SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-K

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934


For the fiscal year ended December 31, 1998   Commission file numbers 33-62791,
                                        33-62953, 33-88360, 33-89676, 33-89678,
                                     33-91400, 333-00995, 333-02867, 333-24989,
                                            333-25733, 333-25761 and 333-26695


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION

                    Incorporated in the State of Connecticut



            Connecticut                                         06-1241288     
    ------------------------------                          ------------------
   (State or other jurisdiction of                             IRS Employer
    incorporation or organization)                          Identification No.)


                 One Corporate Drive, Shelton, Connecticut 06484
               --------------------------------------------------
               (Address of Principal Executive Offices, Zip Code)


Registrant's telephone number, including area code: (203) 926-1888


Securities registered pursuant to Section 12(b) of the Act:  NONE
Securities registered pursuant to Section 12(g) of the Act:  NONE


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No ____

As of March 26, 1999, there were 25,000 shares of outstanding common stock, par
value $80 per share, of the  registrant, consisting of 100 shares of voting and
24,900  shares  of  non-voting  all of  which were  owned by  American  Skandia
Investment Holding Corporation,  a wholly-owned subsidiary of Skandia Insurance
Company Ltd., a Swedish corporation.




<PAGE>


PART I

Item 1.  Business

         American  Skandia  Life  Assurance  Corporation  ("ASLAC" or "the
         Company") is a Connecticut corporation with its principal offices
         in Shelton, Connecticut.

         American Skandia  Investment  Holding  Corporation (the "Parent")
         owns all of the issued and  outstanding  shares of the  Company's
         common stock. The Parent is a wholly-owned ultimate subsidiary of
         Skandia Insurance Company Ltd., a Swedish corporation.

         The  products  sold  by the  Company  are  sold  to  individuals,
         businesses  and pension  plans.  Annuities are used primarily for
         long-term savings and retirement purposes. Life insurance is used
         primarily  to address the  economic  impact of  premature  death,
         estate and business planning concerns and supplemental retirement
         needs.

         Annuity  contracts  represent a  contractual  obligation  to make
         payments over a given period of time (often  measured by the life
         of the  recipient),  undertaken  by the insurer in return for the
         payment  of  either  a single  purchase  payment  or a series  of
         scheduled or flexible purchase payments. The insurer's obligation
         to pay may commence  immediately or be deferred.  If the payments
         are deferred,  the insurer generally incurs an obligation to make
         a surrender value  available  during the deferral period based on
         an account value  established  using the purchase  payments.  The
         account  value  may be  credited  interest,  or may vary with the
         performance  of  investments  made by the  insurer.  Gains in the
         contracts before distribution are tax deferred. Distributions are
         taxed  as   ordinary   income.   During  the   deferral   period,
         distributions are assumed to come first from any gain in contract
         and loans are deemed distributions.  Distributions may be subject
         to a tax penalty. For immediate annuities and annuitized deferred
         annuities,  a portion of each  distribution may be treated as the
         return of the taxpayer's investment in the contract.

         Life insurance policies represent a contractual obligation to pay
         proceeds to a  beneficiary  upon the death of the  insured.  This
         obligation  is  undertaken  by the insurer in return for either a
         single  premium,  or a series of scheduled or flexible  premiums.
         Cash value life insurance represents an additional  obligation to
         make amounts  available  upon  surrender  or, in many cases,  for
         loans  collateralized  by policy values.  Distributions  upon the
         death of the insured are tax free in most circumstances. Gains in
         the contracts before distribution are tax deferred. Distributions
         subject  to  tax  are  subject  to  ordinary  income   treatment.
         Distributions  before  the  death of the  insured  from  policies
         deemed to be modified endowment  contracts are generally taxed in
         a manner similar to deferred annuities.  Distributions from other
         policies  before the  insured's  death are  assumed to come first
         from the  taxpayer's  investment  in the policy and loans are not
         deemed distributions.

         The  Company is  obligated  to carry in its  statutory  financial
         statements,  as  liabilities,  actuarial  reserves  to  meet  its
         obligations on outstanding  annuity or life insurance  contracts.
         This is required by the life  insurance  laws and  regulations in
         the jurisdictions in which ASLAC does business. Such reserves are
         based on mortality  and/or morbidity tables in general use in the
         United States.  In general,  reserves are computed  amounts that,
         with additions from premiums to be received, and with interest on
         such reserves  compounded at certain assumed rates,  are expected
         to  be  sufficient  to  meet  contractual  obligations  at  their
         maturities  if death  occurs  in  accordance  with the  mortality
         tables employed. In the accompanying financial statements,  these
         reserves for contractual obligations are determined in accordance
         with generally accepted accounting principles and are included in
         the   separate   account   liabilities,    reserve   for   future
         contractowner benefits and policy reserves.

         ASLAC is engaged in a business that is highly  competitive due to
         the large number of insurance  companies  and other  institutions
         competing  in the  marketing  and sale of  long-term  savings and
         insurance products.

         As of December  31,  1998,  the  Company had 734 direct  salaried
         employees.


<PAGE>


Item 2.  Properties

         The Company  occupies  office  space  leased  from an  affiliate,
         American Skandia Information Services and Technology Corporation,
         and believes that the current facilities are satisfactory for its
         near term needs.

Item 3.  Legal Proceedings

         As of the date of this filing, the Company is not involved in any
         litigation outside of the ordinary course of business,  and knows
         of no such material claims.

Item 4.  Submission of Matters to a Vote of Security Holders

         None



<PAGE>


PART II

Item 5.  Market for the Registrant's Common Equity and Related Stockholder
         Matters

         All of ASLAC's  outstanding  shares are owned by American Skandia
         Investment  Holding  Corporation,  a  wholly-owned  subsidiary of
         Skandia  Insurance  Company  Ltd.  The  Company  did  not pay any
         dividends to its Parent in 1998, 1997 and 1996.

Item 6.  Selected Financial Data

         The following table  summarizes  information  with respect to the
         operations of the Company.  The selected financial data should be
         read in conjunction  with the financial  statements and the notes
         thereto  and Item 7 -  Management's  Discussion  and  Analysis of
         Financial Condition and Results of Operations.
<TABLE>
<CAPTION>

         (in thousands)                                             FOR THE YEAR ENDED DECEMBER 31,                   
                                           --------------------------------------------------------------------------
<S>                                              <C>               <C>            <C>            <C>             <C> 
                                                 1998              1997           1996           1995            1994
                                                 ----              ----           ----           ----            ----
               Income Statement Data:
               Revenues:
               Annuity and life insurance
                  charges and fees*        $     186,211    $     121,158   $     69,780     $    38,837   $    24,780
               Fee income                         50,839           27,593         16,420           6,206         2,112
               Net investment income              11,130            8,181          1,586           1,601         1,300
               Premium income and
                   other revenues                  1,360            1,082            265              45            92
                                           -------------    -------------   ------------     -----------   -----------

               Total revenues              $     249,540    $     158,014   $     88,051     $    46,689   $    28,284
                                           =============    =============   ============     ===========   ===========

               Benefits and Expenses:
               Annuity benefits            $         558    $       2,033   $        613     $       555   $       370
               Change in annuity policy reserves   1,053               37            635          (6,779)        5,766
               Cost of minimum death benefit
                   reinsurance                     5,144            4,545          2,867           2,057         -
               Return credited to contractowners  (8,930)          (2,018)           673          10,613          (517)
               Underwriting, acquisition and
                   other insurance expenses      167,790           90,496         49,887          35,914        18,943
               Interest expense                   41,004           24,895         10,791           6,500         3,616
                                           -------------    -------------   ------------    ------------  ------------
               Total benefits and expenses $     206,619    $     119,988   $     65,466    $     48,860  $     28,178
                                           =============    =============   ============    ============  ============

               Income tax expense (benefit)$       8,154    $      10,478   $     (4,038)   $        397  $        247
                                           =============    =============   ============    ============  ============

               Net income (loss)           $      34,767    $      27,548   $     26,623    $     (2,568) $       (141)
                                           =============    =============   ============    ============  ============

               Balance Sheet Data:
               Total Assets                $  18,848,273    $  12,894,290   $  8,268,696    $  4,956,018  $  2,824,311     
                                           =============    =============   ============    ============  ============
               Future fees payable
                   to parent               $     368,978    $     233,034   $     47,112    $         -   $         - 
                                           =============    =============   ============    ============  ============
               Surplus Notes               $     193,000    $     213,000   $    213,000    $    103,000  $     69,000
                                           =============    =============   ============    ============  ============

               Shareholder's  Equity       $     250,417    $     184,421   $    126,345    $     59,713  $     52,206
                                           =============    =============   ============    ============  ============
</TABLE>

               * On annuity and life insurance sales of $4,159,662, $3,697,990,
                 $2,795,114, $1,628,486, and $1,372,874, during the years ended
                 December 31, 1998,  1997, 1996, 1995, and 1994, respectively,
                 with contractowner  assets under management of $17,854,761, 
                 $12,119,191, $7,764,891, $4,704,044, and $2,661,161  as of 
                 December 31,  1998,  1997,  1996,  1995 and 1994, respectively.




<PAGE>


Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations

         American Skandia Life Assurance  Corporation (the "Company") is a
         stock  life  insurance  company  domiciled  in  Connecticut  with
         licenses in all 50 states.  It is a  wholly-owned  subsidiary  of
         American Skandia Investment  Holding  Corporation (the "Parent"),
         whose  ultimate  parent is  Skandia  Insurance  Company  Ltd.,  a
         Swedish company.

         The Company is  primarily  in the  business of issuing  long-term
         savings  and  retirement  products  to  individuals,  groups  and
         qualified  pension plans.  Since its business  inception in 1988,
         the Company has offered a wide array of annuities,  including: a)
         certain   deferred   annuities  that  are  registered   with  the
         Securities and Exchange Commission,  including variable annuities
         and fixed  interest  rate  annuities  that include a market value
         adjustment  feature;  b) certain other fixed  deferred  annuities
         that  are  not  registered   with  the  Securities  and  Exchange
         Commission;  c) non-registered  group variable annuities designed
         as funding  vehicles for various  types of  qualified  retirement
         plans; and d) fixed and adjustable immediate annuities.

         In April 1998,  the Company began  offering a term life insurance
         product in support of an affiliate's mutual fund products. In May
         1998,  the  Company  launched  a  single  premium  variable  life
         insurance  product.  In January  1999,  the Company  launched its
         second  variable life  product,  which was designed as a flexible
         premium product.

         The  Company  markets  its  products  to  independent   financial
         planners and  broker-dealers  through an internal field marketing
         staff.   In  addition,   the  Company   markets  through  and  in
         conjunction  with financial  institutions  such as banks that are
         permitted directly, or through affiliates,  to sell annuities and
         life insurance.

         The Company has a 99.9%  ownership in Skandia Vida,  S.A. de C.V.
         which is a life  insurance  company  domiciled  in  Mexico.  This
         Mexican life insurer is a start up company with  expectations  of
         selling long-term  savings products within Mexico.  Skandia Vida,
         S.A.  de C.V had total  shareholder's  equity of  $4,724,000  and
         $1,509,000 as of December 31, 1998,  and 1997,  respectively  and
         has generated net losses of  $2,514,000,  $1,438,000 and $781,000
         for  the  years  ended   December  31,   1998,   1997  and  1996,
         respectively.

         RESULTS OF OPERATIONS

         Annuity and life  insurance  sales  increased 12%, 32% and 72% in
         1998, 1997 and 1996, respectively.  The Company continues to show
         significant  growth in sales  volume and  ranked  6th  highest in
         variable  annuity  sales during  1998,  according to the Variable
         Annuity  Research and Data  Service.  The  Company's  growth is a
         result  of  innovative  product   development   activities,   the
         recruitment  and retention of top  producers,  and the success of
         its highly rated customer service teams.

         The Company  offers and sells a wide range of deferred  annuities
         and variable life  insurance  through  three  focused  marketing,
         sales and service teams.  Each team specializes in addressing one
         of the Company's  primary  distribution  channels:  (a) financial
         planning firms; (b) broker-dealers  that generally are members of
         the New York Stock Exchange,  including  "wirehouse" and regional
         broker-dealer firms; and (c) broker-dealers affiliated with banks
         or which  specialize  in marketing  to  customers  of banks.  The
         Company also offers a number of specialized  products distributed
         by select,  large  distributors.  There has been continued growth
         and success in expanding the number of selling  agreements in the
         primary  distribution  channels.  There has also  been  increased
         success  in  enhancing  the  relationships  with  the  registered
         representatives/insurance agents of all the selling firms.


<PAGE>


         Total  assets  grew  46%,  56% and 66% in 1998,  1997  and  1996,
         respectively.  These  increases  were  a  direct  result  of  the
         substantial  sales  volume  and  market  growth  of the  separate
         account assets.  The sales and market growth also drove increases
         in  deferred  acquisition  costs,  as  well  as,  fixed  maturity
         investments,  in support  of the  Company's  risk  based  capital
         requirements.  Liabilities  grew 46%, 56%, and 65% in 1998,  1997
         and 1996, respectively,  as a result of the reserves required for
         the increased  sales  activity along with the sale of future fees
         and charges during these periods.  These sales of future fees and
         charges to the Parent are needed to fund the acquisition costs of
         the Company's variable annuity and life insurance business.

         The  Company  generated  net  income  after  tax  of  $34,767,000
         $27,548,000 and $26,623,000 in 1998, 1997 and 1996, respectively.
         The Company benefited in each of the past three years from strong
         sales  growth  and  favorable  market  conditions.  In 1996,  the
         Company also  benefited  from the  recognition of the reversal of
         the deferred tax valuation  allowance.  Assets under  management,
         from  which the  Company  derives a  significant  portion  of its
         revenues  grew  47%,  56%  and  65%  in  1998,   1997  and  1996,
         respectively.

         REVENUES

         As a result of the  significant  growth in sales and assets under
         management,  contractowner  fees and charges  and fees  generated
         from transfer agency-type  activities increased dramatically over
         the past three years:

         (annual percentage growth)        1998       1997       1996
                                           ----       ----       ----

         Annuity and life insurance
           fees and charges                 54%        74%        80%
                                           ====       ====       ====

         Transfer agency fee income         84%        68%       165%
                                           ====       ====       ====

         Net  investment  income  increased 36% and 416% in 1998 and 1997,
         respectively, and decreased slightly in 1996. The majority of the
         income was generated from the bond holdings, which were increased
         in 1998 and 1997 to meet risk based capital goals, which in turn,
         have increased as a result of the growth in business.

         Premium income  represents  premiums earned on sales of immediate
         annuities with life contingencies,  supplementary  contracts with
         life contingencies and certain life insurance products.  Sales of
         these ancillary  products decreased slightly in 1998 and 1996 and
         increased in 1997.

         BENEFITS

         Annuity benefits and the change in annuity policy reserves relate
         to annuity contracts with mortality risks,  these being immediate
         annuity  contracts  with  life  contingencies  and  supplementary
         contracts  with  life  contingencies.  Due  to the  age of  these
         policies  in  force  and the  relative  insignificance  of  these
         products  to  the  Company's   overall   portfolio  of  products,
         fluctuations in these benefits were of marginal importance to the
         Company's total operations.

         The  Company  reinsures  the  guaranteed  minimum  death  benefit
         exposure on most of the  variable  annuity  contracts.  The costs
         (minimum guaranteed premium per reinsurance contracts) associated
         with  reinsuring  the  guaranteed  minimum death benefit  reserve
         exceeded  the  change in the  guaranteed  minimum  death  benefit
         reserve during 1998,  1997 and 1996.  This cost increased in each
         of the past three years by 13%, 59% and 39%, respectively.

         Return credited to contractowners  includes primarily revenues on
         the  variable and market value  adjusted  annuities  and variable
         life  insurance,  offset by the  benefit  payments  and change in
         reserves  required on this business.  The 1998 return credited to
         contractowners in the amount of ($8,930,000)  represented  higher
         than expected Separate Account  investment  returns on the market
         value adjusted  contracts in support of the benefits and required
         reserves.


<PAGE>


         The 1997  return  credited  to  contractowners  in the  amount of
         ($2,018,000)  represents  a  break-even  year  for the  Company's
         market value adjusted  product line. The 1996 return  credited to
         contractowners  in the amount of $673,000  represents a favorable
         investment return on the market value adjusted contracts relating
         to the benefits and  required  reserves,  offset by the effect of
         bond market  fluctuations  on December  31, 1996 in the amount of
         $1,800,000.  While  the  assets  relating  to  the  market  value
         adjusted  contracts reflect the market interest rate fluctuations
         which occurred on December 31, 1996, the liabilities are based on
         the  interest  rates set for new  contracts  which are  generally
         based on the prior day's interest rates. During the first week of
         January 1997,  interest rates were established for new contracts,
         thereby  bringing  the  liabilities  relating to the market value
         adjusted contracts in line with the related assets. Consequently,
         the gain realized in 1997 was a result of this liability shift.

         EXPENSES

         Underwriting,  acquisition and other insurance expenses for 1998,
         1997 and 1996 were as follows:

         (in thousands)                       1998       1997       1996
                                              ----       ----       ----

         Commissions                       $ 224,916  $ 186,920  $ 140,459
         General expenses                    117,678     94,640     63,375
         Net capitalization of 
           deferred acquisition costs       (174,804)  (191,064)  (153,947)
                                           ---------  ---------  ---------

         Underwriting, acquisition and 
           other insurance expenses        $ 167,790  $  90,496  $  49,887
                                           =========  =========  ========= 

         Commissions  increased with the growth in sales. General expenses
         increased  with the  growth in sales,  along  with start up costs
         associated  with the Company's entry into variable life insurance
         and  qualified   plans.  The  net   capitalization   of  deferred
         acquisition  costs  decreased  in 1998 as a result  of  increased
         amortization.

         Interest   expense   increased   $16,109,000,   $14,104,000   and
         $4,291,000 in 1998, 1997 and 1996,  respectively,  as a result of
         additional financing transactions, which consisted of the sale of
         future  fees to the Parent  ("securitization  transactions").  In
         addition,  the Company had  outstanding  surplus  notes  totaling
         $213,000,000 throughout 1998 ($20,000,000 was retired on December
         31, 1998). Surplus notes as of December 31, 1998 and 1997 totaled
         $193,000,000 and $213,000,000, respectively.

         The effective  income tax rates for the years ended  December 31,
         1998,  1997 and 1996 were 19%, 28% and (18%),  respectively.  The
         effective  rate is lower  than the  corporate  rate of 35% due to
         permanent  differences,  with the most significant item being the
         dividend received deduction. Additionally,  the Company released 
         a deferred tax valuation allowance of $9,325,000 in 1996.

         LIQUIDITY AND CAPITAL RESOURCES

         ASLAC's  liquidity  requirement  was met by cash  from  insurance
         operations, investment activities, borrowings from its Parent and
         sale of rights to future fees and charges to its Parent.

         Approximately  97% of 1998  sales  (94% in 1997  and  1996)  were
         variable annuity and life insurance products, most of which carry
         a contingent deferred sales charge. This type of product causes a
         temporary  cash strain in that 100% of the  proceeds are invested
         in separate  accounts  supporting the product leaving a cash (but
         not capital)  strain caused by the  acquisition  cost for the new
         business.  This cash strain  required  the Company to look beyond
         the cash made available by insurance  operations and  investments
         of the Company to financing in the form of surplus notes, capital
         contributions,  the sale of  certain  rights to  future  fees and
         modified coinsurance arrangements.


<PAGE>


         - During 1996, the Company issued  $110,000,000 of surplus notes to
           its Parent.

         - During   December  1998  and  1997,  the  Company   received
           $2,600,000 and $27,700,000, respectively, from its Parent to
           support the capital needs of its U.S.  operations during the
           current  year along with the  following  year's  anticipated
           growth in business.

         - Funds received from new securitization transactions amounted to 
           $169,881,000, $194,512,000 and $50,221,000 for 1998, 1997
           and 1996, respectively.

         - During  1998,  1997  and  1996,  the  Company  extended  its
           reinsurance  agreements  (which were initiated in 1993, 1994
           and  1995).   The   reinsurance   agreements   are  modified
           coinsurance  arrangements  where the reinsurer shares in the
           experience of a specific book of business.

         The  Company   expects  the  continued  use  of  reinsurance  and
         securitization  transactions to fund the cash strain  anticipated
         from the acquisition costs on the coming years' sales volume.

         As of  December  31,  1998 and  1997,  shareholder's  equity  was
         $250,417,000 and $184,421,000,  respectively.  The increases were
         driven by the previously mentioned capital contributions received
         from the Parent and net income from operations.

         ASLAC has  long-term  surplus  notes and a short-term  borrowings
         with its Parent. No dividends have been paid to its Parent.

         The  National  Association  of Insurance  Commissioners  ("NAIC")
         requires  insurance  companies  to report  information  regarding
         minimum   Risk  Based   Capital   ("RBC")   requirements.   These
         requirements  are  intended  to  allow  insurance  regulators  to
         identify companies which may need regulatory  attention.  The RBC
         model law requires that insurance companies apply various factors
         to asset,  premium and reserve items,  all of which have inherent
         risks. The formula includes components for asset risk,  insurance
         risk,  interest risk and business  risk. The Company has complied
         with the NAIC's RBC reporting requirements and has total adjusted
         capital well above required capital.

         YEAR 2000 COMPLIANCE

         The Company is continuing its ongoing assessment of the potential
         impact of the Year 2000 issue on various aspects of its business.
         The  Company's  computer  support is provided  by its  affiliate,
         American Skandia Information Services and Technology Corporation,
         which also  provides  such support for the  Company's  affiliated
         broker-dealer,  American Skandia Marketing,  Incorporated and the
         Company's  affiliated  investment advisory firm, American Skandia
         Investment Services,  Incorporated.  Because of the nature of the
         Company's business, any assessment of the potential impact of the
         Year 2000  issues on the  Company  must be an  assessment  of the
         potential  impact of these issues on all these  companies,  which
         are referred to below as "American Skandia".

         Business Partners

         Management  believes  the area where the Company  is  most  vulnerable
         to Year 2000 issues is in its interfaces with computer systems of 
         investment managers, sub-advisors,  third  party  administrators,  
         vendors and other business partners.  The inability to properly  
         recognize date sensitive electronic information and transfer data 
         between systems could cause errors or even a complete systems failure
         which  would   result  in  a  temporary   inability   to  process
         transactions correctly or engage in normal business activities.

         The  American  Skandia  deferred  annuity  operational   business
         partners  report  that all  critical  interfaces  are  Year  2000
         compliant.  All investment managers and sub-advisors are required
         by the  Securities and Exchange  Commission to publicly  disclose
         their Year 2000 status in December 1998 and June 1999.


<PAGE>


         American Skandia has initiated formal communications with parties
         that provide third party administration, record keeping and trust
         services in  connection  with its life  insurance  and  qualified
         retirement  plan  annuities  business.   Management  has  already
         received several written assurances that these firms will be Year
         2000 compliant.  The Company expects to have  certifications from
         all remaining parties by July 1999. American Skandia is currently
         developing  contingency plans in the event that these targets are
         not met.

         Information Technology Systems

         American  Skandia is a relatively  young company whose internally
         developed  systems were  designed  from the start with four digit
         year  codes.   The  Company   engaged  an  external   information
         technology  specialist  to review  American  Skandia's  operating
         systems and  internally  developed  software.  The assessment was
         completed  in  December  1997  and the  results  were  favorable.
         Specific modifications were suggested,  evaluated and implemented
         for the annuity administration system. This project was completed
         during 1998 and a certificate  of compliance  has been  received.
         Other  non-critical  internally  developed  applications  in  the
         client/server area have already been or will be remediated during
         1999.  The  costs  associated  with  this  aspect  of  Year  2000
         compliance  have  not  had,  and  are not  expected  to  have,  a
         significant impact on the Company's results from operations.

         Suppliers and Non-Information Technology Systems

         Like most companies,  American Skandia is reliant on network, and
         desktop  operating  systems  and  software  providers  to release
         compliant   versions  of  their  respective   systems.   American
         Skandia's  network  is  currently  at the  most  compliant  level
         available.  The standard  desktop  software will be replaced,  as
         fully  compliant  versions  become  available.  In addition,  the
         Company  is in the  process  of  contacting  the  non-information
         systems   vendors  and  suppliers   regarding   their  Year  2000
         compliance   status  and  will   factor  the   results  of  these
         assessments into its contingency plans.

         Management  believes  it has an  effective  program  in  place to
         resolve the Year 2000 issue in a timely manner.  However,  should
         errors or  disruptions  in computer  service  occur,  the Company
         could realize  losses.  Given the nature and  uncertainty of such
         losses, the amounts cannot be reasonably determined.



<PAGE>


Item 7A. Quantitative and Qualitative Disclosures About Market Risk

         Interest Rate Sensitivity

         At December  31, 1998,  the Company  held in its general  account
         $149,484,000 of fixed maturity  investments that are sensitive to
         changes in interest rates.  These  securities are held in support
         of the Company's  fixed  immediate  annuities  and  supplementary
         contracts  ($23,699,000  in reserves at December 31, 1998) and in
         support of the Company's target solvency capital. With respect to
         the insurance contracts, interest rate risk is managed through an
         asset/liability  matching  program  which takes into  account the
         risk  variables  of the  insurance  liabilities  supported by the
         assets.  In addition,  the Company has a conservative  investment
         philosophy, with all investments being investment grade corporate
         securities, government agency or U.S. government securities.

         In addition,  the Company's  deferred  annuity  products  offer a
         fixed option that subjects the Company to interest rate risk. The
         fixed option  guarantees a fixed rate of interest for a period of
         time selected by the contract  holder  (options  available  range
         from 1 to 10 years).  Withdrawal  of funds  before the end of the
         guarantee  period  subjects the contract holder to a market value
         adjustment  ("MVA"). In the event of rising interest rates, which
         make the fixed maturity securities  underlying the guarantee less
         valuable,  the market value adjustment could be negative.  In the
         event of falling  interest  rates,  which make the fixed maturity
         securities  underlying the guarantee  more  valuable,  the market
         value  adjustment  could be positive.  Should these  contracts be
         surrendered  early, this increase or decrease in fair value would
         be  substantially  offset through the  application of the MVA and
         its effect on contractholders  choosing to withdraw.  The risk to
         the Company on these contracts relates to the ability to reinvest
         proceeds  from  interest  payments  and other  activity  over the
         guarantee  term at interest  rates required to meet interest rate
         guarantees and the risk of default.  This risk is managed through
         an  asset/liability  matching program.  At December 31, 1998, the
         Company had $613,057,000 of contracts subject to MVA.

         Equity Market Exposure

         The Company has a small portfolio of equity  investments;  mutual
         funds  which  are  held in  support  of a  deferred  compensation
         program. In the event of a decline in market values of underlying
         securities, the value of the portfolio would decline, however the
         accrued benefits payable under the related deferred  compensation
         program would decline by a corresponding amount.

         The primary  equity  market  risk to the  Company  comes from the
         nature of the variable annuity and variable life products sold by
         ASLAC. Various fees and charges earned by ASLAC are substantially
         derived  as a  percentage  of the  market  value of assets  under
         management.  In a market  decline,  this income would be reduced.
         This could be further compounded by customer withdrawals,  net of
         applicable   surrender  charge  revenues,   partially  offset  by
         transfers to the fixed option  discussed  above. A 10% decline in
         the market value of the assets under  management  at December 31,
         1998,  sustained  throughout  1999, would result in a $28,000,000
         drop in related fee income.

         In  addition,  it is not clear  what the  impact  of a  prolonged
         downturn  in the equity  markets  would  have on  ongoing  sales.
         Customer's  perceptions of a downturn in equity  markets  coupled
         with  rising  interest  rates  could  move  them  into  financial
         products other than variable annuities or variable life; however,
         the Company's  products might remain  attractive to purchasers in
         relation to other  long-term  savings  vehicles even after such a
         decline.

<PAGE>

Item 8.  Financial Statements and Supplementary Data


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                        CONSOLIDATED FINANCIAL STATEMENTS

                                      INDEX


                                                                           Page

         Independent Auditors' Reports                                      12

         Consolidated Statements of Financial Condition
           as of December 31, 1998 and 1997                                 14

         Consolidated Statements of Income for the
           Years ended December 31, 1998, 1997 and 1996                     15

         Consolidated Statements of Shareholder's Equity for the
           Years ended December 31, 1998, 1997 and 1996                     16

         Consolidated Statements of Cash Flow for the
           Years ended December 31, 1998, 1997 and 1996                     17

         Notes to Consolidated Financial Statements                         18


         Schedules are omitted  because they are either not  applicable or
         because the information required therein is included in the Notes
         to Consolidated Financial Statements.


<PAGE>






                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Shareholder of
    American Skandia Life Assurance Corporation
Shelton, Connecticut

We have audited the consolidated statements of financial  condition of American
Skandia  Life  Assurance  Corporation (the  "Company"  which is a  wholly-owned
subsidiary of Skandia Insurance Company Ltd.) as of December 31, 1998 and 1997,
and the related consolidated  statements of income,  shareholder's  equity, and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We  conducted  our  audits  in accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the  accounting  principles  used and  significant estimates  made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly,  in all  material respects,  the  consolidated  financial  position  of
American Skandia Life Assurance  Corporation at December 31, 1998 and 1997, and
the  consolidated  results of its operations  and cash flows for the years then
ended in conformity with generally accepted accounting principles.




/s/ Ernst & Young, LLP
----------------------
Hartford, Connecticut

February 20, 1999



<PAGE>







INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholder of
     American Skandia Life Assurance Corporation
Shelton, Connecticut


We  have  audited  the accompanying   consolidated  statements  of  operations,
shareholder's  equity, and  cash  flows  of  American  Skandia  Life  Assurance
Corporation and  subsidiary (a  wholly-owned  subsidiary  of Skandia  Insurance
Company Ltd.) for the year ended December 31, 1996. These consolidated financial
statements  are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express an  opinion  on  these  consolidated  financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance  about  whether  the  financial   statements  are  free  of  material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting  principles  used and  significant  estimates  made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated  financial  statements present fairly, in all
material respects,  the  consolidated  results of operations  and cash flows of
American Skandia Life Assurance  Corporation  and subsidiary for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.


/s/Deloitte & Touche LLP
------------------------
New York, New York


March 10, 1997



<PAGE>


                        AMERICAN SKANDIA LIFE ASSURANCE
                    CORPORATION (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                 (in thousands)

                                                        AS OF DECEMBER 31,
                                                      1998             1997
                                                   ----------       ----------

ASSETS

Investments:
   Fixed maturities - at amortized cost          $     8,289      $     9,367
   Fixed maturities - at fair value                  141,195          108,323 
   Investment in mutual funds - at fair value          8,210            6,711 
   Policy loans                                          569              687 
                                                  ----------      -----------

      Total investments                              158,263          125,088 

Cash and cash equivalents                             77,525           81,974 
Accrued investment income                              2,880            2,442 
Fixed assets                                             328              356 
Deferred acquisition costs                           721,507          546,703 
Reinsurance receivable                                 4,191            6,343 
Receivable from affiliates                             1,161            1,911 
Income tax receivable - current                           -             1,048 
Income tax receivable - deferred                      38,861           26,174 
State insurance licenses                               4,413            4,563 
Other assets                                           3,744            2,524 
Separate account assets                           17,835,400       12,095,164 
                                                  ----------       ----------

      Total assets                               $18,848,273      $12,894,290
                                                 ===========      ===========

LIABILITIES AND SHAREHOLDER'S EQUITY

Liabilities:
   Reserve for future contractowner benefits     $    37,508      $    43,204 
   Policy reserves                                    25,545           24,415 
   Drafts outstanding                                 28,941           19,278 
   Accounts payable and accrued expenses              91,827           71,190 
   Income tax payable                                  6,657               - 
   Payable to affiliates                                  -               584 
   Future fees payable to parent                     368,978          233,034 
   Short-term borrowing                               10,000           10,000 
   Surplus notes                                     193,000          213,000 
   Separate account liabilities                   17,835,400       12,095,164 
                                                  ----------       ----------

      Total liabilities                           18,597,856       12,709,869 
                                                  ----------       ----------

Shareholders Equity:
   Common stock, $80 par, 25,000 shares
     authorized, issued and outstanding                2,000            2,000 
   Additional paid-in capital                        179,889          151,527 
   Retained earnings                                  64,993           30,226 
   Accumulated other comprehensive income              3,535              668 
                                                  ----------       ----------

      Total shareholder's equity                     250,417          184,421 
                                                  ----------       ----------

    Total liabilities and shareholder's equity   $18,848,273      $12,894,290
                                                 ===========      ===========




                 See notes to consolidated financial statements.


<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

                        CONSOLIDATED STATEMENTS OF INCOME
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                        FOR THE YEAR ENDED DECEMBER 31,
<S>                                                         <C>                      <C>                     <C> 
                                                            1998                     1997                    1996
                                                         ------------            -------------           ------------
REVENUES

Annuity and life insurance charges and fees                $186,211                $121,158                $69,780 
Fee income                                                   50,839                  27,593                 16,420 
Net investment income                                        11,130                   8,181                  1,586 
Premium income                                                  874                     920                    125 
Net realized capital gains                                       99                      87                    134 
Other                                                           387                      75                      6 
                                                         ------------            -------------           ------------

     Total revenues                                         249,540                 158,014                 88,051 
                                                         ------------            -------------           ------------

BENEFITS AND EXPENSES                                                                       

Benefits:
  Annuity benefits                                              558                   2,033                    613 
  Change in annuity policy reserves                           1,053                      37                    635 
  Cost of minimum death benefit reinsurance                   5,144                   4,545                  2,867 
  Return credited to contractowners                          (8,930)                 (2,018)                   673 
                                                         ------------            -------------           ------------

                                                             (2,175)                  4,597                  4,788   
                                                         ------------            -------------           ------------
Expenses:
  Underwriting, acquisition and                                                                                    
      other insurance expenses                              167,640                  90,346                 49,737 
  Amortization of state insurance licenses                      150                     150                    150 
  Interest expense                                           41,004                  24,895                 10,791 
                                                         ------------            -------------           ------------

                                                            208,794                 115,391                 60,678 
                                                         ------------            -------------           ------------

     Total benefits and expenses                            206,619                 119,988                 65,466 
                                                         ------------            -------------           ------------

Income from operations before income taxes                   42,921                  38,026                 22,585 

     Income tax expense (benefit)                             8,154                  10,478                 (4,038)
                                                         ------------            -------------           ------------

        Net income                                          $34,767                 $27,548                $26,623 
                                                         ============            =============           ============
</TABLE>










                 See notes to consolidated financial statements.


<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

                 CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                     FOR THE YEAR ENDED DECEMBER 31,
<S>                                                          <C>                   <C>                   <C> 
                                                             1998                  1997                  1996
                                                          -----------           -----------           -----------

Common stock:
      Beginning and ending balance                           $2,000              $ 2,000               $ 2,000 

Additional paid in capital:                                           
   Beginning balance                                        151,527              122,250                81,875 
      Additional contributions                               28,362               29,277                40,375 
                                                          -----------           -----------           ----------
         Ending balance                                     179,889              151,527               122,250 

Retained earnings (deficit):
   Beginning balance                                         30,226                 2,678              (23,945)
      Net income                                             34,767                27,548               26,623 
                                                          -----------           -----------           ----------
         Ending balance                                      64,993                30,226                2,678 

Accumulated other comprehensive income:
   Beginning balance                                            668                 (584)                 (217)
      Other comprehensive income                              2,867                1,252                  (367)
                                                          -----------           -----------           -----------
         Ending balance                                       3,535                  668                  (584)
                                                          -----------           -----------           -----------
            Total shareholder's equity                     $250,417              $184,421              $126,345  
                                                          ===========           ===========           ===========
</TABLE>



























                 See notes to consolidated financial statements.


<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                               FOR THE YEAR ENDED DECEMBER 31,
<S>                                                                     <C>                  <C>                  <C>   
                                                                        1998                 1997                 1996  
                                                                    ------------         ------------        ------------
Cash flow from operating activities:

  Net income                                                          $ 34,767             $ 27,548            $ 26,623 
  Adjustments to reconcile net income to net cash
    used in operating activities:
      Increase in policy reserves                                        1,130                3,176               1,852 
      Amortization of bond discount                                        101                   73                  27 
      Amortization of insurance licenses                                   150                  150                 150 
      Change in receivable from/payable to affiliates                      166               (1,321)                540 
      Change in income tax receivable/payable                            7,704               (2,172)              1,688 
      Increase in other assets                                          (1,191)                (604)               (661)
      Increase in accrued investment income                               (438)                (483)             (1,764)
      Decrease/(increase) in reinsurance receivable                      2,152                 (268)               (676)
      Increase in deferred acquisition costs, net                     (174,804)            (190,969)           (153,918)



      Increase in income tax receivable - deferred                     (14,242)              (9,631)            (16,903)
      Increase in accounts payable and accrued expenses                 20,637                5,719              32,323 
      Increase in drafts outstanding                                     9,663                6,245              13,032 
      Change in foreign currency translation, net                          (22)                 (34)                (77)
      Realized gain on sale of investments                                 (99)                 (87)               (134)
                                                                    ------------         ------------        ------------
           Net cash used in operating activities                      (114,326)            (162,658)            (97,898)
                                                                    ------------         ------------        ------------

Cash flow from investing activities:

  Purchase of fixed maturity investments                               (31,828)             (28,905)            (96,813)
  Proceeds from sale and maturity of fixed maturity investments          4,049               10,755               8,947 
  Purchase of shares in mutual funds                                    (7,158)              (5,595)             (2,160)
  Proceeds from sale of shares in mutual funds                           6,086                1,415               1,274 
  Decrease/(increase) in policy loans                                      118                 (528)               (104)
                                                                    ------------         ------------        ------------
            Net cash used in investing activities                       (28,733)             (22,858)            (88,856)
                                                                    ------------         ------------        ------------

Cash flow from financing activities:

  Capital contributions from parent                                      8,362               29,277              40,375 
  Surplus notes                                                              -                    -             110,000 
  Increase in future fees payable to Parent                            135,944              185,922              47,112 
  Net (withdrawals from)/deposits to contractowner accounts             (5,696)               6,959               5,753 
                                                                    ------------         ------------        ------------

        Net cash provided by financing activities                      138,610              222,158             203,240 
                                                                    ------------         ------------        ------------

          Net increase/(decrease) in cash and cash equivalents          (4,449)              36,642              16,486 
                                                                    ------------         ------------        ------------

          Cash and cash equivalents at beginning of year                81,974               45,332              28,846 
                                                                    ------------         ------------        ------------

            Cash and cash equivalents at end of year                  $ 77,525             $ 81,974            $ 45,332 
                                                                    ============         ============        ============

Supplemental cash flow disclosure:
  Income taxes paid                                                   $ 14,651             $ 22,308            $ 11,177 
                                                                    ============         ============        ============

  Interest paid                                                       $ 35,588             $ 16,916            $  7,095 
                                                                    ============         ============        ============
</TABLE>


                 See notes to consolidated financial statements.


<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                         (a wholly-owned subsidiary of
                                     Skandia Insurance Company Ltd.)

                   Notes to Consolidated Financial Statements
                                December 31, 1998


1.      ORGANIZATION AND OPERATION

        American  Skandia  Life  Assurance  Corporation  (the  "Company")  is a
        wholly-owned   subsidiary  of  American  Skandia   Investment   Holding
        Corporation (the "Parent");  whose ultimate parent is Skandia Insurance
        Company Ltd., a Swedish corporation.

        The Company develops  long-term  savings and retirement  products which
        are distributed through its affiliated broker/dealer company,  American
        Skandia Marketing,  Incorporated  ("ASM"). The Company currently issues
        variable life insurance and variable,  fixed, market value adjusted and
        immediate  annuities  for  individuals,  groups and  qualified  pension
        plans.

        The Company has 99.9% ownership in Skandia Vida, S.A. de C.V. which is
        a life insurance company domiciled in Mexico.  This Mexican life 
        insurer is a start up company with expectations of selling long-term
        savings products within Mexico.  Skandia Vida, S.A. de C.V. had total
        shareholder's equity of $4,724,000 and $1,509,000 as of December 31,
        1998, and 1997, respectively, and has generated net losses of 
        $2,514,000, $1,438,000 and $781,000 for the years ended December 31,
        1998, 1997 and 1996, respectively.


2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        A.  Basis of Reporting

            The accompanying  consolidated  financial statements have been
            prepared in  conformity  with  generally  accepted  accounting
            principles.  Intercompany  transactions and balances have been
            eliminated in consolidation.

            Certain reclassifications have been made to prior year amounts
            to conform with the current year presentation.

        B.  New Accounting Pronouncements

            In  June  1998,  the  Financial   Accounting  Standards  Board
            ("FASB")  issued  Statement of Financial  Accounting  Standard
            ("SFAS")  133,  "Accounting  for  Derivative  Instruments  and
            Hedging   Activities,"   which   establishes   accounting  and
            reporting  standards for  derivative  instruments  and hedging
            activities.  The standard  requires  that all  derivatives  be
            carried on the balance  sheets at fair  value.  The Company is
            currently not involved in derivatives  or hedging  instruments
            as part of its investment strategy.  The Company is evaluating
            the potential  impact of a change in accounting for derivative
            instruments  embedded  in certain  products  it  issues.  This
            standard is effective for years beginning after June 15, 1999.

            In March 1998,  the American  Institute  of  Certified  Public
            Accountants   issued   Statement  of  Position  ("SOP")  98-1,
            "Accounting  for the Costs of Software  Developed  or Obtained
            for Internal  Use," which  provides  guidance for  determining
            when computer software  developed or obtained for internal use
            should  be  capitalized.  It  also  provides  guidance  on the
            amortization  of  capitalized  costs  and the  recognition  of
            impairment.  The Company is evaluating the potential impact of
            adopting  this  SOP,  which  is  effective  for  fiscal  years
            beginning after December 15, 1998.




<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


         C.  Investments

             The Company has classified  its fixed maturity  investments as
             either  held-to-maturity  or  available-for-sale.  Investments
             classified  as  held-to-maturity   are  investments  that  the
             Company has the ability and intent to hold to  maturity.  Such
             investments are carried at amortized cost.  Those  investments
             which are  classified  as  available-for-sale,  are carried at
             fair  value and  changes  in  unrealized  gains and losses are
             reported as a component of other comprehensive income.

             The Company has  classified  its mutual  fund  investments  as
             available-for-sale. Such investments are carried at fair value
             and changes in  unrealized  gains and losses are reported as a
             component of other comprehensive income.

             Policy loans are carried at their unpaid principal balances.

             Realized  gains and  losses on  disposal  of  investments  are
             determined  by the  specific  identification  method  and  are
             included in revenues.

         D.  Cash Equivalents

             The  Company   considers  all  highly  liquid  time  deposits,
             commercial  paper and money market mutual funds purchased with
             a maturity of three months or less to be cash equivalents.

         E.  State Insurance Licenses

             Licenses to do  business  in all states have been  capitalized
             and  reflected  at  the  purchase  price  of  $6,000,000  less
             accumulated  amortization.  The cost of the  licenses is being
             amortized over 40 years.

         F.  Fixed Assets

             Fixed assets consisting of furniture,  equipment and leasehold
             improvements   are  carried  at  cost  and  depreciated  on  a
             straight-line  basis  over a period  of  three to five  years.
             Accumulated  depreciation  amounted to $142,000 and $96,000 at
             December 31, 1998 and 1997, respectively. Depreciation expense
             for the  years  ended  December  31,  1998,  1997 and 1996 was
             $46,000 and $63,000 and $29,000, respectively.

         G.  Income Taxes

             The Company is included in the consolidated federal income tax
             return of Skandia U.S.  Investment Holding Corporation and its
             subsidiaries.  In accordance  with the tax sharing  agreement,
             the federal and state  income tax  provision  is computed on a
             separate  return basis,  as adjusted for  consolidated  items,
             such as net operating loss carryforwards.

             Income  taxes  are  provided  in  accordance  with  SFAS  109,
             "Accounting  for Income  Taxes",  which requires the asset and
             liability  method of accounting for deferred taxes. The object
             of this method is to recognize an asset and  liability for the
             expected  future  tax  effects  due to  temporary  differences
             between the  financial  reporting  and the tax basis of assets
             and  liabilities,   based  on  enacted  tax  rates  and  other
             provisions of the tax law.


<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


         H.  Recognition of Revenue and Contract Benefits

             Revenues for  variable  annuity  contracts  consist of charges
             against contractowner account values for mortality and expense
             risks,  administration  fees,  surrender charges and an annual
             maintenance  fee per contract.  Benefit  reserves for variable
             annuity contracts represent the account value of the contracts
             and are included in the separate account liabilities.

             Revenues for market value adjusted annuity  contracts  consist
             of  separate  account  investment  income  reduced  by benefit
             payments  and changes in reserves in support of  contractowner
             obligations,  all of which are included in return  credited to
             contractowners. Benefit reserves for these contracts represent
             the account  value of the  contracts,  and are included in the
             general account liability for future contractowner benefits to
             the extent in excess of the separate account liabilities.

             Revenues  for  immediate   annuity   contracts   without  life
             contingencies  consist of net investment income.  Revenues for
             immediate annuity contracts with life contingencies consist of
             single premium payments  recognized as annuity  considerations
             when received.  Benefit reserves for these contracts are based
             on the Society of Actuaries 1983 Table-a with assumed interest
             rates that vary by issue year.  Assumed  interest rates ranged
             from 6.25% to 8.25% and 6.5% to 8.25% at December 31, 1998 and
             December 31, 1997, respectively.

             Revenues  for variable  life  insurance  contracts  consist of
             charges   against   contractowner   account   values  for  the
             maintenance  and  expense  fees,  cost of  insurance  fees and
             surrender   charges.   Benefit   reserves  for  variable  life
             insurance   contracts  represent  the  account  value  of  the
             contracts   and  are   included   in  the   separate   account
             liabilities.

         I.  Deferred Acquisition Costs

             The costs of acquiring new  business,  which vary with and are
             primarily related to the production of new business, are being
             deferred net of reinsurance.  These costs include commissions,
             costs of contract issuance,  and certain selling expenses that
             vary  with   production.   These  costs  are  being  amortized
             generally  in  proportion  to  expected   gross  profits  from
             surrender  charges,  policy and asset based fees and mortality
             and   expense   margins.   This   amortization   is   adjusted
             retrospectively  and  prospectively  when estimates of current
             and  future  gross  profits  to be  realized  from a group  of
             products are revised.

             Details  of  the  deferred   acquisition   costs  and  related
             amortization for the years ended December 31, are as follows:

                      (in thousands)           1998         1997        1996
                                               ----         ----        ----

             Balance at beginning of year    $546,703     $355,734    $201,816

             Acquisition costs deferred
               during the year                261,432      243,476     171,253

             Acquisition costs amortized
               during the year                (86,628)     (52,507)    (17,335)
                                             ---------    ---------   ---------

             Balance at end of year          $721,507     $546,703    $355,734
                                             ========     ========    ========


<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


         J.  Reinsurance

             The Company  cedes  reinsurance  under  modified  co-insurance
             arrangements.  The reinsurance arrangements provide additional
             capacity  for growth in  supporting  the cash flow strain from
             the Company's  variable  annuity and variable  life  insurance
             business.  The  reinsurance  is  effected  under  quota  share
             contracts.

             The company  reinsures certain mortality risks relating to the
             variable life  insurance  product,  as well as, the guaranteed
             minimum death benefit feature in the variable annuity product.

             At  December  31,  1998  and  1997,  in  accordance  with  the
             provisions of a modified  coinsurance  agreement,  the Company
             accrued   $1,976,000   and  $0,   respectively,   for  amounts
             receivable from favorable reinsurance experience on a block of
             variable annuity business.

         K.  Translation of Foreign Currency

             The  financial  position  and  results  of  operations  of the
             Company's Mexican subsidiary are measured using local currency
             as the  functional  currency.  Assets and  liabilities  of the
             subsidiary  are  translated  at the exchange rate in effect at
             each year-end.  Statements of income and shareholder's  equity
             accounts are translated at the average rate prevailing  during
             the  year.  Translation  adjustments  arising  from the use of
             differing exchange rates from period to period are reported as
             a component of other comprehensive income.

         L.  Fair Values of Financial Instruments

             The methods and  assumptions  used to determine the fair value
             of financial instruments are as follows:

             Fair values of fixed  maturities with active markets are based
             on quoted market prices.  For fixed  maturities  that trade in
             less  active  markets,   fair  values  are  obtained  from  an
             independent pricing service.

             Fair values of investments in mutual funds are based on quoted
             market prices.

             The carrying value of cash and cash  equivalents  approximates
             fair value due to the short-term nature of these investments.

             The carrying value of short-term  borrowing  approximates fair
             value due to the short-term nature of these liabilities.

             Fair values of certain financial  instruments,  such as future
             fees  payable  to parent  and  surplus  notes are not  readily
             determinable  and are  excluded  from  fair  value  disclosure
             requirements.



<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


         M.  Separate Accounts

             Assets and  liabilities  in Separate  Accounts are included as
             separate captions in the consolidated  statements of financial
             condition. Separate Account assets consist principally of long
             term bonds, investments in mutual funds, short-term securities
             and cash and cash  equivalents,  all of which are  carried  at
             fair value. The investments are managed  predominately through
             the Company's investment advisory affiliate,  American Skandia
             Investment  Services,  Inc. ("ASISI"),  utilizing various fund
             managers  as  sub-advisors.   The  remaining  investments  are
             managed by independent investment firms. The contractowner has
             the  option of  directing  funds to a wide  variety  of mutual
             funds.  The  investment  risk  on the  variable  portion  of a
             contract is borne by the contractowner.  A fixed option with a
             minimum  guaranteed  interest  rate  is  also  available.  The
             Company is  responsible  for the credit risk  associated  with
             these investments.

             Included in Separate Account  liabilities are $771,195,000 and
             $773,067,000  at  December  31,  1998 and 1997,  respectively,
             relating to annuity  contracts for which the  contractowner is
             guaranteed a fixed rate of return.  Separate Account assets of
             $771,195,000  and  $773,067,000 at December 31, 1998 and 1997,
             respectively,  consisting  of  long  term  bonds,  short  term
             securities,  transfers  due from general  account and cash and
             cash   equivalents  are  held  in  support  of  these  annuity
             contracts, pursuant to state regulation.

         N.  Estimates

             The  preparation  of financial  statements in conformity  with
             generally  accepted   accounting   principles   requires  that
             management  make  estimates  and  assumptions  that affect the
             reported  amount of assets and  liabilities at the date of the
             financial  statements and the reported amounts of revenues and
             expenses  during the reporting  period.  The more  significant
             estimates and assumptions are related to deferred  acquisition
             costs  and  involve  policy  lapses,   investment  return  and
             maintenance  expenses.  Actual results could differ from those
             estimates.

3.       COMPREHENSIVE INCOME

         As of  January  1, 1998  the  Company  adopted  SFAS  130,  "Reporting
         Comprehensive Income,"  which sets  standards  for the  reporting  and
         display  of  comprehensive income  and its  components;  however,  the
         adoption of this  Statement had no impact on the  Company's  financial
         position or net income. SFAS 130 requires  unrealized gains and losses
         on the Company's available-for-sale  securities  and foreign  currency
         translation  adjustments,   which  prior  to  adoption  were  reported
         separately  in   shareholder's   equity,   to  be  included  in  other
         comprehensive  income.  Prior  year  financial  statements  have  been
         reclassified to conform to the requirements of SFAS 130.


<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


        The components of comprehensive income, net of tax, for the years ended
        December 31, 1998, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
<S>                                                                        <C>               <C>            <C> 
                  (in thousands)                                           1998              1997           1996
                                                                           ----              ----           ----

         Net income                                                       $34,767          $27,548         $26,623
         Other comprehensive income:
            Unrealized investment gains/(losses) on
               available for sale securities                                2,751            1,288            (331)
            Reclassification adjustment for realized
               losses/(gains) included in investment income                   138              (14)            (99)
                                                                        ---------        ---------      ----------
            Net unrealized gains/(losses) on securities                     2,889            1,274            (430)

            Foreign currency translation                                      (22)             (22)             64
                                                                       ----------       ----------      ----------

         Other comprehensive income                                         2,867            1,252            (367)
                                                                         --------         --------       ----------

         Comprehensive income                                             $37,634          $28,800         $26,257
                                                                          =======          =======         =======
</TABLE>

<TABLE>
<CAPTION>

         The components of accumulated other  comprehensive  income, net of tax,
         as of December 31, 1998 and 1997 were as follows:

<S>                                                                      <C>                     <C> 
                  (in thousands)                                         1998                    1997
                                                                         ----                    ----

         Unrealized investment gains                                    $3,843                   $954
         Foreign currency translation                                     (308)                  (286)
                                                                      --------                  -----

         Accumulated other comprehensive income                         $3,535                   $668
                                                                        ======                   ====
</TABLE>


4.       INVESTMENTS

         The amortized cost, gross  unrealized  gains/losses and estimated fair
         value of available-for-sale and held-to-maturity  fixed maturities and
         investments in mutual funds as of December 31, 1998 and 1997 are shown
         below.  All securities held at December 31, 1998 are publicly traded.

         Investments in fixed  maturities as of December 31, 1998  consisted of
         the following:
<TABLE>
<CAPTION>

                  (in thousands)                                     Held-to-Maturity

<S>                                       <C>                <C>                 <C>                    <C>    
                                                                 Gross               Gross
                                           Amortized          Unrealized          Unrealized             Fair
                                             Cost                Gains              Losses               Value
         U.S. Government
            obligations                      $3,774                $57               $  -                $3,831

         Corporate securities                 4,515                 34                  -                 4,549
                                            -------               ----              -----               -------

            Totals                           $8,289                $91               $  -                $8,380
                                             ======                ===               ====                ======
</TABLE>




<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                         (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


<TABLE>
<CAPTION>
                  (in thousands)                                     Available-for-Sale

<S>                                     <C>                  <C>                 <C>                  <C>  
                                                                Gross                Gross
                                         Amortized           Unrealized           Unrealized             Fair
                                           Cost                 Gains               Losses               Value
         U.S. Government
            obligations                   $  17,399            $   678               $  -             $  18,077

         Obligations of
            state and political
            subdivisions                        253                  7                  -                   260

         Corporate securities               117,774              5,160                 76             122,858  
                                          ---------            -------               ----           -----------

            Totals                         $135,426             $5,845                $76              $141,195
                                           ========             ======                ===              ========
</TABLE>


         The amortized cost and fair value of fixed  maturities,  by contractual
         maturity, at December 31, 1998 are shown below.

<TABLE>
<CAPTION>
                  (in thousands)                        Held-to-Maturity                  Available-for-Sale

<S>                                                <C>                 <C>             <C>                <C>
                                                    Amortized          Fair             Amortized           Fair
                                                      Cost             Value              Cost              Value

         Due in one year or less                      $4,927          $4,982       $           -  $           -

         Due after one through five years              3,362           3,398              54,789             56,850

         Due after five through ten years                  -               -              80,637             84,345
                                                  ----------      ----------          ----------         ----------

               Total                                  $8,289          $8,380            $135,426           $141,195
                                                      ======          ======            ========           ========
</TABLE>
 

         Investments  in fixed  maturities as of December 31, 1997 consisted of
         the following:
<TABLE>
<CAPTION>

                  (in thousands)                       Held-to-Maturity

<S>                                        <C>                  <C>                 <C>                    <C>  
                                                                    Gross               Gross
                                            Amortized            Unrealized          Unrealized             Fair
                                              Cost                  Gains              Losses               Value

         U.S. Government
            obligations                       $3,790                 $71                   $9                $3,852

         Obligations of
            state and political
            subdivisions                          50                   -                    -                    50

         Corporate
            securities                         5,527                   2                   19                 5,510
                                             -------               -----                 ----               -------

               Totals                         $9,367                 $73                  $28                $9,412
                                              ======                 ===                  ===                ======
</TABLE>



<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


<TABLE>
<CAPTION>
                  (in thousands)                                 Available for Sale
                                                                 ------------------
<S>                                     <C>                 <C>                <C>                  <C>   
                                                                Gross              Gross
                                         Amortized            Unrealized         Unrealized              Fair
                                           Cost                  Gains             Losses                Value
                                         ---------            ----------         ----------              -----
         U.S. Government
            obligations                   $ 14,999              $  202             $  -              $  15,201

         Obligations of
            state and political
            subdivisions                       202                   -                -                    202

         Corporate
            securities                      91,470               1,505               55                 92,920
                                        ----------             -------             ----             ----------

               Totals                     $106,671              $1,707              $55               $108,323
                                          ========              ======              ===               ========
</TABLE>


        Proceeds from sales of fixed maturities during 1998, 1997 and 1996 were
        $999,000, $5,056,000  and  $8,732,000,   respectively.  Proceeds  from
        maturities during 1998, 1997 and 1996 were $3,050,000,  $5,700,000 and
        $215,000, respectively.

        The cost, gross  unrealized  gains/losses and fair value of investments
        in mutual funds at December 31, 1998 and 1997 are shown below:

<TABLE>
<CAPTION>
<S>                  <C>            <C>              <C>             <C>  
             (in thousands)           Gross             Gross
                                    Unrealized        Unrealized       Fair
                      Cost            Gains             Losses         Value
                     ------         ----------        ----------      ------
         1998        $8,068            $416              $274         $8,210
                     ======            ====              ====         ======


         1997        $6,896            $ 43              $228         $6,711
                     ======            ====              ====         ======
</TABLE>


<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


         Net realized  investment gains  (losses) were as follows for the years
         ended December 31:

<TABLE>
<CAPTION>
                  (in thousands)                                 1998                   1997               1996
                                                                 ----                   ----               ----

<S>                                                           <C>                     <C>                <C>  
         Fixed maturities:
           Gross gains                                         $    -                   $  10             $   -
           Gross losses                                             (1)                    -                  -
         Investment in mutual funds:
           Gross gains                                             281                    116                140
           Gross losses                                           (181)                   (39)                (6)
                                                               -------                 ------              -----

         Totals                                                 $   99                  $  87               $134
                                                                ======                  =====               ====
</TABLE>



5.       NET INVESTMENT INCOME

         The sources of net investment income for the years ended December 31,
         1998, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
                  (in thousands)                                1998                   1997                1996
                                                                ----                   ----                ----

<S>                                                           <C>                      <C>               <C>    
         Fixed maturities                                     $  8,534                 $6,617            $   836
         Cash and cash equivalents                               1,717                  1,153                685
         Investment in mutual funds                              1,013                    554                144
         Policy loans                                               45                     28                  5
                                                           -----------              ---------         ----------

         Total investment income                                11,309                  8,352              1,670

         Investment expenses                                       179                    171                 84
                                                            ----------               --------          ---------

         Net investment income                                 $11,130                 $8,181             $1,586
                                                               =======                 ======             ======
</TABLE>



6.       INCOME TAXES

         The significant  components  of income tax expense  (benefit)  for the
         years ended December 31, are as follows:

<TABLE>
<CAPTION>
                (in thousands)                                 1998                  1997                  1996
                                                               ----                  ----                  ----

<S>                                                           <C>                    <C>                  <C>     
         Current tax expense                                  $22,384                $20,108              $12,865 

         Deferred tax benefit                                 (14,230)                (9,630)             (16,903)
                                                             --------              ---------             --------

         Total income tax expense (benefit)                  $  8,154                $10,478             ($ 4,038)
                                                             ========                =======              =======
</TABLE>



<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


         The tax effects of significant items comprising the Company's deferred
         tax balance as of December 31, 1998 and 1997, are as follows:

<TABLE>
<CAPTION>
                  (in thousands)                                         1998                         1997
                                                                         ----                         ----

<S>                                                                    <C>                        <C>    
         Deferred tax liabilities:
             Deferred acquisition costs                                ($210,731)                  ($159,766)
             Payable to reinsurers                                       (25,585)                    (25,369)
             Policy fees                                                    (859)                       (656)
             Unrealized investment gains and losses                       (2,069)                       (514)
                                                                     -----------                -------------

             Total                                                      (239,244)                   (186,305)
                                                                       ---------                   ---------

         Deferred tax assets:
             Net separate account liabilities                            225,600                     175,872
             Reserve for future contractowner benefits                    13,128                      15,121
             Other reserve differences                                    25,335                      10,534
             Deferred compensation                                         9,619                       7,187
             Surplus notes interest                                        3,375                       2,729
             Foreign exchange translation                                    166                         154
             Other                                                           882                         882
                                                                    ------------                ------------

             Total                                                       278,105                     212,479
                                                                       ---------                   ---------

             Income tax receivable - deferred                          $  38,861                   $  26,174
                                                                       =========                   =========
</TABLE>

         Management believes that based on the taxable  income  produced in the
         current year and the continued growth in annuity products,  the Company
         will  produce sufficient  taxable  income in the future to realize its
         deferred  tax asset. As such,  the Company  released  the deferred tax
         valuation allowance of $9,325,000 in 1996.

         The income tax  expense was  different  from the  amount  computed  by
         applying the federal statutory tax rate of 35% to pre-tax  income from
         continuing operations as follows:

<TABLE>
<CAPTION>
                  (in thousands)                                     1998              1997                 1996
                                                                     ----              ----                 ----

<S>                                                              <C>                <C>                <C>  
         Income (loss) before taxes
             Domestic                                              $45,435             $39,464             $23,366
             Foreign                                                (2,514)             (1,438)               (781)
                                                                 ---------           ---------           ---------
             Total                                                  42,921              38,026              22,585

             Income tax rate                                            35%                 35%                 35%
                                                                 ---------           ---------           ---------

         Tax expense at federal
             statutory income tax rate                              15,022              13,309               7,905

         Tax effect of:
             Change in valuation allowance                               -                  -               (9,325)
             Dividend received deduction                            (9,085)             (4,585)             (2,266)
             Losses of foreign subsidiary                              880                 503                 273
             Meals and entertainment                                   487                 340                  43
             State income taxes                                        673                 577                 356 
             Other                                                     177                 334              (1,024)
                                                                  --------             -------           ---------

         Income tax expense (benefit)                             $  8,154             $10,478           ($  4,038)
                                                                  ========             =======            =========

</TABLE>

<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


7.       RECEIVABLE FROM/PAYABLE TO AFFILIATES

         Certain operating costs (including  personnel, rental of office space,
         furniture, and equipment)  have been charged to the Company at cost by
         American Skandia  Information  Services  and  Technology   Corporation
         ("ASIST"), an affiliated company; and likewise, the Company has charged
         operating costs to ASISI. The total cost to the Company for these items
         was $7,722,000, $5,572,000 and $11,581,000 for the years ended December
         31, 1998, 1997 and 1996, respectively.  Income received for these items
         was $1,355,000, $3,225,000 and $1,148,000 for the years ended December
         31,  1998,  1997  and  1996,  respectively.  Amounts  receivable  from
         affiliates  under these  arrangements were  $98,000 and $549,000 as of
         December 31, 1998 and 1997, respectively. Amounts payable to affiliates
         under these arrangements were $551,000 and $264,000 as of December 31,
         1998 and 1997, respectively.


8.       FUTURE FEES PAYABLE TO PARENT

         In a series of transactions with its Parent,  the Company sold certain
         rights to receive  future fees and  contract  charges  expected  to be
         realized on variable portions of designated blocks of deferred annuity
         contracts. The effective  dates and issue  periods these  transactions
         cover are as follows:


                             Closing    Effective        Contract Issue
            Transaction       Date         Date              Period
            -----------     --------    ---------      -----------------

               1996-1       12/16/96      9/1/96       1/1/94 -  6/30/96
               1997-1        7/23/97      6/1/97       3/1/96 -  4/30/97
               1997-2       12/30/97     12/1/97       5/1/95 - 12/31/96
               1997-3       12/30/97     12/1/97       5/1/96 - 10/31/97
               1998-1        6/30/98      6/1/98       1/1/97 -  5/31/98
               1998-2       11/10/98     10/1/98       5/1/97 -  8/31/98
               1998-3       12/30/98     12/1/98       7/1/96 - 10/31/98


        In connection with these transactions, the Parent issued collateralized
        notes in a private placement which are secured by the rights to receive
        future fees and charges purchased from the Company.

        Under the terms of the Purchase Agreements, the rights sold provide for
        the Parent to receive a  percentage  of future  mortality  and  expense
        charges and  contingent  deferred  sales  charges,  after  reinsurance,
        expected to be realized over the remaining  surrender  charge period of
        the  designated  contracts (6 to 8 years).  The  percentage  is 100% on
        transactions 1997-3 and 1998-3 and 80% on all other transactions.

        The Company  did not sell the right to receive  future fees and charges
        after the expiration of the surrender charge period.


<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


        The proceeds  from the sales have been  recorded as a liability and are
        being  amortized  over the  remaining  surrender  charge  period of the
        designated  contracts using the interest  method.  The present value of
        the transactions as of the respective effective date was as follows:

<TABLE>
<CAPTION>
         (in thousands)
                                                               Present
<S>       <C>                     <C>                         <C>
           Transaction             Discount Rate                Value
           -----------             -------------               -------
             1996-1                    7.5%                    $50,221
             1997-1                    7.5%                     58,767
             1997-2                    7.5%                     77,552
             1997-3                    7.5%                     58,193
             1998-1                    7.5%                     61,180
             1998-2                    7.0%                     68,573
             1998-3                    7.0%                     40,128
</TABLE>

        Payments  representing  fees and  charges  in the  aggregate  amount of
        $69,226,000, $22,250,000 and $0, were made by the Company to the Parent
        for the years ended  December  31, 1998,  1997 and 1996,  respectively.
        Related  interest  expense of  $22,978,000,  $6,842,000 and $42,000 has
        been included in the  statement of income for the years ended  December
        31, 1998, 1997 and 1996, respectively.

        Expected  payments of future fees  payable to Parent as of December 31,
        1998 are as follows:

                                     Year Ended
          (in thousands)            December 31,                    Amount
                                    ------------                  ----------
                                       1999                       $   64,520
                                       2000                           68,403
                                       2001                           67,953
                                       2002                           64,238
                                       2003                           54,382
                                       2004                           35,601
                                       2005                           12,441
                                       2006                            1,440
                                                                  ----------
                                       Total                      $  368,978
                                                                  ==========

        The  Commissioner  of the State of Connecticut has approved the sale of
        future fees and charges; however, in the event that the Company becomes
        subject to an order of liquidation or rehabilitation,  the Commissioner
        has the  ability  to stop the  payments  due to the  Parent  under  the
        Purchase Agreement subject to certain terms and conditions.


<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


9.      LEASES

        The Company leases office space under a lease agreement  established in
        1989  with  ASIST.  The  lease  expense  for  1998,  1997  and 1996 was
        $3,588,000,  $2,428,000 and  $1,583,000,  respectively.  Future minimum
        lease payments per year and in aggregate as of December 31, 1998 are as
        follows:

         (in thousands)        1999                           $  3,619
                               2000                              5,070
                               2001                              5,070
                               2002                              5,070
                               2003                              5,070
                               2004 and thereafter              40,271
                                                              --------

                               Total                          $ 64,170
                                                              ========

10.     RESTRICTED ASSETS

        To comply with certain state insurance departments'  requirements,  the
        Company maintains cash, bonds and notes on deposit with various states.
        The  carrying  value of  these  deposits  amounted  to  $3,747,000  and
        $3,757,000  as of December  31,  1998,  and 1997,  respectively.  These
        deposits  are  required  to  be  maintained   for  the   protection  of
        contractowners within the individual states.


11.     RETAINED EARNINGS AND DIVIDEND RESTRICTIONS

        Statutory basis shareholder's  equity was $285,553,000 and $294,586,000
        at December 31, 1998 and 1997, respectively.

        The statutory basis net loss was $13,152,000, $8,970,000 and $5,405,000
        for the years ended December 31, 1998, 1997 and 1996, respectively.

        Under various state  insurance  laws,  the maximum  amount of dividends
        that can be paid to  shareholders  without prior  approval of the state
        insurance  department is subject to restrictions  relating to statutory
        surplus and net gain from operations.  At December 31, 1998, no amounts
        may be distributed without prior approval.


12.     EMPLOYEE BENEFITS

        The Company has a 401(k) plan for which substantially all employees are
        eligible. Under this plan, the Company contributes 3% of salary for all
        participating  employees and matches  employee  contributions  at a 50%
        level  up  to  an   additional   3%   Company   contribution.   Company
        contributions  to  this  plan  on  behalf  of  the  participants   were
        $2,115,000,  $1,220,000  and $850,000 for the years ended  December 31,
        1998, 1997 and 1996, respectively.


<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                         (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


        The Company has a deferred compensation plan, which is available to the
        internal  field   marketing   staff  and  certain   officers.   Company
        contributions to this plan on behalf of the participants were $342,000,
        $270,000 and $245,000 for the years ended  December 31, 1998,  1997 and
        1996, respectively.

        The Company and an affiliate  cooperatively have a long-term  incentive
        plan under  which  units are awarded to  executive  officers  and other
        personnel.  The program  consists of  multiple  plans,  with a new plan
        instituted each year.  Generally,  participants must remain employed by
        the  Company or its  affiliates  at the time such units are  payable in
        order to receive any  payments  under the plan.  The accrued  liability
        representing  the value of these units was  $21,372,000 and $15,720,000
        as of December  31, 1998 and 1997,  respectively.  Payments  under this
        plan were  $2,407,000,  $1,119,000  and  $602,000  for the years  ended
        December 31, 1998, 1997, and 1996, respectively.

13.     REINSURANCE

        The effect of reinsurance  for the years ended December 31, 1998,  1997
        and 1996 is as follows:

<TABLE>
<CAPTION>
         (in thousands)                                    1998
                                                           ----
                                  Policy                 Change in             Return Credited
                             Charges and Fees         Policy Reserves         to Contractowners
                             ----------------         ---------------         -----------------
<S>                              <C>                     <C>                      <C>     
         Gross                   $215,425                $   691                  ($8,921)
         Ceded                     29,214                   (362)                       9
                                 --------                -------                  -------
         Net                     $186,211                $ 1,053                  ($8,930)
                                 ========                =======                  =======


                                                            1997
                                                            ----
                                  Policy                 Change in             Return Credited
                             Charges and Fees         Policy Reserves         to Contractowners
                             ----------------         ---------------         -----------------
         Gross                   $144,417                   $955                    ($1,972)
         Ceded                     23,259                    918                         46 
                                 --------                  -----                    -------
         Net                     $121,158                  $  37                    ($2,018)
                                 ========                  =====                     ======


                                                            1996
                                                            ----
                                  Policy                 Change in              Return Credited
                             Charges and Fees         Policy Reserves          to Contractowners
                             ----------------         ---------------          -----------------
         Gross                    $87,370                   $815                     $779
         Ceded                     17,590                    180                      106
                                 --------                  -----                    -----
         Net                      $69,780                   $635                     $673
                                  =======                   ====                     ====
</TABLE>


        Such ceded  reinsurance does not relieve the Company of its obligations
        to  policyholders.  The Company remains liable to its policyholders for
        the portion  reinsured to the extent that any  reinsurer  does not meet
        the obligations assumed under the reinsurance agreements.


<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


14.    SURPLUS NOTES

       The Company has issued surplus notes to its Parent in exchange for cash.
       Surplus notes outstanding as of December 31, 1998 and 1997 were
       as follows:

<TABLE>
<CAPTION>
              (in thousands)
                                                                                    Interest for the
                                        Interest      1998        1997           Years Ended December 31,
              Issue Date                  Rate       Amount      Amount        1998        1997       1996
              ----------                  ----       ------      ------        ----        ----       ----

<S>                                      <C>      <C>         <C>            <C>        <C>        <C>     
         December 29, 1993                6.84%    $      -    $ 20,000       $ 1,387    $ 1,387    $ 1,391
         February 18, 1994                7.28%      10,000      10,000           738        738        740
         March 28, 1994                   7.90%      10,000      10,000           801        801        803
         September 30, 1994               9.13%      15,000      15,000         1,389      1,389      1,392
         December 28, 1994                9.78%      14,000      14,000         1,388      1,388      1,392
         December 19, 1995                7.52%      10,000      10,000           762        762        765
         December 20, 1995                7.49%      15,000      15,000         1,139      1,139      1,142
         December 22, 1995                7.47%       9,000       9,000           682        682        684
         June 28, 1996                    8.41%      40,000      40,000         3,411      3,411      1,747
         December 30, 1996                8.03%      70,000      70,000         5,699      5,699         31       
                                                   --------    --------       -------    -------    -------      -
         Total                                     $193,000    $213,000       $17,396    $17,396    $10,087
                                                   ========    ========       =======    =======    =======
</TABLE>

        The surplus note for $20,000,000  dated December 29, 1993 was converted
        to additional paid-in capital on December 31, 1998.

        All surplus notes mature seven years from the issue date.

        Payment of  interest  and  repayment  of  principal  for these notes is
        subject to certain  conditions  and require  approval by the  Insurance
        Commissioner  of the State of  Connecticut.  At  December  31, 1998 and
        1997, $9,644,000 and $7,796,000,  respectively,  of accrued interest on
        surplus notes was not approved for payment under these criteria.


15.     SHORT-TERM BORROWING

        The Company had a $10 million  short-term loan payable to the Parent at
        December 31, 1998 and 1997. The total  interest  expense to the Company
        was  $622,000,  $642,000 and $643,000 and for the years ended  December
        31, 1998, 1997 and 1996,  respectively,  of which $182,000 and $201,000
        was payable as of December 31, 1998 and 1997, respectively.


16.     CONTRACT WITHDRAWAL PROVISIONS

        Approximately  99% of the Company's  separate  account  liabilities are
        subject to discretionary  withdrawal by  contractowners at market value
        or with market  value  adjustment.  Separate  account  assets which are
        carried at fair value are  adequate to pay such  withdrawals  which are
        generally  subject  to  surrender  charges  ranging  from 10% to 1% for
        contracts held less than 10 years.


<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


17.     SEGMENT REPORTING

        In June 1997, the FASB issued SFAS 131,  "Disclosures about Segments of
        an Enterprise and Related  Information." SFAS 131 establishes standards
        for the way that public  enterprises report information about operating
        segments  in  annual  financial  statements  and  requires  that  those
        enterprises  report selected  information  about operating  segments in
        interim financial  reports issued to shareholders.  It also establishes
        standards   related  to   disclosures   about  products  and  services,
        geographic  areas  and  major  customers.  SFAS  131 is  effective  for
        financial statement periods beginning after December 15, 1997.

        During 1998, to complement its annuity  products,  the Company launched
        specific  marketing and operational  activities  towards the release of
        variable life insurance and qualified retirement plan annuity products.
        As of December 31, 1998,  sales were not significant  enough to warrant
        full segment disclosures.  Sales, as measured by premium received,  for
        the year ended  December  31, 1998 and assets  under  management  as of
        December 31, 1998, for the respective segments were as follows:

<TABLE>
<CAPTION>
                      (in thousands)                   Variable         Variable      Qualified
                                                        Annuity           Life           Plans         Total
                                                     ------------       --------      ---------     -----------
<S>                                                  <C>                 <C>           <C>          <C>           
         Sales                                        $ 4,122,272        $1,188        $36,202      $ 4,159,662
                                                      ===========        ======        =======      ===========

         Assets under management                      $17,809,437        $1,295        $44,029      $17,854,761
                                                      ===========        ======        =======      ===========
</TABLE>




<PAGE>


                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION
                          (a wholly-owned subsidiary of
                         Skandia Insurance Company Ltd.)

             Notes to Consolidated Financial Statements (continued)


18.     QUARTERLY FINANCIAL DATA (UNAUDITED)

        The  following  table  summarizes   information  with  respect  to  the
        operations of the Company on a quarterly basis:

<TABLE>
<CAPTION>

                   (in thousands)                                            Three Months Ended
                                                     March 31          June 30        September 30       December 31
                                                     --------          -------        ------------       -----------
                      1998
                      ----
<S>                                                 <C>              <C>                <C>              <C>   
         Premiums and other insurance
            revenues                                  $ 50,593          $ 57,946         $ 62,445          $ 67,327
         Net investment income                           3,262             2,410            2,469             2,989
         Net realized capital gains (losses)               156                13              (46)              (24) 
                                                      --------          --------         --------          --------
         Total revenues                                 54,011            60,369           64,868            70,292

         Benefits and expenses                          46,764            42,220           48,471            69,164
                                                      --------          --------         --------          --------

         Pre-tax net income                              7,247            18,149           16,397             1,128

         Income taxes                                    1,175             4,174            2,223               582
                                                      --------          --------         --------          --------

         Net income                                   $  6,072          $ 13,975         $ 14,174          $    546
                                                      ========          ========         ========          ========


                       1997
                       ----
         Premiums and other insurance
            revenues                                  $ 30,186          $ 34,056         $ 41,102          $ 44,402
         Net investment income                           1,369             2,627            2,031             2,154
         Net realized capital gains                         20                43               21                 3
                                                      --------          --------         --------          --------
         Total revenues                                 31,575            36,726           43,154            46,559

         Benefits and expenses                          18,319            30,465           31,179            40,025
                                                      --------          --------         --------          --------

         Pre-tax net income                             13,256             6,261           11,975             6,534

         Income taxes                                    4,260             2,614            3,354               250
                                                      --------          --------         --------          --------

         Net income                                   $  8,996          $  3,647         $  8,621          $  6,284
                                                      ========          ========         ========          ========


                       1996
                       ----
         Premiums and other insurance
            revenues                                  $ 16,606          $ 20,453         $ 22,366          $ 26,906
         Net investment income                             455               283              270               578
         Net realized capital gains                         92                13                6                23
                                                      --------          --------         --------          --------
         Total revenues                                 17,153            20,749           22,642            27,507

         Benefits and expenses                          12,725             9,430           17,007            26,304
                                                      --------         ---------         --------          --------

         Pre-tax net income                              4,428            11,319            5,635             1,203

         Income taxes                                    1,769             3,624            3,096           (12,527)
                                                      --------         ---------         --------          --------

         Net income                                   $  2,659         $   7,695         $  2,539          $ 13,730
                                                      ========         =========         ========          ========
</TABLE>


        As described in Note 6, the  valuation  allowance  relating to deferred
        income  taxes was released  during the three months ended  December 31,
        1996.
<PAGE>

Item 9.       Changes in and Disagreements with Accountants on Accounting and 
              Financial Disclosure

              None

PART III

Item 10.      Directors and Executive Officers of the Registrant

              Information  contained in the "Executive  Officers and Directors"
              section of the prospectus of the Company's registration statement
              on  Form  S-1,  (Reg.   #333-00941)  is  incorporated  herein  by
              reference.

Item 11.      Executive Compensation

              Summary  Compensation  Table:  The summary table below summarizes
              the  compensation  payable to the Chief Executive  Officer and to
              the most  highly  compensated  of our  executive  officers  whose
              compensation exceeded $100,000 in 1998.

<TABLE>
<CAPTION>
                 (in thousands)
               Name and                                                  Annual                   LTIP
               Principal Position                  Year                  Salary                  Payouts
               -----------------------             ----                  ------                  -------
<S>                                                <C>                    <C>                    <C>     
               Jan R. Carendi                      1998                   $784                    $302
               Chief Executive Officer             1997                    609                     172
                                                   1996                    506                     115

               Gordon C. Boronow                   1998                   $325                    $278
               President & Deputy Chief            1997                    261                     175
               Executive Officer                   1996                    179                      54

               Lincoln R. Collins                  1998                   $285                     $99
               Executive Vice President &          1997                    254                      58
               Chief Operating Officer             1996                    208                      19

               Thomas M. Mazzaferro                1998                   $232                    $147
               Executive Vice President &          1997                    217                      78
               Chief Financial Officer             1996                    140                      45

               Nathan David Kuperstock             1998                   $182                    $100
               Vice President                      1997                    215                      62
               Product Management                  1996                    145                      27
</TABLE>

              Long Term  Incentive  Plans  (LTIP) - Awards  in the last  fiscal
              year:  The following  table  provides  information  regarding our
              long-term incentive plan. Units are awarded to executive officers
              and other  personnel.  The table shows units awarded to the Chief
              Executive  Officer  and  the  most  highly   compensated  of  our
              executive  officers whose  compensation  exceeded $100,000 in the
              fiscal year  immediately  preceding the date of this  submission.
              This  program is designed to induce  participants  to remain with
              the  Company  over long  periods  of time and to tie a portion of
              their compensation to the fortunes of the Company.


<PAGE>



              Currently, the program consists of multiple plans.  A new plan
              may be instituted each year.  Participants are awarded
              units at the beginning of a plan.  Generally,  participants  must
              remain employed by the Company or its affiliates at the time such
              units are  payable in order to  receive  any  payments  under the
              plan.  There  are  certain  exceptions,   such  as  in  cases  of
              retirement or death.

              Changes in the value of units  reflect  changes in the  "embedded
              value" of the Company. "Embedded value" is the net asset value of
              the Company (valued at market value and not including the present
              value  of  future  profits),   plus  the  present  value  of  the
              anticipated  future profits  (valued  pursuant to state insurance
              law) on its existing contracts. Units will not have any value for
              participants  if the embedded  value does not increase by certain
              target  percentages  during the first  four years of a plan.  The
              target  percentages  may differ  between  each plan.  Any amounts
              available  under a plan are paid out in the fifth through  eighth
              years of a plan.  Payments under a particular year's plan will be 
              postponed if the payment would exceed  20% of any  pretax  profit
              (as determined under state insurance law) earned by the Company 
              and certain affiliates in the prior fiscal year or 30% of the 
              individual's current year salary.  The amount to be received by 
              a participant at the time any payment is due will be the then
              current number of units payable multiplied by the then current 
              value of such units.

<TABLE>
<CAPTION>
                                                                                       (in thousands)
                                               Number     Period until               Estimated Future Payouts
               Name                          of Units       Payout           Threshold      Target       Maximum

<S>                                           <C>           <C>                             <C>   
               Jan R. Carendi                 210,000       Various                         $2,535

               Gordon C. Boronow              200,000       Various                          2,496

               Thomas M. Mazzaferro           145,000       Various                          1,652

               Lincoln R. Collins              86,250       Various                            942

               Nathan David Kuperstock         55,000       Various                            690
</TABLE>


<PAGE>



              The following directors' compensation is shown below in 1998:

                   Jan R. Carendi                               0

                   Gordon C. Boronow                            0

                   Nancy F. Brunetti                            0

                   Malcolm M. Campbell                          0

                   Lincoln R. Collins                           0

                   C. Henrik G. Danckwardt                      0

                   Wade A. Dokken                               0

                   Thomas M. Mazzaferro                         0

                   Gunnar J. Moberg                             0

                   Anders O. Soderstrom                         0

                   Amanda C. Sutyak                             0

                   C. Ake Svensson                              0

                   Bayard F. Tracy                              0


Item 12.       Security Ownership of Certain Beneficial Owners and Management

               None


Item 13.       Certain Relationships and Related Transactions

               None


<PAGE>


PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a) Financial Information

         (1)  Financial Statements                    See Index to Consolidated
                                                      Financial Statements on
                                                      Page 11

         (2)  Financial Statement Schedules           None

     (b) Exhibits

         (2) Plans of acquisition, reorganization,    None
             Arrangement, liquidation or succession

         (3) Articles of Incorporation and By-Laws    Incorporated by reference
                                                      to the Company's Form N-4
                                                      (Reg. #33-19363)

         (4) Instruments defining the right of        Incorporated by reference
             security holders including indentures    to the Company's Reg. 
                                                      #333-08853, #33-59993, 
                                                      #33-86866, #33-87010,
                                                      #33-62793, #33-62933, 
                                                      #333-26685, and #33-88362

         (9) Voting Trust Agreement                   None

        (10) Material Contracts                       Incorporated by reference
                                                      to the Company's Forms S-1
                                                      (Reg. #33-26122 and 
                                                      #33-86918)

        (11) Statement of Computation of per share
             earnings                                 Not required to be filed

        (12) Statements of Computation of Ratios      Not required to be filed

        (13) Annual Report to security holders        None

        (18) Letter re change in accounting 
             principles                               None

        (19) Previously unfiled documents             None

        (21) Subsidiaries of the registrant           Incorporated by reference
                                                      to Part II of 
                                                      Reg #333-26695

        (22) Published report regarding matters
             submitted to vote of security holders    None

        (23) Consents of experts and counsel          Not required to be filed

        (24) Powers of Attorney                       Incorporated by reference
                                                      to the Company's Forms 
                                                      S-2 (Reg. #333-25733)

        (99) Additional exhibits                      None



<PAGE>




                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 31, 1999.

                   AMERICAN SKANDIA LIFE ASSURANCE CORPORATION


                           By: /s/Thomas M. Mazzaferro
                                  --------------------
                              Thomas M. Mazzaferro
                          Executive Vice President and
                             Chief Financial Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the registrant and
in the capacities indicated on March 31, 1999.



         *Jan R. Carendi
          --------------
          Jan R. Carendi
          Chief Executive Officer,
          Chairman of the Board and Director



Board of Directors

    *Gordon C. Boronow       *Nancy F. Brunetti           *Jan R. Carendi

   *Malcolm M. Campbell      *Lincoln R. Collins      *C. Henrik G. Danckwardt

     *Wade A. Dokken       *Thomas M. Mazzaferro          *Gunnar J. Moberg

  *Anders O. Soderstrom      *Amanda C. Sutyak            *C. Ake Svensson

    *Bayard F. Tracy




By: /s/ M. Priscilla Pannell
        --------------------                 
        M. Priscilla Pannell
        Corporate Secretary


*Pursuant to Powers of Attorney filed with the Registration Statement.