Item 7. Management’s Narrative Analysis of Results of Operations

This Management’s Narrative Analysis of Results of Operations should be read in conjunction with the Financial Statements and Notes to Financial Statements included herein for the Registrant (referred to as “ML of New York” for purposes of Items 7 and 7A).

Forward Looking Statements

Certain statements contained in this Report may be considered forward-looking, including statements about management expectations, strategic objectives, business prospects, anticipated financial performance, and other similar matters. These forward-looking statements are not statements of historical fact and represent only management’s beliefs regarding future events, which are inherently uncertain. There are a variety of factors, many of which are beyond ML of New York’s control, which affect its operations, performance, business strategy, and results and could cause its actual results and experience to differ materially from the expectations and objectives expressed in any forward-looking statements. These factors include, but are not limited to, the factors listed in the Business Environment, Industry Environment, Regulatory Environment, Tax Legislation, and Economic Environment sections listed below, as well as actions and initiatives taken by both current and potential competitors, general economic conditions, the effects of current, pending, and future legislation, regulation and regulatory actions, and the other risks and uncertainties detailed in ML of New York’s Financial Statements and Notes to Financial Statements. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. ML of New York does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates the forward-looking statements are made. The reader should, however, consult any further disclosures ML of New York may make in future filings of its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Business Environment

ML of New York conducts its business primarily in the annuity markets and to a lesser extent in the life insurance markets of the financial services industry. These markets are highly regulated with particular emphasis on company solvency and sales practice monitoring. Demographically, the population is aging and there is a growing number of individuals preparing for retirement, which favors life insurance and annuity products. ML of New York believes that the demand for retirement products containing guarantee features will continue to increase in the future. ML of New York believes it is well positioned to continue meeting these demands for product guarantees with the introduction of its new variable annuity product line during 2005.

Industry Environment

The financial services industry continues to be affected by an intensifying competitive environment, as demonstrated by consolidation through mergers, competition from new and established competitors, and diminishing margins in many mature products and services.

Regulatory Environment

The financial services industry is also impacted by the regulatory and legislative environment. In 2003 and 2004, additional aspects of the Sarbanes-Oxley Act of 2002 were implemented as rules relating to corporate governance, auditor independence and disclosure became effective and/or were adopted in their final form. Various federal and state securities regulators and self-regulatory organizations (including the Securities and Exchange Commission, New York Stock Exchange, and the NASD, Inc.), as well as industry participants continued to review and, in many cases, adopt changes to their established rules and policies in areas such as corporate governance, mutual fund trading, mutual fund and variable annuity distribution practices, disclosure practices and auditor independence.

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Life Insurance Strategy

During the first quarter 2003, ML of New York discontinued manufacturing its single premium variable life insurance product. As a result, ML of New York currently does not manufacture, market, or issue life insurance products.

During the first quarter 2005, ML of New York will transition the policy administration of its inforce life insurance contracts to an unaffiliated third party service provider, which is considered a leading provider of insurance products administration services. ML of New York remains committed to the delivery of high quality services for all life insurance contracts inforce.

Tax Legislation

During May 2003, Congress passed the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the “Act”). A key provision in the Act is reduced federal income tax rates on dividends and capital gains paid to investors on stocks and mutual funds held individually. These reduced rates would not apply to distributions from variable annuity contracts. Pending future Congressional action, these federal income tax rate reductions are set to expire after 2008. These enacted tax rate reductions may impact the relative attractiveness of annuities as compared to stocks and mutual funds.

Economic Environment

ML of New York’s financial position and/or results of operations are primarily impacted by the following economic factors: equity market performance, fluctuations in medium term interest rates, and the corporate credit environment via credit quality and fluctuations in credit spreads. The following discusses the impact of each economic factor.

Equity Market Performance

Changes in the U.S. equity market directly affect the values of the underlying U.S. equity-based mutual funds supporting separate accounts assets and, accordingly, the values of variable contract owner account balances. Since asset-based fees collected on inforce variable contracts represent a significant source of revenue, ML of New York’s financial condition will be impacted by fluctuations in investment performance of separate accounts assets. Fluctuations in the U.S. equity market also directly impact ML of New York’s exposure to guaranteed minimum death benefit (“GMDB”) provisions contained in the variable annuities it manufactures. Negative investment performance generally results in greater exposure to GMDB provisions, to the extent there is an increase in the number of variable contracts (and amount per contract) in which the GMDB exceeds the variable account balance. Prolonged periods of negative investment performance may result in greater GMDB expense because it may change ML of New York’s assumptions regarding the long term cost of GMDBs. If ML of New York increases its estimated long term GMDB cost, it will result in establishing greater GMDB reserves as compared to current practice. GMDB expense is recorded as a component of policy benefits.

There are several standard indices published on a daily basis that measure performance of selected components of the U.S. equity market. Examples include the Dow Jones Industrial Average (“Dow”), NASDAQ Composite Index (“NASDAQ”) and the Standard & Poor’s 500 Composite Stock Price Index (“S&P”). The following table provides the increase for each equity market index for the years ended December 31 as compared to the prior year ended December 31:

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As evidenced in the above table, the U.S. equity markets improved in 2004. This improvement primarily occurred in the latter part of the year. The major U.S. equity indices ended 2004 at new post-2000 highs despite rising oil prices and uncertainties over interest rates and geo-political events.

The investment performance of the underlying U.S. equity-based mutual funds supporting ML of New York’s variable products do not replicate the returns of any specific U.S. equity market index. However, investment performance will generally increase or decrease with corresponding increases or decreases of the overall U.S. equity market. During 2004, positive investment performance contributed to an increase in asset-based policy charge revenue of $1.8 million and a decrease in GMDB expense of $0.6 million as compared to 2003.

Medium Term Interest Rates

ML of New York defines medium term interest rates as the average interest rate on U.S. Treasury securities with terms of 1 to 10 years. During 2004, the Federal Reserve Board increased the federal funds effective rate from .94% at December 31, 2003 to 1.97% at December 31, 2004. The successive increases in the short term interest rates raised the medium term interest rate yield to 3.44% at December 31, 2004 as compared to 2.60% at December 31, 2003. Changes in interest rates affect the value of investments, primarily fixed maturity securities and preferred equity securities, as well as interest sensitive liabilities. Changes in interest rates have an inverse relationship to the value of investments and interest sensitive liabilities. Also, since ML of New York has certain fixed products that contain guaranteed minimum crediting rates, decreases in interest rates can decrease the amount of interest spread earned by ML of New York.

Corporate Credit and Credit Spreads

Changes in the corporate credit environment directly impact the value of ML of New York’s investments, primarily fixed maturity securities. ML of New York primarily invests in investment-grade corporate debt to support its fixed rate product liabilities.

ML of New York defines credit spreads according to the Merrill Lynch U.S. Corporate Bond Index for BBB-A Rated bonds with three to five year maturities. Credit spreads represent the credit risk premiums required by market participants for a given credit quality, e.g. the additional yield that a debt instrument issued by a AA-rated entity must produce over a risk-free alternative (e.g., U.S. Treasury instruments). Changes in credit spreads have an inverse relationship to the value of investments.

The impact of changes in medium term interest rates, corporate credit and credit spreads on market valuations for the years ended December 31 were as follows:

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Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses. Estimates, by their nature, are based on judgment and available information. Therefore, actual results could differ and could have a material impact on the Financial Statements, and it is possible that such changes could occur in the near term.

ML of New York’s critical accounting policies and estimates are discussed below. See Note 1 to the Financial Statements for additional information regarding accounting policies.

Valuation of Fixed Maturity Securities

ML of New York’s principal investments are available-for-sale fixed maturity securities as defined by Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities. The fair value of publicly traded fixed maturity securities are based on independently quoted market prices. ML of New York primarily utilizes pricing services and broker quotes to determine the fair value of non-publicly traded fixed maturity securities. Since significant judgment is required for the valuation of non-publicly traded securities, the estimated fair value of these securities may differ from amounts realized upon an immediate sale. At December 31, 2004 and 2003, approximately, $31.8 million (or 18%) and $22.6 million (or 12%), respectively, of ML of New York’s fixed maturity securities portfolio consisted of non-publicly traded securities.

Changes in the fair value of fixed maturity securities are reported as a component of the accumulated other comprehensive income on the Balance Sheets and are not reflected in the Statements of Earnings until a sale transaction occurs or when declines in fair value are deemed other-than-temporary.

Other-Than-Temporary Impairment Losses on Investments

ML of New York regularly reviews each investment in its fixed maturity securities portfolio to evaluate the necessity of recording impairment losses for other-than-temporary (“OTT”) declines in the fair value of investments. Management makes this determination through a series of discussions with ML of New York’s portfolio managers and credit analysts, information obtained from external sources (i.e. company announcements, ratings agency announcements, or news wire services) and ML of New York’s ability and intent to hold the investments for a period of time sufficient for a forecasted market price recovery up to or beyond the amortized cost of the investment. The factors that may give rise to a potential OTT impairment include, but are not limited to, i) certain credit-related events such as default of principal or interest payments by the issuer, ii) bankruptcy of issuer, iii) certain security restructurings, and iv) fair market value less than amortized cost for an extended period of time. In the absence of a readily ascertainable market value, the estimated fair value on these securities represents management’s best estimate and is based on comparable securities and other assumptions as appropriate. Management bases this determination on the most recent information available. OTT impairment losses result in a permanent reduction of the cost basis of the investment. There were no realized investment losses due to OTT declines in fair value for the year ended December 31, 2004. ML of New York recorded realized investment losses due to OTT declines in fair value of $0.8 million and $3.5 million for the years ended December 31, 2003 and 2002 respectively.

Deferred Policy Acquisition Costs for Variable Annuities and Variable Life Insurance

The costs of acquiring business, principally commissions, certain expenses related to policy issuance, and certain variable sales expenses that relate to and vary with the production of new and renewal business, are deferred and amortized in accordance with SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments. Deferred policy acquisition costs (“DAC”) are subject to recoverability testing at the time of policy issuance and loss recognition testing at the end of each reporting period. At December 31, 2004, variable annuities and variable life insurance accounted for $19.0 million (or 68%) and $9.1 million (or 32%), respectively, of ML of

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New York’s DAC asset. At December 31, 2003, variable annuities and variable life insurance accounted for $14.8 million (or 59%) and $10.2 million (or 41%), respectively, of ML of New York’s DAC asset.

DAC for variable annuities is amortized with interest over the lives of the policies in relation to the present values of estimated future gross profits from asset-based fees, contract fees, and surrender charges, less a provision for GMDB expenses, policy maintenance expenses, and non-capitalized commissions.

DAC for variable life insurance is amortized with interest over the lives of the policies in relation to the present values of estimated future gross profits from fees related to contract loans, asset-based fees, and cost of insurance charges, less claims (net of reinsurance), cost of mortality reinsurance, policy maintenance expenses, and non-capitalized commissions.

Future gross profit estimates are subject to periodic evaluation by ML of New York, with necessary revisions applied against amortization to date. The impact of revisions to estimates on cumulative amortization is recorded as a charge or benefit to current operations, commonly referred to as “DAC unlocking”. See Note 4 to the Financial Statements for period-to-period differences in DAC unlocking. During 2004, ML of New York elected to adopt new assumptions for market returns associated with assets held in the ML of New York variable annuity separate accounts. If returns over a determined historical period differ from the ML of New York long-term assumption, returns for future determined periods are calculated so that the long-term assumption is achieved. This method for projecting market returns is known as reversion to the mean, a standard industry practice. ML of New York previously established estimates for market returns based on actual historical results and on future anticipated market returns without the use of a mean reversion technique. Changes in assumptions can have a significant impact on the amount of DAC reported for variable annuities and variable life insurance products and their related amortization patterns. In general, increases in the estimated separate accounts return and decreases in surrender or mortality assumptions increase the expected future profitability of the underlying business and may lower the rate of DAC amortization. Conversely, decreases in the estimated separate accounts returns and increases in surrender or mortality assumptions reduce the expected future profitability of the underlying business and may increase the rate of DAC amortization.

The most significant assumptions involved in the estimation of future gross profits are future net separate accounts performance, surrender rates, and mortality rates. For variable annuities, ML of New York generally establishes a long-term rate of net separate accounts growth. The long-term rate may be adjusted if ML of New York’s long-term expectations change. Using the mean reversion technique, ML of New York modifies the rate of net variable annuity separate accounts growth over the near term, based on recent historical returns. The result is that the long-term rate is assumed to be realized over a period of approximately ten years. For variable life, ML of New York generally assumes a level long-term rate of net variable life separate accounts growth for all future years. The long-term rate may be adjusted if ML of New York’s long-term expectations change. Additionally, ML of New York may modify the rate of net separate accounts growth over the short term to reflect ML of New York’s near-term expectations of the economy and financial market performance in which separate accounts assets are invested.

Policyholder Liabilities

ML of New York establishes liabilities for amounts payable for its life insurance and annuity contracts. At December 31 2004 and 2003, life and annuity policyholder liabilities were $207.6 million and $216.2 million, respectively. These liabilities are actuarially determined reserves, which are calculated to meet ML of New York’s future obligations. Reserves are calculated using actuarial methods and mortality tables in general use in the United States and in accordance with SFAS 60, Accounting and Reporting by Insurance Enterprises, SFAS 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments, and Statement of Position (“SOP”) 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts. Inherent in these standards are estimates and assumptions regarding mortality, surrender rates, policy expenses, investment yields, and inflation. These estimates and assumptions are influenced by ML of New York’s historical experience, current developments, and anticipated market trends. Changes in actuarial

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estimates and assumptions or differences between actual and expected experience can significantly affect ML of New York’s reserve liabilities and subsequently impact future operations.

Federal Income Taxes

ML of New York uses the asset and liability method in providing income taxes on all transactions that have been recognized in the financial statements. The asset and liability method requires that deferred taxes be adjusted to reflect the tax rates at which future taxable amounts will be settled or realized. ML of New York provides for federal income taxes based on amounts ML of New York believes it will ultimately owe. Inherent in the provision for federal income taxes are estimates regarding the realization of certain tax deductions and credits.

Specific estimates include the realization of the dividend-received deduction (“DRD”) and the foreign tax credit (“FTC”). A portion of ML of New York’s investment income related to separate accounts business qualifies for the DRD and FTC. Information necessary to calculate these tax adjustments is typically not available until the following year. However, during the current year’s provision, management makes estimates regarding the future deductibility of these items. These estimates are primarily based on recent historic experience. See Note 6 to the Financial Statements for period-to-period differences in DRD and FTC adjustments.

Recent Developments

New Accounting Pronouncements

On January 1, 2004, ML of New York adopted the provisions of SOP 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts. SOP 03-1 requires the establishment of a liability for contracts that contain death or other insurance benefits using a reserve methodology that is different from the methodology that ML of New York previously employed. As a result, ML of New York recorded a $3.1 million increase in policyholder liabilities resulting in a charge to earnings of $2.0 million, net of a federal income tax benefit of $1.1 million, which was reported as a cumulative effect of a change in accounting principle. For the year ended December 31, 2004, changes in policyholder liabilities, excluding the change in accounting principle, did not have a material impact on ML of New York’s Statements of Earnings.

In March 2004, the Emerging Issues Task Force (“EITF”) reached a final consensus on Issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF 03-1 requires that when the fair value of an investment security is less than its carrying value, an impairment exists for which the determination must be made as to whether the impairment is other-than-temporary. The EITF 03-1 impairment model applies to all investment securities accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and to investment securities accounted for under the cost method to the extent an impairment indicator exists. Under the guidance, the determination of whether an impairment is other-than-temporary and therefore would result in a recognized loss depends on market conditions and management’s intent and ability to hold the securities with unrealized losses. In September 2004, the Financial Accounting Standards Board (“FASB”) approved FASB Staff Position EITF 03-1, which defers the effective date for recognition and measurement guidance contained in EITF 03-1 until certain issues are resolved. The impact on ML of New York’s Financial Statements will be determined when the final EITF 03-1 is issued. ML of New York will adopt the guidance at the time it is issued. ML of New York previously implemented the disclosure requirements of EITF 03-1 in its 2003 Financial Statements. See Note 3 to the Financial Statements for additional information.

New Business

ML of New York sells variable and interest sensitive annuity products through the retail network of Merrill Lynch, Pierce, Fenner & Smith, Incorporated, a wholly owned broker-dealer subsidiary of Merrill Lynch & Co.

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ML of New York competes for Merrill Lynch & Co.’s clients’ annuity business with unaffiliated insurers whose products are also sold through Merrill Lynch & Co.’s retail network, and with insurers who solicit this business directly. The product lines that ML of New York offers are focused in the highly competitive market segment of retirement planning. ML of New York competes in this market segment by integrating its products into Merrill Lynch & Co.’s planning-based financial management program.

ML of New York seeks to provide superior customer service and financial management to promote the competitiveness of its products. ML of New York’s customer service center has established standards of performance that are monitored on a regular basis. Managers and employees in the customer service center are periodically evaluated based on their performance in meeting these standards.

ML of New York has strategically placed its marketing emphasis on the sale of variable annuity products. These products are designed to address the retirement planning needs of Merrill Lynch & Co.’s clients. ML of New York issues three types of variable annuity products. These products are differentiated by the degree of liquidity afforded to the contract owner. The B-Share variable annuities offer a guaranteed minimum income benefit (“GMIB”) provision and contain a seven year surrender charge period, L-Share variable annuities do not offer a GMIB provision and contain a three year surrender charge period, and C-Share variable annuities do not offer a GMIB provision and have no surrender charge period. All variable annuity products offer some form of GMDB. Each variable annuity product provides tax-deferred retirement savings with the opportunity for diversified investing in a wide selection of underlying mutual fund portfolios. In addition, ML of New York issues a modified guaranteed annuity product. The modified guaranteed annuity product also provides tax-deferred retirement savings through a guaranteed fixed interest rate for a period selected by the contract owner, but imposes a market value adjustment for withdrawals prior to the expiration of the guarantee period.

During 2005, ML of New York plans to introduce a new variable annuity product line which will replace the existing variable annuity products (subject to state approval). The new variable annuity product line provides the ability to customize variable annuity products with specific contract features, charge structures, and investment options tailored to meet clients’ specific financial objectives.

Total direct deposits by product for the three years ended December 31 were as follows:

During 2004, total direct deposits increased $15.9 million (or 26%) to $76.3 million as compared to 2003. Variable annuity deposits increased $16.2 million (or 28%) to $74.4 million during 2004 as compared to 2003. Management attributes the increase in variable annuity deposits primarily to the introduction of a new B-Share variable annuity product during the third quarter of 2003. Sales of the new B-Share variable annuity product were $41.3 million and $20.8 million during 2004 and 2003, respectively. The new B-Share variable annuity product is designed for the tax-qualified IRA market and includes a GMIB provision. Also, during the second

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quarter of 2003 ML of New York added a GMIB provision to its existing B-Share variable annuity. GMIB provisions have increased in popularity due to consumers’ increasing demand for guaranteed living benefits. Management believes that the volatility in the equity markets over the past three years has been the catalyst for this demand. C-Share and L-Share variable annuity deposits decreased $5.8 million (or 56%) and $5.6 million (or 57%), respectively, during 2004. ML of New York’s C-Share and L-Share variable annuities do not contain GMIB provisions.

Modified guaranteed annuity deposits increased $1.1 million (or 550%) to $1.3 million during 2004 as compared to 2003. This increase is primarily due to a single large contract sale during the fourth quarter 2004. Excluding this contract sale, modified guaranteed annuity deposits were relatively unchanged as compared to 2003.

During 2004, variable life insurance deposits decreased $0.2 million (or 29%) to $0.5 million as compared to 2003. The decrease in variable life insurance deposits is primarily due to the discontinuation of manufacturing variable life insurance products during the first quarter 2003. Variable life insurance deposits displayed above generally represent renewal deposits on existing life insurance contracts.

During 2004, other deposits decreased $1.2 million (or 92%) to $0.1 million as compared to 2003. Other deposits displayed above generally represent deposits for individual fixed annuities and single premium immediate annuities.

Surrenders

Policy and contract surrenders increased $23.0 million (or 28%) to $104.6 million during 2004 as compared to 2003. During 2004, variable annuity surrenders increased $21.4 million (or 43%) to $70.6 million as compared to 2003. Management attributes the increase in variable annuity surrenders to the increasing consumer demand for variable annuity products containing guaranteed living benefit provisions. As contracts reach the end of their surrender charge period, contract owners are more willing to surrender variable annuities without guaranteed living benefit provisions in favor of variable annuities with guaranteed living benefit provisions. In addition, variable life surrenders increased $5.0 million (or 23%) to $26.1 million during 2004. The increase in variable life surrenders primarily represents movement by contract owners to other insurance products issued by insurance companies unaffiliated with ML of New York. As previously noted, ML of New York no longer manufactures life insurance products.

Financial Condition

At December 31, 2004, ML of New York’s assets were $1,281.6 million or $29.8 million higher than the $1,251.8 million in assets at December 31, 2003. Assets excluding separate accounts assets decreased $7.3 million (or 2%) primarily due to a reduction in the number of fixed rate contracts inforce, a dividend payment to Merrill Lynch Insurance Group, Inc. (“MLIG”), and a decrease in market values on investment securities as a result of the rising interest rate environment during 2004. Separate accounts assets, which represent 76% of total assets, increased $37.2 million (or 4%) to $980.4 million. Changes in separate accounts assets during each quarter of 2004 were as follows:

During 2004, ML of New York experienced contract owner withdrawals that exceeded deposits on all products by $53.7 million. The components of contract owner transactions were as follows:

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ML of New York maintains a conservative general account investment portfolio. ML of New York has no mortgage or real estate investments and its investment in below investment grade fixed maturity securities are below the industry average. The following schedule identifies ML of New York’s general account invested assets by type for the years ended December 31:

At December 31, 2004 and 2003, approximately $179.8 million (or 100%) and $180.9 million (or 99%), respectively, of ML of New York’s fixed maturity securities were considered investment grade. ML of New York defines investment grade securities as unsecured debt obligations that have a rating equivalent to Standard and Poor’s BBB- or higher (or similar rating agency). Also, at December 31, 2004, approximately $7.5 million (or 4%) of ML of New York’s fixed maturity securities were rated BBB-, which is the lowest investment grade rating given by Standard and Poor’s, compared to $3.5 million (or 2%) of ML of New York’s fixed maturity securities at December 31, 2003.

At December 31, 2004, ML of New York had no fixed maturity securities that were considered below investment grade. At December 31, 2003, approximately $1.3 million (or 1%) of ML of New York’s fixed maturity securities were considered below investment grade. Below investment grade securities are speculative and are subject to significantly greater risks related to the creditworthiness of the issuers and the liquidity of the market for such securities. ML of New York does not, currently, purchase below investment grade securities.

ML of New York’s investment in collateralized mortgage obligations (“CMO”) and mortgage backed securities (“MBS”) had a carrying value of $1.4 million at December 31, 2004 and 2003. At December 31, 2004 and 2003, approximately $1.0 million (or 71%) and $1.4 million (or 100%), respectively, of ML of New York’s CMO and MBS holdings were fully collateralized by the Government National Mortgage Association, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. The decrease during 2004 is primarily due to the reinvestment of call proceeds into other MBS securities with higher yields. CMO and MBS securities are structured to allow the investor to determine, within certain limits, the amount of interest rate risk, prepayment risk and default risk that the investor is willing to accept. It is this level of risk that determines the degree to which the yields on CMO and MBS securities will exceed the yields that can be obtained from similarly rated corporate securities.

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At December 31, 2004, ML of New York had 1,853 life insurance and annuity contracts inforce with interest rate guarantees. The estimated average rate of interest credited on behalf of contract owners was 4.30% and 4.35% during 2004 and 2003, respectively. Invested assets supporting liabilities with interest rate guarantees had an estimated average effective yield of 4.43% and 4.82% during 2004 and 2003, respectively. The number of life insurance and annuity contracts inforce with interest rate guarantees decreased 152 (or 8%) as compared to 2003.

Liquidity and Capital Resources

ML of New York’s liquidity requirements include the payment of sales commissions and other underwriting expenses and the funding of its contractual obligations for the life insurance and annuity contracts it has inforce. ML of New York has developed and utilizes a cash flow projection system and regularly performs asset / liability duration matching in the management of its asset and liability portfolios. ML of New York anticipates funding all its cash requirements utilizing cash from operations, normal investment maturities and anticipated calls and repayments, consistent with prior years. As of December 31, 2004 and 2003, ML of New York’s assets included $154.6 million and $190.4 million, respectively, of cash, short-term investments, and investment grade publicly traded available-for-sale securities that could be liquidated if funds were required.

The following table summarizes ML of New York’s contractual obligations as of December 31, 2004:

	(1)	The long-term liabilities include policyholder liabilities for which ML of New York believes the amount and timing of the payments are essentially fixed and determinable. These amounts primarily relate to contracts where ML of New York is currently making payments to policyholders and will continue to do so until the occurrence of a specific event.
		Liabilities for future policyholder benefits of approximately $187.6 million have been excluded from this table. These amounts primarily relate to contracts where i) ML of New York is not currently making payments and will not make payments in the future until the occurrence of an insurable event or ii) the occurrence of a payment triggering event (i.e. death or withdrawal) is outside the control of ML of New York. Such amounts are not determinable.

In order to continue to issue annuity products, ML of New York must meet or exceed the statutory capital and surplus requirements of the insurance departments of the states in which it conducts business. Statutory accounting practices differ from generally accepted accounting principles (“GAAP”) in two major respects. First, under statutory accounting practices, the acquisition costs of new business are charged to expense, while under GAAP they are amortized over a period of time. Second, under statutory accounting practices, the required additions to statutory reserves for new business in some cases may initially exceed the statutory revenues attributable to such business. These practices result in a reduction of statutory income and surplus at the time of recording new business.

The National Association of Insurance Commissioners utilizes the Risk Based Capital (“RBC”) adequacy monitoring system. The RBC calculates the amount of adjusted capital that a life insurance company should have based upon that company’s risk profile. As of December 31, 2004 and 2003, based on the RBC formula, ML of New York’s total adjusted capital level was well in excess of the minimum amount of capital required to avoid regulatory action.

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ML of New York receives claims paying ability ratings from Standard and Poors and A.M. Best. At December 31, 2004, ML of New York received ratings from Standard and Poors and A.M. Best of “A+” and “A”, respectively. These ratings were unchanged from the ratings at December 31, 2003.

ML of New York has developed a comprehensive capital management plan that will continue to provide appropriate levels of capital for the risks that ML of New York assumes, but will allow ML of New York to reduce its absolute level of surplus. In implementing this plan, ML of New York paid an ordinary cash dividend of $2.5 million to MLIG during 2004. No dividends were paid during 2003 or 2002.

ML of New York believes that it will be able to fund the capital and surplus requirements of projected new business from current statutory earnings and existing statutory capital and surplus. If sales of new business significantly exceed projections, ML of New York may have to look to its parent and other affiliated companies to provide the capital or borrowings necessary to support its current marketing efforts. ML of New York’s future marketing efforts could be hampered should its parent and/or affiliates be unwilling to commit additional funding.

During June 2003, ML of New York and Merrill Lynch & Co. executed a “keepwell” agreement. The agreement obligates Merrill Lynch & Co. to maintain a level of capital in ML of New York in excess of minimum regulatory capital requirements.

Results of Operations

ML of New York’s gross earnings are principally derived from two sources:

•	the charges imposed on variable annuity and variable life insurance contracts, and
•	the net earnings from investment of fixed rate life insurance and annuity contract owner deposits less interest credited to contract owners, commonly known as interest spread

The costs associated with acquiring contract owner deposits (DAC) are amortized over the period in which ML of New York anticipates holding those funds, as noted in the Critical Accounting Policies section above. Insurance expenses and taxes reported in the statements of earnings are net of amounts deferred. In addition, ML of New York incurs expenses associated with the maintenance of inforce contracts.

2004 compared to 2003

ML of New York recorded earnings before change in accounting principle of $7.9 and $4.4 million for 2004 and 2003, respectively.

Policy charge revenue increased $2.0 million (or 12%) to $18.4 million during 2004 as compared to $16.4 million in 2003. The increase in policy charge revenue is attributable to the increase in average variable account balances during 2004. Average variable account balances increased $92.5 million (or 11%) as compared to 2003. During the same comparative period, asset-based policy charge revenue increased $1.8 million (or 17%). Non-asset based policy charge revenue was relatively unchanged during the 2004 as compared to 2003.

Net earnings derived from interest spread decreased $0.9 million (or 30%) to $2.1 million during 2004 as compared to $3.0 million in 2003. The decrease in interest spread is primarily due to the reduction in fixed rate contracts inforce, as well as, reductions in invested asset yields resulting from the increase in credit quality of the portfolio and a higher level of call activity.

ML of New York experienced net realized investment gains of $0.1 and $0.6 million during 2004 and 2003, respectively. The following table provides the changes in net realized investment gains (losses) by type:

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	(1)	The decrease in interest related net realized gains is primarily due to decreased invested asset sales and decreases to asset market valuations resulting from the increasing interest rate environment during 2004 as compared to 2003.
	(2)	The decrease in credit related net realized losses is primarily due to the reduction in OTT declines in the carrying value of fixed maturity securities and asset sales of several large security holdings. There were no OTT declines or credit related asset sales during 2004. OTT declines were $0.8 million and losses on credit related asset sales were $1.0 million during 2003.

Policy benefits decreased $1.0 million (or 25%) to $3.0 million during 2004 as compared to $4.0 million in 2003. The following table provides the changes in policy benefits by type:

	(1)	The decrease is due to a decrease in net amount at risk per death claim.
	(2)	The decrease is due to decreased death benefit expense incurred under GMDB provisions due to improving equity markets.

Reinsurance premium ceded increased $0.1 million (or 9%) to $1.7 million during 2004 as compared to $1.6 million in 2003. Reinsurance premium ceded related to ML of New York’s annuity products increased $0.2 million during 2004 as compared to 2003. The increase is attributable to the reinsurance of variable annuity products containing GMIB provisions. Reinsurance premium ceded related to ML of New York’s life insurance products decreased $0.1 million during 2004 as compared to 2003. The decrease is attributable to the decrease in life insurance inforce.

Amortization of DAC decreased $4.0 million (or 83%) to $0.8 million during 2004 as compared to $4.8 million in 2003 primarily due to period-to-period differences in DAC unlocking as noted in the Critical Accounting Policies section above. Excluding DAC unlocking, amortization of DAC remained relatively unchanged during 2004 as compared to 2003.

Insurance expenses and taxes increased $0.4 million (or 12%) to $4.0 million during 2004 as compared to $3.6 million in 2003. The increase in insurance expenses and taxes is primarily due to increased New York State franchise tax expense.

ML of New York’s effective federal income tax rate increased to 29% for 2004 from 28% for 2003 primarily due to period-to-period differences in DRD and FTC adjustments as noted in the Critical Accounting Policies section above.

As noted in the Recent Developments section above, effective January 1, 2004, ML of New York adopted SOP 03-1 and recorded a cumulative change in accounting principle of $2.0 million, net of a federal income tax benefit of $1.1 million.

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2003 compared to 2002

ML of New York recorded net earnings of $4.4 million and $3.1 million for 2003 and 2002, respectively.

Policy charge revenue decreased $1.6 million (or 9%) to $16.4 million during 2003 as compared to $18.0 million in 2002. The decrease in policy charge revenue is primarily due to a decrease in non-asset based policy charge revenue. Non-asset-based policy charge revenue decreased $1.1 million (or 15%) due to decreases in cost of insurance charges on variable life insurance contracts and deferred policy load amortization. In addition, asset-based policy charge revenue decreased $0.5 million (or 4%) during 2003 as compared to 2002. The decrease in asset-based policy charge revenue is attributable to lower average variable account balances. During the same comparative period, average variable account balances decreased $41.7 million (or 5%).

Net earnings derived from interest spread decreased $1.0 million (or 24%) to $3.0 million during 2003 as compared to $4.0 million in 2002. The decrease in interest spread is primarily a result of the reduction in yields on invested assets resulting from (i) the lower interest rate environment during 2003 as compared to 2002 and (ii) the increase in credit quality of the portfolio.

ML of New York experienced net realized investment gains (losses) of $0.6 million and ($3.2) million during 2003 and 2002, respectively. The following table provides the changes in net realized investment gains (losses) by type:

	(1)	The increase in interest related gains is primarily attributable to increases in invested asset market valuations resulting from generally lower interest rates and contracting credit spreads during 2003 as compared to 2002.
	(2)	The decrease in credit related losses is primarily due to the reduction in OTT declines in the carrying value of fixed maturity securities.

Policy benefits decreased $0.5 million (or 10%) to $4.0 million during 2003 as compared to $4.5 million in 2002 primarily due to decreased variable annuity death benefit payments incurred under GMDB provisions.

Reinsurance premium ceded decreased $0.1 million (or 10%) to $1.6 million during 2003 as compared to $1.7 million in 2002. The decrease is attributable to the decrease in life insurance inforce.

Amortization of DAC decreased $0.7 million (or 12%) to $4.8 million during 2003 as compared to $5.5 million in 2002 primarily due to period-to-period differences in DAC unlocking as noted in the Critical Accounting Policies section above. Excluding DAC unlocking, amortization of DAC remained relatively unchanged during 2003 as compared to 2002.

Insurance expenses and taxes increased $0.2 million (or 5%) to $3.6 million during 2003 as compared to $3.4 million in 2002. The increase in insurance expenses and taxes is primarily due to increased New York State Insurance Department assessments.

ML of New York’s effective federal income tax rate increased to 28% for 2003 from 15% for 2002 primarily due to period-to-period differences in DRD and FTC adjustments as noted in the Critical Accounting Policies section above. Also, during 2003, deferred tax components have been significantly impacted by fluctuations in

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GMDB tax reserves. The reserve fluctuations have resulted in a decreased deferred tax expense during 2003 as compared to 2002.

Segment Information

ML of New York’s operating results are categorized into two business segments: Life Insurance and Annuities. ML of New York’s Life Insurance segment consists of variable life insurance products and interest-sensitive life products. ML of New York’s Annuity segment consists of variable annuities and interest-sensitive annuities. The “Other” earnings category represents earnings on invested assets that do not support contract owner liabilities.

Earnings before change in accounting principle by segment were as follows:

Net earnings by segment were as follows:

The products that comprise the Life Insurance and Annuity segments generally possess similar economic characteristics. As such, the financial condition and results of operations of each business segment are generally consistent with ML of New York’s consolidated financial condition and results of operations presented herein.

OTT impairment losses on investments by segment were as follows:

ML of New York is not dependent upon any single customer, and no single customer accounted for more than 10% of its revenues during 2004, 2003, or 2002.

Inflation

ML of New York’s operations have not been materially impacted by inflation and changing prices during the preceding three years.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential change in a financial instrument’s value caused by fluctuations in certain underlying risk factors. ML of New York is primarily subject to market risk resulting from fluctuations in interest rates, credit spreads, credit risk, and equity prices. ML of New York utilizes an integrated approach to manage financial market risks including a comprehensive asset / liability management process, product design, and reinsurance programs.

A number of assumptions must be made to obtain the expected fair value changes illustrated below. ML of New York has no reason to believe that historically simulated interest rate and credit spread movements have any predictive power for future fair value changes. The volatility experienced during recent years demonstrates the limitations of these models.

Interest Rate Risk

Interest rate risk arises from the possibility that changes in interest rates will affect the value of investments, primarily fixed maturity securities and preferred equity securities, as well as interest sensitive liabilities. Changes in interest rates have an inverse relationship to the value of investments and interest sensitive liabilities. ML of New York manages interest rate risk as part of its asset / liability management strategy. For each portfolio, management monitors the expected changes in assets and liabilities, as produced by ML of New York’s model, resulting from various interest rate scenarios. Based on these results, management closely matches the duration and convexity of insurance liabilities to the duration and convexity of assets supporting those liabilities.

The following table presents the estimated net impact on the fair value of investments and interest sensitive liabilities resulting from various hypothetical interest rate scenarios, based on assumptions contained in ML of New York’s model:

ML of New York’s model is based on existing business inforce as of the year ended 2004 without considering the impact of new annuity sales on assets or liabilities. The model incorporates ML of New York’s fixed maturity securities and preferred equity investments excluding variable rate securities with rate resetting in less than ninety days, securities with a maturity of less than ninety days, and securities that are in or near default. The changes in interest rate scenarios, noted above, assume parallel shifts in the yield curve occurring uniformly throughout the year.

Additionally, certain products have features that mitigate the impact of interest rate risk. Examples include surrender charges, market value adjustments, and resetting of interest credited rates (subject to certain guaranteed minimum crediting rates). For interest sensitive life products the guaranteed minimum rate is 4%. However, for some products, the minimum rate may be reduced by a charge for mortality that varies by the attained age of the insured. For interest sensitive annuity products the guaranteed minimum rates range from 3% to 4.5%, with the greatest concentration in the 3% to 4% range.

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Credit Spread Risk

Credit spread risk arises from the possibility that changes in credit spreads will affect the value of investments. Credit spreads represent the credit risk premiums required by market participants for a given credit quality, i.e., the additional yield that a debt instrument issued by an AA-rated entity must produce over a risk-free alternative (e.g., U.S. Treasury instruments).

The following table presents the estimated net impact on the fair value of investments resulting from various hypothetical fluctuations in credit spreads, based on assumptions contained in ML of New York’s model:

ML of New York’s model is based on existing business inforce as of the year ended 2004 without considering the impact of new annuity sales on assets. The model incorporates ML of New York’s fixed maturity securities and preferred equity investments excluding securities with a maturity of less than ninety days and securities that are in or near default. The changes in credit spreads, noted above, assume a uniform occurrence throughout the year.

Liability valuations for modified guaranteed annuities mitigate ML of New York’s exposure to credit spread risk on these products. Contract owner surrender values reflect changes in spread between corporate bonds and U.S. Treasury securities since the market value adjusted account value is based on current crediting rates for new and renewal contracts. These crediting rates are adjusted weekly and reflect current market conditions.

Credit Risk

Credit risk represents the loss that ML of New York would incur if an issuer fails to perform its contractual obligations and the value of the security held has been impaired or is deemed worthless. ML of New York manages its credit risk by setting investment policy guidelines that assure diversification with respect to investment, issuer, geographic location and credit quality. Management regularly monitors compliance of each investment portfolio’s status with the investment policy guidelines, including timely updates of credit-related securities.

Equity Price Risk

Equity price risk arises from the possibility that general reductions in equity prices will negatively affect the value of assets and liabilities, primarily separate accounts assets and separate accounts liabilities. ML of New York manages its exposure to equity risk via certain product design features (e.g., waiting periods, age caps, subsequent premium restrictions, and adjusted withdrawals) and reinsurance programs to the extent reinsurance capacity is available in the marketplace. General reductions in equity prices impact ML of New York in the following ways:

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•	Reductions in separate accounts assets. Asset-based policy fees collected on separate accounts assets are a primary source of earnings for ML of New York, thus lower asset balances will result in lower policy fee income.
•	Increased exposure to GMDB. Decreasing variable contract owner account values increase the number of contracts, as well as amounts per contract, in which GMDB exceed those variable contract owner account balances. This may result in greater future mortality expense.
•	Potential hindrance of sales and marketing efforts for variable annuity products.

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Item 8.  Financial Statements and Supplementary Data.

     The financial statements of Registrant are set forth in Part IV hereof and are incorporated herein by reference.

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

     Not applicable.

Item 9A.  Controls and Procedures.

     In 2002, Registrant formed a Disclosure Committee to assist with the monitoring and evaluation of our disclosure controls and procedures. Registrant’s Chief Executive Officer, Chief Financial Officer and Disclosure Committee have evaluated the effectiveness of Registrant’s disclosure controls and procedures (as defined in Rule 15d-15(e) under the Securities Exchange Act of 1934) as of the end period covered by this Report. Based on that evaluation, Registrant’s Chief Executive Officer and Chief Financial Officer have concluded that Registrant’s disclosure controls and procedures are effective.

     In addition, no change in Registrant’s internal control over financial reporting (as defined in Rule 15d-15(f) under the Securities Exchange Act of 1934) occurred during the fourth fiscal quarter of 2004 that has materially affected, or is reasonably likely to materially affect, Registrant’s internal control over financial reporting.

Item 9B. Other Information.

     No information is required to be disclosed under this item.

PART III

     Information called for by items 10 through 13 of this part is omitted pursuant to General Instruction I. of Form 10-K.

PART IV

Item 14.  Principal Accounting Fees and Services

Pre-Approval of Services Provided by the Registrant’s Independent Auditor

Consistent with SEC rules regarding auditor independence, the Audit Committee has established a policy governing the provision of audit and non-audit services to the Registrant.

Pursuant to this policy, the Audit Committee will consider annually and, if appropriate approve the provision of all audit services to the Registrant by the independent auditor. The Audit Committee will also consider and, if appropriate, pre-approve the provision by the independent auditor of services that fit within the following categories of permitted non-audit services within a specified dollar limit.

	•		Audit service, include audit work performed in the review and preparation of the financial statements, as well as services that generally only the independent auditor can be expected to provide, such as comfort letters, statutory audits, attest services, consents and assistance with the review of documents filed with the SEC.
	•		Audit-Related services include accounting consultations relating to actuarial valuations.
	•		Tax services include all services performed by the independent auditor's tax personnel.
	•		All Other service, include all other miscellaneous services not captured in the other two categories that are not prohibited services, as defined by the SEC, and that the Audit Committee believes will not impair the independence of the independent auditor.

Any proposed engagement of the independent auditor that does not fit within one of the pre-approved categories of service or is not within the established fee limits must be pre-approved by the Audit Committee.

The Audit Committee has delegated pre-approval authority to the Chair of the Audit Committee in time sensitive cases. The exercise of such authority must be reported to the Audit Committee at its next regularly scheduled meeting. The Audit Committee regularly reviews summary reports detailing all services (and related fees and expenses) being provided to the Registrant by the independent auditor.

Fees Paid to the Registrant’s Independent Auditor

The following table presents fees for professional services rendered by Deloitte & Touche LLP for the audit of the Registrant’s financial statements for the years ended December 31, 2004 and 2003 and fees billed for other services rendered by Deloitte & Touche LLP during those periods.

	(1)		Audit Fees included audit work performed in the review and preparation of the financial statements, as well as, services that generally only the independent auditor can be expected to provide, such as comfort letters, statutory audits, attest services, consents and assistance with and review of documents filed with the Securities and Exchange Commission.
	(2)		Audit–Related Fees included accounting consultations relating to actuarial valuations.
	(3)		Tax Fees included all services performed by the independent auditor’s tax personnel.
	(4)		All Other Fees included miscellaneous out-of-pocket expenses.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
ML Life Insurance Company of New York

We have audited the accompanying balance sheets of ML Life Insurance Company of New York (the “Company”) as of December 31, 2004 and 2003, and the related statements of earnings, comprehensive income, stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such financial statements present fairly, in all material respects, the financial position of ML Life Insurance Company of New York as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the financial statements, in 2004 the Company changed its method of accounting for long-duration contracts to conform to Statement of Position 03-1 “Accounting and Reporting by Insurance Enterprises for Certain Non-Traditional Long-Duration Contract and for Separate Accounts.”

March 2, 2005

ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)

BALANCE SHEETS
AS OF DECEMBER 31, 2004 AND 2003
(Dollars in thousands, except common stock par value and shares)

ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)

BALANCE SHEETS (Continued)
AS OF DECEMBER 31, 2004 AND 2003
(Dollars in thousands, except common stock par value and shares)

See accompanying notes to financial statements.

ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)

STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(Dollars in thousands)

See accompanying notes to financial statements.

ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)

STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(Dollars in thousands)

See accompanying notes to financial statements.

ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)

STATEMENTS OF STOCKHOLDER’S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(Dollars in thousands)

See accompanying notes to financial statements.

ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(Dollars in thousands)

ML LIFE INSURANCE COMPANY OF NEW YORK
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)

STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(Dollars in thousands)

See accompanying notes to financial statements.

ML LIFE INSURANCE COMPANY OF NEW YORK
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)

NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business: ML Life Insurance Company of New York (the “Company”) is a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc. (“MLIG”). The Company is an indirect wholly owned subsidiary of Merrill Lynch & Co., Inc. (“Merrill Lynch & Co.”). The Company is domiciled in the State of New York.

The Company sells non-participating annuity products, including variable annuities, modified guaranteed annuities and immediate annuities. The Company is licensed to sell insurance and annuities in nine states; however, it currently limits its marketing activities to the State of New York. The Company markets its products solely through the retail network of Merrill Lynch, Pierce, Fenner & Smith, Incorporated (“MLPF&S”), a wholly owned broker-dealer subsidiary of Merrill Lynch & Co.

Basis of Reporting: The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and prevailing industry practices, both of which require management to make estimates that affect the reported amounts and disclosure of contingencies in the financial statements. Actual results could differ from those estimates.

The significant accounting policies and related judgments underlying the Company’s financial statements are summarized below. In applying these policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain.

For the purpose of reporting cash flows, cash and cash equivalents include cash on hand and on deposit and short-term investments with original maturities of three months or less.

Certain reclassifications and format changes have been made to prior year amounts to conform to the current year presentation.

Revenue Recognition: Revenues for variable annuity contracts consist of policy charges for i) mortality and expense risks, ii) certain benefit guarantees selected by the contract owner, iii) administration fees, iv) annual contract maintenance charges, and v) withdrawal charges assessed on contracts surrendered during the withdrawal charge period.

Revenues for variable life insurance contracts consist of policy charges for i) mortality and expense risks, ii) cost of insurance fees, iii) amortization of deferred sales charges, and iv) withdrawal charges assessed on contracts surrendered during the withdrawal charge period. The Company does not currently manufacture variable life insurance contracts.

Revenues for interest-sensitive annuity contracts (market value adjusted annuities, immediate annuities, and single premium deferred annuities) and interest-sensitive life insurance contracts (single premium whole life insurance) consist of i) investment income, ii) gains (losses) on the sale of invested assets, and iii) withdrawal charges assessed on contracts surrendered during the withdrawal charge period. The Company does not currently manufacture single premium deferred annuities or single premium whole life contracts.

Investments: The Company’s investments in fixed maturity securities are classified as available-for-sale and are carried at estimated fair value with unrealized gains and losses included in stockholder’s equity as a component of accumulated other comprehensive income, net of tax. If management determines that a decline in the value of an available-for-sale security is other-than-temporary, the carrying value is adjusted to estimated fair value and the decline in value is recorded as a net realized investment loss. Management makes this determination through a series of discussions with the Company’s portfolio managers and credit analysts, information obtained from external sources (i.e. company announcements, ratings agency announcements, or news wire services) and the Company’s ability and intent to hold the investments for a period of time sufficient for a forecasted market price recovery up to or beyond the amortized cost of the investment. The factors

that may give rise to a potential other-than-temporary impairment include, but are not limited to, i) certain credit-related events such as default of principal or interest payments by the issuer, ii) bankruptcy of issuer iii) certain security restructurings, and iv) fair market value less than amortized cost for an extended period of time. In the absence of a readily ascertainable market value, the estimated fair value on these securities represents management’s best estimate and is based on comparable securities and other assumptions as appropriate. Management bases this determination on the most recent information available.

For fixed maturity securities, premiums are amortized to the earlier of the call or maturity date, discounts are accreted to the maturity date, and interest income is accrued daily. Realized gains and losses on the sale or maturity of investments are determined on the basis of specific identification. Investment transactions are recorded on the trade date.

Certain fixed maturity securities are considered below investment grade. The Company defines below investment grade fixed maturity securities as unsecured debt obligations that have a rating equivalent to Standard and Poor’s (or similar rating agency) BB+ or lower.

Policy loans on insurance contracts are stated at unpaid principal balances.

Deferred Policy Acquisition Costs (“DAC”): Certain policy acquisition costs for life and annuity contracts are deferred and amortized based on the estimated future gross profits for each group of contracts. These future gross profit estimates are subject to periodic evaluation by the Company, with necessary revisions applied against amortization to date. The impact of these revisions on cumulative amortization is recorded as a charge or credit to current operations, commonly referred to as “DAC unlocking”. It is reasonably possible that estimates of future gross profits could be reduced in the future, resulting in a material reduction in the carrying amount of DAC.

Policy acquisition costs are principally commissions and a portion of certain other expenses relating to policy acquisition, underwriting and issuance that are primarily related to and vary with the production of new business. Insurance expenses and taxes reported in the Statements of Earnings are net of amounts deferred. Policy acquisition costs can also arise from the acquisition or reinsurance of existing inforce policies from other insurers. These costs include ceding commissions and professional fees related to the reinsurance assumed. The deferred costs are amortized in proportion to the estimated future gross profits over the anticipated life of the acquired insurance contracts utilizing an interest methodology.

During 1990, the Company entered into an assumption reinsurance agreement with an unaffiliated insurer. The acquisition costs relating to this agreement are being amortized over a twenty-five year period using an effective interest rate of 7.5%. This reinsurance agreement provided for payment of contingent ceding commissions, for a ten year period, based upon the persistency and mortality experience of the insurance contracts assumed. Payments made for contingent ceding commissions were capitalized and amortized using an identical methodology as that used for the initial acquisition costs. The following is a reconciliation of the acquisition costs related to this reinsurance agreement for the years ended December 31:

The following table presents the expected amortization, net of interest accrued, of these deferred acquisition costs over the next five years. Amortization may be adjusted based on periodic evaluation of the expected gross profits on the reinsured policies.

Separate Accounts: The Company’s Separate Accounts consist of variable annuities and variable life contracts, of which the assets and liabilities are legally segregated and reported as separate captions in the Balance Sheets. Separate Accounts are established in conformity with New York State Insurance Law and are generally not chargeable with liabilities that arise from any other business of the Company. Separate Accounts assets may be subject to claims of the Company only to the extent the value of such assets exceeds Separate Accounts liabilities. The assets of the Separate Accounts are carried at the daily net asset value of the mutual funds in which they invest.

Absent any contract provision wherein the Company guarantees either a minimum return or account value upon death or annuitization, the net investment income and net realized and unrealized gains and losses attributable to Separate Accounts assets supporting variable annuities and variable life contracts accrue directly to the contract owner and are not reported as revenue in the Statements of Earnings. Mortality, policy administration and withdrawal charges associated with Separate Accounts products are included in revenue in the Statements of Earnings.

Policyholders’ Account Balances: Liabilities for the Company’s universal life type contracts, including its life insurance and annuity products, are equal to the full accumulation value of such contracts as of the valuation date plus deficiency reserves for certain products. Interest-crediting rates for the Company’s fixed-rate products are as follows:

These rates may be changed at the option of the Company after initial guaranteed rates expire, unless contracts are subject to minimum interest rate guarantees.

Claims and Claims Settlement Expenses: Liabilities for claims and claims settlement expenses equal the death benefit (plus accrued interest) for claims that have been reported to the Company but have not settled and an estimate, based upon prior experience, for unreported claims.

Income Taxes: The results of operations of the Company are included in the consolidated Federal income tax return of Merrill Lynch & Co. The Company has entered into a tax-sharing agreement with Merrill Lynch & Co. whereby the Company will calculate its current tax provision based on its operations. Under the agreement, the Company periodically remits to Merrill Lynch & Co. its current federal income tax liability.

The Company provides for income taxes on all transactions that have been recognized in the financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes. Accordingly, deferred taxes are adjusted to reflect the tax rates at which future taxable amounts will likely be settled or realized. The effects of tax rate changes on future deferred tax liabilities and deferred tax assets, as well as other changes in income tax laws, are recognized in net earnings in the period during which such changes are enacted. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. See Note 6 to the Financial Statements for further information.

The Company is generally subject to taxes on premiums and, in substantially all states, is exempt from state income taxes.

Accounting Pronouncements: On January 1, 2004, the Company adopted the provisions of Statement of Position (“SOP”) 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts. SOP 03-1 requires the establishment of a liability for contracts that contain death or other insurance benefits using a reserve methodology that is different from the methodology that the Company previously employed. As a result, the Company recorded a $3,120 increase in policyholder liabilities and a $6 decrease in DAC resulting in a charge to earnings of $2,032, net of a federal income tax benefit of $1,094, which was reported as a cumulative effect of a change in accounting principle. For the year ended December 31, 2004, changes in policyholder liabilities related to SOP 03-1, excluding the change in accounting principle, did not have a material impact on the Company’s Statements of Earnings.

SOP 03-1 requires new disclosures regarding the Company’s Separate Accounts and insurance contracts containing guarantee provisions. See Note 5 to the Financial Statements for these disclosures.

In March 2004, the Emerging Issues Task Force (“EITF”) reached a final consensus on Issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF 03-1 requires that when the fair value of an investment security is less than its carrying value, an impairment exists for which the determination must be made as to whether the impairment is other-than-temporary. The EITF 03-1 impairment model applies to all investment securities accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and to investment securities accounted for under the cost method to the extent an impairment indicator exists. Under the guidance, the determination of whether an impairment is other-than-temporary and therefore would result in a recognized loss depends on market conditions and management’s intent and ability to hold the securities with unrealized losses. In September 2004, the Financial Accounting Standards Board (“FASB”) approved FASB Staff Position EITF 03-1, which defers the effective date for recognition and measurement guidance contained in EITF 03-1 until certain issues are resolved. The impact on the Company’s Financial Statements will be determined when the final EITF 03-1 is issued. The Company will adopt the guidance at the time it is issued. The Company previously implemented the disclosure requirements of EITF 03-1 in its 2003 Financial Statements. See Note 3 to the Financial Statements for additional information.

NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments are carried at fair value or amounts that approximate fair value. The carrying value of financial instruments as of December 31 were:

	(1)	For publicly traded securities, the estimated fair value is determined using quoted market prices. For securities without a readily ascertainable market value, the Company utilizes pricing services and broker quotes. Such estimated fair values do not necessarily represent the values for which these securities could have been sold at the dates of the balance sheets. At December 31, 2004 and 2003, securities without a readily ascertainable market value, having an amortized cost of $31,189 and $21,702, had an estimated fair value of $31,752 and $22,580, respectively.
	(2)	The Company estimates the fair value of policy loans as equal to the book value of the loans. Policy loans are fully collateralized by the account value of the associated insurance contracts, and the spread between the policy loan interest rate and the interest rate credited to the account value held as collateral is fixed.
	(3)	The estimated fair value of cash and cash equivalents approximates the carrying value.
	(4)	Assets held in Separate Accounts are carried at the net asset value provided by the fund managers.

NOTE 3. INVESTMENTS

The amortized cost and estimated fair value of investments in fixed maturity securities as of December 31 were:

Estimated fair value and gross unrealized losses by length of time that certain fixed maturity securities have been in a continuous unrealized loss position at December 31 were:

Unrealized losses primarily relate to corporate debt securities rated BBB or higher and are due to price fluctuations resulting from changes in interest rates and credit spreads. These investments are not considered other-than-temporarily impaired since based on the most recent available information the Company has the ability and intent to hold the investments for a period of time sufficient for a forecasted market price recovery up to or beyond the amortized cost of the investment.

There were no realized investment losses due to other-than-temporary declines in fair value for the year ended December 31, 2004. The Company recorded realized investment losses due to other-than-temporary declines in fair value of $786 and $3,503 for the years ended December 31, 2003 and 2002 respectively.

The amortized cost and estimated fair value of fixed maturity securities at December 31 by contractual maturity were:

Fixed maturity securities not due at a single maturity date have been included in the preceding table in the year of final maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The amortized cost and estimated fair value of fixed maturity securities at December 31 by rating agency equivalent were: