with the
underlying funds. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Fund BD II for
Variable Annuities as of December 31, 1997, the results of its operations for
the year then ended and the changes in its net assets for each of the two years
in the period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 19, 1998
-16-
<PAGE> 18
Independent Accountants
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
This report is prepared for the general information of contract owners and is
not an offer of shares of The Travelers Fund BD II for Variable Annuities or
Fund BD II's underlying funds. It should not be used in connection with any
offer except in conjunction with the Prospectuses for the Variable Annuity
products offered by The Travelers Life and Annuity Company and the Prospectuses
of the underlying funds, which collectively contain all pertinent information,
including the applicable sales commissions.
FNDBDII (Annual) (12-97) Printed in U.S.A.
