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, 1998     Commission file numbers:  333-59765
                                                                      333-59769

                          LINCOLN BENEFIT LIFE COMPANY
             (Exact name of registrant as specified in its charter)

         Nebraska                                        470221457
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                      Identification No.)

                              206 South 13th Street
                                Lincoln, NE 68508

                                  1-800-525-9287
              (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,  1998,  there were 25,000  shares of common  capital
stock  outstanding,  par value  $100 per share all of which  shares  are held by
Allstate Life Insurance Company.


<PAGE>



                          LINCOLN BENEFIT LIFE COMPANY
         (A wholly owned subsidiary of Allstate Life Insurance Company)
                       Annual Report for 1998 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.....................................   4
ITEM 6.  Selected Financial Data*........................................   N/A
ITEM 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations.......................................   5
ITEM 7A. Quantitative and Qualitative Disclosures About
         Market Risk.....................................................   12
ITEM 8.  Consolidated Financial Statements and Supplementary Data........   12
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-17

Index to Financial Statements Schedules..................................   12
Signatures...............................................................   13

*        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

Lincoln  Benefit Life Company  ("Lincoln  Benefit" or the  "Company") is a stock
life  insurance  company  organized  under the laws of the state of  Nebraska in
1938.  Our legal  domicile  and  principal  business  address  is 206 South 13th
Street,  Lincoln,  Nebraska.  Lincoln  Benefit is a wholly owned  subsidiary  of
Allstate  Life  Insurance  Company  ("Allstate  Life" or  "ALIC"),  a stock life
insurance company incorporated under the laws of the State 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.
All  outstanding  capital  stock  of AIC is owned  by The  Allstate  Corporation
("Corporation").

Lincoln Benefit is authorized to conduct life insurance and annuity  business in
the District of Columbia,  Guam,  U.S.  Virgin Islands and all states except New
York.

Under the reinsurance agreements with Allstate Life,  substantially all contract
related transactions are transferred to Allstate Life. Through Lincoln Benefit's
reinsurance  agreements  with  Allstate  Life,  substantially  all of the assets
backing  Lincoln  Benefit's  reinsured  liabilities  are owned by Allstate Life.
These  assets  represent  the  Company's  general  account and are  invested and
managed by Allstate Life. Accordingly, the results of operations with respect to
applications  received and contracts issued by Lincoln Benefit are not reflected
in the Company's  consolidated  financial  statements.  The amounts reflected in
Lincoln  Benefit's   consolidated   financial  statements  relate  only  to  the
investment  of those  assets of  Lincoln  Benefit  that are not  transferred  to
Allstate Life under the reinsurance agreements. While the reinsurance agreements
provide Lincoln  Benefit with financial  backing from Allstate Life, it does not
create a direct  contractual  relationship  between  Allstate  Life and  Lincoln
Benefit policyholders.

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.

Lincoln  Benefit's  general account  assets,  like the general account assets of
other  insurance  companies,  including  Allstate  Life,  must  be  invested  in
accordance with applicable  state laws. These laws govern the nature and quality
of investments  that may be made by life insurance  companies and the percentage
of their assets that may be committed to any particular  type of investment.  In
general,  these laws permit us, within  specified  limits and subject to certain
qualifications,   to  invest  in  federal,  state,  and  municipal  obligations,
corporate  bonds,  preferred  stocks,  real  estate  mortgages,  real estate and
certain other  investments.  All of Lincoln Benefit's general account assets are
available to meet its obligations.

Lincoln Benefit is engaged in a business that is highly competitive.  Many other
life insurance companies and other entities sell insurance and annuities.  There
are  approximately  1,700 insurers in business in the United States. As of April
1, 1998,  A.M. Best Company  assigns a rating of A+ (Superior) to Allstate Life,
which  automatically  reinsures  all net  general  account  business  of Lincoln
Benefit.  A.M.  Best  Company also  assigns  Lincoln  Benefit a rating of A+(r),
because Lincoln  Benefit  automatically  reinsures all general account  business
with Allstate Life.  Standard & Poor's  Insurance Rating Services assigns an AA+
(Very Strong.) to Lincoln Benefit's  financial strength rating.  Moody's assigns
an Aa2  (Excellent)  financial  stability  rating to  Lincoln  Benefit.  Lincoln
Benefit shares the same ratings as its parent, Allstate Life.

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.

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

                                       3
<PAGE>
ITEM 2.  PROPERTIES

Lincoln Benefit owns and leases office space in Lincoln,  Nebraska. The combined
owned and leased  spaces are used for home office  administration  and marketing
operations.

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.

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. All of the outstanding capital stock of AIC
is owned by The Corporation.


                                      4
<PAGE>

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

                                  

                          Lincoln Benefit Life Company
                      Management's Discussion and Analysis
                of Financial Condition and Results of Operations



      The following discussion highlights significant factors influencing the
results of operations and changes in financial  position of Lincoln Benefit Life
Company ("LBL") and its wholly owned subsidiary, Allstate Financial 
Distributors,   Inc. (collectively the "Company").  It should be read in
conjunction with the consolidated financial statements and related notes. To
conform with the 1998 presentation, certain prior year amounts have been
reclassified.

      LBL is 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 ("Corporation").  The Company
markets a broad line of life insurance and savings products through independent
insurance agents and brokers. Life insurance includes traditional products such
as whole life and term life insurance,  as well as variable life, universal life
and other interest-sensitive  life products. Savings products include deferred
annuities, such as variable annuities and fixed rate single and flexible premium
annuities, and immediate annuities. The Company has identified itself as a
single segment entity.

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

CONSOLIDATED RESULTS OF OPERATIONS


($ in thousands)
                                                 1998        1997       1996
                                                 ----        ----       -----
                                      
Net investment income                        $   10,240  $   10,570   $   9,519
                                             ==========  ==========  ==========
Realized capital gains and losses, after-tax $       87  $       11   $       4
                                             ==========  ==========  ==========
Operating costs and expenses                 $        -  $        -   $     457
                                             ==========  ==========  ==========
Net income                                   $    6,670  $    6,852   $   5,583
                                             ==========  ==========  ==========
Total investments                            $  162,659  $  148,931   $ 139,499
                                             ==========  ==========  ==========

      The Company has reinsurance agreements under which contract and policy
related transactions are transferred  primarily to ALIC.  The Company's
consolidated results of operations and comprehensive income include only net
investment income and realized capital gains and losses earned on the assets of 
the Company that are not transferred under the reinsurance agreements,  and 
income provided by the Company's broker-dealer subsidiary, Allstate Financial
Distributors, Inc.. Prior to December 31, 1996, the Company retained a block of
paid up life insurance, which was ceded to ALIC on that date.

      Net income was $6.7 million in 1998  compared to $6.9 million in 1997,  as
lower net investment  income was partially offset by higher realized capital
gains and losses.  In 1997, net income was higher than in 1996 primarily due to
increased net investment income.


                                       5
<PAGE>

                                     
                                  


                       Lincoln Benefit Life Company
                      Management's Discussion and Analysis
                of Financial Condition and Results of Operations


      Pretax net investment income decreased 3.1% to $10.2  million in 1998
primarily due to lower income  from the  broker-dealer. In 1997, pretax net
investment income increased by $1.1 million, or 11.0%. The increased investment
income was due to higher investment balances,  arising from positive cash flows
from operating activities and increased broker-dealer income.

      In 1997, operating costs and expenses decreased as a result of the cession
of the block of paid up life insurance and the expenses on that block of
business that were incurred in 1996.

      Realized capital gains, after-tax, were $87 thousand and $11 thousand in
1998 and 1997, respectively, and arose principally from pre-payments of fixed 
income securities.

CONSOLIDATED FINANCIAL POSITION


($ in thousands)

                                            1998            1997
                                            ----            ----
Fixed income securities (1)              $  158,984      $  147,911
Short-term investments                        3,675           1,020
                                         ----------      ----------
         Total investments               $  162,659      $  148,931
                                         ==========      ==========
Reinsurance recoverable from ALIC        $6,933,084      $6,732,755
                                         ==========      ==========
Separate Account assets and liabilities   $ 763,416      $  447,658
                                         ==========      ==========
Contractholder funds                     $6,785,070      $6,607,130
                                         ==========      ==========

(1) Fixed income securities are carried at fair value. Amortized cost for these
  securities was $149,898 and $141,553 at December 31, 1998 and 1997,
  respectively.

      Total investments increased to $162.7 million at December 31, 1998 from
$148.9 million at December 31, 1997. The increase was primarily due to amounts
invested from positive cash flows generated from operations and increases in
market values of fixed income securities.

Fixed Income Securities   The  Company's  fixed  income  securities portfolio
consists of  publicly  traded  corporate  bonds,  mortgage-backed  securities,
and  U.S. government  bonds. The Company  generally holds its fixed income
securities for the long term, but has classified all these  securities as
available for sale to allow  maximum  flexibility  in  portfolio  management.
At December  31,  1998, unrealized net capital gains on the fixed income
securities  portfolio  totaled $9.1 million  compared to $6.4 million as of
December 31, 1997.  The increase in the unrealized gain position is primarily
attributable to lower interest rates.


                                       6
<PAGE>                                    

                                    


                       Lincoln Benefit Life Company
                      Management's Discussion and Analysis
                of Financial Condition and Results of Operations



      At December 31, 1998, all of the Company's fixed income securities
portfolio was rated investment grade, which is defined by the Company as a
security having a National Association of Insurance Commissioners  ("NAIC")
rating of 1 or 2, a Moody's rating of Aaa, Aa, A or Baa, or a comparable Company
internal rating. The quality mix of the Company's fixed income securities
portfolio at December 31, 1998 is presented below.

($ in thousands)

      NAIC
    ratings       Moody's equivalent description  Fair value    Percent to total
    -------       ------------------------------- ----------   -----------------

       1           Aaa/Aa/A                      $  146,533          92.2%
       2           Baa                               12,451           7.8%
                                                  ----------      ----------
                                                   $158,984         100.0%
                                                  ==========      ==========


      At  December 31, 1998 and 1997,  $51.2 million and $55.1 million,
respectively, of the fixed income portfolio were invested in  mortgage-backed
securities ("MBS").  At December 31, 1998, all of the MBS were investment grade
and approximately 97% have underlying collateral guaranteed by the U.S.
government entities; thus credit risk is 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
where cost does not significantly exceed par value, and with repayment
protection  to provide a more certain cash flow to the Company.  At December 31,
1998,  the  amortized cost of the MBS  portfolio was below par value by $2.4
million and over 23% of the MBS portfolio was invested in planned amortization
class bonds. This type of MBS is purchased to provide additional protection
against declining interest rates.


      The Company closely monitors its fixed income 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.


Short-term  investments    The Company's short-term investment portfolio was 
$3.7 million and $1.0 million at December 31,  1998 and 1997, 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.

Contractholder funds and reinsurance  recoverable from ALIC      Contractholder
funds increased  $177.9  million  and $185.0  million at  December  31, 1998 and
1997, respectively.  Reinsurance  recoverable  from ALIC increased  $200.3
million and $188.0  million  at  December  31,  1998 and 1997,  respectively.
In 1998,  the increase  in  contractholder  funds was due  primarily  to
universal  life-type policies,  as  higher  sales  and  interest  credited  to
contractholders  were partially  offset  by  surrenders  and  benefits  paid  on
universal  life-type policies.   Reinsurance  recoverable  from  ALIC  relates
to  contract  benefit obligations ceded to ALIC.

Separate Accounts     Separate Account assets and liabilities increased by
$315.8 million, primarily attributable to sales of flexible premium deferred
variable annuity and variable life contracts and favorable investment
performance of the Separate Accounts investment portfolios, partially offset by
variable annuity surrenders and withdrawals.


                                       7
<PAGE>
                                 

                                

                       Lincoln Benefit Life Company
                      Management's Discussion and Analysis
                of Financial Condition and Results of Operations



MARKET RISK


      Market risk is the risk that the Company  will incur losses due to adverse
changes in equity prices or interest rates.  The Company's  primary market risk
exposure is to changes in interest rates,  although the Company also has certain
exposures to changes in equity prices.

Interest Rate Risk    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, 1998, the Company's asset duration was  approximately  4.3 years, a
slight decrease from the 4.6 years reported for December 31, 1997.

      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 interest rates in effect at December  31,  1998,
management estimates that a 100 basis point  immediate,  parallel increase in
interest rates ("rate  shock") would  decrease the net fair value of its assets
identified above by approximately $6.8 million, an amount essentially unchanged
from the amount reported for December 31, 1997.  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.

Equity  Price Risk    Equity price risk is the risk that the Company will incur
economic  losses due to adverse changes in equity prices.  At December 31, 1998
the Company had variable annuity and variable life funds with balances totaling
$763.4 million.  The Company earns mortality and expense fees as a percentage of
fund balance.  In the event of an immediate decline of 10% in the fund balances
due to equity market declines, the Company would earn approximately $1.0 million
less in annualized fee income which would be ceded to ALIC.

Corporate  Oversight    In formulating and implementing  policies for investing
new and existing  funds,  AIC, as indirect  parent of the Company,  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.


                                       8
<PAGE>
                               

                                     
                       Lincoln Benefit Life Company
                      Management's Discussion and Analysis
                of Financial Condition and Results of Operations
                                   

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

      Under the terms of reinsurance  agreements, all premiums and deposits,
excluding  those relating to Separate  Accounts, are transferred primarily to
ALIC,  which  maintains  the  investment  portfolios supporting the Company's
products.  Payments of policyholder claims, benefits,  contract  maturities,
contract  surrenders  and  withdrawals  and  certain  operating  costs  are also
reimbursed primarily by ALIC, under the terms of the reinsurance agreements. The
Company  continues to have primary  liability  as a direct  reinsurer  for risks
reinsured.  The  Company's  ability to meet liquidity  demands is  dependent on
ALIC's ability to meet those demands. ALIC's  claims-paying  ability was rated
Aa2, AA+, and A+ by Moody's,  Standard & Poor's and A.M. Best,  respectively  at
December 31, 1998.

      The  primary  sources  for  the  remainder  of  the  Company's  funds  are
collection of principal and interest from the  investment  portfolio and capital
contributions  from ALIC.  The primary uses for the  remainder of the  Company's
funds are to purchase  investments and pay costs associated with the maintenance
of the Company's investment portfolio.

      At  December 31,  1998,  the Moody's and  Standard and Poor's  financial
strength ratings for the Company were Aa2 and AA+, respectively.

      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, 1998, RBC
for the Company was  significantly  above levels that would  require  regulatory
actions.

YEAR 2000

      The Company is  dependent  upon  certain  services  provided for it by the
Corporation including  computer-related  systems, and systems and equipment that
are not typically thought of as computer-related  (referred to as "non-IT"). For
this reason,  the Company is reliant upon the Corporation for the establishment
and maintenance of its computer-related systems and non-IT.



                                       9
<PAGE>
                                     
                                  
                     Lincoln Benefit Life Company
                      Management's Discussion and Analysis
                of Financial Condition and Results of Operations


      The Corporation is heavily dependent upon complex computer systems for all
phases of its operations,  including  customer  service,  insurance  processing,
underwriting,  loss reserving,  investments and other enterprise systems.  Since
many of the Corporation'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,
remediated,  or replaced  ("Year  2000").  Also,  non-IT often contain  embedded
hardware  or  software  that  may  have a Year  2000  sensitive  component.  The
Corporation  believes that many of its  counterparties  and suppliers  also have
Year 2000 issues and non-IT issues which could affect the Corporation.

      In 1995, the Corporation commenced a plan consisting of four phases which
are intended to mitigate  and/or prevent the adverse effects of Year 2000 issues
on its systems:  1) inventory and assessment of affected systems and equipment,
2) remediation and compliance of systems and equipment through  strategies that
include  the  replacement or enhancement of existing  systems,  upgrades  to
operating systems already covered by maintenance agreements and modifications to
existing  systems to make them Year 2000 compliant,  3) testing of systems using
clock-forward  testing for both current and future dates and for dates which
trigger specific processing, and 4) contingency planning which will address
possible  adverse scenarios and the potential financial impact to the
Corporation's results of operations, liquidity or financial position.

      The Corporation  believes that the first three steps of this plan,
assessment,  remediation and testing,  including  clock-forward testing which is
being performed on the Corporation's systems and non-IT, are mostly complete for
the Corporation's critical systems. In April 1998, the Corporation announced its
main premium application system,  ALERT, which manages more than 20 million auto
and homeowners policies is Year 2000 compliant.  The Corporation is relying on
other remediation techniques for its midrange and  personal computer
environments, and certain mainframe applications.

      Certain investment processing systems, midrange computers and personal 
computer environments are planned to be remediated by the middle of 1999, and 
some systems and non-IT related to discontinued or non-critical functions of the
Corporation are planned to be abandoned by the end of 1999.

      The  Corporation is currently in the process of identifying key processes
and developing contingency plans in the event that the systems supporting these
key  processes are not Year 2000 compliant at the end of 1999.  Management
believes these contingency plans should be completed by mid-1999.  Until these
plans are complete,  management is unable to determine an estimate of the most
reasonably possible worst case scenario due to issues relating to the Year 2000.

      In addition, the Corporation is actively working with its major external
counterparties and suppliers to assess their compliance efforts and the
Corporation's exposure to both their Year 2000 issues and non-IT issues.  This
assessment has included the solicitation of external counterparties  and
suppliers,  evaluating responses received and testing third party interfaces and
interactions to determine compliance.  Currently,  the Corporation has solicited
approximately 1,500 and has received  responses from approximately  75% of its
counterparties and suppliers.  The Corporation will continue its efforts to
solicit responses on Year 2000 compliance from these parties.  The majority of
these responses have stated that the  counterparties  and suppliers believe that
they will be Year 2000  compliant  and that no transactions will be affected.
However,  some key vendors have not provided affirmative responses to date. The
Corporation has also decided to test certain interfaces and interactions to gain
additional  assurance on third party compliance.  If key vendors are unable to
meet the Year 2000 requirement,  the Corporation is preparing contingency plans
that will allow the Corporation to continue to sell its products and to service
its customers.  Management believes these contingency plans should be completed
by mid-1999.  The Corporation currently does not have sufficient  information to
determine whether or not all of its external counterparties and suppliers will
be Year 2000 ready.


                                       10
<PAGE>
                                    
                       Lincoln Benefit Life Company
                      Management's Discussion and Analysis
                of Financial Condition and Results of Operations


     The  Corporation  is  currently  assessing  the  level  of Year  2000  risk
associated with certain personal lines policies that have been issued.  To date,
no  changes  have  been  made in the  coverages  provided  by the  Corporation's
personal auto or homeowners lines policies to specifically  exclude coverage for
Year 2000 related claims.  This does not mean that all losses, or any particular
type of loss,  that might be related to Year 2000 will be covered.  Rather,  all
claims will  continue  to be  evaluated  on a  case-by-case  basis to  determine
whether  coverage is available  for a  particular  loss in  accordance  with the
applicable terms and conditions of the policy in force.

      The Corporation also has investments which have been publicly or privately
placed.  The Corporation may be exposed to the risk that the  issuers of these
investments will be adversely impacted by Year 2000 issues. The Company assesses
the impact which Year 2000 issues have on the Corporation's investments as part
of due diligence for proposed new investments, and in its ongoing review of all
current portfolio  holdings.  Any recommended actions with respect to individual
investments are determined by taking into account the potential impact of Year
2000 on the issuer. Contingency plans are being created for any securities held
whose issuer is determined to not be Year 2000 compliant.

      The  Corporation presently believes that it will resolve the Year 2000
issue in a timely manner. Year 2000 costs are expensed as incurred,  therefore
the  majority of expenses related to this project have been incurred as of
December 31, 1998. The Corporation  estimates that approximately $125 million in
costs will be incurred between the years of 1995 and 2000. These amounts include
costs directly related to fixing Year 2000 issues, such as modifying software
and hiring Year 2000  solution  providers.  These amounts also include costs to
replace  certain  non-compliant systems which would not have been otherwise
replaced. A portion of these costs will be incurred by the Company on a pro rata
basis of usage of the computer-related  systems and non-IT,  as compared to the
usage of all entities  which share these services with the Corporation.  These
amounts are not expected to be  material to the results of operations of the
Company.

PENDING ACCOUNTING STANDARDS

      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 is required to be adopted in 1999. 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: 1) an assessment  has been
imposed or it is probable that an  assessment will be imposed, 2) the event
obligating an entity to pay an assessment has occurred and 3) the amount of the
assessment can be reasonably estimated.  The Company is currently evaluating the
effects of this SOP on its accounting for insurance-related assessments. Certain
information required for compliance is not currently available and therefore the
Company is studying  alternatives  for  estimating  the accrual.  In addition,
industry groups are working to improve the information available. Adoption of
this standard is not expected to be material to the results of operations  or
financial position of the Company.

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.



                                       11
<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.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                        Consolidated Financial Statements

                                      INDEX
                                                                           PAGE

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

Consolidated Financial Statements:

   Consolidated Statements of Financial Position
      December 31, 1998 and 1997........................................    F-2

   Consolidated Statements of Operations and Comprehensive Income
      for the Years Ended December 31, 1998, 1997 and 1996..............    F-3

   Consolidated Statements of Shareholder's Equity for the Years Ended
      December 31, 1998, 1997 and 1996..................................    F-4

   Consolidated Statements of Cash Flows for the Years Ended
      December 31, 1998, 1997 and 1996..................................    F-5

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

   Schedule IV - Reinsurance for the Years Ended
      December 31, 1998, 1997 and 1996..................................    F-17



                                       12
<PAGE>                                



INDEPENDENT AUDITORS' REPORT



TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
LINCOLN BENEFIT LIFE COMPANY:

We have audited the accompanying  consolidated  statements of Financial Position
of Lincoln Benefit Life Company and subsidiary  (the "Company",  an affiliate of
The  Allstate  Corporation)  as of December  31, 1998 and 1997,  and the related
consolidated  Statements of Operations and Comprehensive  Income,  Shareholder's
Equity and Cash Flows for each of the three years in the period  ended  December
31, 1998. Our audits also included Schedule IV - Reinsurance. These consolidated
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 consolidated  financial  statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1998
and 1997,  and the results of its  operations and its cash flows for each of the
three years in the period ended  December 31, 1998 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 19, 1999







                                       F-1
<PAGE>                                 
                                      

                                                   
                                                                  
                          LINCOLN BENEFIT LIFE COMPANY
                  CONSOLIDATED STATEMENTS OF FINANCIAL POSITION



                                                              December 31,
                                                              ------------
($ in thousands)                                           1998          1997
                                                           ----          ----

Assets
Investments
    Fixed income securities, at fair value
        (amortized cost $149,898 and $141,553)          $  158,984  $  147,911
    Short-term                                               3,675       1,020
                                                        ----------  ----------
    Total investments                                      162,659     148,931

Cash                                                         1,735       4,220
Reinsurance recoverable from Allstate Life
    Insurance Company                                    6,933,084   6,732,755
Reinsurance recoverable from non-affiliates                191,092     127,182
Receivable from affiliates, net                             37,103      14,481
Other assets                                                30,919      31,976
Separate Accounts                                          763,416     447,658
                                                         ----------  ----------
             Total assets                               $8,120,008  $7,507,203
                                                         ==========  ==========

Liabilities
Reserve for life-contingent contract benefits           $  338,069  $  252,195
Contractholder funds                                     6,785,070   6,607,130
Current income taxes payable                                 3,659       1,128
Deferred income taxes                                        5,546       4,149
Other liabilities and accrued expenses                      64,470      43,609
Separate Accounts                                          763,416     447,658
                                                         ----------  ----------
             Total liabilities                           7,960,230   7,355,869
                                                         ----------  ----------

Commitments and Contingent Liabilities (Note 8)

Shareholder's Equity
Common stock, $100 par value, 30,000 shares
     authorized, 25,000 issued and outstanding                2,500       2,500
Additional capital paid-in                                  116,750     116,750
Retained income                                              34,622      27,952

Accumulated other comprehensive income:
   Unrealized net capital gains                               5,906       4,132
                                                         ----------  ----------
   Total accumulated other comprehensive income               5,906       4,132
                                                         ----------  ----------
   Total shareholder's equity                               159,778     151,334
                                                         ----------  ----------
   Total liabilities and shareholder's equity            $8,120,008  $7,507,203
                                                         ==========  ==========
                                                     

See notes to consolidated financial statements.


                                       F-2
<PAGE>


                                  
                                 
                                 


                          LINCOLN BENEFIT LIFE COMPANY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME


                                                        Year Ended December 31,
                                                        -----------------------
($ in thousands)                                      1998      1997       1996
                                                      ----      ----       ----
Revenues
Net investment income                               $10,240   $10,570   $ 9,519
Realized capital gains and losses                       134        17         6
                                                    -------   -------   -------
                                                     10,374    10,587     9,525
Costs and expenses
Provision for policy benefits (net of reinsurance
   recoveries of $496,140, $464,154 and $419,936)        --        --       465
Operating costs and expenses                             --        --       457
                                                    -------   -------   -------
                                                         --        --       922
                                                    -------   -------   -------


Income from operations before income tax expense     10,374    10,587     8,603
Income tax expense                                    3,704     3,735     3,020
                                                    -------   -------   -------

Net income                                            6,670     6,852     5,583
                                                    -------   -------   -------

Other comprehensive income, after tax
  Change in unrealized net capital gains and losses   1,774     2,331    (3,197)
                                                    -------   -------   -------

  Comprehensive income                              $ 8,444   $ 9,183   $ 2,386
                                                    =======   =======   =======



See notes to consolidated financial statements.


                                       F-3
<PAGE>
                                    
                                      
                                



                          LINCOLN BENEFIT LIFE COMPANY
                 CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY



                                                         December 31,
                                                         ------------
($ in thousands)                                  1998      1997        1996
                                                  ----      ----        ----

Common Stock                                   $   2,500  $   2,500   $   2,500
                                               ---------  ---------   ---------

Additional capital paid-in                       116,750    116,750     116,750
                                               ---------  ---------   ---------

Retained income
Balance, beginning of year                        27,952     21,110      18,060
Net income                                         6,670      6,852       5,583
Dividend-in-kind                                      --        (10)     (2,533)
                                               ---------  ---------   ---------
Balance, end of year                              34,622     27,952      21,110
                                               ---------  ---------   ---------

Accumulated other comprehensive income
Balance, beginning of year                         4,132      1,801       4,998
Change in unrealized net capital gains and loss    1,774      2,331      (3,197)
                                               ---------  ---------   ---------
Balance, end of year                               5,906      4,132       1,801
                                               ---------  ---------   ---------

      Total shareholder's equity               $ 159,778  $ 151,334   $ 142,161
                                               =========  =========   =========


See notes to consolidated financial statements.


                                       F-4
<PAGE>

                            

                                   
                               

                          LINCOLN BENEFIT LIFE COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                       Year Ended December 31,
                                                       -----------------------
($ in thousands)                                    1998        1997      1996
                                                    ----        ----      ----

Cash flows from operating activities
Net income                                       $  6,670   $  6,852   $  5,583
Adjustments to reconcile net income to net
 cash provided by operating activities
 Depreciation, amortization and other non-cash items   10         20         50
 Realized capital gains and losses                   (134)       (17)        (6)
 Changes in:
  Life-contingent contract benefits and
   contractholder funds                              (425)       427     (4,918)
    Income taxes payable                            2,973       (381)       143
    Other operating assets and liabilities         (1,047)    (4,606)    10,473
                                                 --------   --------   --------
     Net cash provided by operating activties       8,047      2,295     11,325
                                                 --------   --------   --------

Cash flows from investing activities
Fixed income securities
    Investment collections                         10,710     11,980      8,759
    Investment purchases                          (18,587)   (18,307)   (17,570)
Change in short-term investments, net              (2,655)       840      4,489
                                                 --------   --------   --------
    Net cash used in investing activities         (10,532)    (5,487)    (4,322)
                                                 --------   --------   --------

Net (decrease) increase in cash                    (2,485)    (3,192)     7,003
Cash at beginning of year                           4,220      7,412        409
                                                 --------   --------   --------
Cash at end of year                              $  1,735   $  4,220   $  7,412
                                                 ========   ========   ========

Supplemental disclosure of cash flow information
 Noncash financing activity:
  Dividend-in-kind to Allstate Life Insurance    $      -   $    (10) $ (2,533)
                                                 ========   ========   ========


  See notes to consolidated financial statements.


                                       F-5
<PAGE>

                                    


                                      

                                


                          LINCOLN BENEFIT LIFE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ($ in thousands)


1.   General

Basis of presentation
The  accompanying consolidated financial  statements include the accounts of
Lincoln Benefit Life Company ("LBL") and its wholly owned  subsidiary, Allstate
Financial  Distributors,  Inc., formerly Lincoln Benefit Financial  Services,  a
registered broker-dealer  (collectively,  the "Company").  LBL is 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").  These consolidated  financial statements have
been prepared in conformity with generally accepted accounting  principles.  All
significant intercompany accounts and transactions have been eliminated.

To conform with the 1998 presentation,  certain  amounts in the prior years'
financial statements and notes have been reclassified.

Nature of operations
The  Company  markets  a broad  line  of life  insurance  and  savings  products
primarily  through  independent  insurance  agents and brokers.  Life  insurance
includes  traditional  products such as whole life and term life  insurance,  as
well  as  variable  life,  universal  life  and  other  interest-sensitive  life
products.   Savings  products  include  deferred  annuities,  such  as  variable
annuities and fixed rate single and flexible  premium  annuities,  and immediate
annuities. In 1998, annuity premiums and deposits represented  approximately 70%
of the Company's total statutory premiums and deposits.

Annuity contracts and life insurance  policies issued by the Company are subject
to  discretionary  surrender or withdrawal  by customers,  subject to applicable
surrender  charges.  These  policies and contracts are reinsured  primarily with
ALIC (see Note 3),  which  invests  premiums  and deposits to provide cash flows
that will be used to fund future benefits and expenses.

The  Company  monitors  economic  and  regulatory  developments  which  have the
potential to impact its  business.  There  continues to be proposed  federal and
state  regulation  and  legislation  that, if passed,  would allow banks greater
participation  in the  securities  and insurance  businesses.  Such events would
present an increased level of competition  for sales of the Company's  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. 

Additionally,  traditional  demutualizations  of mutual insurance  companies and
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;  and (2)  increasing  competition  in the
capital markets.


The Company is authorized to sell life and savings products in all states except
New York,  as well as in the  District  of  Columbia,  Guam and the U.S.  Virgin
Islands.  The top geographic  locations for statutory  premiums and deposits for
the Company were California,  Wisconsin,  Florida, Pennsylvania and Illinois for
the year ended December 31, 1998. No other jurisdiction  accounted for more than
5% of statutory premiums and deposits. All premiums and deposits are ceded under
reinsurance agreements. 



                                       F-6
<PAGE>
                                


                                     
                               


                        LINCOLN BENEFIT LIFE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ($ in thousands)



2.  Summary of Significant Accounting Policies

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


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


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


Recognition of premium revenues and contract charges
Premiums for traditional  life insurance and certain  life-contingent  annuities
are recognized as revenue when due. Accident and disability  premiums are earned
on a pro rata basis over the policy  period.  Revenues  on  universal  life-type
contracts are comprised of contract  charges and fees, and are  recognized  when
assessed  against the  policyholder  account  balance.  Revenues  on  investment
contracts  include  contract  charges and fees for contract  administration  and
surrenders.  These  revenues  are  recognized  when levied  against the contract
balances.  Gross  premium  in  excess  of the net  premium  on  limited  payment
contracts  are deferred and  recognized  over the contract  period.  All premium
revenues and contract charges are reinsured.

Income taxes
The income tax provision is calculated  under the liability method and presented
net of  reinsurance.  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. Deferred income taxes arise primarily from
unrealized  capital gains or losses on fixed income  securities  carried at fair
value and differences in the tax bases of investments.

Separate Accounts
The Company issues flexible  premium  deferred  variable  annuities and variable
life policies,  the assets and  liabilities of which are legally  segregated and
reflected in the accompanying  consolidated  statements of financial position as
assets and liabilities of the Separate Accounts. The Company's Separate Accounts
consist of: Lincoln  Benefit Life Variable  Annuity  Account and Lincoln Benefit
Life Variable Life Account.  Each of the Separate  Accounts are unit  investment
trusts registered with the Securities and Exchange Commission.


                                       F-7
<PAGE>


                                   

                                   
                               


                        LINCOLN BENEFIT LIFE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ($ in thousands)


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

Reserve for life-contingent contract benefits
The reserve for life-contingent contract benefits, which relates to traditional
life insurance,  fixed annuities with life contingencies, disability  insurance
and accident insurance, is computed on the basis of  assumptions  as to future
investment  yields,  mortality,  morbidity,  terminations and expenses.  These
assumptions, which for traditional life insurance are applied using the net
level premium method,  include provisions for adverse deviation and generally
vary by such  characteristics as type of  coverage, year of issue and policy
duration. Reserve interest rates ranged from 4.0% to 10.0% during 1998.

Contractholder funds
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most fixed annuities
and universal life policies.  Payments received are recorded as interest-bearing
liabilities.  Contractholder  funds are equal to deposits received and interest
credited  to the  benefit  of the  contractholder  less  withdrawals, mortality
charges and  administrative  expenses.  During 1998, credited interest rates on
contractholder funds ranged from 4.40% to 9.25% for those contracts with fixed
interest rates and from 1.08% to 15.15% 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.

New accounting standards
In 1998,  the  Company  adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting  Comprehensive  Income."  Comprehensive income is a
measurement of certain changes in shareholder's equity that result from
transactions and other economic events other than transactions with the
shareholder.  For the Company,  these consist of changes in unrealized gains and
losses on the investment portfolio (See Note 9).

In 1998,  the Company  adopted SFAS No. 131,  "Disclosures  about Segments of an
Enterprise and Related  Information."  SFAS No. 131 redefines how segments are
determined and requires additional segment disclosures for both annual and
interim  financial reporting.  The Company has identified itself as a single
operating segment.

Pending accounting standards
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 is required to be adopted in 1999. 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: 1) an  assessment  has been
imposed or it is  probable  that an  assessment  will be  imposed,  2) the event
obligating an entity to pay an assessment  has occurred and 3) the amount of the
assessment can be reasonably estimated.  The Company is currently evaluating the
effects of this SOP on its accounting for insurance-related assessments. Certain
information required for compliance is not currently available and therefore the
Company is studying  alternatives  for  estimating  the accrual. In  addition,
industry groups are working to


                                       F-8
<PAGE>


                               
                                   
                                
                                

                        LINCOLN BENEFIT LIFE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ($ in thousands)


improve the information available.  Adoption of this standard is not expected to
be material to the results of operations or financial position of the Company.


3.   Related Party Transactions

Reinsurance

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

Investment  income earned on the assets which support  contractholder  funds and
the reserve for life-contingent contract  benefits are not included in the
Company's consolidated financial statements as those assets are owned and
managed under terms of the reinsurance agreements.  The following amounts were
ceded to ALIC under reinsurance agreements.


                                                        Year ended December 31,
                                                        -----------------------
($ in thousands)                                       1998      1997      1996
                                                   --------  --------  --------

Premiums                                           $ 30,811  $ 34,834  $ 48,111
Contract charges                                    106,158    87,061    73,659
Credited interest, policy benefits, and other
     expenses                                       609,325   533,369   496,735

Effective  December 31, 1996,  the  reinsurance  treaty with ALIC was amended to
also include a paid up block of life business which was previously  retained by
the Company.  The  reinsurance  premium  related to the transfer was $8,255 on a
statutory  accounting basis and $5,712 based upon generally accepted  accounting
principles,  creating a dividend-in-kind  of $2,543. The premium is equal to the
sum of the aggregate policy reserves and policyholder  dividend  accumulation on
this block of business as of December 31, 1996.  The policy loans and accrued
interest  relating to this block of business totaled $554 and were also ceded to
ALIC as of December 31, 1996, creating a non-cash financing transaction.

Business operations
The Company utilizes services  provided by AIC and ALIC and business  facilities
owned or leased, and operated by AIC in conducting its business activities.  The
Company reimburses AIC and ALIC for the operating expenses incurred 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  $45,940,  $34,947,  and  $25,094  in 1998,  1997  and  1996,
respectively.  Of these costs, the Company retains  investment related expenses.
All other costs are ceded to ALIC under reinsurance agreements.



                                       F-9
<PAGE>

                                    

                                 
                              

                        LINCOLN BENEFIT LIFE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ($ in thousands)


4.       Investments

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



                                                 Gross Unrealized               
                                       Amortized   ---------------    Fair
                                        cost        Gains   Losses    value
                                      ----------- -------  --------  ----------
At December 31, 1998
U.S. government and agencies          $ 14,105  $  2,498  $      -   $ 16,603
Corporate                               84,547     3,548      (151)    87,944
Foreign government                       3,031       239         -      3,270
Mortgage-backed securities              48,215     2,972       (20)    51,167
                                      --------  --------  --------   --------
    Total fixed income securities     $149,898  $  9,257  $   (171)  $158,984
                                      ========  ========  ========   ========


At December 31, 1997
U.S. government and agencies          $ 14,598  $  1,760  $      -   $ 16,358
Corporate                               71,602     1,839      (297)    73,144
Foreign government                       3,040       229         -      3,269
Mortgage-backed securities              52,313     2,845       (18)    55,140
                                      --------  --------  --------   --------
    Total fixed income securities     $141,553  $  6,673  $   (315)  $147,911
                                     ========  ========  ========   ========
Scheduled maturities
The scheduled  maturities for fixed income securities are as follows at December
31, 1998:
                                                Amortized    Fair
                                                  cost       value
                                                ---------- --------

Due in one year or less                        $  4,525  $  4,554
Due after one year through five years            25,829    26,625
Due after five years through ten years           58,047    60,861
Due after ten years                              13,282    15,777
                                                --------  --------
                                                101,683   107,817
Mortgage-backed securities                       48,215    51,167
                                                -------   -------
     Total                                     $149,898  $158,984
                                               ========  ========


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

Net investment income
Year ended December 31,                 1998      1997     1996
                                        ----      ----     ----
Fixed income securities                $10,375  $10,723  $ 9,825
Short-term investments                     231      160      215
                                       -------  -------  -------
  Investment income,before expense      10,606   10,883   10,040
  Investment expense                       366      313      521
                                       -------  -------  -------
    Net investment income              $10,240  $10,570  $ 9,519
                                       =======  =======  =======




                                       F-10
<PAGE>
                                     

                                  

                                     

                        LINCOLN BENEFIT LIFE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ($ in thousands)


Realized capital gains and losses
Year ended December 31,                                  1998    1997    1996
                                                       ------  ------  ------

Fixed income securities                                $  134  $   17  $    6
    Income taxes                                           47       6       2 
                                                        ------  ------  ------
    Realized capital gains and losses, after tax       $   87  $   11  $    4
                                                        ======  ======  ======
 
Excluding calls and prepayments, there were no gains or losses realized on sales
of fixed income securities during 1998, 1997 and 1996.

Unrealized net capital gains
Unrealized   net  capital   gains  on  fixed  income   securities   included  in
shareholder's equity at December 31, 1998 are as follows:

<TABLE>
<CAPTION>


                                                        Gross unrealized      
                               Cost/                     ----------------    Unrealized
                           amortized cost   Fair value  Gains      Losses    net gains
                           -------------   ----------   ------     ------    ----------                     
<S>                           <C>           <C>         <C>       <C>        <C>    

Fixed income securities       $ 149,898     $ 158,984   $ 9,257   $ (171)    $ 9,086
                              =========      =========  ========  ========   
Deferred income taxes                                                         (3,180)                             
                                                                             ----------
Unrealized net capital gains                                                  $ 5,906  
                                                                             ==========   
                                                  
</TABLE>
                                                                           
Change in unrealized net capital gains and losses
Year ended December 31,                     1998      1997      1996
                                            ----      ----      ----
Fixed income securities                  $ 2,729   $ 3,585   $(4,918)
Deferred income taxes                       (955)   (1,254)    1,721
                                          -------  -------   --------
Increase (decrease) in unrealized net
     capital gains                       $ 1,774   $ 2,331   $(3,197)
                                         =======   =======   ========
Securities on deposit
At December 31, 1998, fixed income securities with a carrying value of $8,945
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 on the following page 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 traditional life and universal life-type insurance reserves, and
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 and cash,  are generally of a
short-term nature. Their carrying values are assumed to approximate fair value.


                                       F-11
<PAGE>

                                  
                                    
                                
                        LINCOLN BENEFIT LIFE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ($ in thousands)

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

                                1998                 1997
                                ----                 ----
                         Carrying    Fair     Carrying   Fair
                          value      value      value    value
                          -------    ------   -------- -------

Fixed income securities  $158,984  $158,984  $147,911  $147,911
Short-term investments      3,675     3,675     1,020     1,020
Separate Accounts         763,416   763,416   447,658   447,658

Fair values for fixed income securities are based on quoted market prices where
available. Non-quoted securities are valued based on discounted cash flows using
current interest rates for similar securities. 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
consolidated  statements of financial position at fair value based on quoted
market prices.

Financial liabilities
The carrying  value and fair value of financial  liabilities at December 31, are
as follows:

                                   1998                     1997
                                   ----                     ----
                           Carrying    Fair       Carrying      Fair
                            value      value       value        value
                            -------  -------     ---------     ------
Contractholder funds on
 nvestment contracts    $5,220,485    $5,006,124   $5,188,474  $4,941,732
Separate Accounts          763,416       763,416      447,658     447,658


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.


6.   Income Taxes

The Company joins the Corporation and its other eligible  domestic subsidiaries
(the "Allstate Group") in the filing of a consolidated federal income tax return
and is party to a federal income tax allocation  agreement  (the "Allstate Tax
Sharing Agreement").  Under the Allstate Tax Sharing Agreement, the Company pays
to or receives from the  Corporation  the amount,  if any, by which the Allstate
Group's federal income tax liability is 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 Sears, Roebuck and Co.'s ("Sears") distribution ("Sears distribution")
on June 30,  1995 of its 80.3% ownership in the Corporation to Sears
shareholders,  the Allstate Group, 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 "Tax Sharing  Agreement").  Under the 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.

                                       F-12
<PAGE>


                                    
                                    
    
                        LINCOLN BENEFIT LIFE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ($ in thousands)
                               

As a result of the Sears distribution, the Allstate Group was no longer included
in the  Sears Tax Group, and the Tax Sharing Agreement was terminated.
Accordingly, the Allstate Group and Sears Group entered into a new tax sharing
agreement,  which adopts many of the principles of the Tax Sharing Agreement and
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Sears  distribution, including the treatment
of audits of tax returns for such periods.

The Internal Revenue Service ("IRS") has completed its review of the Allstate
Group's income tax returns through the 1993 tax year. Any adjustments that may
result from IRS examinations of tax returns are not expected to have a material
impact on the financial position, liquidity or result of operations of the
Company.

The components of the deferred income tax assets and liabilities at December 31,
are as follow:
                                          1998          1997
                                          ----          ----
Deferred assets
Separate Accounts                         $   -      $   393
                                         ------       -------
Deferred liabilities 
Unrealized net capital gains             (3,180)      (2,225)
Difference in tax bases of investments   (2,244)      (2,265)
Other liabilities                          (122)         (52)
                                        -------       -------
    Total deferred liabilities           (5,546)      (4,542)
                                        -------       -------
      Net deferred liability            $(5,546)     $(4,149)
                                         =======      =======

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

                                1998     1997      1996
                                ----     ----      ----

Current                       $ 3,262  $ 4,321   $ 3,082
Deferred                          442     (586)      (62)
                              -------  -------   -------
    Total income tax expense  $ 3,704  $ 3,735   $ 3,020
                              =======  =======   =======

The Company paid income taxes of $731, $4,116 and $2,864 in 1998, 1997 and 1996,
respectively.  The Company had a current income tax liability of $3,659 and
$1,128 at December 31, 1998 and 1997, 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:

                                     1998      1997       1996
                                     ----      ----       ----
Statutory federal income tax rate    35.0%     35.0%      35.0%
Other                                  .7        .3         .1
                                     -----     -----      -----
Effective income tax rate            35.7%     35.3%      35.1%
                                     =====     =====      =====


                                       F-13
<PAGE>
                                     
                                     

                        LINCOLN BENEFIT LIFE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ($ in thousands)



Prior to January 1, 1984, the Company was entitled to exclude certain amounts
from taxable income and accumulate such amounts in a "policyholder  surplus"
account. The balance in this account at December 31, 1998,  approximately $340,
will result in federal  income taxes  payable of $119 if distributed  by the
Company to ALIC. No provision for taxes has been made as the Company has no plan
to  distribute  amounts from this account.  No further additions to the account
have been permitted since the Tax Reform Act of 1984. 


7.       Statutory Financial Information

Permitted statutory accounting practices
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Nebraska
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 significant impact on statutory surplus or statutory net
income.

The NAIC's codification initiative has produced a comprehensive guide of revised
statutory accounting principles.  While the NAIC has approved a January 1, 2001
implementation date for the newly developed  guidance, companies must adhere to
the implementation date adopted by their state of domicile.  The Company's state
of domicile, Nebraska, is continuing its comparison of codification and current
statutory accounting requirements to determine the necessary revisions to
existing state laws and regulations. The requirements are not expected to have a
material impact on the 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 1999 without prior approval of the Nebraska Department of Insurance is
$14,434.

                                       F-14
<PAGE>


                                  

                                      

                        LINCOLN BENEFIT LIFE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ($ in thousands)


8.   Commitments and Contingent Liabilities

Leases

The Company leases certain office facilities.  Total rent expense for all leases
was  $1,358, $1,274 and $1,039 in 1998,  1997 and 1996,  respectively.  Minimum
rental commitments under  noncancelable operating leases with initial or
remaining term of more than one year as of December 31, are as follows:


                                                  1998
                                                  ----
                            1999                 $1,395
                            2000                  1,174
                            2001                     12
                            2002                     12
                            2003                     12
                            Thereafter              276
                                                 -------
                                                 $2,881
                                                 ======
In 1998, the Company accrued lease cancellation charges of $1,100 in
anticipation of terminating a particular lease, included in the table above, for
office space which is expected to be vacated by the end of 1999.

Regulation and legal proceedings
The Company's business is subject to the effects of a changing social, economic
and regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulation, controls on medical care costs,
removal of barriers  preventing banks from engaging in securities and insurance
business, tax law changes affecting the taxation of insurance companies, and
tax treatment of insurance  products and its impact on the relative  
desirability of various personal investment vehicles,  and proposed 
legislation to prohibit the use of gender in determining insurance rates and 
benefits. The ultimate changes and eventual effects, if any, of these
initiatives are uncertain.

From time to time the Company is involved in pending and  threatened  litigation
in the normal course of its business in which claims for monetary damages are
asserted. In the opinion of management, the ultimate liability, if any, arising
from such pending or threatened litigation is not expected to have a material
effect on the results of operations, liquidity or financial position of the
Company.


                                       F-15
<PAGE>

                                     

                                     

<TABLE>
<CAPTION>



                        LINCOLN BENEFIT LIFE COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                ($ in thousands)



9.       Other Comprehensive Income

The components of other comprehensive income on a pretax and after-tax basis for
the year ended December 31, are as follows:

                                        1998                              1997                             1996
                               -----------------------------   -----------------------------     ----------------------------
<S>                           <C>        <C>        <C>         <C>        <C>     <C>            <C>        <C>        <C>
                                                      After-                          After-                          After-
                              Pretax       Tax       tax        Pretax      Tax      tax         Pretax      Tax        tax
                              ------     ------    --------     -------     ----     ------      -------     ----     ------
Unrealized capital gains 
and losses:
-------------------------
Unrealized holding
   gains (losses) arising
   during the period          $ 2,863   $(1,002)   $ 1,861    $ 3,602  $ (1,260) $   2,342     $  (4,912)   $ 1,719   $ (3,193)
Less: reclassification
   adjustment for
   realized capital gains
   included in net income         134       (47)        87         17        (6)        11             6       (2)          4
                               -------   -------    -------    -------   --------   -------      -------    -------    -------
Unrealized net capital
   gains (losses)               2,729      (955)     1,774      3,585    (1,254)     2,331       (4,918)     1,721     (3,197)
                               -------    -------    ------    ------    -------   -------      --------    -------   --------
Other comprehensive
   income                     $ 2,729    $ (955)   $ 1,774    $ 3,585   $(1,254)   $ 2,331      $(4,918)   $ 1,721    $(3,197)
                               =======    =======   =======    =======   =======   =======      ========    =======   ========


</TABLE>


                                       F-16
<PAGE>
                                     


                                   
                          LINCOLN BENEFIT LIFE COMPANY
                            SCHEDULE IV- REINSURANCE
                                ($ in thousands)



                                    Gross                               Net
Year Ended December 31, 1998       amount           Ceded            amount
----------------------------      ------            -----            ------

Life insurance in force         $97,690,299  $    97,690,299  $            -
                                ===========  ===============  ==============
Premiums and contract charges:
         Life and annuities     $   287,839  $       287,839  $            -
         Accident and health          3,450            3,450               -
                                -----------  ---------------   ------------- 
                                $   291,289  $       291,289  $            -
                                ===========  ===============  ==============
                                                             

                                  Gross                             Net
Year Ended December 31, 1997     amount           Ceded            amount
----------------------------     -------          ------           ------

Life insurance in force         $72,754,000    $72,754,000     $            -
                                ===========    ===========      =============
Premiums and contract charges:
         Life and annuities     $   277,825    $   277,825     $            -
         Accident and health         35,217         35,217                  -
                                -----------    -----------      -------------
                                $   313,042    $   313,042     $            -
                                ===========    ===========      =============


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

Life insurance in force         $51,514,000    $51,514,000   $            -
                                ============    ===========   =============
Premiums and contract charges:
         Life and annuities    $    191,475    $   191,475   $            -
         Accident and health          9,566          9,566                -
                               -------------  -----------    --------------
                               $    201,041    $   201,041   $            -
                               ============    ===========   ==============

                         

                                       F-17
<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 consolidated financial statements filed as part of this Report are
          listed in Item 8.

      (2) Financial Statement Schedules

          Schedule IV - Reinsurance    page F-17

         (c)  Exhibits

              Exh. No.    Description
              --------    -----------
              3(a)        Articles of Incorporation*
              3(b)        Bylaws*
              27          Financial Data Schedule

-------------------------------------------------
*    Incorporated herein by reference to the Registration  Statement on Form S-6
     for the Lincoln  Benefit Life Variable  Life Account  (File No.  333-47717)
     filed March 11, 1998.

<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.

                     LINCOLN BENEFIT LIFE COMPANY

                             By:     /s/ B. Eugene Wraith
                                     ---------------------
                                     B. Eugene Wraith
                                     President and Chief Operating 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.

/s/ B. Eugene Wraith
--------------------
B. Eugene Wraith             President, Chief Operating          March 30, 1999
(Principal Executive         Officer and Director
Officer)

/s/ Robert E. Rich
------------------
Robert E. Rich               Executive Vice President            March 30, 1999
                             and Director

/s/ Marvin P. Ehly
------------------
Marvin P. Ehly               Senior Vice President,              March 30, 1999
(Principal Financial         Treasurer and Director
Officer)

/s/ Janet P. Anderbery
----------------------
Janet P. Anderbery           Vice President                      March 30, 1999
(Principal Accounting        and Controller
Officer)

/s/ John H. Coleman
---------------------
John H. Coleman, III         Director                            March 30, 1999


---------------------
Peter H. Heckman             Chairman of the Board               March 30, 1999
                             and Chief Executive Officer


---------------------
Louis G. Lower, II           Director                            March 30, 1999

/s/ John J. Morris
-------------------
John J. Morris               Director                            March 30, 1999

/s/ Douglas F. Gaer
-------------------
Douglas F. Gaer              Director                            March 30, 1999


-------------------
Kevin Slawin                 Director                            March 30, 1999


-------------------
Michael J. Velotta           Director                            March 30, 1999

/s/ Dean M. Way
-------------------
Dean M. Way                  Director                            March 30, 1999

/s/ Carol S. Watson
-------------------
Carol S. Watson              Director                            March 30, 1999


--------------------
Patricia W. Wilson           Director                            March 30, 1999


--------------------
Thomas J. Wilson, II         Director                            March 30, 1999