American Skandia Life Assurance Corporation

(Address and Telephone Number of Registrant’s Principal Executive Offices)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 13, 2006, 25,000 shares of the registrant’s Common Stock (par value $100) consisting of 100 voting shares and 24,900 non-voting shares, were outstanding. As of such date, American Skandia, Inc., an indirect wholly owned subsidiary of Prudential Financial, Inc., a New Jersey corporation, owned all of the registrant’s Common Stock.

Certain of the statements included in this Quarterly Report on Form 10-Q, including but not limited to those in Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon American Skandia Life Assurance Corporation. There can be no assurance that future developments affecting American Skandia Life Assurance Corporation will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) general economic, market and political conditions, including the performance and fluctuations of stock, real estate and other financial markets; (2) interest rate fluctuations; (3) reestimates of our reserves for future policy benefits and claims; (4) differences between actual experience regarding mortality, morbidity, persistency, surrender experience, interest rates, or market returns and the assumptions we use in pricing our products, establishing liabilities and reserves or for other purposes; (5) changes in our assumptions related to deferred policy acquisition costs, valuation of business acquired or goodwill; (6) changes in our claims-paying or credit ratings; (7) investment losses and defaults; (8) competition in our product lines and for personnel; (9) changes in tax law; (10) regulatory or legislative changes; (11) adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities; (12) domestic or international military actions, natural or man-made disasters including terrorist activities or pandemic disease, or other events resulting in catastrophic loss of life; (13) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; (14) effects of acquisitions, divestitures and restructurings, including possible difficulties in integrating and realizing the projected results of acquisitions; (15) changes in statutory or U.S. GAAP accounting principles, practices or policies; and (16) changes in assumptions for retirement expense. American Skandia Life Assurance Corporation does not intend, and is under no obligation, to update any particular forward-looking statement included in this document. See “Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 for a discussion of certain risks relating to our business.

American Skandia Life Assurance Corporation, (the “Company”), with its principal offices in Shelton, Connecticut, is an indirect wholly owned subsidiary of Prudential Financial, Inc., (“Prudential Financial”), a New Jersey corporation. The Company is a wholly owned subsidiary of American Skandia, Inc. (“ASI”), which in turn is an indirect wholly owned subsidiary of Prudential Financial. On December 19, 2002, Skandia Insurance Company Ltd. (publ), (“Skandia”), an insurance company organized under the laws of the Kingdom of Sweden, and the ultimate parent company of the Company prior to May 1, 2003, entered into a definitive purchase agreement with Prudential Financial whereby Prudential Financial would acquire the Company and certain of its affiliates (the “Acquisition”) and would be authorized to use the American Skandia name through April, 2008. On May 1, 2003, the initial phase of the Acquisition was consummated. Thus, the Company now is an indirect wholly owned subsidiary of Prudential Financial.

The Company develops long-term savings and retirement products, that are distributed through its affiliated broker-dealer company, American Skandia Marketing, Incorporated. The Company currently issues variable and fixed deferred and immediate annuities for individuals and groups in the United States of America and its territories.

The Company is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance companies and other entities engaged in marketing insurance products, and individual and group annuities.

The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and on a basis consistent with reporting interim financial information in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (“the SEC”). These interim financial statements are unaudited but reflect all adjustments that, in the opinion of management, are necessary to provide a fair presentation of the results of operations and financial condition of the Company for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for a full year. These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most significant estimates include those used in determining deferred policy acquisition costs, valuation of business acquired, investments, future policy benefits, provision for income taxes, reserves for contingent liabilities and reserves for losses in connection with unresolved legal matters.

Certain amounts in the Company’s prior year financial statements have been reclassified to conform with the current year presentation.

On an ongoing basis, our internal supervisory and control functions review the quality of our sales, marketing, administration and servicing, and other customer interface procedures and practices and may recommend modifications or enhancements. From time to time, this review process results in the discovery of administration, servicing or other errors, including errors relating to the timing or amount of payments or contract values due to customers. In these cases, we may offer customers appropriate remediation and may incur charges and expenses, including the costs of such remediation, administrative costs and regulatory fines.

During the third quarter of 2004, the Company identified a system-generated calculation error in its annuity contract administration system that existed prior to the Acquisition. This error related to the calculation of amounts due to customers for certain transactions subject to a market value adjustment upon the surrender or transfer of monies out of their annuity contract’s fixed allocation options. The error resulted in an underpayment to policyholders, as well as additional anticipated costs to the Company associated with remediation, breakage and other costs Recently, the Company retained a consultant to assist it with the systems modifications needed to implement the remediation plan currently in place. The Company has advised Skandia that a portion of the remediation and related administrative costs are subject to the indemnification provisions of the Acquisition agreement.

It is possible that the results of operations or the cash flow of the Company in a particular quarterly or annual period could be materially affected as a result of payments in connection with the matters discussed above, depending, in part, upon the results of operations or cash flow for that period. Management believes, however, that the ultimate payments in connection with currently pending matters, after consideration of applicable reserves and indemnification, should not have a material adverse effect on the Company’s financial position.

We are subject to legal and regulatory actions in the ordinary course of our business, including class action lawsuits. Our pending legal and regulatory actions include proceedings specific to the Company and proceedings generally applicable to business practices in the industry in which we operate. We are subject to class action lawsuits and other litigation alleging, among other things, that we made improper or inadequate disclosures in connection with the sale of annuity products or charged excessive or impermissible fees on these products, recommended unsuitable products to customers, mishandled customer accounts or breached fiduciary duties to customers. We are also subject to litigation arising out of our general business activities, such as our investments, contracts, leases and labor and employment relationships, including claims of discrimination and harassment, and could be exposed to claims or litigation concerning certain business or process patents. In some of our pending legal and regulatory actions, parties are seeking large and/or indeterminate amounts, including punitive or exemplary damages. Finally, we are periodically subject to examinations and audits by federal and state regulators, and also on occasion receive and address complaints from customers. The following is a summary of certain pending proceedings.

The Company commenced a remediation program to correct errors in the administration of approximately 11,000 annuity contracts issued by the Company. The owners of these contracts did not receive notification that the contracts were approaching or past their designated annuitization date or default annuitization date (both dates referred to as the “contractual annuity date”) and the contracts were not annuitized at their contractual annuity dates. Some of these contracts also were affected by data integrity errors resulting in incorrect contractual annuity dates. The lack of notice and the data integrity errors, as reflected on the annuities administrative system, all occurred before the Acquisition. The remediation and administrative costs of the remediation program are subject to the indemnification provisions of the Acquisition agreement.

Commencing in 2003, the Company received formal requests for information from the SEC and the New York Attorney General (“NYAG”) relating to market timing in variable annuities by the Company and certain affiliated companies. In connection with these investigations, with the approval of Skandia an offer was made by the Company to the authorities investigating its companies, the SEC and NYAG to settle these matters by paying restitution and a civil penalty of $95 million in the aggregate. While not assured, the Company believes these discussions are likely to lead to settlements with these authorities. Any regulatory settlement involving the Company and certain affiliates would be subject to the indemnification provisions of the acquisition agreement pursuant to which Prudential Financial purchased the Company and certain affiliates in May 2003 from Skandia. If achieved, settlement of the matters relating to the Company and certain affiliates also could involve continuing monitoring, changes to and/or supervision of business practices, findings that may adversely affect existing or cause additional litigation, adverse publicity and other adverse impacts to the Company’s businesses.

The Company’s litigation and regulatory matters are subject to many uncertainties, and given their complexity and scope, the outcomes cannot be predicted. It is possible that the results of operations or the cash flow of the Company in a particular quarterly or annual period could be materially affected by an ultimate unfavorable resolution of pending litigation and regulatory matters depending, in part, upon the results of operations or cash flow for such period. Management believes, however, that the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves and rights to indemnification, should not have a material adverse effect on the Company’s financial position.

It should be noted that the judgments, settlements and expenses associated with many of these lawsuits, administrative and regulatory matters, and contingencies, including certain claims described above, may, in whole or in part, after satisfaction of certain retention requirements, fall within Skandia’s indemnification obligations to Prudential Financial and its subsidiaries under the terms of the Acquisition. Those obligations of Skandia provide for indemnification of certain judgments, settlements, and costs and expenses associated with lawsuits and other claims against the Company (“matters”), and apply only to matters, or groups of related matters, for which the costs and expenses exceed $25,000 individually. Additionally, those obligations only apply to such otherwise indemnifiable costs and expenses that exceed $10 million in the aggregate, subject to reduction for insurance proceeds, certain accruals and any realized tax benefit applicable to such amounts, and those obligations do not apply to the extent that such aggregate exceeds $1 billion. We are in discussions with Skandia regarding the satisfaction of the $10 million deductible.

See the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 for additional discussion of the Company’s litigation and regulatory matters.

The Company is a party to numerous transactions and relationships with its affiliate, The Prudential Insurance Company of America (“Prudential Insurance”), and other affiliates. It is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties.

Many of the Company’s expenses are allocations or charges from Prudential Insurance or other affiliates.

The Company’s general and administrative expenses are charged to the Company using allocation methodologies based on business processes. Management believes that the methodology is reasonable and reflects costs incurred by Prudential Insurance to process transactions on behalf of the Company. The Company operates under service and lease agreements whereby services of officers and employees, supplies, use of equipment and office space are provided by Prudential Insurance. Since 2003, general and administrative expenses also include allocations of stock compensation expenses related to a stock option program and a deferred compensation program sponsored by Prudential Financial.

The Company is charged for its share of employee benefits expenses. These expenses include costs for funded and non-funded contributory and non-contributory defined benefit pension plans. Some of these benefits are based on earnings and length of service. Other benefits are based on an account balance, which takes into consideration age, service and earnings during career.

The Company’s share of net expense for the pension plans was $3.2 million and $2.3 million for the nine months ended September 30, 2006 and 2005, respectively.

Prudential Insurance sponsors voluntary savings plans for the Company’s employees (“401(k) plans”). The 401(k) plans provide for salary reduction contributions by employees and matching contributions by the Company of up to 4% of annual salary. The expense charged the Company for the matching contribution to the 401k plans was $1.1 million and $1.0 million for the nine months ended September 30, 2006 and 2005, respectively.

On March 12, 2004, the Company entered into a $45 million loan from Prudential Funding, LLC (“Prudential Funding”), a wholly owned subsidiary of Prudential Insurance. This loan matures on March 12, 2007 and has an interest rate of 5.71%. The proceeds were used to support working capital needs.

On March 23, 2005, the Company entered into a $30 million loan from Prudential Funding, . This loan has an interest rate of 5.71% and matures on March 12, 2007.

On March 23, 2005, the Company entered into a $30 million loan from Prudential Funding. This loan has an interest rate of 5.77% and matures on March 11, 2008.

On May 1, 2004, the Company entered into a $500 million credit facility agreement with Prudential Funding. Effective December 1, 2004, the credit facility agreement was increased to $750 million. As of September 30, 2006, $451.9 million was outstanding under this credit facility.

During 2005 and 2006, the Company entered into new reinsurance agreements with affiliates as part of its risk management and capital management strategies. Effective May 6, 2005, the Company entered into a coinsurance agreement with Prudential Insurance providing for the 100% reinsurance of its Lifetime Five benefit feature sold on new business prior to May 6, 2005. Effective July 1, 2005, the Company entered into a new coinsurance agreement with Pruco Re, Ltd. (“Pruco Re”) providing for the 100% reinsurance of its Lifetime Five benefit feature sold on new business after May 5, 2005 as well as for riders issued from March 15, 2005 forward on business in-force before March 15, 2005. Effective March 20, 2006, the Company entered into a new coinsurance agreement with Pruco Re providing for the 100% reinsurance of its Spousal Lifetime Five benefit feature.

In November 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments.” This FSP provides impairment models for determining whether to record impairment losses associated with investments in certain equity and debt securities, primarily by referencing existing accounting guidance. It also requires income to be accrued on a level-yield basis following an impairment of debt securities, where reasonable estimates of the timing and amount of future cash flows can be made. The Company adopted this guidance effective January 1, 2006, but it did not have a material effect on the Company’s consolidated results of operations.

In September 2006, the staff of the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” The interpretations in this SAB express the Staff’s views regarding the process of quantifying financial statement misstatements. Specifically, the SEC Staff believes that registrants must quantify the impact on current period financial statements of correcting all misstatements, including both those occurring in the current period and the effect of reversing those that have accumulated from prior periods. The SAB should be applied beginning with the first fiscal year ending after November 15, 2006, with early adoption encouraged. Since the Company’s method for quantifying financial statement misstatements already considers those occurring in the current period and the effect of reversing those that have accumulated from prior periods, the adoption of SAB No. 108 should have no effect to the financial position and results of operations of the Company.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. This Statement does not require any new fair value measurements, but the application of this Statement could change current practices in determining fair value. The Company plans to adopt this guidance effective January 1, 2008. The Company is currently assessing the impact of SFAS No. 157 on the Company’s consolidated financial position and results of operations.

In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes”, an interpretation of FASB Statement No. 109. FIN No.48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that a company has taken or expects to take on a tax return. This Interpretation is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN No. 48 on January 1, 2007. The Company is currently assessing the impact of FIN No. 48 on the Company’s financial position and results of operations and notes to financial statements.

On February 16, 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Instruments.” SFAS No. 155 provides an election, on an instrument by instrument basis, to measure at fair value an entire hybrid financial instrument that contains an embedded derivative requiring bifurcation, rather than measuring only the embedded derivative on a fair value basis. This statement also removes an exception from the requirement to bifurcate an embedded derivative feature from a beneficial interest in securitized financial assets. The Company has used this exception for investments the Company has made in securitized financial assets in the normal course of operations, and thus has not previously had to consider whether such investments contain an embedded derivative. The new requirement to identify embedded derivatives in beneficial interest will be applied on a prospective basis only to beneficial interest acquired, issued, or subject to certain remeasurement conditions after the adoption date of the new guidance. The Company plans to adopt SFAS No. 155 effective January 1, 2007. The Company is in the process of determining whether there are any hybrid instruments for which the Company will elect the fair value option.

In September 2005, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (“SOP”) 05-1, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts.” SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97. SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. The Company will adopt SOP 05-1 on January 1, 2007. The Company is currently assessing the impact of SOP 05-1 on the Company’s consolidated financial position and results of operations.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

American Skandia Life Assurance Corporation meets the conditions set forth in General Instruction H(1)(a) and (b) on Form 10-Q and is therefore filing this form with the reduced disclosure format.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) addresses the financial condition of American Skandia Life Assurance Corporation (the “Company”) as of September 30, 2006 compared with December 31, 2005 and its results of operations for the three month periods ended September 30, 2006 and 2005 and the nine month periods ended September 30, 2006 and 2005. You should read the following analysis of our financial condition and results of operations in conjunction with the Company’s MD&A and audited Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 and the Interim Financial Statements included elsewhere in this Quarterly Report on

The Company was established in 1988 and is a significant provider of variable annuity contracts for the individual market in the United States of America and its territories. The Company’s products are sold primarily to individuals to provide for long-term savings and retirement and to address the economic impact of premature death, estate planning concerns and supplemental retirement needs. The investment performance of the registered investment companies supporting the variable annuity contracts, which is principally correlated to equity market performance, can significantly impact the market for the Company’s products.

The Company offers a wide array of annuities, including (1) deferred and immediate variable annuities that are registered with the SEC, including fixed interest rate allocation options that are offered in certain of our variable annuities and are registered because of their market value adjustment feature and (2) fixed rate allocation options in certain of our variable and fixed annuities that are not registered with the SEC. In addition, the Company has in force a relatively small block of variable life insurance policies, but it no longer actively sells such policies.

Annuity contracts represent the insurer’s contractual obligation to make payments over a given period of time, often measured by the life of the recipient, in return for a single deposit or a series of scheduled or flexible deposits. The insurer’s obligation to pay may commence immediately or be deferred. If the insurer’s payments are deferred, the insurer generally incurs an obligation to make a surrender value available during the deferral period based on an account value, and guarantees as applicable. The account value consists of the deposits and may earn interest, or may vary with the performance of investments in the funds selected by the insurer and made available for election by contract holders. Gains on deposits made by the contract holder, before distribution, generally are tax deferred for the contract holder. Distributions are taxed as ordinary income to the contract holder. For immediate annuities and annuitized deferred annuities, a portion of each distribution may be treated as a return of the contractholder’s investment in the contract.

The Company sells its wide array of annuity products through multiple distribution channels, including (1) independent financial planners; (2) broker-dealers that generally are members of the New York Stock Exchange, including “wirehouse” and regional broker-dealer firms; and (3) broker-dealers affiliated with banks or that specialize in marketing to customers of banks. Although the Company is active in each of those distribution channels, the majority of the Company’s sales have come from independent financial planners. The Company has selling agreements with approximately eleven hundred broker-dealer firms and financial institutions. On June 1, 2006, Prudential Insurance acquired the variable annuity business of The Allstate Corporation (“Allstate”) which included access to the Allstate affiliated broker-dealer. The Company began selling variable annuities through the Allstate affiliated broker-dealer registered representatives in the third quarter of 2006.

Although many of the Company’s competitors have acquired or are seeking to acquire their distribution channels as a means of securing sales, the Company typically does not follow that model. Instead, the Company believes that its success is dependent on its ability to enhance its relationships with both the selling firms and the firm’s registered representatives. In cooperation with its affiliated broker-dealer, American Skandia Marketing, Incorporated, the Company uses wholesalers to provide support to its primary distribution channels. In addition, the Company also offers a number of private label and proprietary products distributed by select large distributors.

The Company’s Changes in Financial Position and Results of Operations are described below.

Assets increased by $2,937 million, from $32.9 billion at December 31, 2005 to $35.8 billion at September 30, 2006. Separate account assets increased by $2,754 million driven by positive net flows and market appreciation during the current year. Deferred policy acquisition costs (“DAC”) and deferred sales inducements also increased $172.5 million and $90.1 million, respectively, due to increased sales driving an increase in capitalized costs. Partially offsetting these increases was a decrease in the valuation of business acquired of $31.6 million driven by amortization and $20.4 million in lower income taxes receivable.

During the period, total liabilities increased by $2,944 million, from $32.1 billion at December 31, 2005 to $35.0 billion at September 30, 2006. Separate account liabilities increased by $2,754 million driven by positive net flows and market appreciation during the current year. Additionally, there was an increase in policyholders’ account balances of $110.7 million primarily due to transfers of customer account values from the separate account mutual fund options to the market value adjustment options. Also, borrowings increased $213.3 million in order to fund the growth of the business. Partially offsetting these increases was a decrease in other liabilities of $74.5 million, driven by lower suspense balances due to the settlement of transactions and a decrease in the remediation liability as a result of payments to customers in the current year, decreased cash collateral for loaned securities of $61.6 million due to lower levels of corporate securities on loan, and decreased future fees payable to ASI of $50.8 million during the period due to amortization.

Net income decreased by $8.2 million, from $49.4 million for the three months ended September 30, 2005 to $41.2 million for the three months ended September 30, 2006. Net income for the third quarter of 2005 included a $23.9 million benefit related to a decrease in our reserve for the guaranteed minimum death benefit feature of our variable annuity product, due to decreased cost of actual and expected death claims and modeling refinements implemented, based on an annual review. Policy charges and fee income increased by $22.2 million and asset management fees increased by $9.0 million, in the third quarter of 2006 over the same period in 2005, driven by an increase in the inforce business and market appreciation. Additionally, reserves, net of claims, for the guaranteed minimum death benefit feature included within policyholder benefits decreased by $2.7 million due to decreased costs of actual and expected claims and improved market conditions. Income tax expense also decreased by $11.3 million, as a result of an increase in the projected amount of nontaxable investment income earned by the Company. These favorable variances were partially offset by $21.6 million of higher general, administrative and other expenses and $6.6 million of higher interest credited to policyholder account balances. Further details regarding the components of revenues and expenses are described below.

Revenues increased by $42.5 million, from $174.8 million for the three months ended September 30, 2005 to $217.3 million in the same period in 2006. Premiums of $16.8 million increased by $11.8 million, from $5.0 million for the three months ended September 30, 2005, reflecting an increase in funds from customers entering into the payout phase of their annuity contracts driven by settlements in the current quarter related to the annuitization remediation program.

Policy charges and fee income increased by $22.2 million, from $118.7 million for the three months ended September 30, 2005 to $140.9 million in the same period in 2006. Mortality and expense (“M&E”) charges increased by $14.3 million as a result of the increase in the inforce business and market appreciation. Generally, fees are mainly asset-based fees, which are dependent on fund balances. Average annuity separate account fund balances have increased over the past twelve months as a result of market appreciation and positive net flows, resulting in an increase in policy charges and fee income. Optional benefit charges on our living and death benefit features increased $3.4 million primarily driven by the sales of our Lifetime Five and Spousal Lifetime Five benefit features. This increase is primarily offset in realized investment losses, net as these features are reinsured with affiliates. Additionally, the change in realized market value adjustments related to the Company’s fixed, market value adjusted investment (“MVA”) option was $4.3 million higher than the prior year quarter.

Realized investment losses, net, increased $2.2 million from a loss of $5.8 million for the three months ended September 30, 2005 to a loss of $8.0 million in the same period in 2006. This is driven by increased investment losses on our MVA portfolio due to dispositions of fixed maturities in a rising rate environment to fund outflows. Also contributing to increased losses was a change in the value of our embedded derivatives related to our living benefit features. This is offset in policy charges and fee income as discussed in the preceding paragraph.

Asset management fees increased by $9.0 million, from $32.9 million for the three months ended September 30, 2005 to $41.9 million in the current quarter, as a result of higher average assets under management compared to the prior year period due to increased net inflows and market appreciation. Asset management fees are asset-based fees, which are dependent on the value of assets under management.

Policyholders’ benefits increased by $33.7 million, from $(0.7) million for the three months ended September 30, 2005 to $33.0 million for the three months ended September 30, 2006. The prior period includes a $23.9 million decrease in reserves for the guaranteed minimum death benefit feature of our variable annuity products due to decreased costs of actual and expected death claims as described previously under “Net Income”. Also contributing to the increase was an $11.4 million increase in change in reserves due to increased funds from customers entering into the payout phase of their annuity contracts. This was offset by higher premium revenue as discussed. Partially offsetting these increases was a $2.7 million decrease in reserves, net of claims, for the guaranteed minimum death benefit feature due to decreased costs of actual and expected claims and improved market conditions.

Interest credited to policyholders’ account balances increased $6.6 million, from $16.2 million for the three months ended September 30, 2005 to $22.8 million for the three months ended September 30, 2006. This was primarily driven by increased amortization of deferred sales inducements driven by increased gross profits used as a basis for amortizing these costs.

General, administrative, and other expenses increased by $21.9 million, from $91.9 million for the three months ended September 30, 2005 to $113.8 million for the three months ended September 30, 2006. The increase was primarily due to an increase in the amortization of DAC and valuation of business acquired of $13.9 million driven by a higher level of actual gross profits driven by increased fee income previously discussed. In addition, commissions, net of capitalization, increased $5.0 million driven by increased trail commissions caused by growth in separate account assets. The remaining increase in general expenses is primarily the result of higher interest expense as a result of increased borrowings and increased benefit and salary expenses.

Net income increased by $18.2 million, from $115.1 million for the nine months ended September 30, 2005 to $133.3 million for the nine months ended September 30, 2006. Net income for 2005 included a $23.9 million benefit related to a decrease in our reserve for the guaranteed minimum death benefit feature of our variable annuity product, due to decreased cost of actual and expected death claims and modeling refinements implemented, based on an annual review. Policy charges and fee income increased by $76.6 million and asset management fees increased by $29.8 million, in the nine months of 2006 over the same period in 2005, driven by an increase in the inforce business and market appreciation. Additionally, income tax expense decreased by $22.6 million, from $36.2 million for the nine months ended September 30, 2005 to $13.6 million for the same period in 2006 as a result of an increase in the projected amount of nontaxable investment income earned by the Company. Also, reserves, net of claims, for the guaranteed minimum death benefit feature decreased by $5.0 million due to decreased costs of actual and expected claims included within policyholder benefits. These favorable variances were partially offset by a $65.7 million increase in general, administrative and other expenses and an increase of $26.0 million in realized investment losses, net. Further details regarding the components of revenues and expenses are described below.

Revenues increased by $88.2 million, from $499.1 million for the nine months ended September 30, 2005 to $587.3 million in the same period in 2006. Premiums of $26.5 million increased by $11.2 million, from $15.3 million for the nine months ended September 30, 2005, reflecting an increase in funds from customers entering into the payout phase of their annuity contracts driven by settlements in the current year related to the annuitization remediation program.

Policy charges and fee income increased by $76.6 million, from $338.4 million for the nine months ended September 30, 2005 to $415.0 million in the same period in 2006. Mortality and expense (“M&E”) charges increased by $53.8 million as a result of the increase in the inforce business and market appreciation. Generally, fees are mainly asset-based fees, which are dependent on fund balances. Average annuity separate account fund balances have increased as a result of market appreciation and positive net flows, resulting in an increase in policy charges and fee income. Optional benefit charges on our living and death benefit features increased $10.5 million primarily driven by the sales of our Lifetime Five and Spousal Lifetime Five benefit features. This increase was primarily offset by realized investment losses, net as these features are reinsured with affiliates. Additionally, the change in realized market value adjustments related to the Company’s fixed, market value adjusted investment (“MVA”) option was $15.3 million higher than the prior year.

Realized investment losses, net, increased by $26.0 million from a loss of $18.4 million for the nine months ended September 30, 2005 to a loss of $44.4 million in the same period in 2006. This was driven by increased investment losses on our MVA portfolio due to dispositions of fixed maturities in a rising rate environment to fund outflows. Also contributing to the increased losses was a change in the value of our embedded derivatives related to our living benefit features. This was offset in policy charges and fee income as discussed in the preceding paragraph.

Asset management fees increased by $29.8 million, from $93.0 million for the nine months ended September 30, 2005 to $122.8 million in the same period in 2006, as a result of higher average assets under management compared to the prior year period due to increased net inflows and market appreciation. Asset management fees are asset-based fees, which are dependent on the value of assets under management.

Policyholders’ benefits increased by $24.5 million, from $46.6 million for the nine months ended September 30, 2005 to $71.1 million for the nine months ended September 30, 2006. The prior year includes a $23.9 million decrease in reserves for the guaranteed minimum death benefit feature of our variable annuity products due to decreased costs of actual and expected death claims as described previously.

General, administrative, and other expenses increased by $65.6 million, from $246.4 million for the nine months ended September 30, 2005 to $312.0 million for the nine months ended September 30, 2006. The increase was primarily due to an increase in the amortization of DAC and valuation of business acquired of $31.4 million driven by a higher level of actual gross profits driven by increased fee income, as discussed above. In addition, commissions, net of capitalization, increased $15.5 million driven by increased asset based commissions due to growth in separate account assets. The remaining increase of $18.8 million in general expenses was primarily the result of higher interest expense as a result of increased borrowings and increased benefit and salary expenses.

For information on the Company’s significant accounting policies, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

In order to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized and reported on a timely basis, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended, or the “Exchange Act”, as of September 30, 2006. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2006, our disclosure controls and procedures were effective. No change in our internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), occurred during the quarter ended September 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The Company commenced a remediation program to correct errors in the administration of approximately 11,000 annuity contracts issued by the Company. The owners of these contracts did not receive notification that the contracts were approaching or past their designated annuitization date or default annuitization date (both dates referred to as the “contractual annuity date”) and the contracts were not annuitized at their contractual annuity dates. Some of these contracts also were affected by data integrity errors resulting in incorrect contractual annuity dates. The lack of notice and the data integrity errors, as reflected on the administrative system, all occurred before the Acquisition. The remediation and administrative costs of the remediation program are subject to the indemnification provisions of the Acquisition agreement.

Commencing in 2003, the Company received formal requests for information from the SEC and the New York Attorney General (“NYAG”)relating to market timing in variable annuities by the Company and certain affiliated companies. In connection with these investigations, with the approval of Skandia an offer was made by the Company to the authorities investigating its companies, the SEC and NYAG to settle these matters by paying restitution and a civil penalty of $95 million in the aggregate. While not assured, the Company believes these discussions are likely to lead to settlements with these authorities. Any regulatory settlement involving the Company and certain affiliates would be subject to the indemnification provisions of the acquisition agreement pursuant to which Prudential Financial purchased the Company and certain affiliates in May 2003 from Skandia. If achieved, settlement of the matters relating to the Company and certain affiliates also could involve continuing monitoring, changes to and/or supervision of business practices, findings that may adversely affect existing or cause additional litigation, adverse publicity and other adverse impacts to the Company’s businesses.

During the third quarter of 2004, the Company identified a system-generated calculation error in its annuity contract administration system that existed prior to the Acquisition. This error related to the calculation of amounts due to customers for certain transactions subject to a market value adjustment upon the surrender or transfer of monies out of their annuity contract’s fixed allocation options. The error resulted in an underpayment to policyholders, as well as additional anticipated costs to the Company associated with remediation, breakage and other costs. Recently, the Company retained a consultant to assist it with the systems modifications needed to implement the remediation plan. The Company has advised Skandia that a portion of the remediation and related administrative costs are subject to the indemnification provisions of the Acquisition agreement.

See the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 for additional discussion of the Company’s litigation and regulatory matters.

You should carefully consider the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2005. These risks could materially affect our business, results of operations or financial condition, or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” above and the risks of our businesses described elsewhere in our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q.

The bulk of the Company’s occupied real estate consists of office space located at One Corporate Drive, Shelton, Connecticut under a lease (the “Lease”) that until recently was scheduled to expire on November 30, 2009. During the quarter, the Company entered into an agreement with the landlord, under which (a) the term of the Lease was extended until November 30, 2014 (b) additional office space was included as part of the leased premises and (c) additional rent, in the amount of $1.3 million annually, is payable under the Lease. The Company’s obligation to pay this additional rent is not expected to have a material impact on its financial results.

Schedules are omitted because they are either inapplicable or the information required therein is included in the notes to the Unaudited Interim Financial Statements included herein.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


AMERICAN SKANDIA LIFE ASSURANCE CORPORATION

By:		/s/ Michael A. Bohm
		Michael A. Bohm Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)


		Page Number
PART I FINANCIAL INFORMATION

Item 1. Financial Statements:

	Unaudited Interim Statements of Financial Position As of September 30, 2006 and December 31, 2005	4

	Unaudited Interim Statements of Operations and Comprehensive Income Three Months and Nine Months Ended September 30, 2006 and 2005	5

	Unaudited Interim Statements of Stockholder’s Equity Nine Months Ended September 30, 2006	6

	Unaudited Interim Statements of Cash Flows Nine Months Ended September 30, 2006 and September 30, 2005	7

	Notes to Unaudited Interim Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 4.	Controls and Procedures	15

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	16

Item 1A.	Risk Factors	17

Item 5.	Other Information	17

Item 6.	Exhibits	17

SIGNATURES		18


	September 30, 2006		December 31, 2005
ASSETS
Fixed maturities available for sale, at fair value (amortized cost – 2006: $1,573,099; 2005: $1,567,777)	$	1,588,514	$	1,554,569
Trading account assets, at fair value		23,272		30,778
Equity securities available for sale, at fair value (cost – 2006: $18,487; 2005: $11,238)		18,210		19,098
Commercial loans		33,533		6,000
Policy loans		12,039		11,779
Short-term investments		130,038		209,691

Total investments		1,805,606		1,831,915
Cash and cash equivalents		3,911		3,507
Deferred policy acquisition costs		701,428		528,899
Accrued investment income		17,025		16,847
Reinsurance recoverable		3		4,271
Income taxes receivable		209,361		229,802
Valuation of business acquired		164,457		196,023
Deferred sales inducements		317,497		227,415
Receivables from Parent and affiliates		63,349		6,170
Other assets		12,846		67,432
Separate account assets		32,540,510		29,786,393

TOTAL ASSETS	$	35,835,993	$	32,898,674


LIABILITIES AND STOCKHOLDER’S EQUITY
Liabilities
Policyholders’ account balances	$	1,337,288	$	1,226,551
Future policy benefits and other policyholder liabilities		102,799		69,766
Payables to Parent and affiliates		76,607		50,218
Cash collateral for loaned securities		112,922		173,987
Securities sold under agreements to repurchase		—		7,147
Short-term borrowing		451,856		208,584
Long-term borrowing		105,000		135,000
Future fees payable to American Skandia, Inc.		62,257		113,151
Other liabilities		230,408		304,971
Separate account liabilities		32,540,510		29,786,393

Total liabilities		35,019,647		32,075,768


Commitments and Contingent Liabilities (See Note 3)

Stockholder’s Equity
Common stock, $100 par value; 25,000 shares, authorized, issued and outstanding		2,500		2,500
Additional paid-in capital		334,096		484,096
Retained earnings		472,457		339,182
Accumulated other comprehensive (loss)		7,293		(2,872	)

Total stockholder’s equity		816,346		822,906

TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	35,835,993	$	32,898,674


	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
REVENUES
Premiums	$	16,790		$	4,987		$	26,534		$	15,339
Policy charges and fee income		140,902			118,698			414,954			338,353
Net investment income		25,477			22,503			66,785			68,299
Realized investment (losses), net		(7,996	)		(5,753	)		(44,423	)		(18,375	)
Asset management fees		41,917			32,933			122,838			93,029
Other income		214			1,398			640			2,502

Total revenues		217,304			174,766			587,328			499,147


BENEFITS AND EXPENSES
Policyholders’ benefits		32,968			(728	)		71,120			46,602
Interest credited to policyholders’ account balances		22,799			16,201			56,977			54,904
General, administrative and other expenses		113,821			91,932			312,354			246,352

Total benefits and expenses		169,589			107,405			440,452			347,858

Income from operations before income taxes		47,715			67,361			146,876			151,289
Income tax expense		6,545			17,942			13,600			36,162

NET INCOME		41,170			49,419			133,276			115,127

Change in net unrealized investment gains (losses), net of taxes (1)		17,210			(18,344	)		10,165			(20,776	)

COMPREHENSIVE INCOME	$	58,380		$	31,075		$	143,441		$	94,351


	Common Stock		Additional paid-in capital			Retained earnings		Accumulated other comprehensive income			Total stockholder’s equity
Balance, December 31, 2005	$	2,500	$	484,096		$	339,182	$	(2,872	)	$	822,906

Net income							133,276					133,276
Distribution to parent				(150,000	)							(150,000	)
Other comprehensive income, net of taxes									10,165			10,165

Balance, September 30, 2006	$	2,500	$	334,096		$	472,457	$	7,293		$	816,346


	Nine Months Ended September 30, 2006			Nine Months Ended September 30, 2005
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES:
Net income	$	133,276		$	115,127
Adjustments to reconcile net income to net cash (used in) from operating activities:
Realized investment losses, net		44,423			18,375
Amortization and depreciation		29,400			43,105
Interest credited to policyholders’ account balances		44,647			47,291
Change in:
Future policy benefits and other policyholder liabilities		33,032			10,620
Accrued investment income		(177	)		3,321
Trading account assets		7,506			13,874
Net receivable to Parent and affiliates		19,662			75,068
Deferred Sales Inducements		(90,082	)		(51,137	)
Deferred policy acquisition costs		(174,973	)		(169,242	)
Income taxes payable		14,870			35,202
Other, net		(93,895	)		(49,509	)

Cash Flows (Used in) From Operating Activities		(32,313	)		92,095

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of fixed maturities available for sale		3,155,396			1,393,465
Payments for the purchase of fixed maturities available for sale		(3,196,317	)		(1,309,441	)
Payments for the purchase of commercial loans		(27,533	)		—
Proceeds from the repayment of policy loans		1,351			425
Payments for the issuance of policy loans		(1,611	)		(1,045	)
Other short-term investments, net		79,653			168,298

Cash Flows From Investing Activities		10,939			251,702

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Decrease in future fees payable to ASI, net		(50,893	)		(67,581	)
Cash collateral for loaned securities		(61,065	)		(60,330	)
Securities sold under agreement to repurchase		(7,147	)		(28,368	)
Proceeds from the issuance of debt (maturities longer than 90 days)		—			—
Repayments of debt (maturities longer than 90 days)		(30,000	)		—
Net increase in short-term borrowings		243,272			19,349
Drafts outstanding		7,079			(91,198	)
Distribution (to) parent		(150,000	)		—
Policyholders’ account balances:
Deposits		1,157,903			630,893
Withdrawals		(1,087,371	)		(817,150	)

Cash Flows From (Used in) Financing Activities		21,778			(414,384	)

Net increase (decrease) in cash and cash equivalents		404			(70,588	)
Cash and cash equivalents, beginning of period		3,507			72,854

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	3,911		$	2,266

Income taxes (received)	$	(1,271	)	$	(2,540	)

Interest paid	$	35,251		$	11,636

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents


31.1		Section 302 Certification of the Chief Executive Officer.

31.2		Section 302 Certification of the Chief Financial Officer.

32.1		Section 906 Certification of the Chief Executive Officer.

32.2		Section 906 Certification of the Chief Financial Officer.