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

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


                       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 SEPTEMBER 30,1998 COMMISSION FILE NUMBER 333-1087

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

                       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 X No
                                              -   -
                     
         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 NOVEMBER 1, 1998
------------------------------                 -------------------------------
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.

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

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

                                  Page 1 of 22

<PAGE>
          

                      VALLEY FORGE LIFE INSURANCE COMPANY

                                      INDEX


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


CONDENSED FINANCIAL STATEMENTS:

   BALANCE SHEETS
     SEPTEMBER 30, 1998 (Unaudited) AND DECEMBER 31, 1997...................   3
 
   STATEMENTS OF OPERATIONS (Unaudited)
     FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997........   4
 
   STATEMENTS OF STOCKHOLDER'S EQUITY (Unaudited)
     FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997..................   5

   STATEMENTS OF CASH FLOWS (Unaudited)
     FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997..................   6

   NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
     SEPTEMBER 30, 1998.....................................................   7
   
   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
     CONDITION AND RESULTS OF OPERATIONS....................................  11


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

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K.................................  20

SIGNATURES .................................................................  21

EXHIBIT 27.   FINANCIAL DATA SCHEDULE.......................................  22









                                       2
<PAGE>
<TABLE>
<CAPTION>
                       VALLEY FORGE LIFE INSURANCE COMPANY

                                 BALANCE SHEETS

---------------------------------------------------------------------------------------------------
                                                                      SEPTEMBER 30    DECEMBER 31
                                                                          1998           1997
                                                                       (Unaudited)
---------------------------------------------------------------------------------------------------
(In thousands of dollars) 
ASSETS:
   Investments:
<S>                                                                    <C>           <C>           
     Fixed maturities available-for-sale (cost: $416,288 and $466,267)  $  436,541    $  471,707
     Equity securities available-for-sale (cost: $981 and $981)              2,573         2,260
     Policy loans                                                           70,630        66,971
     Other invested assets                                                      25           433
     Short-term investments                                                 81,854         4,597
                                                                        ----------    ----------
          Total investments                                                591,623       545,968
   Cash                                                                      1,588        24,565
   Receivables:
     Reinsurance                                                         2,187,784     1,586,471
     Premium and other insurance                                            58,769        65,196
     Less allowance for doubtful accounts                                     (285)         (285)
   Deferred acquisition costs                                              105,304        95,354
   Accrued investment income                                                 7,712         5,245
   Receivables for securities sold                                           1,567           744
   Due from affiliates                                                          -         35,999
   Other                                                                     3,060           228
   Separate Account business                                                53,505         8,941
---------------------------------------------------------------------------------------------------
          TOTAL ASSETS                                                  $3,010,627    $2,368,426
===================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY:
Liabilities:
   Insurance reserves:
     Future policy benefits                                             $2,486,965    $1,906,899
     Claims                                                                116,281        81,242
     Policyholders' funds                                                   41,305        39,928
   Payables for securities purchased                                           408           497
   Federal income taxes payable                                              6,651         5,975
   Deferred income taxes                                                    12,674         4,098
   Due to affiliates                                                         2,081            -
   Commissions and other payables                                           57,259       104,586
   Separate Account business                                                53,505         8,941
                                                                        ----------    ----------
          TOTAL LIABILITIES                                              2,777,129     2,152,166
                                                                        ----------    ----------
Stockholder's Equity
   Common stock ($50 par value; Authorized-200,000 shares;
       Issued-50,000 shares)                                                 2,500         2,500
   Additional paid-in capital                                               39,150        39,150
   Retained earnings                                                       178,748       170,230
   Accumulated other comprehensive income                                   13,100         4,380
                                                                        ----------    ----------
          TOTAL STOCKHOLDER'S EQUITY                                       233,498       216,260
---------------------------------------------------------------------------------------------------
          TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY                    $3,010,627    $2,368,426
===================================================================================================
<FN>
               See accompanying Notes to Condensed Financial Statements (Unaudited).

</FN>
</TABLE>
                                       3
<PAGE>

<TABLE>
<CAPTION>


                       VALLEY FORGE LIFE INSURANCE COMPANY

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)
----------------------------------------------------------------------------------------------------
                                                        THIRD QUARTER             NINE MONTHS
PERIOD ENDED SEPTEMBER 30                             1998        1997        1998         1997
----------------------------------------------------------------------------------------------------
(In thousands of dollars) 
Revenues:
<S>                                                 <C>         <C>         <C>         <C>      
   Premiums                                          $76,936     $82,622     $231,516    $247,397
   Net investment income                               8,879       7,676       26,502      22,937
   Realized investment gains                             967       1,282        4,480       1,149
   Other                                               1,113       2,151        5,269       4,902
                                                     -------     -------     --------    --------
                                                      87,895      93,731      267,767     276,385
                                                     -------     -------     --------    --------

Benefits and expenses:
   Insurance claims and policyholders' benefits       74,163      78,528      219,544     233,364
   Amortization of deferred acquisition costs          3,465       3,997        8,632       6,817
   Other operating expenses                            9,825       5,164       26,396      22,778
                                                     -------     -------     --------    --------
                                                      87,453      87,689      254,572     262,959
                                                     -------     -------     --------    --------
     Income before income tax                            442       6,042       13,195      13,426
Income tax expense                                       123       2,188        4,677       4,836
-----------------------------------------------------------------------------------------------------
     NET INCOME                                      $   319     $ 3,854     $  8,518    $  8,590
=====================================================================================================
<FN>

                       See accompanying Notes to Condensed Financial Statements (Unaudited).
</FN>
</TABLE>

                                       4
<PAGE>
<TABLE>
<CAPTION>


                      VALLEY FORGE LIFE INSURANCE COMPANY

                       STATEMENTS OF STOCKHOLDER'S EQUITY
                                   (Unaudited)

--------------------------------------------------------------------------------------------------------------------
                                                                                       Accumulated
                                                Additional                                Other          Total
                                        Common   Paid-in   Comprehensive   Retained  Comprehensive   Stockholder's
                                        Stock    Capital      Income       Earnings      Income         Equity
--------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S>                                   <C>       <C>          <C>          <C>           <C>          <C>      
Balance, January 1, 1997               $2,500    $39,150                   $156,900      $   990      $199,540
Comprehensive income:
   Net income                              -          -       $ 8,590         8,590           -          8,590
Other comprehensive income:
   Change in other comprehensive income    -          -         1,891            -         1,891         1,891
                                                              -------
   Total comprehensive income                                 $10,481
                                                              =======

----------------------------------------------------------                 -----------------------------------------
BALANCE,  SEPTEMBER 30, 1997           $2,500    $39,150                   $165,490      $ 2,881      $210,021
==========================================================                 =========================================

Balance, January 1, 1998               $2,500    $39,150                   $170,230      $ 4,380      $216,260
Comprehensive income:
   Net income                              -           -       $ 8,518        8,518           -          8,518
Other comprehensive income:
   Change in other comprehensive income    -           -         8,720           -         8,720         8,720
                                                               -------
   Total comprehensive income                                  $17,238
                                                               =======

----------------------------------------------------------                 -----------------------------------------
BALANCE, SEPTEMBER 30, 1998            $2,500    $39,150                   $178,748      $13,100      $233,498
==========================================================                 =========================================
<FN>
                           See accompanying Notes to Condensed Financial Statements (Unaudited).
</FN>
</TABLE>


                                       5
<PAGE>
<TABLE>
<CAPTION>

                       VALLEY FORGE LIFE INSURANCE COMPANY

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

--------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30                                                        1998           1997
--------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                <C>           <C>    
   Net income                                                                       $  8,518      $  8,590
                                                                                    --------      --------
   Adjustments  to  reconcile  net  income  to net  cash  flows  from  operating
          activities:
     Net realized investment (gains) losses, pre-tax                                  (4,480)       (1,149)
     Amortization of bond discount                                                    (3,684)       (4,676)
     Changes in:
        Insurance receivables, net                                                  (594,886)     (178,867)
        Deferred acquisition costs                                                   (11,832)      (19,175)
        Accrued investment income                                                     (2,467)       (1,392)
        Due from affiliates                                                           38,080       (90,384)
        Federal income taxes                                                             676         2,137
        Deferred income taxes                                                          3,880         3,129
        Insurance reserves                                                           686,506       127,464
        Commissions and other payables                                               (49,988)        6,852
                                                                                    --------      --------
            Total adjustments                                                         61,805      (156,061)
                                                                                    --------      --------
            NET CASH FLOWS FROM OPERATING ACTIVITIES                                  70,323      (147,471)
                                                                                    --------      --------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of fixed maturities                                                    (253,512)     (170,107)
   Proceeds from fixed maturities:
     Sales                                                                           278,402       186,958
     Maturities, calls and redemptions                                                30,757        19,659
   Change in short-term investments                                                  (75,428)       22,013
   Change in policy loans                                                             (3,659)       (5,599)
   Change in other invested assets                                                       165            -
                                                                                    --------      --------
           NET CASH FLOWS FROM INVESTING ACTIVITIES                                  (23,275)       52,924
                                                                                    --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES
   Receipts from investment contracts credited to policyholder account balances       47,914        84,121
   Return of policyholder account balances on investment contracts                  (117,939)       (8,850)
                                                                                    --------      --------
           NET CASH FLOWS FROM FINANCING ACTIVITIES                                  (70,025)       75,271
                                                                                    --------      --------
           NET CASH FLOWS                                                            (22,977)      (19,276)
Cash at beginning of period                                                           24,565        24,759
--------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD                                                               $  1,588      $  5,483
==============================================================================================================
Supplemental disclosures of cash flow information:
        Federal income taxes received                                               $     -       $    506
==============================================================================================================
<FN>
                           See accompanying Notes to Condensed Financial Statements (Unaudited).
</FN>
</TABLE>

                                       6
    
<PAGE>

                       VALLEY FORGE LIFE INSURANCE COMPANY

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1998
                                   (Unaudited)

                                                     

NOTE 1. BASIS OF PRESENTATION:

    Valley Forge Life Insurance  Company (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).  Loews Corporation owns approximately 85% 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,  universal  life,
annuity,  variable annuity and variable universal life. Group insurance products
include  life,  accident and health  consisting  primarily of major  medical and
hospitalization,  variable  annuities and pension  products,  such as guaranteed
investment contracts and annuities.

    The operations, assets and liabilities of VFL and its parent, Assurance, are
managed,  to a large  extent,  on a combined  basis.  Pursuant to a  Reinsurance
Pooling Agreement, VFL cedes all of its business, excluding its Separate Account
business,  to its  parent,  Assurance.  This  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 operating results for the interim periods are not necessarily indicative
of the results to be expected for the full year. These statements should be read
in conjunction with the financial statements and notes thereto included in VFL's
Form 10-K for the year ended  December 31, 1997,  filed with the  Securities and
Exchange Commission on March 31, 1998, and the information shown below.

    The  accompanying  condensed  financial  statements  have been  prepared  in
conformity  with  generally  accepted  accounting  principles.  Certain  amounts
applicable to prior years have been  reclassified to conform to  classifications
followed in 1998.

    The  preparation  of  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Actual  results  could differ from those  estimates.  In the
opinion  of  VFL's  management,   these  statements   include  all  adjustments,
consisting  of  normal  recurring  accruals,  which are  necessary  for the fair
presentation of the financial position, results of operations, and cash flows.





                                       7

<PAGE>

                       VALLEY FORGE LIFE INSURANCE COMPANY

               NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED

NOTE 2. REINSURANCE:

    VFL assumes and cedes  insurance  with other  insurers  and  reinsurers  and
members of various reinsurance pools and associations.  VFL utilizes reinsurance
arrangements  to limit its maximum loss, to provide greater  diversification  of
risk and to minimize  exposures on larger risks.  The reinsurance  coverages are
tailored to the specific  risk  characteristics  of each product line with VFL's
retained  amount  varying  by  type  of  coverage.  VFL's  reinsurance  includes
coinsurance,  quota  share,  yearly  renewable  term and  facultative  programs.
Amounts  recoverable  from reinsurers are estimated in a manner  consistent with
the future policy benefits reserves.

    The ceding of  insurance  does not  discharge  the primary  liability of the
original insurer.  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.  Further,  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  earned
premiums is from short duration contracts. The effects of reinsurance on premium
revenues are shown in the following schedule:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                                                   PREMIUMS                      ASSUMED/NET
                                 ------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30    DIRECT     ASSUMED     CEDED        NET              %
-----------------------------------------------------------------------------------------------
(In thousands of dollars)
1998
<S>                             <C>         <C>         <C>          <C>             <C>  
   Life                          $480,096   $ 57,725     $482,550     $ 55,271        104%
   Accident and Health              2,747    176,245        2,747      176,245        100
-----------------------------------------------------------------------------------------------
     TOTAL PREMIUMS              $482,843   $233,970     $485,297     $231,516        101%
===============================================================================================
1997
   Life                          $411,979   $ 59,680     $413,443     $ 58,216        103%
   Accident and Health              1,908    189,181        1,908      189,181        100
-----------------------------------------------------------------------------------------------
     TOTAL PREMIUMS              $413,887   $248,861     $415,351     $247,397        101%
===============================================================================================
</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 $176.7  million for the nine month  period ended
September 30, 1998 and $77.7 million for the same period in 1997,  respectively.
Additionally,   insurance  claims  and   policyholders'   benefits  are  net  of
reinsurance  recoveries from non-affiliated  companies of $132.4 million for the
period ended September 30, 1998, and $10.6 million for the same period in 1997.

     Reinsurance  receivables  reflected on the balance sheet represent  amounts
due from reinsurers in connection with the cessions of insurance reserves. These
balances,  which were  approximately  $2.0 billion and $1.5 billion at September
30, 1998 and December 31, 1997, respectively, are principally due from Assurance
pursuant the Reinsurance Pooling Agreement.


                                       8
<PAGE>                  

                       VALLEY FORGE LIFE INSURANCE COMPANY

               NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED


NOTE 3. LEGAL PROCEEDINGS:

   VFL is party to litigation 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 equity of VFL.


NOTE 4. ACCUMULATED OTHER COMPREHENSIVE INCOME:


   Comprehensive  income is  comprised of all changes to  stockholder's  equity,
including net income,  except those changes resulting from investments by owners
and distributions to owners.  Other comprehensive income is comprehensive income
exclusive  of net income.  The change in the  components  of  accumulated  other
comprehensive income (loss) are shown below:
  

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                                       PRE-TAX    TAX (EXPENSE)      NET
THREE MONTHS ENDED SEPTEMBER 30                                         AMOUNT       BENEFIT        AMOUNT
-------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
1998
Net unrealized gains (losses) on investment securities:
<S>                                                                  <C>           <C>            <C>   
   Net unrealized holding gains (losses) arising during the period    $12,575       $(4,401)       $8,174
   Adjustment for (gains) losses included in net income                  (372)          130          (242)
=============================================================================================================
TOTAL OTHER COMPREHENSIVE INCOME                                      $12,203       $(4,271)       $7,932
=============================================================================================================
Net unrealized gains (losses) on investment securities:
   Net unrealized holding gains (losses) arising during the period    $ 4,076       $(1,427)       $2,649
   Adjustment for (gains) losses included in net income                  (813)          285          (528)
=============================================================================================================
TOTAL OTHER COMPREHENSIVE INCOME                                      $ 3,263       $(1,142)       $2,121
=============================================================================================================

-------------------------------------------------------------------------------------------------------------
                                                                       PRE-TAX     TAX (EXPENSE)     NET
NINE MONTHS ENDED SEPTEMBER 30                                          AMOUNT        BENEFIT       AMOUNT
-------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
1998
Net unrealized gains (losses) on investment securities:
   Net unrealized holding gains (losses) arising during the period    $10,825        $(3,789)       $7,036
   Adjustment for (gains) losses included in net income                 2,590           (906)        1,684
=============================================================================================================
TOTAL OTHER COMPREHENSIVE INCOME                                      $13,415        $(4,695)       $8,720
=============================================================================================================
1997
Net unrealized gains (losses) on investment securities:
   Net unrealized holding gains (losses) arising during the period    $ 2,600        $  (910)       $1,690
   Adjustment for (gains) losses included in net income                   309           (108)          201
=============================================================================================================
TOTAL OTHER COMPREHENSIVE INCOME                                      $ 2,909        $(1,018)       $1,891
=============================================================================================================
</TABLE>


                                        9
<PAGE>



                       VALLEY FORGE LIFE INSURANCE COMPANY

               NOTES TO CONDENSED FINANCIAL STATEMENTS - CONCLUDED

NOTE 5. RESTRUCTURING CHARGES:
 

     In the third quarter of 1998, the Company's ultimate parent, CNAF, recorded
pre-tax  restructuring  and other related charges  totaling $220 million.  These
charges  primarily  related to a net  reduction  in the current  workforce,  the
consolidation of certain processing centers,  the closing of various facilities,
the exiting of certain  businesses  and the write-off of assets related to these
activities.  $37 million of these  charges  related to the  Employer  Health and
Affinity line of business which Assurance  decided to exit.  VFL's allocation of
these charges as a result of the  reinsurance  pooling  agreement with Assurance
was $3.7 million.






                                       10
<PAGE>

                       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  and notes thereto found on pages 3 to 10 which
contain  additional  information  helpful in  evaluating  operating  results and
financial condition.

    Valley Forge Life Insurance  Company (VFL) sells a variety of individual and
group insurance products. The individual insurance products consist primarily of
term,  universal life,  annuity,  variable annuity and variable  universal life.
Group insurance products include life, accident and health consisting  primarily
of major medical and  hospitalization,  variable annuities and pension products,
such as guaranteed investment contracts and annuities.

    The operations,  assets and  liabilities of VFL and its parent,  Continental
Assurance  Company  (Assurance),  are managed,  to a large extent, on a combined
basis.  Pursuant  to a  Reinsurance  Pooling  Agreement,  VFL  cedes  all of its
business,  excluding its separate account  business,  to its parent,  Assurance.
This  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.


   CNA  Financial   Corporation  (CNAF)  is  a  holding  company  whose  primary
subsidiaries  consist  of   property/casualty   and  life  insurance  companies,
collectively  CNA.  CNAF is the ultimate  parent of VFL. On August 5, 1998,  CNA
announced estimates of the financial  implications of its initiatives to achieve
world-class performance. "World-class performance", as defined by CNA, refers to
CNA's  intention to position  each of its strategic  business  units (SBUs) as a
market leader by sharpening  its focus on customers and employing new technology
to  work  smarter  and  faster.  As  a  result  of  these  initiatives,  CNA  is
reorganizing a number of its SBUs and corporate support areas.  Certain of these
initiatives will affect VFL.


   In the third quarter of 1998 CNAF recorded a pre-tax restructuring charge and
other related charges totaling $220 million.  These charges primarily related to
a  net  reduction  in  the  current  workforce,  the  consolidation  of  certain
processing centers, the closing of various facilities and the exiting of certain
businesses  and the write-offs of assets  related to the these  activities.  $37
million of these  charges  related to the Employer  Health and Affinity  line of
business which Assurance decided to exit. VFL's allocation of these charges as a
result of the reinsurance pooling agreement with Assurance was $3.7 million.


                   
                                       11
<PAGE>


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

RESULTS OF OPERATIONS:


    The following table summarizes key components of VFL's operating results for
the three and nine months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                    THIRD QUARTER            NINE MONTHS
PERIOD ENDED SEPTEMBER 30                         1998         1997       1998        1997
--------------------------------------------------------------------------------------------------
(In thousands of dollars)
OPERATING SUMMARY
    (excluding realized investment gains/losses):
Revenues:
<S>                                              <C>        <C>          <C>          <C>     
     Individual premium                           $12,346    $14,071      $ 39,273     $ 43,351
     Group premium                                 64,590     68,551       192,243      204,046
                                                  -------    -------      --------     --------
        Total premiums                             76,936     82,622       231,516      247,397
     Net investment income                          8,879      7,676        26,502       22,937
     Other                                          1,113      2,151         5,269        4,902
                                                  -------    -------      --------     --------
        Total revenues                             86,928     92,449       263,287      275,236
Benefits and expenses                              87,453     87,689       254,572      262,959
                                                  -------    -------      --------     --------
     Operating income before income tax              (525)     4,760         8,715       12,277
Income tax benefit (expense)                          216     (1,766)       (3,109)      (4,434)
                                                  --------   -------      --------     --------
        Net operating income                         (309)     2,994         5,606        7,843
Net realized investment gains                         628        860         2,912          747
--------------------------------------------------------------------------------------------------
        NET INCOME                                $   319     $3,854      $  8,518     $  8,590
==================================================================================================
</TABLE>

    VFL's revenues, excluding net realized investment gains/losses,  were $263.3
million  for the first nine months of 1998,  compared to $275.2  million for the
same  period in 1997.  Premiums  were $231.5  million for the nine months  ended
September 30, 1998,  compared to $247.4 million for the same period in 1997. For
the nine month period of 1998,  individual  premiums  decreased by 9.4% to $39.3
million, from $43.4 million for the same period in 1997. This decrease is due in
part to a decline in individual annuity premiums as CNA's marketing efforts have
shifted to more profitable products.  Group premiums were $192.2 million for the
first nine  months of 1998,  compared  to $204.0  million for the same period in
1997. The decrease in group premiums is primarily due to lower Federal  Employee
Health Benefit Plan (FEHBP)  premiums and a reduction in group health  premiums.
The decrease in FEHBP  premiums is a result of improved  claim  experience  upon
which the premiums are based and continues the trend from the first two quarters
of this year.

    Premiums for the three months ended  September 30, 1998 were $76.9  million,
compared  to $82.6  million  for the same  period in 1997.  Individual  premiums
decreased by 12.3% to $12.3  million for the three months  ended  September  30,
1998, from $14.1 million for the same period in 1997. For the three months ended
September 30, 1998, group premium  decreased to $64.6 million from $68.6 million
for the same period in 1997.  The  decrease in net premiums for the three months
ended  September 30, 1998 were  primarily due to lower  premiums for  individual
annuity and FEHBP business.


                                       12
<PAGE>


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


    VFL's  investment  income for the nine months ended  September  30, 1998 was
$26.5 million, an approximate increase of $3.6 million or 15.5% to $22.9 million
for the same period in 1997. The increase is primarily attributable to a larger
asset base of VFL's  investment  portfolio  generated  from increased cash flows
from premium growth in 1997. Investment income was $8.9 million and $7.7 million
for the three months ended September 30, 1998 and 1997, respectively.

Benefits  and expenses  were $254.6  million for the nine month period ended
September 30, 1998,  as compared to $263.0  million for the same period in 1997.
Benefits and expenses for the three months and nine months ended  September  30,
1998  include  $3.7  million  related to  restructuring  charges that were taken
during the  quarter.  The  decrease in benefits  and expenses was related to the
decrease in premiums, as noted above.

    The decrease in pre-tax operating income of $3.6 million to $8.7 million for
the nine month period ended  September  30, 1998 is primarily  due to the charge
taken in the third quarter related to restructuring.
 
    Realized  investment  gains,  net of tax,  for the first nine  months  ended
September 30, 1998 were $2.9 million,  compared to net realized investment gains
for the same period in 1997 of $0.7 million.  Realized  investment gains, net of
tax, for the three months ended  September 30, 1998 were $0.6 million,  compared
to net realized investment gains of $0.9 million for the same period in 1997.

FINANCIAL CONDITION: 
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
FINANCIAL POSITION                                                  SEPTEMBER 30    DECEMBER 31
                                                                         1998          1997
---------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S>                                                                  <C>           <C>       
Assets                                                                $3,010,627    $2,368,426
Cash and invested assets                                                 593,211       570,533
Stockholder's equity                                                     233,498       216,260
Net unrealized investment gains included in stockholder's equity          13,100         4,380
---------------------------------------------------------------------------------------------------
</TABLE>
     Assets  increased  approximately  $642.2  million from December 31, 1997 to
$3,010.6  million as of  September  30,  1998.  VFL's cash and  invested  assets
increased  by  approximately  $22.7  million  from  December  31, 1997 to $593.2
million. Ceded insurance reserves, included in reinsurance receivables,  totaled
$2,187.8  million at  September  30,  1998,  an increase of $601.3  million from
December  31,  1997.  This  increase  is  caused  by a  change  in some of VFL's
reinsurance contracts to coinsurance.

     During the first nine months of 1998, VFL's stockholder's  equity increased
by $17.2 million,  or 8.0%, to  approximately  $233.5  million.  The increase in
stockholder's  equity in 1998 is due to net income of approximately $8.5 million
and an  approximate  $8.7 million  increase in accumulated  other  comprehensive
income.  Accumulated  other  comprehensive  income  is  comprised  primarily  of
unrealized gains and losses.

                                     13

<PAGE>
                       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 at September 30, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
DISTRIBUTION OF INVESTMENTS                  SEPTEMBER 30              DECEMBER 31
                                                 1998         %           1997        %
---------------------------------------------------------------------------------------------
(In thousands of dollars)
Fixed maturity securities:
        U.S. Treasury Securities and
<S>                                           <C>           <C>        <C>           <C>    
        obligations of government agencies     $247,298       43.3%     $299,066      55.4%
        Asset backed securities                  83,343       14.6        68,612      12.7
        Corporate debt securities                62,456       11.0        51,355       9.5
        Other debt securities                    23,191        4.1        47,234       8.8
---------------------------------------------------------------------------------------------
          Total fixed maturity securities       416,288       73.0       466,267      86.4
Common stocks                                       981        0.2           981       0.2
Policy loans                                     70,630       12.4        66,971      12.4
Other invested assets                               505        0.1           579       0.1
Short-term investments                           81,854       14.3         4,597       0.9
---------------------------------------------------------------------------------------------
INVESTMENTS AT AMORTIZED COST                   $570,258     100.0%     $539,395     100.0%
=============================================================================================
INVESTMENTS AT CARRYING VALUE*                  $591,623                $545,968
=============================================================================================
<FN>
* As reported in the Balance Sheet
</FN>
</TABLE>
    The operations,  assets and liabilities of VFL and Assurance are, to a large
extent,  managed on a combined  basis.  The  investment  portfolio is managed to
maximize  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's  investments in fixed maturity  securities are carried at a fair value
of $436.5  million at  September  30,  1998,  compared  with  $471.7  million at
December 31, 1997. At September 30, 1998, net unrealized gains on fixed maturity
securities  amounted to  approximately  $20.3  million.  This  compares with net
unrealized gains of  approximately  $5.4 million at December 31, 1997. The gross
unrealized gains and losses for the fixed maturities  portfolio at September 30,
1998 were $20.8 million and $0.5 million, respectively, compared to $6.2 million
and $0.8 million, respectively, at December 31, 1997.

    VFL's  investments  in equity  securities are carried at their fair value of
$2.6  million and $2.3  million at  September  30, 1998 and  December  31, 1997,
respectively.  At September  30,  1998,  unrealized  gains on equity  securities
amounted to approximately  $1.6 million.  This compares with unrealized gains of
approximately $1.3 million at December 31, 1997. There were no unrealized losses
on equity securities at September 30, 1998 and December 31, 1997.

    VFL has the  capacity  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 maturity securities are classified as available-for-sale.
                                       14
<PAGE>
                       VALLEY FORGE LIFE INSURANCE COMPANY
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS -CONTINUED

    The following table summarizes the ratings of VFL's fixed maturity portfolio
at carrying value (market):
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                           SEPTEMBER 30     %     DECEMBER 31    %
                                               1998                   1997
--------------------------------------------------------------------------------------
(In thousands of dollars)
<S>                                          <C>         <C>     <C>          <C>   
U.S. government and affiliated securities     $282,690    64.8%   $300,676     63.8%
Other AAA rated                                 76,944    17.6      75,531     16.0
AA and A rated                                  52,744    12.1      61,404     13.0
BBB rated                                       24,163     5.5      27,292      5.8
Below investment grade                               0       -       6,804      1.4
--------------------------------------------------------------------------------------
     TOTAL                                    $436,541   100.0%   $471,707    100.0%
======================================================================================
</TABLE>
    Included in VFL's fixed maturity  securities at September 30, 1998 are $86.1
million  of  asset-backed  securities,  consisting  of  approximately  56.2%  in
collateralized  mortgage  obligations  (CMOs),  26.4% in U.S.  government agency
issued pass-through certificates 10.3% in corporate mortgage-backed pass-through
certificates  and 7.1% in corporate  asset-backed  obligations.  The majority of
CMOs held are U.S. government agency issues, which are actively traded in liquid
markets and are priced by broker-dealers.

    CMOs are  subject  to  prepayment  risk that  tends to vary with  changes in
interest  rates.  During  periods of declining  interest  rates,  CMOs 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. VFL limits the
risks   associated   with  interest  rate   fluctuations   and   prepayments  by
concentrating  its  CMO  investments  in  planned   amortization   classes  with
relatively  short principal  repayment  windows.  The fair value of asset-backed
securities  was more than the amortized cost by $2.8 million and $0.1 million at
September 30, 1998 and December 31, 1997,  respectively.  VFL avoids investments
in complex  mortgage  derivatives  and does not have any investments in mortgage
loans or real estate.

    VFL invests from time to time in derivative financial  instruments primarily
to reduce its exposure to market risk. VFL also uses derivatives to mitigate the
risk associated with certain  guaranteed annuity contracts by purchasing certain
options in a notional  amount  equal to the  original  customer  deposit.  VFL's
derivatives  are classified as other invested  assets and VFL generally does not
hold or issue these instruments for trading purposes.

    Derivative  financial  instruments  consist  of  interest  rate  caps in the
general account and purchased  options in the Separate Accounts at September 30,
1998.  The  gross  notional  or  contractual  amounts  of  derivative  financial
instruments in the general  account  totaled $50.0 million at both September 30,
1998 and December 31, 1997. The gross notional principal or contractual  amounts
of  derivative  financial  instruments  in the  Separate  Accounts  totaled $1.6
million  and  $1.5  million  at  September  30,  1998  and  December  31,  1997,
respectively.

    The fair value of derivative  financial  instruments in the general  account
and Separate  Accounts at September  30, 1998  totaled  $25.0  thousand and $0.4
million, respectively. The fair value of derivative financial instruments in the
general account and Separate  Accounts at December 31, 1997 totaled $0.4 million
and $0.3 million,  respectively.  Net realized  losses on  derivative  financial
instruments  held in the general  account  totaled  $0.4  million for the period

                                       15
<PAGE>

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

ended  September  30,  1998,  while net  realized  gains on  derivatives  in the
Separate  Accounts  were  $0.1  million  for  the  same  period.  There  were no
investments in derivative securities at September 30, 1997.

    High yield  securities are bonds rated below investment grade by bond rating
agencies, and other unrated securities which, in the opinion of management,  are
below investment grade (below BBB). High yield  securities  generally  involve a
greater  degree of risk than that of investment  grade  securities.  Returns are
intended to compensate  for the added risk.  The risk is also  considered in the
interest  rate  assumptions  in  the  underlying   insurance   products.   VFL's
concentration in high yield bonds was  approximately  0.3% of total assets as of
December 31, 1997. At September 30, 1998, VFL did not hold any high yield bonds.

LIQUIDITY AND CAPITAL RESOURCES:

    VFL's principal cash flow sources are premiums,  investment income, receipts
for  investment  contracts  sold and sales and  maturities  of  investment.  The
primary  cash flow uses are payments for claims,  policy  benefits,  payments on
matured policyholder contracts, purchases of investment securities and operating
expenses.

    For the nine  months  of 1998,  VFL's  operating  activities  generated  net
positive cash flows of $70.3  million,  compared with net negative cash flows of
$147.5 million for the same period in 1997.

    Management  believes  that future  liquidity  needs will be met primarily by
cash generated  from  operations.  Net cash flows from  operations are generally
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.

IMPACT OF YEAR 2000 ON VFL:

    The  widespread  use of  computer  programs,  both in the United  States and
internationally,  that rely on two digit date fields to perform computations and
decision  making  functions  may cause  computer  systems  to  malfunction  when
processing  information  involving dates  beginning in 1999.  Such  malfunctions
could  lead to  business  delays  and  disruptions.  All  subsidiaries  of CNAF,
including VFL, utilize the same systems in conducting day-to-day operations. VFL
is in the process of renovating or replacing  many of its legacy  systems and is
upgrading its systems to accommodate  business for the year 2000 and beyond.  In
addition,  VFL is  checking  embedded  systems in  computer  hardware  and other
infrastructure  such as elevators,  heating and ventilating systems and security
systems.  VFL's cost to upgrade and replace its systems will be included as part
of the total cost incurred by CNAF to replace and upgrade its systems.  To date,
89% of CNAF's  planned  hours have been  expended,  and a similar  percentage of
milestones have been completed.

     Approximately 81% of CNA's internal systems have been internally tested
so far and will be running in a production environment by December 1, 1998. This
deadline allows a full year for shake-out of already tested and implemented Year
2000 remediated  systems,  as well as for detection of any previously  
unidentified problems and for interacting with business partners and vendors 
that are still working on making their programs Year 2000 ready.


                                       16

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

    Based upon its current  assessment,  CNAF  estimates  that the total cost to
replace  and upgrade its systems to  accommodate  year 2000  processing  will be
approximately  $60.0 to $70.0 million.  VFL will be allocated its  proportionate
share of this cost upon  completion  of the upgrade.  As of September  30, 1998,
approximately  $48.0 million has been spent.  The historical  costs include some
limited  amounts for costs incurred prior to 1997.  However,  prior to 1997, VFL
did not  specifically  separate  technology  charges  for Year 2000  from  other
information  technology  charges.  In addition,  while some hardware charges are
included in the budget figures,  VFL's hardware costs are typically  included as
part of ongoing technology updates and not specifically as part of the Year 2000
project. All funds spent and to be spent will be financed from current operating
funds.

     VFL  believes  that it will be able to  resolve  the year  2000  issue in a
timely manner.  However,  due to the interdependent  nature of computer systems,
VFL may be adversely  impacted  depending  upon whether it or other entities not
affiliated  with  VFL  (vendors  and  business   partners)  address  this  issue
successfully. To mitigate this impact, VFL is communicating with its vendors and
business partners to coordinate year 2000 conversion. CNAF has already sent Year
2000 information  packages to more than 12,000  independent  agents to encourage
them to become Year 2000 ready in time. CNAF has also sent Year 2000 information
to almost 300,000 business policyholders to increase their awareness of the Year
2000 issue. Similar information packages have been sent to healthcare providers,
lawyers  and others  with whom we have  business  relationships.  Because of the
interdependent nature of the issue, VFL cannot be sure that there will not be a
disruption in its business.

     VFL has also developed business  resumption plans to ensure that it is able
to continue critical  processes through other means in the event that it becomes
necessary to do so. Formal  strategies have been developed  within each business
unit and support  organization to include appropriate recovery processes and use
of alternative vendors.  More than 200 strategies have been developed to address
recovery plans for  approximately  400 processes.  These plans are being updated
quarterly.  
   
ACCOUNTING STANDARDS:

    In June  1997,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement of Financial Accounting  Standards (SFAS) No. 131,  "Disclosures about
Segments of an Enterprise and Related  Information," which establishes standards
for the way that public business  enterprises report information about operating
segments  in interim and annual  financial  statements.  It requires  that those
enterprises report a measure of segment profit or loss, certain specific revenue
and expense items and segment  assets,  and that the  enterprises  reconcile the
total of those  amounts to the  general-purpose  financial  statements.  It also
establishes  standards  for related  disclosures  about  products and  services,
geographic areas and major customers.  This Statement is effective for financial
statements for periods  beginning  after December 15, 1997.  This Statement need
not be  applied to  interim  financial  statements  in the  initial  year of its
application. This Statement will redefine VFL's business segment disclosure.

                                       17
<PAGE>

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

    In December 1997, the American  Institute of Certified  Public  Accountants'
Accounting  Standards  Executive  Committee  issued  Statement of Position (SOP)
97-3,  "Accounting  by Insurance  and Other  Enterprises  for  Insurance-Related
Assessments," which provides guidance on accounting by entities that are subject
to   insurance-related   assessments.   It  requires  that  entities   recognize
liabilities for insurance-related assessments when all of the following criteria
have been met: an assessment has been imposed or a probable  assessment  will be
imposed; the event obligating an entity to pay an imposed or probable assessment
has occurred on or before the date of the financial  statements;  and the amount
of the  assessment  can be  reasonably  estimated.  This  SOP is  effective  for
financial  statements for fiscal years beginning after December 15, 1998. VFL is
currently   evaluating   the  effects  of  this  SOP  on  its   accounting   for
insurance-related assessments.

    In February  1998,  the FASB issued  SFAS No. 132,  "Employers'  Disclosures
about Pensions and Other Postretirement Benefits," which standardizes disclosure
requirements  for  pension  and  other  postretirement  benefits  to the  extent
practicable,  and  requires  additional  information  on changes in the  benefit
obligations  and fair  values  of plan  assets  that will  facilitate  financial
analysis.  The Statement  also suggests  combined  formats for  presentation  of
pension and other  postretirement  benefit  disclosures.  The Statement  changes
disclosure only and does not address measurement or recognition. It is effective
for fiscal  years  beginning  after  December 15,  1997.  VFL has no  employees;
however,  expenses are  allocated to VFL for  services  provided by  Continental
Casualty  Company  employees.  VFL is currently  evaluating  the effects of this
Statement on its benefit plan disclosures.

    In March 1998,  the  American  Institute of  Certified  Public  Accountants'
Accounting  Standards Executive  Committee issued SOP 98-1,  "Accounting for the
Costs of Computer  Software  Developed  or  Obtained  for  Internal  Use," which
provides  guidance on  accounting  for costs of computer  software  developed or
obtained for internal use and for determining  whether computer  software is for
internal  use.  For  purposes  of this SOP,  internal-use  software  is software
acquired,  internally developed or modified solely to meet the entity's internal
needs for which no substantive  plan exists or is being  developed to market the
software   externally   during  the  software's   development  or  modification.
Accounting  treatment for costs  associated with software  developed or obtained
for  internal  use,  as defined by this SOP,  is based upon a number of factors,
including  the point in time during the project  that costs are incurred as well
as the types of costs incurred.  This SOP is effective for financial  statements
for fiscal years beginning after December 15, 1998. VFL is currently  evaluating
the effects of this SOP.                                     

                                     18
<PAGE>

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


   In June 1998,  the FASB  issued  SFAS No.  133,  "Accounting  for  Derivative
Instruments  and  Hedging  Activities,"  which  establishes  standards  for  the
accounting and reporting for derivative  instruments and for hedging activities.
It  requires  that an entity  recognize  all  derivatives  as  either  assets or
liabilities in the statement of financial position 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 all quarters of
fiscal years  beginning  after June 15, 1999.  VFL is currently  evaluating  the
effects of this Statement on its accounting  and reporting for  derivatives  and
hedges.


FORWARD-LOOKING STATEMENTS

    When included in management's discussion and analysis, the words "believes,"
"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, general economic and business conditions,  competition, 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, and various other matters,  many of which are beyond VFL's control. See
the Company's discussions elsewhere in this report on how these risks may affect
VFL. These forward-looking statements speak only as of the date of this report.
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.





















                                       19
<PAGE>



                       VALLEY FORGE LIFE INSURANCE COMPANY

                            PART II OTHER INFORMATION

                                                      






ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS:

                  Description of Exhibit

                                            Exhibit                  Page
                                             Number                 Number

(27)  Financial Data Schedule                  27                     22



(b)  REPORTS ON FORM 8-K:

         There were no reports on Form 8-K for the three months ended  September
30, 1998.



                                       20
<PAGE>



                       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   S/W. James MacGinnitie
                                                -------------------------------
                                                W. James MacGinnitie
                                                Director, Senior Vice President
                                                and Chief Financial Officer


Date:         November 12, 1998















                                       21