<PAGE>   1
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                           --------------------------

                                    FORM 10-Q
                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

                     OF THE SECURITIES EXCHANGE ACT OF 1934.

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000    COMMISSION FILE NUMBER 333-1083

                           --------------------------

                       VALLEY FORGE LIFE INSURANCE COMPANY
             (Exact name of registrant as specified in its charter)


         PENNSYLVANIA                                            23-6200031
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

              CNA PLAZA
       CHICAGO, ILLINOIS 60685                                       60685
(Address of principal executive offices)                           (Zip Code)

                                 (312) 822-5000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

         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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes    No |X|
                                             ---    ---

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

           CLASS                                  OUTSTANDING AT AUGUST 1, 2000
------------------------------                    -----------------------------
Common Stock, Par value $50.00                               50,000



         THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H (1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE
REDUCED DISCLOSURE FORMAT.

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--------------------------------------------------------------------------------


                                  Page 1 of 25

<PAGE>   2



                       VALLEY FORGE LIFE INSURANCE COMPANY

                                      INDEX

PART I.   FINANCIAL INFORMATION (UNAUDITED)                             PAGE NO.
------    ---------------------                                         --------

ITEM 1.  CONDENSED FINANCIAL STATEMENTS:

         CONDENSED BALANCE SHEETS
                  June 30, 2000 (Unaudited) AND DECEMBER 31, 1999..........  3

         CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
                  FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999. 4

         CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
                  FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999........... 5

         NOTES TO CONDENSED FINANCIAL
                  STATEMENTS (Unaudited) JUNE 30, 2000...................... 6

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS.......................10


PART II.  OTHER INFORMATION
--------  -----------------

ITEM 5.  OTHER INFORMATION..................................................15

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K...................................15

SIGNATURES..................................................................16

EXHIBIT 10(k) DEPARTMENT HEAD SEVERANCE AGREEMENT...........................17

EXHIBIT 27 FINANCIAL DATA SCHEDULE..........................................25



                                        2
<PAGE>   3
                      VALLEY FORGE LIFE INSURANCE COMPANY

                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------
                                                                                   JUNE 30,        DECEMBER 31,
                                                                                      2000             1999
(In thousands of dollars, except share data)                                      (UNAUDITED)
---------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>              <C>
ASSETS
   Investments:
     Fixed maturities available-for-sale (amortized cost: $484,854 and $548,444) $   472,509       $   530,512
     Equity securities available-for-sale (cost: $0 and $0 )                              30                51
     Policy loans                                                                     96,303            93,575
     Other invested assets                                                               185               433
     Short-term investments                                                           41,272            24,714
                                                                                ------------       -----------
          TOTAL INVESTMENTS                                                          610,299           649,285
   Cash                                                                               21,338             3,529
   Receivables:
     Reinsurance                                                                   2,583,068         2,414,553
     Premium and other                                                                83,885            82,852
     Less allowance for doubtful accounts                                                (33)              (12)
   Deferred acquisition costs                                                        134,900           127,297
   Accrued investment income                                                           9,534            11,066
   Receivables for securities sold                                                     2,786             2,426
   Federal income tax recoverable (from Assurance)                                     1,924             4,316
   Due from affiliates                                                                15,968                 -
   Other assets                                                                        9,847             4,883
   Separate Account business                                                         379,577           209,183
---------------------------------------------------------------------------------------------------------------
          TOTAL ASSETS                                                           $ 3,853,093       $ 3,509,378
===============================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
   Insurance reserves:
     Future policy benefits                                                      $ 2,899,826       $ 2,751,396
     Claims and claim expense                                                        133,783           139,653
     Policyholders' funds                                                             45,776            43,466
   Payables for securities purchased                                                   2,607             2,421
   Deferred income taxes                                                               6,365             2,694
   Due to affiliates                                                                       -            12,435
   Commissions and other payables                                                    121,844            95,976
   Separate Account business                                                         379,577           209,183
                                                                                 ------------      ------------
          TOTAL LIABILITIES                                                        3,589,778         3,257,224
                                                                                 ------------      ------------
Commitments and contingent liabilities
Stockholder's Equity:
   Common stock ($50 par value; Authorized-200,000 shares;
     Issued-50,000 shares)                                                             2,500             2,500
   Additional paid-in capital                                                         69,150            69,150
   Retained earnings                                                                 200,456           191,464
   Accumulated other comprehensive loss                                               (8,791)          (10,960)
                                                                                 ------------      ------------
          TOTAL STOCKHOLDER'S EQUITY                                                 263,315           252,154
---------------------------------------------------------------------------------------------------------------
          TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY                             $ 3,853,093       $ 3,509,378
===============================================================================================================
</TABLE>

      See accompanying Notes to Condensed Financial Statements (Unaudited).

                                       3

<PAGE>   4
                      VALLEY FORGE LIFE INSURANCE COMPANY

                       CONDENSED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                                     THREE MONTHS                      SIX MONTHS
PERIOD ENDED JUNE 30                                             2000           1999              2000             1999
(In thousands of dollars)
--------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>              <C>              <C>
Revenues:
   Premiums                                                    $77,036         $83,651          $154,216         $158,324
   Net investment income                                        11,047           9,004            22,134           18,108
   Realized investment losses                                   (1,111)        (13,213)           (4,236)         (17,902)
   Other                                                         1,887           3,597             4,402            5,262
                                                               -------         -------          --------         ---------
                                                                88,859          83,039           176,516          163,792
                                                               -------         -------          --------         ---------
Benefits and expenses:
   Insurance claims and policyholders' benefits                 71,039          80,891           143,507          151,002
   Amortization of deferred acquisition costs                    4,289           3,068             7,112            6,065
   Other operating expenses                                      5,944           7,415            11,954           13,714
                                                               -------         -------          --------         ---------
                                                                81,272          91,374           162,573          170,781
                                                               -------         -------          --------         ---------
     Income (loss) before income tax and cumulative
         effect of change in accounting principle                7,587          (8,335)           13,943           (6,989)
Income tax expense (benefit)                                     2,993          (3,485)            4,951           (2,993)
                                                               -------         -------          --------         ---------
     Income (loss) before cumulative effect of change
         in accounting principle                                 4,594          (4,850)            8,992           (3,996)
Cumulative effect of change in accounting
         principle, net of taxes                                     -               -                 -             (234)
-------------------------------------------------------------------------------------------------------------------------
     Net income (loss)                                         $ 4,594         $(4,850)         $  8,992         $ (4,230)
=========================================================================================================================
</TABLE>


     See accompanying Notes to Condensed Financial Statements (Unaudited).


                                       4
<PAGE>   5


                      VALLEY FORGE LIFE INSURANCE COMPANY
                       CONDENSED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30                                                                2000                1999
(In thousands of dollars)
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                                                  $  8,992           $  (4,230)
   Adjustments to reconcile net income to net cash flows from
          operating activities:
     Deferred income tax provision                                                       2,108              (6,277)
     Net realized investment losses, pre-tax                                             4,236              17,902
     Accretion of bond discount                                                         (1,367)             (1,237)
     Changes in:
        Receivables, net                                                              (169,527)            (94,196)
        Deferred acquisition costs                                                      (8,968)             (5,657)
        Accrued investment income                                                        1,532                (508)
        Due to/from affiliates                                                          28,403             (41,111)
        Federal income taxes payable and recoverable                                     2,392               1,792
        Insurance reserves                                                             161,462             171,590
        Commissions and other payables and other                                       (36,370)            (26,631)
                                                                                   ------------       -------------
          Total adjustments                                                            (16,099)             15,667
                                                                                   ------------       -------------
          NET CASH FLOWS FROM OPERATING ACTIVITIES                                      (7,107)             11,437
                                                                                   ------------       -------------
CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of fixed maturities                                                      (221,514)           (989,428)
   Proceeds from fixed maturities:
     Sales                                                                             230,844             898,060
     Maturities, calls and redemptions                                                  50,752              46,529
   Change in short-term investments                                                    (15,737)             49,153
   Change in policy loans                                                               (2,728)                (63)
   Change in other invested assets                                                        (109)               (214)
                                                                                   ------------       -------------
          NET CASH FLOWS FROM INVESTING ACTIVITIES                                      41,508               4,037
                                                                                   ------------       -------------
CASH FLOWS FROM FINANCING ACTIVITIES
   Receipts for investment contracts credited to policyholder accounts                   6,226               5,982
   Return of policyholder account balances on investment contracts                     (22,818)            (20,691)
                                                                                   ------------       -------------
          NET CASH FLOWS FROM FINANCING ACTIVITIES                                     (16,592)            (14,709)
                                                                                   ------------       -------------
          NET CASH FLOWS                                                                17,809                 765
Cash at beginning of period                                                              3,529               3,750
-------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD                                                                 $ 21,338           $   4,515
===================================================================================================================
Supplemental disclosures of cash flow information:
        Federal income taxes paid                                                     $      -           $       -
===================================================================================================================
</TABLE>

      See accompanying Notes to Condensed Financial Statements (Unaudited).



                                       5
<PAGE>   6

                       VALLEY FORGE LIFE INSURANCE COMPANY
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
                                 June 30, 2000

NOTE 1.  BASIS OF PRESENTATION

         Valley Forge Life Insurance Company (VFL) was incorporated under the
laws of the Commonwealth of Pennsylvania on August 9, 1956. VFL is a
wholly-owned subsidiary of Continental Assurance Company (Assurance). Assurance
is a wholly-owned subsidiary of Continental Casualty Company (Casualty) which is
wholly-owned by CNA Financial Corporation (CNAF). CNAF is a holding company
whose primary subsidiaries consist of property/casualty and life insurance
companies, collectively CNA. Loews Corporation owns approximately 87% of the
outstanding common stock of CNAF.

VFL sells a variety of individual and group insurance products. The individual
insurance products consist primarily of term and universal life insurance
policies and individual annuities. Group insurance products include life
insurance, pension products and accident and health insurance consisting
primarily of major medical and hospitalization. VFL also markets a portfolio of
variable separate account products, including annuity and universal life
products. These products offer policyholders the option of allocating payments
to one or more variable separate accounts or to a guaranteed income account or
both. Payments allocated to the variable separate accounts are invested in
corresponding investment portfolios where the investment risk is borne by the
policyholder while payments allocated to the guaranteed income account earn a
minimum guaranteed rate of interest for a specified period of time for annuity
contracts and for one year for life products.

         The operations, assets and liabilities of VFL and its parent,
Assurance, are managed on a combined basis. Pursuant to a Reinsurance Pooling
Agreement, as amended on July 1, 1996, VFL cedes all of its business, excluding
its separate account business, to its parent, Assurance. This ceded business is
then pooled with the business of Assurance, which excludes Assurance's
participating contracts and separate account business, and 10% of the combined
pool is assumed by VFL.

         The accompanying condensed financial statements are unaudited and have
been prepared in conformity with accounting principles generally accepted in the
United States of America (GAAP). Certain financial information that is normally
included in annual financial statements, including financial statement
footnotes, prepared in accordance with GAAP, but that is not required for
interim reporting purposes, has been condensed or omitted. These statements
should be read in conjunction with the financial statements and notes thereto
included in VFL's Form 10-K filed with the Securities and Exchange Commission
for the year ended December 31, 1999. In the opinion of management, these
statements include all adjustments (consisting of normal recurring accruals)
that are necessary for the fair presentation of the financial position, results
of operations and cash flows. The operating results for the interim periods are
not necessarily indicative of the results to be expected for the full year.
Certain amounts applicable to prior periods have been reclassified to conform to
classifications followed in 2000.

         In the first quarter of 2000, VFL adopted the American Institute of
Certified Public Accountants' Statement of Position (SOP) 98-7, "Accounting for
Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk."
Adoption of the SOP did not have a material impact on the financial position or
results of operations of VFL.

         In the first quarter of 1999, VFL adopted the American Institute of
Certified Public Accountants' Statement of Position (SOP) 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." This SOP
requires that insurance companies recognize liabilities for insurance-related
assessments when an assessment is probable and will be imposed, when it can be
reasonably estimated, and when the event obligating an entity to pay an imposed
or probable assessment has occurred on or before the date of the financial
statements. Adoption of the SOP resulted in an after tax charge of $234,000
($360,000, pretax) as a cumulative effect of a change in accounting principle
for the six months ended June 30, 1999.

                                       6
<PAGE>   7


                       VALLEY FORGE LIFE INSURANCE COMPANY
          NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)-CONTINUED

NOTE 2.  REINSURANCE

         The ceding of insurance does not discharge the primary liability of
VFL. VFL places reinsurance with other carriers only after careful review of the
nature of the contract and a thorough assessment of the reinsurers' credit
quality and claim settlement performance. For carriers that are not authorized
reinsurers in VFL's state of domicile, VFL receives collateral, primarily in the
form of bank letters of credit.

         In the table below, the majority of life premium revenue is from long
duration type contracts, while the majority of accident and health insurance
premiums is from short duration contracts. The effects of reinsurance on premium
revenues are shown in the following table:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                           PREMIUMS                             ASSUMED/NET
                                   ----------------------------------------------------------
SIX MONTHS ENDED JUNE 30              DIRECT         ASSUMED         CEDED           NET             %
(In thousands of dollars)
--------------------------------------------------------------------------------------------------------------
<S>                                 <C>              <C>             <C>           <C>             <C>
2000
   Life                                 $369,306       $  57,032       $387,616      $ 38,722           147%
   Accident and Health                     4,374         115,494          4,374       115,494           100
                                   -------------  --------------  -------------  ------------   -----------
      Total premiums                    $373,680       $ 172,526       $391,990      $154,216           112%
                                   =============  ==============  =============  ============
1999
   Life                                 $312,515       $  38,004       $319,682      $ 30,837           123%
   Accident and Health                     2,945         127,487          2,945       127,487           100
                                   -------------  --------------  -------------  ------------   ------------
     Total  premiums                    $315,460       $ 165,491       $322,627      $158,324           105%
==============================================================================================================
</TABLE>


         Transactions with Assurance, as part of the Pooling Agreement described
in Note 1, are reflected in the above table. Premium revenues ceded to
non-affiliated companies were $226.0 million for the six months ended June 30,
2000, and $187.4 million for the six months ended June 30, 1999. Additionally,
benefits and expenses for insurance claims and policyholder benefits are net of
reinsurance recoveries from non-affiliated companies of $150.1 million for the
period ended June 30, 2000, and $139.2 million for the same period in 1999.

         Reinsurance receivables reflected on the balance sheets are amounts
recoverable from reinsurers who have assumed a portion of the Company's
insurance reserves. These balances are principally due from Assurance pursuant
the Reinsurance Pooling Agreement.

NOTE 3.  LEGAL PROCEEDINGS

         VFL is party to litigation arising in the ordinary course of business.
The outcome of this litigation will not, in the opinion of management,
materially affect the results of operations or stockholder's equity of VFL.

                                       7
<PAGE>   8
                       VALLEY FORGE LIFE INSURANCE COMPANY
          NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)-CONTINUED

NOTE 4. COMPREHENSIVE INCOME

         Comprehensive income is comprised of all changes to stockholder's
equity, including net income, except those changes resulting from contributions
from and distributions to the stockholder. The components of comprehensive
income are shown below.

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30
(In thousands of dollars)                                                                        2000          1999
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>           <C>
Net income (loss)                                                                              $  8,992      $ (4,230)
Other comprehensive income:
   Change in unrealized gains/losses on investments
      Holding gains (losses) arising during the period                                           10,192        (5,323)
   Less: Unrealized (losses) gains at beginning of period included in
         realized gains/losses during the period                                                 (6,929)       (2,851)
                                                                                         --------------- -------------
  Other comprehensive income (loss), before tax                                                   3,263        (8,174)

  Deferred income tax (expense) benefit related to other comprehensive income (loss)             (1,094)        2,849
                                                                                         --------------- -------------
  Other comprehensive income (loss), net of tax                                                   2,169        (5,325)
                                                                                         --------------- -------------
Total comprehensive income                                                                     $ 11,161      $ (9,555)
                                                                                         =============== =============
</TABLE>


NOTE 5.  BUSINESS SEGMENTS

         VFL operates in one reportable segment, the business of which is to
market and underwrite insurance products designed to satisfy the life, health
and retirement needs of individuals and groups. VFL products are distributed
primarily in the United States. Premium revenues earned outside the United
States are not material.

         The operations, assets and liabilities of VFL and its parent,
Assurance, are managed on a combined basis. Pursuant to a Reinsurance Pooling
Agreement, as amended, VFL cedes all of its business, excluding its separate
account business, to Assurance which is then pooled with the business of
Assurance, excluding Assurance's participating contracts and separate account
business, and 10% of the combined pool is assumed by VFL.

The following presents premiums by product group for the six month period ending
June 30, 2000 and June 30, 1999.


<TABLE>
<CAPTION>

--------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30
(In thousands of dollars)                                  2000          1999
--------------------------------------------------------------------------------
<S>                                                    <C>           <C>
   Life                                               $  38,722      $ 30,837
   Accident and Health                                  115,494       127,487
--------------------------------------------------------------------------------
     Total                                            $ 154,216      $158,324
================================================================================
</TABLE>



                                       8
<PAGE>   9
                       VALLEY FORGE LIFE INSURANCE COMPANY
          NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)-CONCLUDED

NOTE 6.  OTHER EVENTS

         On March 8, 2000, CNA announced that it was exploring the sale of the
individual life insurance and reinsurance businesses. On August 8, 2000 CNA
announced that it had completed exploring the sale of the individual life
insurance and life reinsurance businesses and that it would retain the
individual life, long term care and retirement services businesses. CNA
announced that it would continue to explore the separate sale of its life
reinsurance business. A portion of the life reinsurance business is conducted
through VFL and as part of the Reinsurance Pooling Agreement, VFL also assumes
10% of the life reinsurance business of Assurance.

         The Federal Employee Health Benefit Plan (FEHBP) business currently
written by Assurance and assumed by VFL as part of the Reinsurance Pooling
Agreement is being transferred to another insurance entity indirectly owned by
CNA. Subject to final regulatory approvals it is expected that the transfer
will be effective September 1, 2000. All assets and liabilities of this
business will be transferred through a novation agreement, and VFL will be
relieved of any ongoing direct or contingent liability with respect to this
business. The transfer of this business is not expected to have a material
impact on results of operations or equity of VFL.

         The FEHBP business contributed premiums of $48.9 million and $100.1
million, and net operating income of $0.4 million and $0.6 million for the
three and six month periods ended June 30, 2000, respectively.

                                       9
<PAGE>   10



                       VALLEY FORGE LIFE INSURANCE COMPANY
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

         The following discussion and analysis should be read in conjunction
with the condensed financial statements (unaudited) and notes thereto found on
pages 3 to 9, which contain additional information helpful in evaluating
operating results and financial condition.

         VFL, along with its parent, Assurance, markets and underwrites products
designed to satisfy the life insurance, health insurance and retirement needs of
individuals and groups. The individual products consist primarily of term and
universal life insurance policies and individual annuities. Group products
include life, accident and health insurance, consisting primarily of major
medical and hospitalization insurance and pension products. VFL and Assurance
also market a portfolio of variable separate account products, including annuity
and universal life products. These variable separate account products offer
policyholders the option of allocating payments to one or more variable separate
accounts or to a guaranteed income account or both. Payments allocated to the
variable separate accounts are invested in corresponding investment portfolios
where the investment risk is borne by the policyholder. Payments allocated to
the guaranteed income account earn a minimum guaranteed rate of interest for a
specified period of time for annuity contracts and one year for life products.

RESULTS OF OPERATIONS

         The following table summarizes key components of VFL's operating
results for the three months and six months ended June 30, 2000 and 1999.

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED JUNE 30                                                         THREE MONTHS              SIX MONTHS
-------------------------------------------------------------------------------------------------------------------------
                                                                            2000         1999        2000         1999
(In thousands of dollars)
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>          <C>        <C>          <C>
Operating Revenues (excluding realized
  investment gains (losses) )
   Premiums                                                                $77,036      $83,651    $154,216     $158,324
   Net investment income                                                    11,047        9,004      22,134       18,108
   Other                                                                     1,887        3,597       4,402        5,262
                                                                        -----------  ----------- -----------  -----------
        Total operating revenues                                            89,970       96,252     180,752      181,694
Benefits and expenses                                                       81,272       91,374     162,573      170,781
                                                                        -----------  ----------- -----------  -----------
   Operating income before income tax expense and cumulative
       effect of change in accounting principle                              8,698        4,878      18,179       10,913
Income tax expense                                                          (3,530)      (1,737)     (6,434)      (4,146)
                                                                        -----------  ----------- -----------  -----------
   Net operating income before realized investment gains (losses)
       and cumulative effect of change in accounting principle               5,168       3,141       11,745        6,767
   Realized investment losses, net of tax                                     (574)      (7,991)     (2,753)     (10,763)
                                                                        -----------  ----------- -----------  -----------
   Income before cumulative effect of change in accounting principle         4,594       (4,850)      8,992       (3,996)
   Cumulative effect of change in accounting principle, net of tax               -            -           -         (234)
-------------------------------------------------------------------------------------------------------------------------
   NET INCOME (LOSS)                                                       $ 4,594      $(4,850)    $ 8,992     $ (4,230)
=========================================================================================================================
</TABLE>



         VFL's operating revenues, excluding net realized investment
gains/losses, decreased 0.5% to $180.8 million for the first six months of 2000
as compared to $181.7 million for the same time period in 1999. Premiums for the
first six months of 2000 decreased $4.1 millions or 2.6% to $154.2 million as
compared to $158.3 million for the same period in 1999. The decrease in premiums
for the first six months of 2000 was a result of lower premiums in the Federal
Employee Health Benefit Plan (FEHBP) resulting from improved claim experience
upon which the premiums are based.


                                       10
<PAGE>   11


                       VALLEY FORGE LIFE INSURANCE COMPANY
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

         On a pretax basis, operating income for the second quarter of 2000
increased $3.8 million or 78.3% from the second quarter of 1999 primarily due to
a $10.1 million or 11.1% decrease in the second quarter 2000 benefits and
expenses offset by decreases in operating revenues of $6.3 million or 6.5% as
compared to the second quarter of 1999.

         On a pretax basis, operating income for the first six months of 2000
increased $7.3 million or 66.6% from the first six months of 1999 primarily due
to a 5.0% decrease in the first six months claims and policyholder benefit
expenses. Other operating expenses decreased 12.8% while premium revenue
decreased 2.6% for the first half of 2000.

         VFL's operating revenues, excluding net realized investment
gains/losses, decreased by 6.5% to $90.0 million as compared to $96.3 million
for the three months ending June 30, 1999 primarily due to decreased premium
revenues of $6.6 million offset by an increase in net investment income of $2.0
million or 22.7%. Premium revenues decreased due to lower premiums in Federal
Employee Health Benefit Plan (FEHBP) which are impacted by improved claim
experience upon which the corresponding premiums are based and was partially
offset by increases in life insurance premium revenues, primarily due to the
premium growth for the ViaTerm product. For the three months ending June 30,
2000, investment income increased by $2.0 million to $11.0 million, as compared
to investment income of $9.0 million for the three months ending June 30, 1999
due to the increase in average invested assets.

         VFL's operating revenues decreased by 0.5% to $180.8 million for the
first six months of 2000 as compared to $181.7 million for the same time period
in 1999 due to decreased premiums and other revenues, offset by increased net
investment income. Premiums for the first six months of 2000 decreased $4.1
million or 2.6% to $154.2 million as compared to $158.3 million for the same
period in 1999. The decrease in premiums for the first six months of 2000 was a
result of the factors described above for the quarterly results. Net investment
income increased $4.0 million or 22.2% to $22.1 million for the six months ended
June 30, 2000 from $18.1 million for the same period in 1999 due to the increase
in average invested assets as compared to the same period in 1999.

FINANCIAL CONDITION

         Assets totaled $3.9 billion at June 30, 2000, an increase of 9.8% over
year-end 1999. Major factors that contributed to the increase in VFL assets
were, reinsurance receivables up 7.0% from December 31, 1999 due to insurance
activity with Assurance and an increase in the variable separate account
business. VFL separate account assets increased $170.4 million from year-end
1999 to $379.6 million primarily due to increased marketing efforts coupled with
product enhancements and an increase in the available investment options. VFL's
cash and invested assets of $631.6 million decreased by $21.2 million, or 3.2%,
over the December 31, 1999 level of $652.8 million.

         VFL's stockholder's equity was $263.3 million at June 30, 2000,
compared to $252.2 million at December 31, 1999.


                                       11
<PAGE>   12

                       VALLEY FORGE LIFE INSURANCE COMPANY
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

INVESTMENTS

         The following table summarizes VFL's investments shown at cost or
amortized cost and carrying value as of June 30, 2000 and December 31, 1999:

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF INVESTMENTS                                              JUNE 30,                   DECEMBER 31,
(In thousands of dollars)                                                 2000           %             1999            %
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>           <C>           <C>           <C>
Fixed maturity securities:
   U.S. Treasury securities and obligations of government agencies      $ 103,869      16.7%        $ 253,041        37.9%
   Asset-backed securities                                                 99,488      16.0           107,275        16.1
   Other debt securities                                                  281,497      45.2           188,128        28.2
                                                                    -------------- ---------   ---------------  ----------
      Total fixed maturity securities                                     484,854      77.9           548,444        82.2
Common Stocks                                                                   -         -                 -           -
Policy loans                                                               96,303      15.5            93,575        14.0
Short-term investments                                                     41,272       6.6            24,714         3.7
Other invested assets                                                         368         -               406         0.1
----------------------------------------------------------------------------------------------------------------------------
INVESTMENTS AT AMORTIZED COST                                           $ 622,797     100.0%        $ 667,139       100.0%
============================================================================================================================
INVESTMENTS AT CARRYING VALUE*                                          $ 610,299                   $ 649,285
============================================================================================================================
</TABLE>
* As reported in the Condensed Balance Sheets


         The operations and liabilities of VFL and Assurance are managed on a
combined basis. The investment portfolios of VFL and Assurance are managed to
maximize total after-tax investment return while minimizing credit risks, with
investments concentrated in high quality securities to support insurance
underwriting operations. The investment portfolios are segregated for the
purpose of supporting policy liabilities for universal life, annuities and other
interest sensitive products.

         VFL has the ability to hold its fixed maturity portfolio to maturity.
However, securities may be sold as part of VFL's asset/liability management
strategies or to take advantage of investment opportunities generated by
changing interest rates, tax and credit considerations, or other similar
factors. Accordingly, the fixed maturities are classified as available-for-sale.

         VFL's investments in fixed maturities are carried at a fair value of
$472.5 million at June 30, 2000, compared with $530.5 million at December 31,
1999. At June 30, 2000, the net unrealized loss on fixed maturities amounted to
approximately $8.0 million on an after tax basis resulting from rising interest
rates. At December 31, 1999, net unrealized losses for the fixed maturities were
approximately $11.6 million after tax. Fluctuations from period to period are
primarily due to changes in interest rates in the market and the mix of
instruments within the portfolio.

                                       12

<PAGE>   13


         The following table summarizes the ratings of VFL's fixed maturity
portfolio at carrying value (market):

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------
                                                  JUNE 30,                  DECEMBER 31,
(In thousands of dollars)                          2000          %              1999           %
-------------------------------------------------------------------------------------------------------
<S>                                              <C>          <C>            <C>            <C>
U.S. Government and affiliated securities        $ 131,572      27.9%        $ 281,680        53.1%
Other AAA rated                                     70,993      15.0            73,360        13.8
AA and A rated                                     140,068      29.6            61,068        11.5
BBB rated                                          111,644      23.6            94,969        17.9
Below investment grade                              18,232       3.9            19,435         3.7
-------------------------------------------------------------------------------------------------------
     TOTAL                                       $ 472,509     100.0%        $ 530,512       100.0%
=======================================================================================================
</TABLE>

                       VALLEY FORGE LIFE INSURANCE COMPANY
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

         The fair value of VFL's fixed maturities at June 30, 2000, includes
$96.0 million of asset-backed securities, consisting of approximately 56% in
collateralized mortgage obligations (CMOs), 32% in certain U.S. government
agency issued pass-through certificates, 8% in corporate mortgage-backed
pass-through certificates and 4% in corporate asset-backed obligations. The
majority of the asset-backed securities held are actively traded in liquid
markets and are priced by broker-dealers.

         Below investment grade bonds are high yield securities rated below BBB
by bond rating agencies, as well as other unrated securities which, in the
opinion of management, are below investment grade. High yield securities
generally involve a greater degree of risk than that of investment grade
securities. However, expected returns should compensate for the added risk. This
risk is also considered in the interest rate assumptions in the underlying
insurance products. VFL's concentration in high yield bonds was approximately
0.5% and 0.6% of total assets as of June 30, 2000 and December 31, 1999,
respectively.

LIQUIDITY AND CAPITAL RESOURCE

         The liquidity requirements of VFL have been met by funds generated from
operating, investing and financing activities. VFL's principal operating cash
flow sources are premiums, investment income, receipts for investment contracts
sold and sales and maturities of investments. The primary operating cash flow
uses are payments for claims, policy benefits, payments on matured policyholder
contracts and operating expenses.

         For the period ended June 30, 2000, VFL's operating activities used
cash of $7.1 million, compared with providing $11.4 million of operating cash
flows for the same period in 1999. The net use of operating cash flows in the
first six months of 2000 are primarily the result of increased commissions and
other payables occurring in the normal course of business. Management believes
that future liquidity needs will be met by cash generated from operations. Net
cash flows from operations are primarily invested in marketable securities.
Investment strategies employed by VFL consider the cash flow requirements of the
insurance products sold and the tax attributes of the various types of
marketable investments.

ACCOUNTING STANDARDS

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement requires that an entity recognize all
derivative instruments as either assets or liabilities in the balance sheet and
measure those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation.
This Statement is effective for fiscal years beginning after June 15, 2000. VFL
is currently evaluating the effects of this Statement on its accounting and
reporting for derivative securities and hedging activities.

         In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101. "Revenue Recognition in Financial
Statements". This bulletin summarizes certain of the SEC Staff's view in
applying generally accepted accounting principles to revenue recognition in
financial statements. This bulletin, through its subsequent revised releases SAB
No. 101A and No. 101B, is effective for registrants no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. VFL does not
expect the implementation of this bulletin to have a significant impact on the
results of operations or equity of the company.

                                       13
<PAGE>   14

                       VALLEY FORGE LIFE INSURANCE COMPANY
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONCLUDED

FORWARD-LOOKING STATEMENTS

         The statements contained in this management discussion and analysis,
which are not historical facts, are forward-looking statements. When included in
this management discussion and analysis, the words "believe," "expects,"
"intends," "anticipates," "estimates," and analogous expressions are intended to
identify forward-looking statements. Such statements inherently are subject to a
variety of risks and uncertainties that could cause actual results to differ
materially from those projected. Such risks and uncertainties include, among
others, the impact of competitive products, policies and pricing; product and
policy demand and market responses; development of claims and the effect on loss
reserves; the performance of reinsurance companies under reinsurance contracts
with VFL; general economic and business conditions; changes in financial markets
(interest rate, credit, currency, commodities and stocks); changes in foreign,
political, social and economic conditions; regulatory initiatives and compliance
with governmental regulations; judicial decisions and rulings; the effect on VFL
of changes in rating agency policies and practices; the results of financing
efforts; changes in VFL's composition of operating segments; the actual closing
of contemplated transactions and agreements and various other matters and risks
(many of which are beyond VFL's control) detailed in VFL's Securities and
Exchange Commission filings. These forward-looking statements speak only as of
the date of this management discussion and analysis. VFL expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statement contained herein to reflect any change in VFL's
expectations with regard thereto or any change in events, conditions or
circumstances on which any statement is based.


                                       14
<PAGE>   15

                       VALLEY FORGE LIFE INSURANCE COMPANY
                            PART II - OTHER INFORMATION

ITEM 5.  OTHER INFORMATION - NONE

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS:

                                                     Exhibit            Page
      Description of Exhibit                         Number            Number
      -----------------------                        -------           ------

      Department Head Severance Agreement            10 (k)              17
      Financial Data Schedule                        27                  25


(b) REPORTS ON FORM 8-K:

         There were no reports on Form 8-K for the three months ended June 30,
2000.


                                       15

<PAGE>   16


                       VALLEY FORGE LIFE INSURANCE COMPANY


SIGNATURES

Pursuant to the requirements 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.

Valley Forge Life Insurance Company

By /s/ Robert V. Deutsch
  -----------------------------
Robert V. Deutsch
Director, Senior Vice President
And Chief Financial Officer

Date: August 14, 2000




                                       16