UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549

                                   Form 10-K

             Annual Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934

The registrant meets the conditions set forth in General Instruction I(1)(a) and
(b) of Form 10-K and is therefore  filing this Form with the reduced  disclosure
format.

For fiscal year ended December 31, 1997  Commission file numbers: 33-50884
                      -----------------                           ----------
                                                                  33-84480
                                                                  ----------
                                                                  33-90272
                                                                  ----------

                       Northbrook Life Insurance Company
                       ---------------------------------
            (Exact name of registrant as specified in its charter)

            Illinois                                      36-300152
            ---------                                     -----------
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                        Identification No.)

                               3100 Sanders Road
                          Northbrook, Illinois 60062
              (Address of Principal executive offices)(Zip Code)

                                 847/402-5000
             (Registrant's telephone number, including area code)

      Securities registered pursuant to Section 12(b) of the Act: None
      Securities registered pursuant to Section 12(g) of the Act: None

  Indicate  by check  mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

               Yes       x                  No
                      ---------                     ---------

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

  As of December  31, 1997,  there were 25,000  shares of common  capital  stock
outstanding,  par value $100 per share all of which  shares are held by Allstate
Life Insurance Company.

<PAGE>

                       NORTHBROOK LIFE INSURANCE COMPANY
             (A wholly owned subsidiary of Allstate Life Insurance Company)

                      Annual Report for 1997 On Form 10-K

                               TABLE OF CONTENTS

                                                                    PAGE
                                                                    ----

PART I

ITEM 1.       Business**............................................ 3
ITEM 2.       Properties**.......................................... 4
ITEM 3.       Legal Proceedings..................................... 4
ITEM 4.       Submission of Matters to a Vote of Security Holders*..N/A

PART II

ITEM 5.       Market for Registrant's Common Equity and
              Related Stockholder Matters........................... 5
ITEM 6.       Selected Financial Data...............................N/A
ITEM 7.       Management's Discussion and Analysis of Financial
              Condition and Results of Operations................... 6
ITEM 7A.      Quantitative and Qualitative Disclosures About
              Market Risk...........................................10
ITEM 8.       Financial Statements and Supplementary Data...........10
ITEM 9.       Changes in and Disagreements with Accountants on
              Accounting and Financial Disclosure...................N/A

PART III

ITEM 10.      Directors and Executive Officers of the Registrant*...N/A
ITEM 11.      Executive Compensation................................N/A
ITEM 12.      Security Ownership of Certain Beneficial Owners and
              Management*...........................................N/A
ITEM 13.      Certain Relationships and Related Transactions*.......N/A

PART IV

ITEM 14.      Exhibits, Financial Statement Schedules, and
              Reports on Form 8-K...................................F-16

Index to Financial Statement Schedules..............................10
Signatures..........................................................11


*  Omitted pursuant to General Instruction I(2) of Form 10-K.
** Item prepared in accordance with General Instruction I(2) of Form 10-K.


<PAGE>

                                     PART I

ITEM 1.  BUSINESS

        Northbrook Life Insurance Company (hereinafter  "Northbrook Life" or the
"Company"),  incorporated  in 1978 as a stock life  insurance  company under the
laws of the State of Illinois, has done business continuously since that time as
"Northbrook Life Insurance Company."

        Northbrook Life is a wholly owned  subsidiary of Allstate Life Insurance
Company ("ALIC"),  a stock life insurance company incorporated under the laws of
Illinois.  ALIC is a wholly  owned  subsidiary  of  Allstate  Insurance  Company
("AIC"),  a stock  property-liability  insurance company  incorporated under the
laws of Illinois. With the exception of directors' qualifying shares, all of the
outstanding  capital  stock of  Allstate  is owned by The  Allstate  Corporation
("Corporation").  On June 30, 1995, Sears, Roebuck and Co. ("Sears") distributed
its 80.3%  ownership in the Corporation to Sears common  shareholders  through a
tax-free dividend.

        Northbrook  Life's  operations  consist of one business segment which is
the sale of life insurance and annuity products.

        Northbrook Life and ALIC entered into reinsurance agreements,  effective
December 31, 1987,  under which Northbrook Life reinsures  substantially  all of
its  business  with ALIC.  Under the  agreements,  purchase  payments  under all
general  account  contracts are transferred to ALIC and become invested with the
assets of ALIC,  and ALIC accepts 100% of the  liability  under such  contracts.
However,  the  obligations  of ALIC under the  reinsurance  agreement are to the
Company.  In addition,  assets of the Company that relate to insurance  in-force
excluding separate account assets are transferred to ALIC. Therefore,  the funds
necessary to support the  operations of the Company are provided by ALIC and the
Company is not  required  to obtain  additional  capital to support  in-force or
future business.

        Under the  Company's  reinsurance  agreements  with  ALIC,  the  Company
reinsures all reserve liabilities with ALIC except for variable  contracts.  The
Company's  variable  contract  assets  and  liabilities  are  held  in  legally-
segregated, unitized separate accounts and are retained by the Company. However,
the  transactions  related to such variable and market value adjusted  contracts
such as premiums, expenses and benefits are transferred to ALIC.




                                       3
<PAGE>



        Northbrook  Life's and ALIC's general account assets must be invested in
accordance with applicable  state laws. These laws govern the nature and quality
of investments  that may be made by life insurance  companies and the percentage
of their assets that may be committed to any particular  type of investment.  Of
ALIC's  consolidated  invested  assets of $29,759  million on December 31, 1997,
84.4%  was  invested  in fixed  income  securities,  2.9% in  equities,  9.8% in
mortgage loans, and 2.9% in real estate, short-term and other investments.

        Northbrook  Life is  engaged in a  business  that is highly  competitive
because of the large  number of stock and mutual life  insurance  companies  and
other  entities  competing in the sale of  insurance  and  annuities.  There are
approximately 1,700 stock, mutual and other types of insurers in business in the
United States.  Several  independent  rating  agencies  regularly  evaluate life
insurer's claims paying ability,  quality of investments and overall  stability.
A.M. Best Company assigns A+(Superior) to ALIC which automatically reinsures all
net business of Northbrook Life. A.M. Best Company also assigns  Northbrook Life
the rating of A+(r) because Northbrook Life automatically reinsures all business
with Allstate Life.  Standard & Poor's  Insurance  Rating  Services  assigns AA+
(Excellent) to the Company's claims-paying ability and Moody's Investors Service
assigns an Aa2 (excellent) financial strength rating to the Company.  Northbrook
Life shares the same ratings of its parent, ALIC.

        Although the federal government generally does not directly regulate the
business of insurance,  federal initiatives often have an impact on the business
in a variety of ways.  Current and  proposed  measures  which may  significantly
affect the  Company's  insurance  business  relate to the  taxation of insurance
companies,  the tax treatment of insurance  products and the removal of barriers
preventing banks from engaging in the insurance business.

        Northbrook  Life is regulated by the Securities and Exchange  Commission
("SEC") as an issuer of  registered  products.  The SEC also  regulates  certain
Northbrook  Life  Separate  Accounts  which issue  variable  life  contracts or,
together with the Company, issue variable annuity contracts.

ITEM 2.  PROPERTIES

        Northbrook  Life occupies  office space  provided by AIC in  Northbrook,
Illinois.  Expenses  associated with these offices are allocated on a direct and
indirect basis to Northbrook Life.

ITEM 3.  LEGAL PROCEEDINGS

        The  Company  and its  Board  of  Directors  know of no  material  legal
proceedings  pending to which the Company is a party or which  would  materially
affect the Company. The Company is involved in pending and threatened litigation
in the normal  course of its business in which  claims for monetary  damages are
asserted. Management, after consultation with legal counsel, does not anticipate
the ultimate  liability  arising from such pending or  threatened  litigation to
have a material effect on the financial condition of the Company.




                                       4
<PAGE>



                                 PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        All of  the  Company's  outstanding  shares  are  owned  by its  parent.
ALIC's  outstanding  shares are owned by AIC.  With the  exception of director's
qualifying shares,  all of the outstanding  capital stock of AIC is owned by The
Corporation.  On June 30, 1995,  Sears  distributed  its 80.3%  ownership in the
Corporation to Sears common shareholders through a tax-free dividend.






                                       5
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


                       Northbrook Life Insurance Company
                     Management's Discussion and Analysis
               of Financial Condition and Results of Operations





      The  following  discussion  highlights   significant  factors  influencing
results of  operations  and changes in  financial  position of  Northbrook  Life
Insurance  Company (the  "Company").  It should be read in conjunction  with the
financial statements and related notes.

      The Company,  a wholly owned subsidiary of Allstate Life Insurance Company
("ALIC"),  which is wholly owned by Allstate Insurance Company ("AIC"), a wholly
owned subsidiary of The Allstate Corporation, markets life insurance and annuity
products  through Dean Witter Reynolds Inc., a wholly owned subsidiary of Morgan
Stanley, Dean Witter, Discover & Co.

      The Company issues flexible  premium deferred  variable annuity  contracts
and variable  life  policies,  the assets and  liabilities  of which are legally
segregated and reflected as Separate  Account assets and  liabilities.  Separate
Account  assets and  liabilities  are carried at fair value in the statements of
financial  position.  Investment  income  and  realized  gains and losses of the
Separate  Accounts  accrue  directly to the  contractholders  (net of fees) and,
therefore, are not included in the Company's statements of operations.

<TABLE>
<CAPTION>
Results of Operations
($ in thousands)

                                                             1997              1996            1995
                                                       -------------    --------------    ------------
<S>                                                    <C>              <C>               <C>

Net investment income                                  $       5,146     $       4,888    $       4,782
                                                       =============     =============    =============
Realized capital gains and losses, after-tax           $         (44)    $         (13)   $          44
                                                       =============     =============    =============
Net income                                             $       3,322     $       3,202    $       3,163
                                                       =============     =============    =============
Investments                                            $      79,433     $      74,069    $      71,278
                                                       =============     =============    =============
</TABLE>

      The Company and ALIC have reinsurance  agreements under which all contract
and policy related  transactions are transferred to ALIC. The Company's  results
of  operations  include only  investment  income and realized  capital gains and
losses  earned on the assets of the  Company  that are not  transferred  to ALIC
under the reinsurance agreements.

      Net income for 1997 and 1996  increased  $120  thousand and $39  thousand,
respectively,  due to  increased  net  investment  income  partially  offset  by
realized capital losses.

      Pretax net investment  income increased by $258 thousand,  or 5.3% in 1997
and $106 thousand,  or 2.2% in 1996.  Additional investment income was earned on
higher  investment  balances  arising from  positive  cash flows from  operating
activities, partially offset by increased investment expenses.

      Realized  capital  losses were $44 thousand and $13 thousand  after tax in
1997 and 1996, respectively, and arose principally from the sale of fixed income
securities,  the  proceeds  of  which  were  used  to  acquire  higher  yielding
investments.  Realized capital gains in 1995 of $44 thousand after tax were the
result of the sale of fixed  income  securities  sold in  response to changes in
market conditions.



                                       6
<PAGE>

Financial Position

($ in thousands)

                                                1997                 1996
                                           --------------      --------------

Fixed income securities (1)                $       76,402      $       67,479
Short-term investments                              3,031               6,590
                                           --------------      --------------
         Total investments                 $       79,433      $       74,069
                                           ==============      ==============
Reinsurance recoverable from ALIC          $    2,293,094      $    2,480,034
                                           ==============      ==============
Separate Account assets and liabilities    $    5,719,203      $    4,354,783
                                           ==============      ==============
Contractholder funds                       $    2,148,555      $    2,336,296
                                           ==============      ==============

(1) Fixed income securities are carried at fair value.  Amortized cost for these
    securities   was  $72,491  and  $65,500  at  December  31,  1997  and  1996,
    respectively.


      The   Company's   fixed   income   securities    portfolio   consists   of
mortgage-backed  securities,  publicly traded corporate bonds,  U.S.  government
bonds and tax-exempt  municipal  bonds.  The Company  generally  holds its fixed
income  securities for the long term, but has classified all of these securities
as available for sale to allow maximum flexibility in portfolio management.

      Investments  grew $5.4  million,  or 7.2%,  during 1997  primarily  due to
amounts  invested  from  positive  cash  flows  generated  from  operations  and
increased  unrealized  capital gains of $1.9 million on fixed income securities.
At  December  31,  1997,  unrealized  net  capital  gains  on the  fixed  income
securities  portfolio were $3.9 million  compared to $2.0 million as of December
31, 1996. The increase in the unrealized gain position is primarily attributable
to lower interest rates.

      At the end of 1997, all of the Company's fixed income securities portfolio
is  rated   investment   grade,   with  a  National   Association  of  Insurance
Commissioners ("NAIC") rating of 1 or a Moody's rating of Aaa, Aa or A.

      At  December  31,  1997  and  1996,   $39.0  million  and  $40.7  million,
respectively,  of  the  fixed  income  securities  portfolio  were  invested  in
mortgage-backed  securities  ("MBS").  At December 31, 1997,  all of the MBS had
underlying  collateral  that is guaranteed  by U.S.  government  entities,  thus
credit risk was minimal.

      MBS,  however,  are  subject to  interest  rate risk as the  duration  and
ultimate  realized yield are affected by the rate of repayment of the underlying
mortgages.  The Company  attempts to limit  interest rate risk by purchasing MBS
whose  cost  does  not  significantly  exceed  par  value,  and  with  repayment
protection  to provide a more certain cash flow to the Company.  At December 31,
1997,  the  amortized  cost of the MBS  portfolio  was  below  par value by $1.5
million and over 10% of the MBS portfolio  was invested in planned  amortization
class  bonds.  This type of MBS is purchased  to provide  additional  protection
against rising interest rates.

      The Company  closely  monitors its fixed income  securities  portfolio for
declines  in value  that are other  than  temporary.  Securities  are  placed on
non-accrual  status  when they are in  default or when the  receipt of  interest
payments is in doubt.

      The Company's  short-term  investment  portfolio was $3.0 million and $6.6
million  at  December  31,  1997 and 1996,  respectively.  The  Company  invests
available  cash balances  primarily in taxable  short-term  securities  having a
final maturity date or redemption date of one year or less.

      During  1997,   contractholder  funds  decreased  by  $187.7  million  and
reinsurance  recoverable  from ALIC under  reinsurance  agreements  decreased by
$186.9 million.  Interest credited to contractholders and sales of fixed annuity
contracts  were  more  than  offset by fixed  annuity  surrenders,  withdrawals,
policyholder transfers from fixed annuity contracts to flexible premium deferred
variable annuity contracts, and benefits paid. Reinsurance recoverable from ALIC
relates to contract benefit obligations ceded to ALIC.

      Separate  Account  assets  and  liabilities  increased  by $1.36  billion,
primarily  attributable to sales of flexible premium  deferred  variable annuity
contracts,   the  favorable  investment  performance  of  the  Separate  Account
investment  portfolios  and transfers  from fixed annuity  contracts,  partially
offset by variable annuity surrenders and withdrawals.



                                       7
<PAGE>




Market Risk

      Market risk is the risk that the Company  will incur losses due to adverse
changes in market rates and prices.  The Company's  primary market risk exposure
is to changes in interest rates. Interest rate risk is the risk that the Company
will incur  economic  losses due to adverse  changes in interest  rates,  as the
Company invests substantial funds in interest-sensitive assets.

      One way to quantify  this  exposure is  duration.  Duration  measures  the
sensitivity  of the fair  value of assets to  changes  in  interest  rates.  For
example,  if  interest  rates  increase  1%,  the fair  value of an asset with a
duration of 5 years is expected  to  decrease in value by  approximately  5%. At
December 31, 1997, the Company's asset duration was approximately 4.7 years.

      To  calculate  duration,  the  Company  projects  asset  cash  flows,  and
discounts  them to a net  present  value  basis  using a  risk-free  market rate
adjusted for credit  quality,  sector  attributes,  liquidity and other specific
risks.  Duration is calculated by revaluing  these cash flows at an  alternative
level of interest rates,  and  determining  the percentage  change in fair value
from the base case. The projections  include  assumptions (based upon historical
market and  Company  specific  experience)  reflecting  the  impact of  changing
interest rates on the prepayment  and/or option features of  instruments,  where
applicable.  Such assumptions  relate primarily to  mortgage-backed  securities,
collateralized mortgage obligations, and municipal and corporate obligations.

      Based  upon  the  information  and  assumptions  the  Company  uses in its
duration  calculation and in effect at December 31, 1997,  management  estimates
that a 100 basis point  immediate,  parallel  increase in interest  rates ("rate
shock")  would  decrease  the  net  fair  value  of  its  total  investments  by
approximately  $3.6 million.  The selection of a 100 basis point  immediate rate
shock should not be construed as a prediction  by the  Company's  management  of
future market events;  but rather, to illustrate the potential impact of such an
event.

      To the extent that actual  results differ from the  assumptions  utilized,
the Company's duration and rate shock measures could be significantly  impacted.
Additionally,  the Company's  calculation assumes that the current  relationship
between  short-term and long-term interest rates (the term structure of interest
rates) will remain constant over time. As a result,  these  calculations may not
fully  capture  the  impact of  non-parallel  changes in the term  structure  of
interest rates and/or large changes in interest rates.

      In formulating  and  implementing  policies for investing new and existing
funds, AIC, as parent company of ALIC,  administers and oversees investment risk
management  processes  primarily through three oversight  bodies:  the Boards of
Directors  and  Investment  Committees of its  operating  subsidiaries,  and the
Credit and Risk  Management  Committee  ("CRMC").  The Boards of  Directors  and
Investment Committees provide executive oversight of investment activities.  The
CRMC  is a  senior  management  committee  consisting  of the  Chief  Investment
Officer,  the Investment  Risk Manager,  and other  investment  officers who are
responsible  for the  day-to-day  management  of market risk.  The CRMC meets at
least monthly to provide detailed oversight of investment risk, including market
risk.

      AIC has  investment  guidelines  that  define the  overall  framework  for
managing market and other investment risks,  including the  accountabilities and
controls  over  these  activities.  In  addition,  AIC has  specific  investment
policies for each of its affiliates,  including the Company,  that delineate the
investment  limits  and  strategies  that  are  appropriate  for  the  Company's
liquidity, surplus, product and regulatory requirements.

Liquidity and Capital Resources

      Under  the terms of  reinsurance  agreements,  premiums  and  deposits  on
universal life policies and investment  contracts,  excluding  those relating to
Separate  Accounts,  are  transferred  to ALIC,  which  maintains the investment
portfolios  supporting  the Company's  products.  The Company  continues to have
primary liability as a direct insurer for risks reinsured.

      The NAIC has a standard for assessing the solvency of insurance companies,
which is referred to as risk-based capital ("RBC").  The requirement consists of
a  formula  for  determining  each  insurer's  RBC  and a model  law  specifying
regulatory  actions if an insurer's RBC falls below  specified  levels.  The RBC
formula for life insurance companies  establishes capital requirements  relating
to insurance, business, asset and interest rate risks. At December 31, 1997, RBC
for the Company was  significantly  above a level that would require  regulatory
action.



                                       8
<PAGE>



Year 2000

      The Company is heavily  dependent upon complex computer systems for all
phases of its operations,  including  customer service,  and policy and contract
administration.  Since many of the Company's  older computer  software  programs
recognize  only the last two digits of the year in any date,  some  software may
fail to operate  properly  in or after the year  1999,  if the  software  is not
reprogrammed or replaced, ("Year 2000 Issue"). The Company believes that many of
its  counterparties  and suppliers also have Year 2000 Issues which could affect
the Company.  In 1995, AIC commenced a plan intended to mitigate  and/or prevent
the  adverse  effects  of Year 2000  Issues.  These  strategies  include  normal
development and enhancement of new and existing  systems,  upgrades to operating
systems already covered by maintenance  agreements and modifications to existing
systems to make them Year 2000  compliant.  The plan also  includes  the Company
actively working with its major external  counterparties and suppliers to assess
their  compliance  efforts  and the  Company's  exposure  to them.  The  Company
presently  believes that it will resolve the Year 2000 Issue in a timely manner,
and the financial  impact will not materially  affect its results of operations,
liquidity  or  financial  position.  Year 2000 costs are and will be expensed as
incurred.

Pending Accounting Standards

      In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income"
and SFAS No. 131  "Disclosures  About  Segments  of an  Enterprise  and  Related
Information." SFAS No. 130 requires the presentation of comprehensive  income in
the financial  statements.  Comprehensive income is a measurement of all changes
in equity that result from  transactions  and other  economic  events other than
transactions  with  stockholders.  The  requirements  of this  statement will be
adopted effective January 1, 1998.

      SFAS No. 131 redefines how segments are determined and requires additional
segment  disclosures  for  both  annual  and  quarterly  reporting.  Under  this
statement, segments are determined using the "management approach" for financial
statement  reporting.  The management approach is based on the way an enterprise
makes  operating  decisions  and assesses  performance  of its  businesses.  The
Company is  currently  reviewing  the  requirements  of this SFAS and has yet to
determine its impact on its current reporting segments. The requirements of this
statement will be adopted effective December 31, 1998.


      In December  1997,  the Accounting  Standards  Executive  Committee of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position  ("SOP")  97-3,  "Accounting  by Insurance  and Other  Enterprises  for
Insurance-related  Assessments."  The SOP provides  guidance  concerning when to
recognize  a  liability  for   insurance-related   assessments   and  how  those
liabilities  should be  measured.  Specifically,  insurance-related  assessments
should be recognized as liabilities when all of the following criteria have been
met: a) an assessment has been imposed or it is probable that an assessment will
be imposed,  b) the event obligating an entity to pay an assessment has occurred
and  c)  the  amount  of  the  assessment  can  be  reasonably  estimated.   The
requirements  of this  standard  will be adopted in 1999 and are not expected to
have a material  impact on the results of  operations,  cash flows or  financial
position of the Company. The SOP is expected to be adopted in 1999.

      In March 1998, the Accounting  Standards  Executive Committee of the AICPA
issued SOP 98-1,  "Accounting  for the Costs of Computer  Software  Developed or
Obtained for  Internal  Use." The SOP provides  guidance on  accounting  for the
costs of computer software developed or obtained for internal use. Specifically,
certain external, payroll and payroll related costs should be capitalized during
the application development state of a project and depreciated over the computer
software's useful life. The Company  currently  expenses these costs as incurred
and is  evaluating  the  effects of this SOP on its  accounting  for  internally
developed software. The SOP is expected to be adopted in 1998.


Forward-Looking Statements

      The statements contained in this Management's Discussion and Analysis that
are not historical information are forward-looking  statements that are based on
management's  estimates,  assumptions and  projections.  The Private  Securities
Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of
1933 and The Securities Exchange Act of 1934 for forward-looking statements.





                                       9
<PAGE>



ITEM 7A.  Quantitative and Qualitative Disclosures About Market Risk

The pertinent  provisions of  Management's  Discussion and Analysis of Financial
Condition and Results of Operations are herein incorporated by reference.


ITEM 8. Financial Statements and Supplementary Data


                              Financial Statements

                                     Index
                                     -----

                                                                            Page
                                                                            ----

Independent Auditors' Report............................................... F-1

Financial Statements:


     Statements of Financial Position
      December 31, 1997 and 1996........................................... F-2

     Statements of Operations for the Years Ended
      December 31, 1997, 1996 and 1995..................................... F-3

     Statements of Shareholder's Equity for the Years Ended
      December 31, 1997, 1996 and 1995..................................... F-4

     Statements of Cash Flows for the Years Ended
      December 31, 1997, 1996 and 1995..................................... F-5

     Notes to Financial Statements......................................... F-6

     Schedule IV - Reinsurance for the Years Ended
      December 31, 1997, 1996 and 1995..................................... F-16




                                       10
<PAGE>



INDEPENDENT AUDITORS' REPORT


TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
NORTHBROOK LIFE INSURANCE COMPANY:

We have audited the accompanying  Statements of Financial Position of Northbrook
Life Insurance Company (the "Company") as of December 31, 1997 and 1996, and the
related Statements of Operations,  Shareholder's  Equity and Cash Flows for each
of the three  years in the period  ended  December  31,  1997.  Our audits  also
included  Schedule IV - Reinsurance.  These  financial  statements and financial
statement  schedule are the  responsibility  of the  Company's  management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial statement schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit 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.  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,  such  financial  statements  present  fairly,  in all material
respects,  the  financial  position of the  Company as of December  31, 1997 and
1996, and the results of its operations and its cash flows for each of the three
years in the  period  ended  December  31,  1997 in  conformity  with  generally
accepted accounting principles. Also, in our opinion, Schedule IV - Reinsurance,
when considered in relation to the basic financial  statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.




/s/ Deloitte & Touche LLP

Chicago, Illinois
February 20, 1998

                                    F-1
<PAGE>

                       NORTHBROOK LIFE INSURANCE COMPANY
                        STATEMENTS OF FINANCIAL POSITION

<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                                     ---------------------
                                                                                  1997                1996
                                                                                ----------          ----------
($ IN THOUSANDS)
<S>                                                                      <C>                  <C>
ASSETS
Investments
    Fixed income securities, at fair value (amortized
        cost $72,491 and $65,500)                                        $           76,402   $           67,479
    Short-term                                                                        3,031                6,590
                                                                         ------------------   ------------------
    Total investments                                                                79,433               74,069

Reinsurance recoverable from Allstate Life
    Insurance Company                                                             2,293,094            2,480,034
Net receivable from Allstate Life Insurance Company                                   1,467                4,246
Other assets                                                                          5,033                2,639
Separate Accounts                                                                 5,719,203            4,354,783
                                                                         ------------------   ------------------
         Total assets                                                    $        8,098,230   $        6,915,771
                                                                         ==================   ==================

LIABILITIES
Reserve for life-contingent contract benefits                            $          144,352   $          143,346
Contractholder funds                                                              2,148,555            2,336,296
Income taxes payable                                                                    162                  555
Deferred income taxes                                                                 2,674                2,085
Separate Accounts                                                                 5,719,203            4,354,783
                                                                         ------------------   ------------------
         Total liabilities                                                        8,014,946            6,837,065
                                                                         ------------------   ------------------

SHAREHOLDER'S EQUITY
Common stock, $100 par value, 25,000 shares
     authorized, issued and outstanding                                               2,500                2,500
Additional capital paid-in                                                           56,600               56,600
Unrealized net capital gains                                                          2,542                1,286
Retained income                                                                      21,642               18,320
                                                                         ------------------   ------------------
         Total shareholder's equity                                                  83,284               78,706
                                                                         ------------------   ------------------
         Total liabilities and shareholder's equity                      $        8,098,230   $        6,915,771
                                                                         ==================   ==================


</TABLE>

See notes to financial statements.




                                      F-2
<PAGE>



                       NORTHBROOK LIFE INSURANCE COMPANY
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                                                -----------------------
                                                                          1997             1996              1995
                                                                        ------           ------            ------
($ IN THOUSANDS)
<S>                                                            <C>              <C>               <C>
REVENUES
Net investment income                                          $         5,146  $         4,888   $         4,782
Realized capital gains and losses                                          (68)             (20)               67
                                                               ---------------  ---------------   ---------------

INCOME BEFORE INCOME TAX EXPENSE                                         5,078            4,868             4,849
INCOME TAX EXPENSE                                                       1,756            1,666             1,686
                                                               ---------------  ---------------   ---------------

NET INCOME                                                     $         3,322  $         3,202   $         3,163
                                                               ===============  ===============   ===============


</TABLE>




See notes to financial statements.





                                      F-3
<PAGE>





                       NORTHBROOK LIFE INSURANCE COMPANY
                       STATEMENTS OF SHAREHOLDER'S EQUITY

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                             -------------------------
                                                                          1997             1996              1995
                                                                       -------          -------           -------
($ IN THOUSANDS)
<S>                                                            <C>              <C>               <C>
COMMON STOCK                                                   $         2,500  $         2,500   $         2,500
                                                               ---------------  ---------------   ---------------

ADDITIONAL CAPITAL PAID-IN                                              56,600           56,600            56,600
                                                               ---------------  ---------------   ---------------

UNREALIZED NET CAPITAL GAINS
Balance, beginning of year                                               1,286            2,657            (1,553)
Net change                                                               1,256           (1,371)            4,210
                                                               ---------------  ---------------   ---------------
Balance, end of year                                                     2,542            1,286             2,657
                                                               ---------------  ---------------   ---------------

RETAINED INCOME
Balance, beginning of year                                              18,320           15,118            11,955
Net income                                                               3,322            3,202             3,163
                                                               ---------------  ---------------   ---------------
Balance, end of year                                                    21,642           18,320            15,118
                                                               ---------------  ---------------   ---------------
      Total shareholder's equity                               $        83,284  $        78,706   $        76,875
                                                               ===============  ===============   ===============


</TABLE>



See notes to financial statements.




                                      F-4
<PAGE>



                       NORTHBROOK LIFE INSURANCE COMPANY
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                                  ------------------------
                                                                               1997           1996            1995
                                                                            -------         ------         -------
($ IN THOUSANDS)
<S>                                                                     <C>          <C>             <C>
    CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                          $     3,322  $       3,202   $       3,163
    Adjustments to reconcile net income to net
        cash provided by operating activities
          Amortization and other non-cash items                                 516            782             903
          Realized capital losses (gains)                                        68             20             (67)
          Increase (decrease) in life-contingent contract
          benefits and contractholder funds                                     205           (198)            113
          Change in deferred income taxes                                       (87)            24             608
          Changes in other operating assets and liabilities                    (657)           864          (2,705)
                                                                       ------------   ------------   -------------
                 Net cash provided by operating activities                    3,367          4,694           2,015
                                                                       ------------   ------------   -------------

    CASH FLOWS FROM INVESTING ACTIVITIES
    Fixed income securities
        Proceeds from sales                                                  1,606           3,522           5,423
        Investment collections                                              10,036           5,770           7,108
        Investment purchases                                               (18,568)        (15,532)         (9,843)
    Change in short-term investments, net                                    3,559           1,459          (4,675)
                                                                     -------------   -------------   -------------
                 Net cash used in investing activities                      (3,367)         (4,781)         (1,987)
                                                                     -------------   -------------   -------------

    NET (DECREASE) INCREASE IN CASH                                              -             (87)             28
    CASH AT BEGINNING OF YEAR                                                    -              87              59
                                                                     -------------   -------------   -------------
    CASH AT END OF YEAR                                              $           -   $           -   $          87
                                                                     =============   =============   =============


</TABLE>

See notes to financial statements.




                                      F-5
<PAGE>



                       NORTHBROOK LIFE INSURANCE COMPANY
                         NOTES TO FINANCIAL STATEMENTS
                                ($ IN THOUSANDS)

1.    General

Basis of presentation
The accompanying  financial  statements  include the accounts of Northbrook Life
Insurance  Company (the  "Company"),  a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"),  which is wholly owned by Allstate Insurance Company
("AIC"),   a  wholly  owned   subsidiary  of  The  Allstate   Corporation   (the
"Corporation").  On June 30, 1995, Sears, Roebuck and Co. ("Sears")  distributed
its 80.3%  ownership in the Corporation to Sears common  shareholders  through a
tax-free  dividend (the  "Distribution").  These financial  statements have been
prepared in conformity with generally accepted accounting principles.

To conform  with the 1997  presentation,  certain  amounts  in the prior  years'
financial statements and notes have been reclassified.

Nature of operations
The Company  markets life  insurance and annuity  products in the United States
through Dean Witter  Reynolds Inc.  ("Dean Witter") (see Note 4), a wholly owned
subsidiary  of Morgan  Stanley,  Dean  Witter,  Discover  & Co.  Life  insurance
contracts   sold   by   the   Company   include   universal   life   and   other
interest-sensitive  life and  variable  life  products.  Annuities  include both
deferred  annuities,  such as  variable  annuities  and fixed  rate  single  and
flexible premium annuities, and immediate annuities.

Annuity contracts and life insurance policies issued by the Company are subject
to  discretionary  withdrawal or surrender by  customers,  subject to applicable
surrender  charges.  These  policies and contracts are reinsured  with ALIC (see
Note 3), which invests  premiums and deposits to provide cash flows that will be
used to fund  future  benefits  and  expenses.  In order to support  competitive
crediting rates and limit interest rate risk, ALIC, as the Company's  reinsurer,
adheres to a basic philosophy of matching assets with related  liabilities while
maintaining  adequate  liquidity and a prudent and  diversified  level of credit
risk.

The  Company  monitors  economic  and  regulatory  developments  which have the
potential to impact its business. There continues to be new and proposed federal
and  state   regulation   and   legislation   that  would  allow  banks  greater
participation in the securities and insurance businesses,  which will present an
increased  level of  competition  for sales of the  Company's  life and  annuity
products.  Furthermore, the market for deferred annuities and interest-sensitive
life  insurance is enhanced by the tax incentives  available  under current law.
Any legislative  changes which lessen these  incentives are likely to negatively
impact the demand for these products.

Enacted and pending state  legislation to permit mutual  insurance  companies to
convert to a hybrid  structure  known as a mutual  holding  company could have a
number  of  significant  effects  on  the  Company  by (1)  increasing  industry
competition through  consolidation caused by mergers and acquisitions related to
the new  corporate  form of  business;  (2)  increasing  competition  in capital
markets; and (3) reopening  stock/mutual company  disagreements  related to such
issues as taxation disparity between mutual and stock insurance companies.

The Company is authorized to sell life and annuity products in all states except
New York,  as well as in the  District  of  Columbia  and Puerto  Rico.  The top
geographic  locations for statutory  premiums and deposits earned by the Company
are California, Florida and Texas for the year ended December 31, 1997. No other
jurisdiction  accounted for more than 5% of statutory premiums and deposits. All
premiums and contract charges are ceded to ALIC under reinsurance agreements.



                                      F-6
<PAGE>


                       NORTHBROOK LIFE INSURANCE COMPANY
                         NOTES TO FINANCIAL STATEMENTS
                                ($ IN THOUSANDS)

2.    Summary of Significant Accounting Policies

Investments
Fixed income securities include bonds and mortgage-backed securities. All fixed
income  securities  are  carried  at fair  value and may be sold  prior to their
contractual  maturity  ("available for sale").  The difference between amortized
cost and fair value,  net of deferred  income taxes, is reflected as a component
of shareholder's equity.  Provisions are recognized for declines in the value of
fixed income  securities  that are other than  temporary.  Such  writedowns  are
included  in  realized  capital  gains and losses.  Short-term  investments  are
carried at cost which approximates fair value.

Investment  income  consists  primarily of interest,  which is recognized on an
accrual basis.  Interest income on  mortgage-backed  securities is determined on
the effective yield method, based on the estimated principal repayments. Accrual
of income is suspended for fixed income  securities  that are in default or when
the receipt of interest payments is in doubt.  Realized capital gains and losses
are determined on a specific identification basis.

Reinsurance
The Company has reinsurance  agreements whereby all premiums,  contract charges,
credited  interest,  policy benefits and certain  expenses are ceded to ALIC and
reflected net of such  cessions in the  statements  of  operations.  The amounts
shown in the  Company's  statements of  operations  relate to the  investment of
those assets of the Company that are not  transferred to ALIC under  reinsurance
agreements.  Reinsurance recoverable and the related reserve for life-contingent
contract  benefits  and  contractholder  funds are  reported  separately  in the
statements  of  financial  position.  The  Company  continues  to  have  primary
liability as the direct insurer for risks reinsured.

Recognition of premium revenues and contract charges
Revenues on interest-sensitive life insurance policies are comprised of contract
charges and fees,  and are  recognized  when assessed  against the  policyholder
account  balance.  Revenues on most annuities,  which are considered  investment
contracts,  include  contract charges and fees for contract  administration  and
surrenders.  These  revenues  are  recognized  when levied  against the contract
balance.

Income taxes
The income tax provision is calculated under the liability method.  Deferred tax
assets  and  liabilities  are  recorded  based  on the  difference  between  the
financial  statement and tax bases of assets and  liabilities at the enacted tax
rates, and reflect the impact of reinsurance  agreements.  Deferred income taxes
arise  primarily  from  unrealized  capital  gains and  losses  on fixed  income
securities carried at fair value.

Separate Accounts
The Company issues flexible  premium  deferred  variable  annuity  contracts and
single premium  variable life policies,  the assets and liabilities of which are
legally  segregated  and reflected in the  accompanying  statements of financial
position as assets and liabilities of the Separate Accounts (Northbrook Variable
Annuity  Account,  Northbrook  Variable  Annuity  Account II and Northbrook Life
Variable Life Separate  Account A, unit  investment  trusts  registered with the
Securities and Exchange Commission).

Assets of the Separate Accounts are carried at fair value. Investment income and
realized  capital gains and losses of the Separate  Accounts  accrue directly to
the  policy-  and  contractholders  and,  therefore,  are  not  included  in the
Company's  statements of  operations.  Revenues to the Company from the Separate
Accounts consist of contract  maintenance fees,  administration  fees, mortality
and expense risk charges, cost of insurance charges and tax expense charges, all
of which are ceded to ALIC.

Reserve for life-contingent contract benefits
The reserve for life-contingent  contract benefits,  which relates to structured
settlement  annuities and  supplemental  contracts with life  contingencies,  is
computed on the basis of assumptions as to future investment  yields,  mortality
and expenses.  These  assumptions  include  provisions for adverse deviation and
generally vary by such  characteristics  as type of coverage,  year of issue and
policy duration. Reserve interest rates ranged from 4.00% to 11.00% during 1997.





                                      F-7
<PAGE>



                       NORTHBROOK LIFE INSURANCE COMPANY
                         NOTES TO FINANCIAL STATEMENTS
                                ($ IN THOUSANDS)

Contractholder funds
Contractholder funds arise from the issuance of individual or group policies and
contracts  that include an investment  component,  including  most annuities and
universal  life  policies.  Payments  received are recorded as  interest-bearing
liabilities.  Contractholder  funds are equal to deposits  received and interest
credited  to the  benefit  of the  contractholder  less  withdrawals,  mortality
charges and  administrative  expenses.  During 1997,  credited interest rates on
contractholder  funds ranged from 3.30% to 9.51% for those  contracts with fixed
interest rates and from 3.25% to 7.39% for those with flexible rates.

Use of estimates
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.


3.    Related Party Transactions

Reinsurance
Premiums  and  contract  charges  ceded to ALIC were $1,979 and $83,559 in 1997,
$3,775 and  $60,744  in 1996,  and  $2,284  and  $52,348 in 1995,  respectively.
Credited  interest,  policy  benefits  and  expenses  ceded to ALIC  amounted to
$201,526, $218,088 and $229,525 in 1997, 1996 and 1995, respectively. Investment
income earned on the assets which support  contractholder  funds is not included
in the Company's  financial  statements as those assets are owned and managed by
ALIC under the terms of reinsurance agreements.

Business operations
The Company  utilizes  services and business  facilities  owned or leased,  and
operated by AIC in conducting its business  activities.  The Company  reimburses
AIC for the  operating  expenses  incurred by AIC on behalf of the Company.  The
cost to the Company is determined by various allocation methods and is primarily
related  to the  level  of  services  provided.  Operating  expenses,  including
compensation and retirement and other benefit programs, allocated to the Company
were $7,842,  $8,074 and $5,341 in 1997, 1996 and 1995,  respectively.  Of these
costs,  the Company retains  investment  related  expenses.  All other costs are
ceded to ALIC under reinsurance agreements.


4.  Exclusive Distribution Agreement

The  Company  and ALIC have a  strategic  alliance  with Dean Witter to develop,
market and distribute  proprietary  annuity and life insurance  products through
Dean Witter account  executives.  Dean Witter  provides a portion of the funding
for these products through loans to an affiliate of the Company. An affiliate of
Dean Witter,  Dean Witter  InterCapital  Inc., is the investment manager for the
Dean Witter  Variable  Investment  Series,  the funds in which the assets of the
Separate Accounts are invested.

Under the terms of the  strategic  alliance,  the Company has agreed to use Dean
Witter as an exclusive distribution channel for the Company's products. Although
the  strategic  alliance  is  cancelable  by either  party,  termination  of the
alliance would not impact existing policies and contracts.




                                      F-8
<PAGE>



                       NORTHBROOK LIFE INSURANCE COMPANY
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
                                ($ IN THOUSANDS)

5. INVESTMENTS

Fair values
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:

<TABLE>
<CAPTION>
                                                               GROSS UNREALIZED
                                                   AMORTIZED ------------------   FAIR
                                                    COST      GAINS     LOSSES    VALUE
                                                  ---------   -----   ---------  -------
<S>                                                <C>        <C>     <C>        <C>
At December 31, 1997
  U.S. government and agencies                      $ 8,638   $  823   $  -        $ 9,461
  Municipal                                           1,143       28      -          1,171
  Corporate                                          25,913      897     (12)       26,798
  Mortgage-backed securities                         36,797    2,315    (140)       38,972
                                                   --------   -------  ------      -------
     Total fixed income securities                 $ 72,491   $4,063   $(152)      $76,402
                                                   ========   =======  ======      =======

At December 31, 1996
  U.S. government and agencies                     $  8,629   $  193   $ (54)      $ 8,768
  Municipal                                             873       48      -            921
  Corporate                                          16,902      260     (69)       17,093
  Mortgage-backed securities                         39,096    1,883    (282)       40,697
                                                   --------   ------   ------      -------
     Total fixed income securities                 $ 65,500   $2,384   $(405)      $67,479
                                                   ========   =======  ======      ========

</TABLE>
Scheduled maturities
The scheduled  maturities for fixed income securities are as follows at December
31, 1997:
<TABLE>
<CAPTION>

                                                           Amortized               Fair
                                                              Cost                 Value
                                                         ------------            ----------
<S>                                                      <C>                     <C>

Due in one year or less                                  $      2,133            $    2,155
Due after one year through five years                           5,343                 5,472
Due after five years through ten years                         19,410                20,217
Due after ten years                                             8,808                 9,586
                                                         ------------            ----------
                                                               35,694                37,430
Mortgage-backed securities                                     36,797                38,972
                                                         ------------            ----------
      Total                                              $     72,491            $   76,402
                                                         ============            ==========
</TABLE>

Actual  maturities may differ from those scheduled as a result of prepayments by
the issuers.





                                      F-9
<PAGE>



                       NORTHBROOK LIFE INSURANCE COMPANY
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
                               ($ IN THOUSANDS)

 Net Investment Income

<TABLE>
<CAPTION>


Year Ended December 31,                                                 1997             1996              1995
-----------------------                                               ------           ------            ------
      <S>                                                        <C>              <C>               <C>
Fixed income securities                                          $     5,364      $     4,675       $     4,633
Short-term investments                                                    84              390               215
                                                                 -----------      -----------       -----------
    Investment income, before expense                                  5,448            5,065             4,848
    Investment expense                                                   302              177                66
                                                                 -----------      -----------       -----------
    Net investment income                                        $     5,146      $     4,888       $     4,782
                                                                 ===========      ===========       ===========

Realized capital gains and losses

Year Ended December 31,                                                 1997             1996              1995
-----------------------                                               ------           ------            ------

Fixed income securities                                        $         (70)   $         (22)    $          67
Short-term investments                                                     2                2                 -
                                                               -------------    -------------     -------------
    Realized capital gains and losses                                    (68)             (20)               67
    Income tax benefit (expense)                                          24                7               (23)
                                                               -------------    -------------     -------------
    Realized capital losses and gains, after tax               $         (44)   $         (13)    $          44
                                                               =============    =============     =============
</TABLE>

Excluding calls and prepayments,  gross losses of $70 and $32 and gross gains of
$67 were  realized on sales of fixed income  securities  during  1997,  1996 and
1995, respectively.

Unrealized net capital gains
Unrealized   net  capital   gains  on  fixed  income   securities   included  in
shareholder's equity at December 31, 1997 are as follows:

<TABLE>
<CAPTION>
                                                      Cost/                     Fair               Unrealized
                                                  Amortized Cost                Value               Net Gains
                                                  --------------                -----              -------------
<S>                                               <C>                     <C>                      <C>

Fixed income securities                           $       72,491          $       76,402           $       3,911
                                                  ==============          ==============                  (1,369)
Deferred income taxes                                                                              -------------
Unrealized net capital gains                                                                       $       2,542
                                                                                                   =============
</TABLE>




                                      F-10
<PAGE>



                       NORTHBROOK LIFE INSURANCE COMPANY
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
                                ($ IN THOUSANDS)

Change in unrealized net capital gains

<TABLE>
<CAPTION>


Year ended December 31,                                             1997        1996       1995
-----------------------                                           -------     -------     -------
      <S>                                                         <C>         <C>         <C>
    Fixed income securities                                       $ 1,932     $(2,108)    $ 6,477
    Deferred income taxes                                            (676)        737      (2,267)
                                                                  -------     -------     -------
    Increase (decrease) in unrealized net
         capital gains                                            $ 1,256     $(1,371)    $ 4,210
                                                                  =======     =======     =======
</TABLE>

Securities on deposit
At December 31, 1997,  fixed income  securities  with a carrying value of $8,039
were on deposit with regulatory authorities as required by law.


6.    Financial Instruments

In the normal  course of  business,  the  Company  invests in various  financial
assets and incurs various  financial  liabilities.  The fair value  estimates of
financial  instruments  presented  below are not  necessarily  indicative of the
amounts  the  Company  might  pay or  receive  in  actual  market  transactions.
Potential  taxes  and  other  transaction  costs  have  not been  considered  in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole  since a number of the  Company's  significant  assets
(including  reinsurance  recoverable) and liabilities (including deferred income
taxes and reserve for  life-contingent  contract  benefits)  are not  considered
financial  instruments  and are not  carried  at fair  value.  Other  assets and
liabilities considered financial instruments, such as accrued investment income,
are generally of a short-term  nature.  It is assumed that their  carrying value
approximates fair value.

Financial assets
The  carrying  value and fair value of  financial  assets at December 31, are as
follows:
<TABLE>
<CAPTION>

                                                        1997                                 1996
                                                        ----                                 ----
                                            Carrying           Fair               Carrying            Fair
                                              Value            Value               Value              Value
                                        ------------    --------------       ---------------    ---------------
<S>                                     <C>             <C>                  <C>                <C>

Fixed income securities                 $    76,402     $       76,402       $        67,479    $        67,479
Short-term investments                        3,031              3,031                 6,590              6,590
Separate Accounts                         5,719,203          5,719,203             4,354,783          4,354,783

</TABLE>

Fair  values for fixed  income  securities  are based on quoted  market  prices.
Short-term  investments  are highly liquid  investments  with maturities of less
than one year whose carrying value  approximates  fair value.  Separate Accounts
assets are carried in the statements of financial position at fair value.




                                      F-11
<PAGE>



                       NORTHBROOK LIFE INSURANCE COMPANY
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
                                ($ IN THOUSANDS)

Financial liabilities
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
                                                           1997                               1996
                                               -----------------------------         -------------------------
                                               CARRYING            FAIR              CARRYING          FAIR
                                                VALUE              VALUE             VALUE            VALUE
                                               ----------         ----------         ----------     ----------
      <S>                              <C>                  <C>               <C>                 <C>
Contractholder funds on
     investment contracts              $      1,977,479     $     1,951,214   $      2,143,482    $     2,118,583
Separate Accounts                             5,719,203           5,719,203          4,354,783          4,354,783
</TABLE>

The fair value of contractholder  funds on investment  contracts is based on the
terms of the  underlying  contracts.  Reserves on investment  contracts  with no
stated maturities  (single premium and flexible premium deferred  annuities) are
valued  at the  account  balance  less  surrender  charges.  The  fair  value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated  using  discounted  cash flow  calculations  based on  interest  rates
currently  offered for  contracts  with similar  terms and  durations.  Separate
Accounts liabilities are carried at the fair value of the underlying assets.


7.    Income Taxes

The Company joins the Corporation and its other eligible  domestic  subsidiaries
in the filing of a consolidated federal income tax return (the "Allstate Group")
and is party to a federal  income tax  allocation  agreement  (the "Tax  Sharing
Agreement").  Under the Tax Sharing  Agreement,  the Company paid to or received
from the Corporation the amount,  if any, by which the Allstate  Group's federal
income tax  liability  was affected by virtue of inclusion of the Company in the
consolidated  federal  income  tax  return.  Effectively,  this  results  in the
Company's annual income tax provision being computed,  with  adjustments,  as if
the Company filed a separate return.

Prior to the  Distribution,  the  Corporation  and all of its eligible  domestic
subsidiaries, including the Company, joined with Sears and its domestic business
units (the "Sears  Group") in the filing of a  consolidated  federal  income tax
return  (the  "Sears  Tax  Group")  and were  parties  to a federal  income  tax
allocation  agreement (the "Sears Tax Sharing  Agreement").  Under the Sears Tax
Sharing  Agreement,  the Company,  through the Corporation,  paid to or received
from the Sears Group the amount,  if any, by which the Sears Tax Group's federal
income tax  liability  was affected by virtue of inclusion of the Company in the
consolidated  federal  income tax  return.  Effectively,  this  resulted  in the
Company's  annual income tax provision  being  computed as if the Allstate Group
filed a separate  consolidated  return,  except that items such as net operating
losses,  capital  losses or similar  items,  which might not be  recognized in a
separate return, were allocated according to the Sears Tax Sharing Agreement.

The Allstate Group and Sears Group have entered into an agreement  which governs
their respective rights and obligations with respect to federal income taxes for
all periods prior to the Distribution  ("Consolidated Tax Years"). The agreement
provides  that all  Consolidated  Tax Years will  continue to be governed by the
Sears Tax Sharing  Agreement with respect to the Allstate Group's federal income
tax liability.





                                      F-12
<PAGE>



                       NORTHBROOK LIFE INSURANCE COMPANY
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
                                ($ IN THOUSANDS)

The  components of the deferred  income tax assets and  liabilities at December
31, are as follows:

<TABLE>
<CAPTION>

                                                            1997               1996
                                                          -------             -------
      <S>                                                <C>                 <C>

Deferred assets
    Separate Accounts                                    $   149             $     -
                                                         -------             -------

Deferred liabilities
    Difference in tax bases of investments                (1,454)             (1,392)
    Unrealized net capital gains                          (1,369)               (693)
                                                         -------             -------
         Total deferred liabilities                       (2,823)             (2,085)
                                                         --------            --------
         Net deferred liability                          $(2,674)            $(2,085)
                                                         ========            ========
</TABLE>

The  components  of income tax expense for the year ended  December  31, are as
follows:

<TABLE>
<CAPTION>
                                                                    1997              1996             1995
                                                                    ----              ----             ----
<S>                                                                 <C>               <C>           <C>

Current                                                            $ 1,843         $  1,642       $     1,078
Deferred                                                               (87)              24               608
                                                               -----------      -----------       -----------
    Total income tax expense                                       $ 1,756         $  1,666       $     1,686
                                                               ===========      ===========       ===========
</TABLE>

The Company paid income taxes of $2,236,  $2,308 and $4,980 in 1997,  1996 and
1995, respectively.

A  reconciliation  of the  statutory  federal  income tax rate to the  effective
income tax rate on income from  operations for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>

                                                                    1997              1996              1995
                                                                    ----              ----              ----
<S>                                                               <C>                <C>               <C>

Statutory federal income tax rate                                  35.0%             35.0%             35.0%
Tax-exempt income                                                  (0.4)             (0.6)                -
Other                                                                 -              (0.2)             (0.3)
                                                                   ----              -----             -----
Effective federal income tax rate                                  34.6%             34.2%             34.7%
                                                                   ====              ====              ====
</TABLE>




                                      F-13
<PAGE>



                       NORTHBROOK LIFE INSURANCE COMPANY
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
                                ($ IN THOUSANDS)



Prior to January 1, 1984,  the Company was entitled to exclude  certain  amounts
from taxable  income and  accumulate  such amounts in a  "policyholder  surplus"
account.  The balance in this account at December 31, 1997,  approximately  $16,
will result in federal income taxes payable of $6 if distributed by the Company.
No  provision  for taxes has been made as the Company has no plan to  distribute
amounts  from this  account.  No  further  additions  to the  account  have been
permitted since the Tax Reform Act of 1984.


8.    Statutory Financial Information

The following  tables  reconcile net income for the year ended  December 31, and
shareholder's  equity at December  31, as  reported  herein in  conformity  with
generally accepted  accounting  principles with statutory net income and capital
and surplus,  determined  in  accordance  with  statutory  accounting  practices
prescribed or permitted by insurance regulatory authorities:
<TABLE>
<CAPTION>

                                                                                      Net Income
                                                                                      ----------
                                                                           1997          1996          1995
                                                                           ----          ----          ----
<S>                                                                   <C>            <C>           <C>
Balance per generally accepted accounting principles                       $ 3,322        $ 3,202  $      3,163
      Deferred income taxes                                                    (87)            24           608
      Statutory investment reserves                                             79             30           (28)
      Other                                                                   (405)          (691)       (1,443)
                                                                       -----------   ------------  ------------
Balance per statutory accounting practices                                 $ 2,909   $      2,565  $      2,300
                                                                       ===========   ============  ============

</TABLE>




                                      F-14
<PAGE>



                       NORTHBROOK LIFE INSURANCE COMPANY
                  NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
                               ($ IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                 SHAREHOLDER'S
                                                                                   EQUITY
                                                                              ----------------
                                                                             1997             1996
                                                                           -------           -------
      <S>                                                               <C>              <C>
Balance per generally accepted accounting principles                    $   83,284       $     78,706
       Deferred income taxes                                                 2,674              2,085
       Unrealized gain/loss on fixed income securities                      (3,911)            (1,979)
       Non-admitted assets and statutory investment
          reserves                                                          (4,431)            (3,317)
       Other                                                                (1,939)              (397)
                                                                        ----------       ------------
Balance per statutory accounting practices                              $   75,677       $     75,098
                                                                        ==========       ============
</TABLE>

Permitted statutory accounting practices
The Company  prepares its statutory  financial  statements  in  accordance  with
accounting  principles  and  practices  prescribed  or permitted by the Illinois
Department of Insurance.  Prescribed  statutory  accounting  practices include a
variety of publications of the National  Association of Insurance  Commissioners
("NAIC"), as well as state laws,  regulations and general  administrative rules.
Permitted statutory  accounting practices encompass all accounting practices not
so prescribed.  The Company follows a permitted  statutory  accounting  practice
whereby it includes amounts  receivable from an affiliated  insurance company in
statutory  admitted assets at a level which exceeds the threshold  prescribed by
the Illinois Department of Insurance by $7,737.


Final  approval  of the  NAIC's  proposed  "Comprehensive  Guide"  on  statutory
accounting  principles  is expected in early  1998.  Implementation  could be as
early as January 1, 1999. The  requirements of the  Comprehensive  Guide are not
expected to have a material impact on statutory surplus of the Company.

Under the NAIC's proposed accounting  practices,  the Company's practice related
to its receivable from affiliate will be prescribed rather than permitted.

Dividends
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder  dividends by insurance  companies  without the prior approval of
the state insurance  regulator is limited to formula amounts based on net income
and capital and surplus,  determined in  accordance  with  statutory  accounting
practices,  as well as the timing and amount of dividends  paid in the preceding
twelve  months.  The maximum amount of dividends that the Company can distribute
during 1998 without  prior  approval of the Illinois  Department of Insurance is
$7,318.





                                      F-15
<PAGE>



                       NORTHBROOK LIFE INSURANCE COMPANY
                            SCHEDULE IV--REINSURANCE
                                ($ IN THOUSANDS)


<TABLE>
<CAPTION>
                                                        Gross                           Net
Year ended December 31, 1997                            amount            Ceded        amount
----------------------------                           --------         --------       ------
<S>                                               <C>      <C>      <C>
Life insurance in force                             $   515,890       $   515,890    $       -
                                                    ===========       ===========    =========

Premiums and contract charges:
         Life and annuities                         $    85,538       $    85,538    $       -
                                                    ===========       ===========    =========


                                                       Gross                             Net
Year ended December 31, 1996                           amount            Ceded          amount
----------------------------                          -------            ------         ------

Life insurance in force                             $   556,242       $  556,242     $       -
                                                    ===========       ==========     =========

Premiums and contract charges:
         Life and annuities                         $    64,519       $   64,519     $       -
                                                    ===========       ==========     =========



                                                       Gross                             Net
Year ended December 31, 1995                          amount            Ceded           amount
----------------------------                          ------            -----           ------

Life insurance in force                             $   610,478       $  610,478     $       -
                                                    ===========       ==========     =========

Premiums and contract charges:
         Life and annuities                         $    54,632       $   54,632     $       -
                                                    ===========       ==========     =========


</TABLE>



                                      F-16
<PAGE>



                                    PART IV

ITEM 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

        (a) The following  documents are filed as part of this Report.  The page
number,  if any,  listed  opposite a document  indicates  the page number in the
sequential numbering system in the manually signed original of this Report where
such document can be found.

             (1) The  financial  statements  filed  as part of this  Report  are
listed in Item 8.

             (2) Financial Statement Schedules

                 Schedule IV - Reinsurance        page  F-16

             (3) Exhibits

                 Financial Data Schedule




                                      F-17
<PAGE>



                                  SIGNATURES

        Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                        NORTHBROOK LIFE INSURANCE COMPANY


                           By      /s/ LOUIS G. LOWER, II
                                   ----------------------
                                   Louis G. Lower, II
                                   Chairman of the Board and
                                     Chief Executive Officer
                                   (Principal Executive Officer)

                           Date    March 30, 1998
                                   ------------------


        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

                           By      /s/ LOUIS G. LOWER, II
                                   ----------------------
                                   Louis G. Lower, II
                                   Chairman of the Board and
                                    Chief Executive Officer
                                   (Principal Executive Officer)

                           Date    March 30, 1998
                                   ------------------


                           By      */s/ PETER H. HECKMAN
                                   ----------------------
                                   Peter H. Heckman
                                   President and Chief Operating Officer


                           Date    March 25, 1998
                                   -------------------


                           By      /s/ MICHAEL J. VELOTTA
                                   ----------------------
                                   Michael J. Velotta
                                   Vice President, Secretary and
                                     General Counsel

                           Date    March 30, 1998
                                   -------------------


                           By      */s/ KEVIN R. SLAWIN
                                   --------------------
                                   Kevin R. Slawin
                                   Vice President and Director

                           Date    March 26, 1998
                                   -------------------


                           By      */s/ KEITH A. HAUSCHILDT
                                   ------------------------
                                   Keith A. Hauschildt
                                   Assistant Vice President and Controller
                                   (Chief Accounting Officer)

                           Date    March 25, 1998
                                   -------------------

*/Pursuant to Power of Attorney filed herewith.