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: 033-62193
                      -----------------                              ---------
                                                                     033-91916
                                                                     ---------
                                                                     033-92842
                                                                     ---------
                                                                     333-00987
                                                                     ---------
                                                                     333-07275
                                                                     ---------

                          GLENBROOK LIFE AND ANNUITY COMPANY
               (Exact name of registrant as specified in its charter)


         ILLINOIS                                                35-1113325
(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 4,200 shares of common  capital stock
outstanding,  par value $500 per share all of which  shares are held by Allstate
Life Insurance Company.






<PAGE>



                      GLENBROOK  LIFE  AND  ANNUITY   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......................................................11
ITEM 8.     Financial Statements and Supplemental Data.......................11
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.......................................11
Signatures...................................................................12

*  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

         Glenbrook Life and Annuity Company (hereinafter "Glenbrook Life" or the
"Company"), is a stock life insurance company which was organized under the laws
of the State of Illinois in 1992. The Company was originally organized under the
laws of the State of Indiana in 1965.  From 1965 to 1983 the Comany was known as
"United  Standard Life Assurance  Company" and from 1983 to 1992 the Company was
known as "William Penn Life Assurance Company of America."

         Glenbrook Life is a wholly owned  subsidiary of Allstate Life Insurance
Company ("ALIC"),  a stock life insurance company incorporated under the laws of
Illinois.  Allstate  Life 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.

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

         Glenbrook Life and ALIC entered into reinsurance agreements,  effective
June 5, 1992,  under which  Glenbrook  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 contracts such as premiums,
expenses and benefits are transferred to ALIC.

         Glenbrook  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



                                       3
<PAGE>



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.

         Glenbrook  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 Glenbrook  Life.  A.M. Best Company also assigns  Glenbrook Life
the rating of A+(r) because Glenbrook Life automatically  reinsures all business
with ALIC. 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.  Glenbrook 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.

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

ITEM 2.  PROPERTIES

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

                        GLENBROOK LIFE AND ANNUITY 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 Glenbrook  Life and
Annuity  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 banks and broker-dealers.

         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.  Certain of the Separate Account investment  portfolios were
initially funded with a $10.0 million seed money  contribution  from the Company
in 1995. During 1997, the Company liquidated its funding in the Separate Account
investment  portfolios.  Investment  income and realized gains and losses of the
Separate   Accounts,   other  than  the   portion   related  to  the   Company's
participation,  accrue  directly  to the  contractholders  (net  of  fees)  and,
therefore, are not included in the Company's statements of operations.

Results of Operations
---------------------
($ in thousands)
<TABLE>
<CAPTION>
                                                                 1997                1996              1995
                                                                 ----                ----              ----

<S>                                                             <C>                 <C>                 <C>
       Net investment income                                    $ 5,304             $ 3,774           $ 3,996
                                                                =======             =======           =======
       Realized capital gains and losses, after-tax             $ 2,249             $     -           $   298
                                                                =======             =======           =======
       Net income                                               $ 5,686             $ 2,435           $ 2,879
                                                                =======             =======           =======
       Investments                                              $90,474             $50,676           $50,917
                                                                =======             =======           =======
</TABLE>

         The Company and ALIC entered  into a  reinsurance  agreement  effective
June 5, 1992. All business issued subsequent to that date is ceded to ALIC. Life
insurance in force prior to that date is ceded to non-affiliated reinsurers. 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 agreement.

         Net income increased $3.3 million in 1997 due to realized capital gains
arising  primarily  from the  withdrawal  of the seed  money  from the  Separate
Account and the increase in net investment income. The $444 thousand decrease in
net income in 1996 reflects the decrease in net  investment  income and realized
capital gains.

         Pretax net investment  income in 1997 increased 40.5%, or $1.5 million,
to $5.3  million  compared to $3.8 million in 1996.  This higher net  investment
income  was  caused  by a  significant  increase  in the  level  of  investments
primarily arising from a $20.0 million capital  contribution  received from ALIC
in January 1997 and the  liquidation of the Company's  seed money  investment in
the Separate  Account,  partially offset by an increase in investment  expenses.
Net investment  income  decreased $222 thousand in 1996 due to the impact of the
Company's  $10.0  million  original  investment  in the  variable  funds  of the
Separate Account,  whose assets are invested predominantly in equity securities.
The dividend  yield on the variable  funds is  significantly  below the level of
interest  earned on fixed  income  securities  in which the  $10.0  million  was
invested  prior to the  fourth  quarter  of 1995.  This  decrease  in income was
partially offset by additional investment income earned on the higher investment
balances arising from positive cash flows from operating activities in 1996.

         Realized  capital  gains  after  tax  of  $2.2  million  in  1997  were
associated  primarily with the withdrawal of the investment in Separate  Account
portfolios.  Realized  capital gains after tax of $298 thousand in 1995 were the
result  of  sales of  investments  to fund the  Company's  participation  in the
Separate Accounts.


                                       6
<PAGE>
Financial Position
------------------
($ in thousands)
<TABLE>
<CAPTION>

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

<S>                                                                <C>               <C>
                 Fixed income securities (1)                       $     86,243      $    49,389
                 Short-term investments                                   4,231            1,287
                                                                   ------------      -----------
                       Total investments                           $     90,474      $    50,676
                                                                   ============      ===========
                 Reinsurance recoverable from ALIC                 $  2,637,983      $ 2,060,419
                                                                   ============      ===========
                 Separate Account assets                           $    620,535      $   272,420
                                                                   ============      ===========
                 Contractholder funds                              $  2,637,983      $ 2,060,419
                                                                   ============      ===========
                 Separate Account liabilities                      $    620,535      $   260,290
                                                                   ============      ===========
</TABLE>

                (1) Fixed income securities are carried at fair value. Amortized
                  cost for these  securities was $81,369 and $46,925 at December
                  31, 1997 and 1996, respectively.


         The   Company's   fixed  income   securities   portfolio   consists  of
mortgage-backed  securities,  U.S.  government bonds,  publicly traded corporate
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
available for sale to allow maximum flexibility in portfolio management.

         Investments grew $39.8 million,  or 78.5%, during 1997. The increase in
investments  is  primarily  due  to  the  receipt  of a  $20.0  million  capital
contribution  from ALIC in January 1997 and  liquidation  of the seed money from
the Separate Account during 1997. In addition,  at December 31, 1997, unrealized
net capital  gains on the fixed income  securities  portfolio  were $4.9 million
compared to $2.5 million as of December 31, 1996, primarily  attributable to the
increase in the Company's fixed income securities portfolio during 1997.

         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,  $31.9  million  and  $16.4  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 $417
thousand and over 31% 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 $4.2 million and $1.3
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 and amounts  recoverable  from ALIC
under the  reinsurance  agreement  increased by $577.6  million.  The  increases
resulted  from sales of the  Company's  single  and  flexible  premium  deferred
annuities, interest credited to contractholders, partially offset by surrenders,
withdrawals  and benefits  paid.  Reinsurance  recoverable  from ALIC relates to
contract benefit obligations ceded to ALIC.

                                       7
<PAGE>

         Separate  Account  assets  increased  by $348.1  million  and  Separate
Account  liabilities  increased by $360.2  million as compared with December 31,
1996. The increases were primarily  attributable  to increased sales of flexible
premium  deferred  variable  annuity  contracts  and  the  favorable  investment
performance of the Separate Account investment  portfolios,  partially offset by
variable annuity surrenders and withdrawals.  Additionally, the Separate Account
asset was  reduced by the  Company's  liquidation  of its seed money  investment
during 1997.


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 5.3 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  $4.5 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.



                                       8
<PAGE>

Liquidity and Capital Resources
-------------------------------

         In January 1997, a $20.0 million capital  contribution that was accrued
at December 31, 1996 was received from ALIC.

         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.

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 the 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.

                                      9
<PAGE>


         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.



                                       10
<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-15





                                       11
<PAGE>




INDEPENDENT AUDITORS' REPORT


TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
GLENBROOK LIFE AND ANNUITY COMPANY:

We have audited the accompanying  Statements of Financial  Position of Glenbrook
Life and Annuity  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>



                       GLENBROOK LIFE AND ANNUITY COMPANY
                        STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>

                                                                                            December 31,
                                                                                            ------------
      ($ in thousands)                                                             1997                     1996
                                                                                ----------               ---------
<S>                                                                             <C>                     <C>
      ASSETS
      Investments
         Fixed income securities, at fair value
           (amortized cost $81,369 and $46,925)                                 $        86,243         $        49,389
         Short-term                                                                       4,231                   1,287
                                                                                ---------------         ---------------
         Total investments                                                               90,474                  50,676

      Reinsurance recoverable from Allstate Life Insurance
         Company                                                                      2,637,983               2,060,419
      Net receivable from affiliates                                                          -                  18,963
      Other assets                                                                        2,549                   2,049
      Separate Accounts                                                                 620,535                 272,420
                                                                                ---------------         ---------------
               Total assets                                                     $     3,351,541         $     2,404,527
                                                                                ===============         ===============

      LIABILITIES
      Contractholder funds                                                      $     2,637,983         $     2,060,419
      Income taxes payable                                                                  609                     410
      Deferred income taxes                                                               1,772                   1,528
      Net payable to affiliates                                                           2,698                       -
      Separate Accounts                                                                 620,535                 260,290
                                                                                ---------------         ---------------
              Total liabilities                                                       3,263,597               2,322,647
                                                                                ===============         ===============

      SHAREHOLDER'S EQUITY
      Common stock, $500 par value, 4,200 shares
         authorized, issued, and outstanding                                              2,100                   2,100
      Additional capital paid-in                                                         69,641                  69,641
      Unrealized net capital gains                                                        3,168                   2,790
      Retained income                                                                    13,035                   7,349
                                                                                ---------------         ---------------
              Total shareholder's equity                                                 87,944                  81,880
                                                                                ---------------         ---------------
              Total liabilities and shareholder's equity                        $     3,351,541         $     2,404,527
                                                                                ===============         ===============

</TABLE>

      See notes to financial statements.


                                      F-2
<PAGE>

                       GLENBROOK LIFE AND ANNUITY COMPANY
                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                                                     -----------------------
($ in thousands)                                                            1997              1996             1995
                                                                       ----------------  ---------------  ----------------
<S>                                                                    <C>               <C>              <C>
REVENUES
Net investment income                                                  $          5,304  $         3,774  $          3,996
Realized capital gains and losses                                                 3,460                -               459
                                                                       ----------------  ---------------  ----------------

INCOME BEFORE INCOME TAX EXPENSE                                                  8,764            3,774             4,455
INCOME TAX EXPENSE                                                                3,078            1,339             1,576
                                                                       ----------------  ---------------  ----------------

NET INCOME                                                             $          5,686  $         2,435  $          2,879
                                                                       ================  ===============  ================

</TABLE>

See notes to financial statements.







                                      F-3
<PAGE>


                       GLENBROOK LIFE AND ANNUITY COMPANY
                       STATEMENTS OF SHAREHOLDER'S EQUITY


<TABLE>
<CAPTION>

                                                                              Year Ended December 31,
                                                                              -----------------------
     ($ in thousands)                                             1997                  1996                 1995
                                                              ---------------      ---------------       ---------------
<S>                                                          <C>                   <C>                   <C>

     COMMON STOCK                                             $         2,100      $         2,100       $         2,100
                                                              ---------------      ---------------       ---------------

     ADDITIONAL CAPITAL PAID-IN
     Balance, beginning of year                                        69,641               49,641                49,641
     Capital contributions                                                  -               20,000                     -
                                                              ---------------      ---------------       ---------------
     Balance, end of year                                              69,641               69,641                49,641
                                                              ---------------      ---------------       ---------------

     UNREALIZED NET CAPITAL GAINS
     Balance, beginning of year                                         2,790                3,357                (1,118)
     Net change                                                           378                 (567)                4,475
                                                              ---------------      ---------------       ---------------
     Balance, end of year                                               3,168                2,790                 3,357
                                                              ---------------      ---------------       ---------------

     RETAINED INCOME
     Balance, beginning of year                                         7,349                4,914                 2,035
     Net income                                                         5,686                2,435                 2,879
                                                              ---------------      ---------------       ---------------
     Balance, end of year                                              13,035                7,349                 4,914
                                                              ---------------      ---------------       ---------------
          Total shareholder's equity                          $        87,944      $        81,880       $        60,012
                                                              ===============      ===============       ===============
</TABLE>



   See notes to financial statements.








                                      F-4
<PAGE>




                       GLENBROOK LIFE AND ANNUITY COMPANY
                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

                                                                                    Year Ended December 31,
                                                                                    -----------------------
     ($ in thousands)                                                        1997             1996                1995
                                                                        ------------      ------------       ------------

<S>                                                                     <C>               <C>                <C>
     CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                         $      5,686      $      2,435       $      2,879
     Adjustments to reconcile net income to net cash
        provided by operating activities
           Depreciation, amortization and other non-cash
            items                                                                 29                 -                  -
           Realized capital gains and losses                                  (3,460)                -               (459)
           Change in deferred income taxes                                        41                 4                (39)
           Changes in other operating assets and liabilities                   1,160              (510)             1,217
                                                                        ------------      ------------       ------------
             Net cash provided by operating activities                         3,456             1,929              3,598
                                                                        ------------      ------------       ------------


     CASH FLOWS FROM INVESTING ACTIVITIES
     Fixed income securities
        Proceeds from sales                                                    1,405                 -              7,836
        Investment collections                                                14,217             2,891              1,568
        Investment purchases                                                 (50,115)           (5,667)            (1,491)
     Participation in Separate Accounts                                       13,981              (232)           (10,069)
     Change in short-term investments, net                                    (2,944)              815             (1,178)
                                                                        ------------      ------------       ------------
             Net cash used in investing activities                           (23,456)           (2,193)            (3,334)
                                                                        ------------      ------------       ------------

     CASH FLOWS FROM FINANCING ACTIVITIES
     Capital contribution                                                     20,000                 -                  -
                                                                        ------------      ------------       ------------
             Net cash provided by financing activities                        20,000                 -                  -
                                                                        ------------      ------------       ------------

     NET (DECREASE) INCREASE IN CASH                                               -              (264)               264
     CASH AT BEGINNING OF YEAR                                                     -               264                  -
                                                                        ------------      ------------       ------------
     CASH AT END OF YEAR                                                $          -      $          -       $        264
                                                                        ============      ============       ============

     SUPPLEMENTAL DISCLOSURE OF CASH FLOW
     INFORMATION
     Noncash financing activity:
         Capital contribution receivable from
            Allstate Life Insurance Company                             $          -      $     20,000       $          -
                                                                        ============      ============       ============

</TABLE>


See notes to financial statements.







                                      F-5
<PAGE>



                      GLENBROOK LIFE AND ANNUITY COMPANY
                        NOTES TO FINANCIAL STATEMENTS
                               ($ IN THOUSANDS)


1.   General

Basis of presentation
The accompanying financial statements include the accounts of Glenbrook Life and
Annuity  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   banks   and    broker-dealers.    Life    insurance    includes   both
interest-sensitive  and variable  life  insurance  products.  Annuities  include
deferred  annuities,  such as variable annuities and fixed rate flexible premium
annuities. The Company has entered into exclusive distribution arrangements with
management investment companies to market its variable annuity contracts.

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.

Although the Company currently  benefits from agreements with financial services
entities  who market and  distribute  its  products,  consolidation  within that
industry and specifically,  a change in control of those entities with which the
Company partners, could affect the Company's sales.

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. The Company is also authorized
to sell  variable  annuities in Puerto Rico.  The top  geographic  locations for
statutory premiums and deposits earned by the Company are Florida, Pennsylvania,
California,  Texas and Michigan 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.


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.



                                      F-6
<PAGE>
                      GLENBROOK LIFE AND ANNUITY COMPANY
                        NOTES TO FINANCIAL STATEMENTS
                               ($ IN THOUSANDS)

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 and ALIC  entered into a  reinsurance  agreement  effective  June 5,
1992.  All  business  issued  subsequent  to that  date is ceded  to ALIC.  Life
insurance  in force  prior to that date is ceded to  non-affiliated  reinsurers.
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   the   reinsurance   agreements.   Reinsurance   recoverable   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 revenue 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  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  (Glenbrook Life and
Annuity Company  Variable  Annuity  Account,  Glenbrook Life and Annuity Company
Separate Account A, Glenbrook Life Multi-Manager  Variable Account and Glenbrook
Life Variable Life Separate  Account A, unit investment  trusts  registered with
the Securities and Exchange Commission).

Assets of the Separate  Accounts,  including the Company's  ownership interest
("Participation"), are carried at fair value. Unrealized gains and losses on the
Company's Participation,  net of deferred income taxes, are shown as a component
of shareholder's equity. Investment income and realized capital gains and losses
arising from the  Participation  are  included in the  Company's  statements  of
operations. The Company liquidated its Participation during 1997, resulting in a
realized  capital  gain of $3,515.  At  December  31,  1996,  the  Participation
amounted to $12,130.

Investment  income  and  realized  capital  gains  and  losses  of the  Separate
Accounts,  other than the portion related to the Participation,  accrue directly
to the  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, administrative fees, mortality and expense
risk charges,  cost of insurance  charges and tax expense charges,  all of which
are ceded to ALIC.

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 customer less withdrawals,  mortality charges and
administrative expenses.  During 1997, credited interest rates on contractholder
funds ranged from 3.55% to 7.45% for those  contracts  with fixed interest rates
and from 3.70% to 7.85% 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.


                                      F-7
<PAGE>



                      GLENBROOK LIFE AND ANNUITY COMPANY
                        NOTES TO FINANCIAL STATEMENTS
                               ($ IN THOUSANDS)

3.   Related Party Transactions

Reinsurance
Contract charges ceded to ALIC were $11,641, $4,254 and $1,523 in 1997, 1996 and
1995,  respectively.  Credited  interest,  policy benefits and expenses ceded to
ALIC  amounted  to  $179,954,  $113,703  and  $71,905  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 $5,959, $759 and $348 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.

Laughlin Group
Laughlin Group,  Inc.  ("Laughlin")  is an indirect  wholly owned  subsidiary of
ALIC.  Laughlin  markets  certain of the  Company's  flexible  premium  deferred
variable   annuity   contracts  and  flexible  premium  deferred  fixed  annuity
contracts.  Sales  commissions paid to Laughlin,  for which the related cost was
ceded to ALIC,  were $945 and $8,623  during  1997 and 1996,  respectively.  The
Company had a receivable  of $850 from  Laughlin at December 31, 1996,  which is
included in net  receivable  from  affiliates  in the  statements  of  financial
position.

4.   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                   $ 24,419         $ 2,961      $       -        $ 27,380
       Municipal                                           656              17              -             673
       Corporate                                        25,476             840              -          26,316
       Mortgage-backed securities                       30,818           1,056              -          31,874
                                                      --------         -------      ---------        --------
         Total fixed income securities                $ 81,369         $ 4,874      $       -        $ 86,243
                                                      ========         =======      =========        ========

     At December 31, 1996
       U.S. government and agencies                   $ 24,265         $ 1,722      $      (3)       $ 25,984
       Corporate                                         6,970              96            (15)          7,051
       Mortgage-backed securities                       15,690             664              -          16,354
                                                      --------         -------      ---------        --------
         Total fixed income securities                $ 46,925         $ 2,482      $     (18)       $ 49,389
                                                      ========         =======      =========        ========

</TABLE>



                                      F-8
<PAGE>



                      GLENBROOK LIFE AND ANNUITY COMPANY
                        NOTES TO FINANCIAL STATEMENTS
                               ($ IN THOUSANDS)

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                                                    $       400     $        400
     Due after one year through five years                                            3,838            3,877
     Due after five years through ten years                                          33,245           35,102
     Due after ten years                                                             13,068           14,990
                                                                                -----------     ------------
                                                                                     50,551           54,369
     Mortgage-backed securities                                                      30,818           31,874
                                                                                -----------     ------------
        Total                                                                   $    81,369     $     86,243
                                                                                ===========     ============
</TABLE>


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

Net investment income

    Year Ended December 31,                                        1997              1996             1995
    -----------------------                                        ----              ----             ----
<S>                                                          <C>              <C>               <C>

    Fixed income securities                                  $        5,014   $        3,478    $        3,850
    Short-term investments                                              231              126               113
    Participation in Separate Accounts                                  161              232                69
                                                             --------------   --------------    --------------
         Investment income, before expense                            5,406            3,836             4,032
         Investment expense                                             102               62                36
                                                             --------------   --------------    --------------
    Net investment income                                    $        5,304   $        3,774    $        3,996
                                                             ==============   ==============    ==============
</TABLE>

Realized capital gains and losses
<TABLE>
<CAPTION>

     Year Ended December 31,                                      1997              1996             1995
     -----------------------                                      ----              ----             ----
<S>                                                          <C>              <C>               <C>

     Fixed income securities                                 $         (61)   $           -     $         459
     Short-term investments                                              6                -                 -
     Participation in Separate Accounts                              3,515                -                 -
                                                             -------------    -------------     -------------
         Realized capital gains and losses                           3,460                -               459
         Income taxes                                               (1,211)               -              (161)
                                                             -------------    -------------     -------------
         Realized capital gains and losses,
            after tax                                        $       2,249    $           -     $         298
                                                             =============    =============     =============
</TABLE>

Excluding calls and prepayments,  gross losses of $61 and gross gains of $459
were realized on sales of fixed income  securities during 1997 and 1995,
respectively.





                                      F-9
<PAGE>



                      GLENBROOK LIFE AND ANNUITY COMPANY
                        NOTES TO FINANCIAL STATEMENTS
                               ($ IN THOUSANDS)


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

Fixed income securities                                        $ 81,369         $ 86,243           $ 4,874
Deferred income taxes                                          ========         ========            (1,706)
                                                                                                   -------
Unrealized net capital gains                                                                       $ 3,168
                                                                                                   =======
</TABLE>


Change in unrealized net capital gains
<TABLE>
<CAPTION>

Year Ended December 31,                                     1997              1996             1995
-----------------------                                     ----              ----             ----
<S>                                                     <C>              <C>               <C>

Fixed income securities                                 $       2,410    $      (2,239)    $       6,423
Participation in Separate Accounts                             (1,829)           1,368               461
Deferred income taxes                                            (203)             304            (2,409)
                                                        -------------    -------------     -------------
Increase (decrease)  in unrealized net capital gains    $         378    $        (567)    $       4,475
                                                        =============    ==============    =============
</TABLE>

Securities on deposit
At  December 31,  1997,  fixed  income  securities  with a carrying  value of
$10,108 were on deposit with  regulatory  authorities  as required by law.


5.    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) 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.





                                      F-10
<PAGE>



                      GLENBROOK LIFE AND ANNUITY COMPANY
                        NOTES TO FINANCIAL STATEMENTS
                               ($ IN THOUSANDS)


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                $        86,243  $        86,243   $        49,389   $        49,389
Short-term investments                           4,231            4,231             1,287             1,287
Separate Accounts                              620,535          620,535           272,420           272,420
</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.

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              $     2,636,331  $     2,492,095   $     2,059,642   $     1,949,329
Separate Accounts                              620,535          620,535           260,290           260,290
</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.



                                      F-11
<PAGE>

                      GLENBROOK LIFE AND ANNUITY COMPANY
                        NOTES TO FINANCIAL STATEMENTS
                               ($ IN THOUSANDS)

6.  Income Taxes

For 1996 and 1995, the Company filed a separate  federal income tax return.  The
Company will join the Corporation and its other eligible  domestic  subsidiaries
in the filing of a consolidated federal income tax return (the "Allstate Group")
for 1997 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.

The  components  of the  deferred  income tax  liability  at December 31, are as
follows:
<TABLE>
<CAPTION>

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

    Unrealized net capital gains on fixed income securities                     $       1,706   $       1,503
    Difference in tax bases of investments                                                 66              25
                                                                                -------------   -------------
       Total deferred liability                                                 $       1,772   $       1,528
                                                                                =============   =============
</TABLE>


                                      F-12
<PAGE>

                    GLENBROOK LIFE AND ANNUITY COMPANY
                        NOTES TO FINANCIAL STATEMENTS
                               ($ in thousands)

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                                                      $ 3,037           $ 1,335          $ 1,615
    Deferred                                                          41                 4              (39)
                                                                 -------           -------          -------
       Total income tax expense                                  $ 3,078           $ 1,339          $ 1,576
                                                                 =======           =======          =======
</TABLE>

The Company paid income taxes of $2,839, $2,446 and $866 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%
    Other                                                        .1                .5               .4
                                                               ----              ----             ----
    Effective federal income tax rate                          35.1%             35.5%            35.4%
                                                               ====              ====             ====
</TABLE>



                                      F-13
<PAGE>




                      GLENBROOK LIFE AND ANNUITY COMPANY
                        NOTES TO FINANCIAL STATEMENTS
                               ($ in thousands)


7.   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            $     5,686       $      2,435      $      2,879
       Deferred income taxes                                             41                  4               (39)
       Unrealized gain on participation in
          Separate Accounts                                          (1,829)             1,368                 -
       Statutory investment reserves                                     93                 35              (279)
       Other                                                           (354)               (85)              108
                                                                -----------       ------------      ------------
Balance per statutory accounting practices                      $     3,637       $      3,757      $      2,669
                                                                ===========       ============      ============

                                                                                       Shareholder's Equity
                                                                                       --------------------
                                                                                      1997                1996
                                                                                      ----                ----


Balance per generally accepted accounting principles                              $   87,944         $     81,880
       Deferred income taxes                                                           1,772                1,528
       Unrealized gain/loss on fixed income securities                                (4,874)              (2,464)
       Non-admitted assets                                                               (86)                (850)
       Statutory investment reserves                                                     958               (2,282)
       Other                                                                          (3,114)              (2,118)
                                                                                  ----------         ------------
Balance per statutory accounting practices                                        $   82,600         $     75,694
                                                                                  ==========         ============
</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 does not follow any permitted  statutory  accounting
practices that have a material effect on statutory surplus, statutory net income
or risk-based capital.

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


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
$8,050.




                                      F-14
<PAGE>




                                    GLENBROOK LIFE AND ANNUITY 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                      $            4,095   $            4,095   $                -
                                             ==================   ==================   ==================

Premiums and contract charges:
         Life and annuities                  $           11,641   $           11,641   $                -
                                             ==================   ==================   ==================


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

Life insurance in force                      $            2,436   $            2,436   $                -
                                             ==================   ==================   ==================

Premiums and contract charges:
         Life and annuities                  $            4,254   $            4,254   $                -
                                             ==================   ===================  ==================


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

Life insurance in force                      $            1,250   $            1,250   $                -
                                             ==================   ==================   ==================

Premiums and contract charges:
         Life and annuities                  $            6,571   $            6,571   $                -
                                             ==================   ==================   ==================

</TABLE>



                                      F-15
<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-15

          (3)  Exhibits

               Financial Data Schedule





                                      F-16
<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.

                       GLENBROOK LIFE AND ANNUITY 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.