<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 MARCH 31, 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

(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 MAY 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 16
<PAGE>   2
                       VALLEY FORGE LIFE INSURANCE COMPANY



                                      INDEX


PART I.   FINANCIAL INFORMATION                                     PAGE NO.
------    ---------------------                                     --------

CONDENSED FINANCIAL STATEMENTS:

   BALANCE SHEETS
        MARCH 31, 2000 (Unaudited) AND DECEMBER 31, 1999............   3

   STATEMENTS OF OPERATIONS (Unaudited)
        FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999..........   4

   STATEMENTS OF CASH FLOWS (Unaudited)
        FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999..........   5

   NOTES TO CONDENSED FINANCIAL
        STATEMENTS (Unaudited) MARCH 31, 2000.......................   6

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


PART II. OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K...........................  14

SIGNATURES .........................................................  15

EXHIBIT 27  FINANCIAL DATA SCHEDULE.................................  16









                                       2
<PAGE>   3
                       VALLEY FORGE LIFE INSURANCE COMPANY

                            CONDENSED BALANCE SHEETS


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                                                     MARCH 31     DECEMBER 31
                                                                                       2000           1999
(In thousands of dollars)                                                          (UNAUDITED)
-------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>            <C>
ASSETS:
   Investments:
     Fixed maturities available-for-sale (amortized cost: $516,427 and $548,444)   $   503,098    $   530,512
     Equity securities available-for-sale (cost: $0 and $0)                                 44             51
     Policy loans                                                                       94,937         93,575
     Other invested assets                                                                 279            433
     Short-term investments                                                             50,830         24,714
                                                                                   -----------    -----------
          TOTAL INVESTMENTS                                                            649,188        649,285
   Cash                                                                                 10,907          3,529
   Receivables:
     Reinsurance                                                                     2,517,992      2,414,553
     Premium and other                                                                  89,261         82,852
     Less allowance for doubtful accounts                                                  (10)           (12)
   Deferred acquisition costs                                                          132,103        127,297
   Accrued investment income                                                            10,650         11,066
   Receivables for securities sold                                                       4,588          2,426
   Federal income tax recoverable                                                        3,681          4,316
   Other                                                                                 4,555          4,883
   Separate Account business                                                           296,532        209,183
-------------------------------------------------------------------------------------------------------------
          TOTAL ASSETS                                                             $ 3,719,447    $ 3,509,378
=============================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
   Insurance reserves:
     Future policy benefits                                                        $ 2,834,358    $ 2,751,396
     Claims and claims expense                                                         140,194        139,653
     Policyholders' funds                                                               41,732         43,466
    Payables for securities purchased                                                    4,255          2,421
    Deferred income taxes                                                                5,425          2,694
    Due to affiliates                                                                   10,936         12,435
    Commissions and other payables                                                     128,028         95,976
    Separate Account business                                                          296,532        209,183
                                                                                   -----------    -----------
          TOTAL LIABILITIES                                                          3,461,460      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                                                                   195,862        191,464
   Accumulated other comprehensive loss                                                 (9,525)       (10,960)
                                                                                   -----------    -----------
          TOTAL STOCKHOLDER'S EQUITY                                                   257,987        252,154
-------------------------------------------------------------------------------------------------------------
          TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY                               $ 3,719,447    $ 3,509,378
=============================================================================================================
</TABLE>

     See accompanying Notes to Condensed Financial Statements (Unaudited).






                                       3
<PAGE>   4
                         VALLEY FORGE INSURANCE COMPANY

                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31                                           2000        1999
----------------------------------------------------------------------------------------
(In thousands of dollars)
Revenues:
<S>                                                                 <C>         <C>
   Premiums                                                         $ 77,180    $ 74,673
   Net investment income                                              11,087       9,104
   Realized investment losses                                         (3,125)     (4,689)
   Other                                                               2,515       1,665
                                                                    --------    --------
                                                                      87,657      80,753
                                                                    --------    --------
Benefits and expenses:
   Insurance claims and policyholders' benefits                       72,468      70,111
   Amortization of deferred acquisition costs                          2,823       2,997
   Other operating expenses                                            6,010       6,300
                                                                    --------    --------
                                                                      81,301      79,408
                                                                    --------    --------
Income before income tax expense and cumulative
            effect of change in accounting principle                   6,356       1,345
Income tax expense                                                     1,958         492
                                                                    --------    --------
Income before cumulative effect of change in
                accounting principle                                   4,398         853
Cumulative effect of change in accounting principle, net of taxes       --          (234)
                                                                    --------    --------
     Net income                                                     $  4,398    $    619
========================================================================================
</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>
-----------------------------------------------------------------------------------------------------------
Three Months Ended March 31                                                           2000         1999
-----------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S>                                                                                <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                         $   4,398    $     619
Adjustments to reconcile net income to net cash flows from operating activities:
     Deferred income tax provision                                                       (44)        (804)
     Net realized investment (gains) losses pre-tax                                    3,125        4,689
     Amortization of bond discount                                                      (534)        (897)
     Changes in:
        Receivables, net                                                            (109,850)    (303,893)
        Deferred acquisition costs                                                    (6,083)      (3,752)
        Accrued investment income                                                        416          466
        Due to/from affiliates                                                         1,499      (14,183)
        Federal income taxes payable and receivable                                      635          994
        Insurance reserves                                                            90,335      306,318
        Commissions and other payables and other                                      30,274       16,849
                                                                                   ----------------------
            Total adjustments                                                          9,773        5,787
                                                                                   ---------    ---------
     Net cash flows from operating activities                                         14,171        6,406
                                                                                   ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of fixed maturities                                                        (78,452)    (523,810)
Proceeds from fixed maturities:
  Sales                                                                               79,663      458,825
  Maturities, calls and redemptions                                                   28,096       12,192
Change in short-term investments                                                     (25,747)      56,122
Change in policy loans                                                                (1,362)      (1,453)
Change in other invested assets                                                         (425)         416
                                                                                   ----------------------
     NET CASH USED IN INVESTING ACTIVITIES                                             1,773        2,292
                                                                                   ----------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Receipts for investment contracts credited to policyholder accounts                    2,932        4,389
Return of policyholder account balances on investment contracts                      (11,498)      (9,682)
                                                                                   ----------------------
          NET CASH FLOWS FROM FINANCING ACTIVITIES                                    (8,566)      (5,293)

          NET CASH FLOWS                                                               7,378        3,405
Cash at beginning of period                                                            3,529        3,750
---------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD                                                              $  10,907    $   7,155
=========================================================================================================
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)

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 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 generally accepted accounting principles
(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 three months March 31, 1999. The pro forma effect of adoption on
reported results for prior periods is not significant.





                                       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 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
THREE MONTHS ENDED MARCH 31         DIRECT        ASSUMED        CEDED           NET          %
-----------------------------------------------------------------------------------------------------
<S>                               <C>             <C>          <C>            <C>             <C>
(In thousands of dollars)
2000
   Life                           $ 181,975       $23,910      $ 187,042      $ 18,843        127
   Accident and Health                2,036        58,337          2,036        58,337        100
                                  ---------       -------      ---------      --------      -----
     Total premiums               $ 184,011       $82,247      $ 189,078      $ 77,180        107
                                  =========       =======      =========      ========
1999
   Life                           $ 185,524       $20,429      $ 188,290      $ 17,663        116
   Accident and Health                1,124        57,010          1,124        57,010        100
                                  ---------       -------      ---------      --------      -----
     Total premiums               $ 186,648       $77,439      $ 189,414      $ 74,673        104
=====================================================================================================
</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 $114.8 million for the first quarter in 2000, and
$93.4 million for the first quarter in 1999. Additionally, benefits and expenses
for insurance claims and policyholder benefits are net of reinsurance recoveries
from non-affiliated companies of $83.8 million for the first quarter in 2000,
and $73.7 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 investments
and distributions to the stockholder. The components of comprehensive income
are shown below.

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------
Three Months Ended March 31
(In thousands of dollars)                                                         2000            1999
----------------------------------------------------------------------------------------------------------

<S>                                                                              <C>              <C>
Net income (loss)                                                                $    4,398      $     619
Other comprehensive income:
   Change in unrealized gains/losses on investments
       Holding gains (losses) arising during the period                              (1,358)        (4,019)
       Unrealized losses (gains) at beginning of period included in
           realized gains/losses during the period                                    3,565         (2,285)
                                                                                 ----------      ---------
  Other comprehensive income (loss), before tax                                       2,207         (6,304)

  Deferred income tax (expense) benefit related to other comprehensive income          (772)         2,297
                                                                                 ----------      ---------
  Other comprehensive income (loss), net of tax                                       1,435         (4,007)
                                                                                 ----------      ---------
Total comprehensive income (loss)                                                $    5,833      $  (3,388)
                                                                                 ==========      =========
</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 three month period
ending March 31, 2000 and March 31, 1999.




---------------------------------------------------------------
Three Months Ended March 31             2000          1999
---------------------------------------------------------------
(In thousands of dollars)
   Life                                 $ 18,843      $ 17,663
   Accident and Health                    58,337        57,010
---------------------------------------------------------------
     Total                              $ 77,180      $ 74,673
===============================================================






                                       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 is exploring the sale of its
individual life insurance and life reinsurance businesses. This potential sale
would include the sale of VFL and Assurance. CNA has engaged the services of an
investment banking firm to assist with this effort. At this time, a buyer has
not been identified.

         As expected, several of the major rating agencies placed the ratings of
Assurance and VFL under review as a result of this announcement. Each rating
agency has slightly different terms for this special review: Standard & Poor's
placed the rating on CreditWatch with developing implications; A.M. Best placed
the rating under review with developing implications; Duff & Phelps placed the
rating on Rating Watch--Uncertain, implying it could be upgraded or downgraded
in the future; Moody's placed the rating under review with Direction Uncertain,
implying it could be upgraded or downgraded in the future. When an insurance
company experiences a significant event which might be pertinent to its
financial strength rating or claims-paying ability rating, the major ratings
agencies generally place that company's rating under special review. Such events
may include merger, sale, recapitalization, regulatory action, or other
significant event.







                                       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 ended March 31, 2000 and 1999.


<TABLE>
<CAPTION>
Three Months Ended March 31                                                    2000        1999
-------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S>                                                                        <C>          <C>
Operating Revenues (excluding realized
  investment gains (losses) )
   Premiums                                                                 $ 77,180     $ 74,673
   Net investment income                                                      11,087        9,104
   Other                                                                       2,515        1,665
                                                                          -----------  -----------
        Total operating revenues                                              90,782       85,442
Benefits and expenses                                                         81,301       79,408
                                                                          -----------  -----------
     Operating income before income tax expense and cumulative
          effect of change in accounting principle                             9,481        6,034
Income tax expense                                                            (2,904)      (2,134)
                                                                          -----------  -----------
     Net operating income before realized investment gains (losses)
           and cumulative effect of change in accounting principle             6,577        3,900
     Realized investment gains (losses), net of tax                           (2,179)      (3,047)
                                                                          -----------  -----------
     Income before cumulative effect of change in accounting                   4,398          853
     Cumulative effect of change in accounting principle , net of tax              -         (234)
--------------------------------------------------------------------------------------------------
     Net income                                                             $  4,398     $    619
==================================================================================================
</TABLE>

         VFL's operating revenues, excluding net realized investment
gains/losses, increased 6.3% to $90.8 million for the first quarter in 2000 as
compared to $85.4 million for the same time period in 1999. Premiums for the
first quarter in 2000 increased 3.4% to $77.2 million as compared to $74.7
million for the first quarter in 1999,resulting from strong growth in term
products associated with an increase of pre-Regulation XXX sales and sales of
long term care products.

         VFL's net investment income increased 21.8% to $11.1 million through
March 31, 2000 from $9.1 million in the same period in 1999. The increase in the
first quarter 2000 net investment income compared to that of 1999 is due to the
increase in average invested assets.





                                       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 period ending March 31,
2000, increased $3.4 million or 57.1% from March 31, 1999 despite a $2.4 million
increase in insurance claims and policyholder benefits costs. Other operating
expenses decreased 4.6% while premium revenue increased 3.4% for the first
quarter in 2000. Other operating income includes various fee income and the fee
income from the Separate Accounts. On an after tax basis, net income for the
first quarter of 2000 was up $3.8 million as a result of strong earnings in
retirement related and term products.

FINANCIAL CONDITION

         Assets totaled $3.7 billion at March 31, 2000, an increase of 6.0% over
year-end 1999. Major factors for the increase in VFL assets were reinsurance
receivables, primarily insurance activity with Assurance, up 4.3% from December
31, 1999. VFL separate account assets increased $87.3 million from year-end 1999
primarily due to increased investment options and increased marketing efforts.
VFL's cash and invested assets of $660.1 million increased by $7.3 million, or
1.1%, over the December 31, 1999 level of $652.8 million.

         VFL's stockholder's equity was $258.0 million at March 31, 2000,
compared to $252.2 million at December 31, 1999.

INVESTMENTS

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

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Distribution of Investments                                                       March 31                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              $ 203,377     30.6%         $ 253,041       37.9%
   Asset-backed securities                                                        100,532     15.2            107,275       16.1
   Other debt securities                                                          212,518     32.1            188,128       28.2
                                                                          ---------------- --------    ---------------  ---------
      Total fixed maturity securities                                             516,427     77.9            548,444       82.2
Common stocks                                                                           -        -                  -          -
Policy loans                                                                       94,937     14.3             93,575       14.0
Short-term investments                                                             50,830      7.7             24,714        3.7
Other invested assets                                                                 390      0.1                406        0.1
--------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS AT AMORTIZED COST                                                   $ 662,584    100.0%         $ 667,139      100.0%
================================================================================================================================
Investments at Carrying Value*                                                  $ 649,188                   $ 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






                                       11
<PAGE>   12
                       VALLEY FORGE LIFE INSURANCE COMPANY
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

         VFL's investments in fixed maturities are carried at a fair value of
$503.1 million at March 31, 2000, compared with $530.5 million at December 31,
1999. At March 31, 2000, the net unrealized loss on fixed maturities amounted to
approximately $8.7 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.

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

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                                 March 31                   December 31
(In thousands of dollars)                         2000          %             1999         %
----------------------------------------------------------------------------------------------
<S>                                             <C>         <C>            <C>          <C>
U.S. Government and affiliated securities       $ 230,461     45.8         $ 281,680     53.1
Other AAA rated                                    71,825     14.3            73,360     13.8
AA and A rated                                     91,056     18.1            61,068     11.5
BBB rated                                          91,329     18.1            94,969     17.9
Below investment grade                             18,427      3.7            19,435      3.7
----------------------------------------------------------------------------------------------
     Total                                      $ 503,098    100.0%        $ 530,512    100.0%
==============================================================================================
</TABLE>

         The fair value of VFL's fixed maturities at March 31, 2000, includes
$97.0 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.

         CMOs/MBS' are subject to prepayment risk that tend to vary with changes
in interest rates. During periods of declining interest rates, CMOs/MBS'
generally prepay faster as the underlying mortgages are prepaid and refinanced
by the borrowers in order to take advantage of the lower rates. Conversely,
during periods of rising interest rates, prepayments are generally slow, which
may result in a decrease in yield as a result of the slower prepayments. VFL
limits the risks associated with interest rate fluctuations and prepayments by
concentrating its CMO investments in structured classes. At March 31, 2000, net
unrealized losses on CMOs amounted to approximately $1.8 million compared to a
$2.2 million unrealized loss for the year 1999.

         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 March 31, 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.






                                       12
<PAGE>   13


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

         For the period ended March 31, 2000, VFL's operating activities
provided cash of $14.2 million, compared with $6.4 million for the same period
in 1999. The positive net operating cash flows in the first quarter 2000 are
primarily the result of premium receipts in excess of benefit payments,
supplemented by increased receipts of ceding allowances and decreased operating
expenses. 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.

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.






                                       13
<PAGE>   14

                       VALLEY FORGE LIFE INSURANCE COMPANY
                            PART II OTHER INFORMATION

ITEM 5.  OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS:

                           Description of Exhibit

                                      Exhibit              Page
                                      Number              Number

    Financial Data Schedule             27                  16


(b) REPORTS ON FORM 8-K:

  There were no reports on Form 8-K for the three months ended March 31, 2000.










                                       14
<PAGE>   15


                       VALLEY FORGE LIFE INSURANCE COMPANY
                      PART II OTHER INFORMATION - CONCLUDED


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.

Valley Forge Life Insurance Company

By   ROBERT V. DEUTSCH
     -----------------
Robert V. Deutsch
Director, Senior Vice President
And Chief Financial Officer

Date:   May 12, 2000










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