##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



(Mark One)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the Quarterly Period Ended June 30, 2004



or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from            
to



Commission File Number: 1-14925



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STANCORP FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Oregon                                                         |  | 93-1253576                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



1100 SW Sixth
Avenue, Portland, Oregon, 97204

(Address of principal executive offices, including zip code)



(503) 321-7000

(Registrants telephone number, including area code)



NONE

(Former name, former address,
and former fiscal year, if changed since last report)



---



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 an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).    Yes  x    No ̈



APPLICABLE ONLY TO
CORPORATE ISSUERS:



Indicate the number of shares
outstanding of each of the issuers classes of common stock, as of the latest practicable date.



As of July 29, 2004, there were 28,399,253 shares of the Registrants common stock, no par value, outstanding.



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##### Table of Contents

INDEX



|           |  |                                                                                                                                                  |  |   
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------ |  | --
|           |  | PART I.    FINANCIAL INFORMATION                                                                                                                 |  |   
|           |  |                                                                                                                                                 
|ITEM 1.    |  | FINANCIAL STATEMENTS                                                                                                                             |  |   
|           |  |                                                                                                                                                 
|           |  | Unaudited Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2004 and 2003                   |  | 1 
|           |  |                                                                                                                                                 
|           |  | Unaudited Consolidated Balance Sheets at June 30, 2004, and December 31, 2003                                                                    |  | 2 
|           |  |                                                                                                                                                 
|           |  | Unaudited Consolidated Statements of Changes in Shareholders Equity for the year ended December 31, 2003 and the six months ended June 30, 2004 |  | 3 
|           |  |                                                                                                                                                 
|           |  | Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003                                                  |  | 4 
|           |  |                                                                                                                                                 
|           |  | Condensed Notes to Unaudited Consolidated Financial Statements                                                                                   |  | 5 
|           |  |                                                                                                                                                 
|ITEM 2.    |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                            |  | 11
|           |  |                                                                                                                                                 
|ITEM 3.    |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                       |  | 26
|           |  |                                                                                                                                                 
|ITEM 4.    |  | CONTROLS AND PROCEDURES                                                                                                                          |  | 26
|           |  |                                                                                                                                                 
|           |  | PART II.    OTHER INFORMATION                                                                                                                    |  |   
|           |  |                                                                                                                                                 
|ITEM 1.    |  | LEGAL PROCEEDINGS                                                                                                                                |  | 27
|           |  |                                                                                                                                                 
|ITEM 2.    |  | CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES                                                                 |  | 27
|           |  |                                                                                                                                                 
|ITEM 3.    |  | DEFAULTS UPON SENIOR SECURITIES                                                                                                                  |  | 27
|           |  |                                                                                                                                                 
|ITEM 4.    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                              |  | 27
|           |  |                                                                                                                                                 
|ITEM 5.    |  | OTHER INFORMATION                                                                                                                                |  | 28
|           |  |                                                                                                                                                 
|ITEM 6.    |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                                                                 |  | 28
|           | 
|SIGNATURES |  | 29                                                                                                                                              



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##### Table of Contents

STANCORP FINANCIAL GROUP, INC.



UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(In millionsexcept share data)



|                                                                                       |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|-------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                       |  | Three Months Ended June 30, |            |   | Six Months Ended June 30, |  
|                                                                                       |  | 2004                        |            |   | 2003                      |   |            | 2004 |  |   | 2003       |  
|Revenues:                                                                              |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Premiums                                                                               |  | $                           | 409.5      |   |                           | $ | 406.0      |      |  | $ | 816.2      |   |  | $ | 807.3      |  
|Net investment income                                                                  |  |                             | 112.6      |   |                           |   | 109.5      |      |  |   | 224.3      |   |  |   | 216.6      |  
|Net capital gains                                                                      |  |                             | 1.6        |   |                           |   | 3.7        |      |  |   | 6.1        |   |  |   | 2.6        |  
|Other                                                                                  |  |                             | 1.8        |   |                           |   | 1.7        |      |  |   | 3.4        |   |  |   | 3.1        |  
|                                                                                       |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Total revenues                                                                         |  |                             | 525.5      |   |                           |   | 520.9      |      |  |   | 1,050.0    |   |  |   | 1,029.6    |  
|                                                                                       |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Benefits and expenses:                                                                 |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Benefits to policyholders                                                              |  |                             | 312.8      |   |                           |   | 333.0      |      |  |   | 632.2      |   |  |   | 657.2      |  
|Interest credited                                                                      |  |                             | 19.4       |   |                           |   | 19.2       |      |  |   | 37.7       |   |  |   | 37.8       |  
|Operating expenses                                                                     |  |                             | 72.5       |   |                           |   | 67.7       |      |  |   | 145.2      |   |  |   | 138.7      |  
|Commissions and bonuses                                                                |  |                             | 37.4       |   |                           |   | 36.5       |      |  |   | 75.4       |   |  |   | 72.0       |  
|Premium taxes                                                                          |  |                             | 7.3        |   |                           |   | 5.0        |      |  |   | 14.5       |   |  |   | 11.7       |  
|Interest expense                                                                       |  |                             | 4.3        |   |                           |   | 4.4        |      |  |   | 8.7        |   |  |   | 8.8        |  
|Net increase in deferred acquisition costs and value of business acquired              |  |                             | (3.5       | ) |                           |   | (2.2       | )    |  |   | (6.2       | ) |  |   | (3.4       | )
|                                                                                       |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Total benefits and expenses                                                            |  |                             | 450.2      |   |                           |   | 463.6      |      |  |   | 907.5      |   |  |   | 922.8      |  
|                                                                                       |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Income before income taxes                                                             |  |                             | 75.3       |   |                           |   | 57.3       |      |  |   | 142.5      |   |  |   | 106.8      |  
|Income taxes                                                                           |  |                             | 22.8       |   |                           |   | 20.1       |      |  |   | 46.4       |   |  |   | 37.4       |  
|                                                                                       |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Net income                                                                             |  |                             | 52.5       |   |                           |   | 37.2       |      |  |   | 96.1       |   |  |   | 69.4       |  
|                                                                                       |  |                             |            |  
|Other comprehensive income (loss), net of tax:                                         |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Unrealized capital gains (losses) on securities available-for-sale, net                |  |                             | (134.8     | ) |                           |   | 78.8       |      |  |   | (76.0      | ) |  |   | 99.9       |  
|Reclassification adjustment for net capital (gains) losses included in net income, net |  |                             | (2.6       | ) |                           |   | 0.7        |      |  |   | (5.3       | ) |  |   | 0.1        |  
|                                                                                       |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Total                                                                                  |  |                             | (137.4     | ) |                           |   | 79.5       |      |  |   | (81.3      | ) |  |   | 100.0      |  
|                                                                                       |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Comprehensive income (loss)                                                            |  | $                           | (84.9      | ) |                           | $ | 116.7      |      |  | $ | 14.8       |   |  | $ | 169.4      |  
|                                                                                       |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Net income per common share:                                                           |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Basic                                                                                  |  | $                           | 1.84       |   |                           | $ | 1.29       |      |  | $ | 3.33       |   |  | $ | 2.40       |  
|Diluted                                                                                |  |                             | 1.82       |   |                           |   | 1.27       |      |  |   | 3.29       |   |  |   | 2.37       |  
|Weighted-average common shares outstanding:                                            |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Basic                                                                                  |  |                             | 28,567,118 |   |                           |   | 28,937,380 |      |  |   | 28,868,743 |   |  |   | 28,936,001 |  
|Diluted                                                                                |  |                             | 28,850,613 |   |                           |   | 29,230,629 |      |  |   | 29,197,519 |   |  |   | 29,227,683 |  



See Condensed Notes to
Unaudited Consolidated Financial Statements.



1



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##### Table of Contents

STANCORP FINANCIAL GROUP, INC.



UNAUDITED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)



|                                                                                                                                                   |  |              |          |                  |   |        
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | ---------------- | - | -------
|                                                                                                                                                   |  | June 30,2004 |          | December 31,2003
|A S S E T S                                                                                                                                        |  |              |          |                 
|Investments:                                                                                                                                       |  |              |          |                  |   |        
|Fixed maturity securities                                                                                                                          |  | $            | 4,411.7  |                  | $ | 4,524.8
|Commercial mortgage loans, net                                                                                                                     |  |              | 2,608.2  |                  |   | 2,319.8
|Real estate, net                                                                                                                                   |  |              | 79.6     |                  |   | 77.2   
|Policy loans                                                                                                                                       |  |              | 4.5      |                  |   | 4.6    
|                                                                                                                                                   |  |              |          |                  |   |        
|Total investments                                                                                                                                  |  |              | 7,104.0  |                  |   | 6,926.4
|                                                                                                                                                   |  |             
|Cash and cash equivalents                                                                                                                          |  |              | 44.2     |                  |   | 34.5   
|Premiums and other receivables                                                                                                                     |  |              | 75.0     |                  |   | 73.3   
|Accrued investment income                                                                                                                          |  |              | 82.9     |                  |   | 82.8   
|Amounts recoverable from reinsurers                                                                                                                |  |              | 890.2    |                  |   | 871.9  
|Deferred acquisition costs and value of business acquired, net                                                                                     |  |              | 208.2    |                  |   | 200.7  
|Property and equipment, net                                                                                                                        |  |              | 71.8     |                  |   | 71.3   
|Other assets                                                                                                                                       |  |              | 52.0     |                  |   | 35.1   
|Separate account assets                                                                                                                            |  |              | 1,952.5  |                  |   | 1,685.7
|                                                                                                                                                   |  |              |          |                  |   |        
|Total assets                                                                                                                                       |  | $            | 10,480.8 |                  | $ | 9,981.7
|                                                                                                                                                   |  |              |          |                  |   |        
|                                                                                                                                                   |  |             
|L I A B I L I T I E S  A N D  S H A R E H O L D E R S  E Q U I T
Y                                                                                |  |              |          |                 
|Liabilities:                                                                                                                                       |  |              |          |                  |   |        
|Future policy benefits and claims                                                                                                                  |  | $            | 4,374.2  |                  | $ | 4,294.9
|Other policyholder funds                                                                                                                           |  |              | 2,269.3  |                  |   | 2,100.3
|Deferred tax liabilities                                                                                                                           |  |              | 100.5    |                  |   | 153.7  
|Short-term debt                                                                                                                                    |  |              | 49.6     |                  |   | 2.7    
|Long-term debt                                                                                                                                     |  |              | 273.3    |                  |   | 272.0  
|Other liabilities                                                                                                                                  |  |              | 195.8    |                  |   | 162.9  
|Separate account liabilities                                                                                                                       |  |              | 1,952.5  |                  |   | 1,685.7
|                                                                                                                                                   |  |              |          |                  |   |        
|Total liabilities                                                                                                                                  |  |              | 9,215.2  |                  |   | 8,672.2
|                                                                                                                                                   |  |              |          |                  |   |        
|Contingencies and commitments                                                                                                                      |  |              |          |                  |   |        
|                                                                                                                                                   |  |             
|Shareholders equity:                                                                                                                              |  |              |          |                  |   |        
|Preferred stock, 100,000,000 shares authorized; none issued                                                                                        |  |              |         |                  |   |       
|Common stock, no par, 300,000,000 shares authorized; 28,369,769 and 29,300,723 shares issued at June 30, 2004, and December 31, 2003,
respectively |  |              | 614.7    |                  |   | 673.4  
|Accumulated other comprehensive income                                                                                                             |  |              | 79.0     |                  |   | 160.3  
|Retained earnings                                                                                                                                  |  |              | 571.9    |                  |   | 475.8  
|                                                                                                                                                   |  |              |          |                  |   |        
|Total shareholders equity                                                                                                                         |  |              | 1,265.6  |                  |   | 1,309.5
|                                                                                                                                                   |  |              |          |                  |   |        
|Total liabilities and shareholders equity                                                                                                         |  | $            | 10,480.8 |                  | $ | 9,981.7
|                                                                                                                                                   |  |              |          |                  |   |        



See Condensed Notes to
Unaudited Consolidated Financial Statements.



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STANCORP FINANCIAL GROUP, INC.



UNAUDITED CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS EQUITY

(Dollars in millions)



|                                       |  |              |   |  |                                        |       |   |                   |   |       |                            |  |   |       |   |  |   |         |  
|-------------------------------------- |  | ------------ | - |  | -------------------------------------- | ----- | - | ----------------- | - | ----- | -------------------------- |  | - | ----- | - |  | - | ------- | -
|                                       |  | Common Stock |   |  | Accumulated Other Comprehensive Income |       |   | Retained Earnings |   |       | Total Shareholders Equity | 
|                                       |  | Shares       |   |  | Amount                                 |       |   |                   |  
|Balance, January 1, 2003               |  | 29,185,276   |   |  | $                                      | 665.3 |   |                   | $ | 147.4 |                            |  | $ | 339.9 |   |  | $ | 1,152.6 |  
|Net income                             |  |             |   |  |                                        |      |   |                   |   |      |                            |  |   | 156.3 |   |  |   | 156.3   |  
|Other comprehensive income, net of tax |  |             |   |  |                                        |      |   |                   |   | 12.9  |                            |  |   |      |   |  |   | 12.9    |  
|Common stock:                          |  |              |   |  |                                        |       |   |                   |   |       |                            |  |   |       |   |  |   |         |  
|Repurchased                            |  | (185,700     | ) |  |                                        | (9.3  | ) |                   |   |      |                            |  |   |      |   |  |   | (9.3    | )
|Issued to directors                    |  | 3,081        |   |  |                                        | 0.2   |   |                   |   |      |                            |  |   |      |   |  |   | 0.2     |  
|Issued under employee stock plans, net |  | 298,066      |   |  |                                        | 17.2  |   |                   |   |      |                            |  |   |      |   |  |   | 17.2    |  
|Dividends declared on common stock     |  |             |   |  |                                        |      |   |                   |   |      |                            |  |   | (20.4 | ) |  |   | (20.4   | )
|                                       |  |              |   |  |                                        |       |   |                   |   |       |                            |  |   |       |   |  |   |         |  
|Balance, December 31, 2003             |  | 29,300,723   |   |  |                                        | 673.4 |   |                   |   | 160.3 |                            |  |   | 475.8 |   |  |   | 1,309.5 |  
|                                       |  |              |   |  |                                        |       |   |                   |   |       |                            |  |   |       |   |  |   |         |  
|Net income                             |  |             |   |  |                                        |      |   |                   |   |      |                            |  |   | 96.1  |   |  |   | 96.1    |  
|Other comprehensive loss, net of tax   |  |             |   |  |                                        |      |   |                   |   | (81.3 | )                          |  |   |      |   |  |   | (81.3   | )
|Common stock:                          |  |              |   |  |                                        |       |   |                   |   |       |                            |  |   |       |   |  |   |         |  
|Repurchased                            |  | (1,063,100   | ) |  |                                        | (66.6 | ) |                   |   |      |                            |  |   |      |   |  |   | (66.6   | )
|Issued to directors                    |  | 1,555        |   |  |                                        | 0.1   |   |                   |   |      |                            |  |   |      |   |  |   | 0.1     |  
|Issued under employee stock plans, net |  | 130,591      |   |  |                                        | 7.8   |   |                   |   |      |                            |  |   |      |   |  |   | 7.8     |  
|                                       |  |              |   |  |                                        |       |   |                   |   |       |                            |  |   |       |   |  |   |         |  
|Balance, June 30, 2004                 |  | 28,369,769   |   |  | $                                      | 614.7 |   |                   | $ | 79.0  |                            |  | $ | 571.9 |   |  | $ | 1,265.6 |  
|                                       |  |              |   |  |                                        |       |   |                   |   |       |                            |  |   |       |   |  |   |         |  





See Condensed Notes to Unaudited Consolidated Financial Statements.



3



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##### Table of Contents

STANCORP FINANCIAL GROUP, INC.



UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)



|                                                                                  |  |                          |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                  |  | Six Months EndedJune 30, |       
|                                                                                  |  | 2004                     |        |   | 2003 |  
|Operating:                                                                        |  |                          |        |   |      |   |        |  
|Net income                                                                        |  | $                        | 96.1   |   |      | $ | 69.4   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                          |        |   |      |   |        |  
|Depreciation and amortization                                                     |  |                          | 40.6   |   |      |   | 34.4   |  
|Deferral of acquisition costs and value of business acquired, net                 |  |                          | (27.2  | ) |      |   | (21.4  | )
|Deferred income taxes                                                             |  |                          | (7.6   | ) |      |   | (8.9   | )
|Changes in other assets and liabilities:                                          |  |                          |        |   |      |   |        |  
|Receivables and accrued income                                                    |  |                          | (20.0  | ) |      |   | (19.3  | )
|Future policy benefits and claims                                                 |  |                          | 79.3   |   |      |   | 95.2   |  
|Other, net                                                                        |  |                          | 13.0   |   |      |   | 8.3    |  
|                                                                                  |  |                          |        |   |      |   |        |  
|Net cash provided by operating activities                                         |  |                          | 174.2  |   |      |   | 157.7  |  
|                                                                                  |  |                          |        |   |      |   |        |  
|Investing:                                                                        |  |                          |        |   |      |   |        |  
|Proceeds of investments sold, matured or repaid:                                  |  |                          |        |   |      |   |        |  
|Fixed maturity securities                                                         |  |                          | 315.0  |   |      |   | 302.5  |  
|Commercial mortgage loans                                                         |  |                          | 256.1  |   |      |   | 291.6  |  
|Real estate                                                                       |  |                          | 1.9    |   |      |   | 3.8    |  
|Other investments                                                                 |  |                          |       |   |      |   | 1.9    |  
|Costs of investments acquired or originated:                                      |  |                          |        |   |      |   |        |  
|Fixed maturity securities                                                         |  |                          | (332.9 | ) |      |   | (632.9 | )
|Commercial mortgage loans                                                         |  |                          | (548.8 | ) |      |   | (433.7 | )
|Real estate                                                                       |  |                          | (0.3   | ) |      |   | (0.4   | )
|Other investments                                                                 |  |                          | (4.3   | ) |      |   |       |  
|Property and equipment, net                                                       |  |                          | (6.7   | ) |      |   | (3.5   | )
|                                                                                  |  |                          |        |   |      |   |        |  
|Net cash used in investing activities                                             |  |                          | (320.0 | ) |      |   | (470.7 | )
|                                                                                  |  |                          |        |   |      |   |        |  
|Financing:                                                                        |  |                          |        |   |      |   |        |  
|Policyholder fund deposits                                                        |  |                          | 657.2  |   |      |   | 537.9  |  
|Policyholder fund withdrawals                                                     |  |                          | (488.2 | ) |      |   | (426.1 | )
|Short-term debt                                                                   |  |                          | 46.9   |   |      |   | 19.9   |  
|Long-term debt                                                                    |  |                          | 1.3    |   |      |   |       |  
|Issuance of common stock, net                                                     |  |                          | 4.9    |   |      |   | 2.9    |  
|Repurchase of common stock                                                        |  |                          | (66.6  | ) |      |   | (8.0   | )
|                                                                                  |  |                          |        |   |      |   |        |  
|Net cash provided by financing activities                                         |  |                          | 155.5  |   |      |   | 126.6  |  
|                                                                                  |  |                          |        |   |      |   |        |  
|Increase (decrease) in cash and cash equivalents                                  |  |                          | 9.7    |   |      |   | (186.4 | )
|Cash and cash equivalents, beginning of period                                    |  |                          | 34.5   |   |      |   | 206.8  |  
|                                                                                  |  |                          |        |   |      |   |        |  
|Cash and cash equivalents, end of period                                          |  | $                        | 44.2   |   |      | $ | 20.4   |  
|                                                                                  |  |                          |        |   |      |   |        |  
|Supplemental disclosure of cash flow information:                                 |  |                          |        |   |      |   |        |  
|Cash paid during the year for:                                                    |  |                          |        |   |      |   |        |  
|Interest                                                                          |  | $                        | 38.3   |   |      | $ | 49.5   |  
|Income taxes                                                                      |  |                          | 66.8   |   |      |   | 53.3   |  



See Condensed Notes to
Unaudited Consolidated Financial Statements.



4



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##### Table of Contents

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



As used in this Form 10-Q, the terms StanCorp, Company, we, us and our refer to StanCorp Financial Group, Inc. and its subsidiaries, unless the context
otherwise requires.



1.    ORGANIZATION, PRINCIPLES
OF CONSOLIDATION, AND BASIS OF PRESENTATION



We were
incorporated under the laws of Oregon as a parent holding company in 1998 and completed our initial public offering of our common stock on April 21, 1999. We conduct business through our subsidiaries, including Standard Insurance Company
(Standard); The Standard Life Insurance Company of New York; StanCorp Mortgage Investors, LLC (StanCorp Mortgage Investors); and StanCorp Investment Advisers, Inc. (StanCorp Investment Advisers). We are
headquartered in Portland, Oregon and through our subsidiaries have the authority to underwrite insurance products in all 50 states.



Our largest subsidiary, Standard, underwrites group and individual disability insurance and annuity products, group life, accidental death and
dismemberment (AD&D), and dental insurance. Founded in 1906, Standard is domiciled in Oregon and licensed in 49 states, the District of Columbia and the U.S. Territories of Guam and the Virgin Islands.



The Standard Life Insurance Company of New York was organized in 2000, and is
licensed to provide long term and short term disability, life, AD&D, and dental insurance for groups in New York.



StanCorp Mortgage Investors originates and services small commercial mortgage loans for investment portfolios of our insurance subsidiaries. It also
generates additional fee income from the origination and servicing of commercial mortgage loans sold to institutional investors.



StanCorp Investment Advisers is a Securities and Exchange Commission (SEC) registered investment adviser providing performance analysis, fund
selection support, and model portfolios to our retirement plan clients and subsidiaries of StanCorp. It also provides investment management services to third parties.



The unaudited consolidated financial statements include StanCorp and its subsidiaries. All significant intercompany balances
and transactions have been eliminated. Certain 2003 amounts have been reclassified to conform with the current presentation.



The accompanying unaudited consolidated financial statements of StanCorp and its subsidiaries have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP) for interim financial information and in conformance with the requirements of Form 10-Q pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of
the information and disclosures required by GAAP for complete financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the financial statement date, and the reported amounts of revenues and expenses during the period. Actual results may differ from those estimates. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the Companys financial condition at June 30, 2004, and for the results
of operations for the three and six months ended June 30, 2004 and 2003, and cash flows for the six months ended June 30, 2004 and 2003. Interim results for the three and six month periods ended June 30, 2004, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2004. This report should be read in conjunction with the Companys 2003 Annual Report on Form 10-K.



2.    NET INCOME PER COMMON SHARE



Basic net income per common share was calculated based on the weighted-average number of common shares outstanding. Net
income per diluted common share reflects the potential effects of restricted stock grants



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and exercises of outstanding options. The weighted-average common share and share equivalents outstanding used to compute the dilutive effect of common stock
options outstanding were computed using the treasury stock method. The computation of diluted weighted-average earnings per share does not include options with an option exercise price greater than the average market price because they are
antidilutive (would increase earnings per share). Net income per diluted common share was calculated as follows for the periods indicated:



|                                                   |  |                             |            |                           |   |            |  |      |            |  |   |           
|-------------------------------------------------- |  | --------------------------- | ---------- | ------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                   |  | Three Months Ended June 30, |            | Six Months Ended June 30,
|                                                   |  | 2004                        |            | 2003                      |   | 2004       |  | 2003
|Net income (in millions)                           |  | $                           | 52.5       |                           | $ | 37.2       |  | $    | 96.1       |  | $ | 69.4      
|                                                   |  |                             |            |                           |   |            |  |      |            |  |   |           
|Basic weighted-average common shares outstanding   |  |                             | 28,567,118 |                           |   | 28,937,380 |  |      | 28,868,743 |  |   | 28,936,001
|Stock options                                      |  |                             | 232,896    |                           |   | 235,095    |  |      | 252,913    |  |   | 225,006   
|Restricted stock                                   |  |                             | 50,599     |                           |   | 58,154     |  |      | 75,863     |  |   | 66,676    
|                                                   |  |                             |            |                           |   |            |  |      |            |  |   |           
|Diluted weighted-average common shares outstanding |  |                             | 28,850,613 |                           |   | 29,230,629 |  |      | 29,197,519 |  |   | 29,227,683
|                                                   |  |                             |            |                           |   |            |  |      |            |  |   |           
|Net income per diluted common share                |  | $                           | 1.82       |                           | $ | 1.27       |  | $    | 3.29       |  | $ | 2.37      
|                                                   |  |                             |            |                           |   |            |  |      |            |  |   |           



3.    STOCK-BASED COMPENSATION



Effective January 1, 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, prospectively to all employee awards granted,
modified, or settled after January 1, 2003. Awards under the Companys plans vest over periods ranging from one to four years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for 2004
and prior years is less than that which would have been recognized if the fair value based method had been applied to all awards since the first options were granted in 1999. The following table sets forth the effect on net income and earnings per
share if the fair value based method had been applied to all outstanding and unvested awards for the periods indicated:



|                                                                                                                                            |  |                                 |      |   |                           |   |      |      |  |   |      |   |  |   |      |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---- | - | ------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                                                                                                                            |  | Three Months EndedJune 30,      |      |   | Six Months Ended June 30, |  
|                                                                                                                                            |  | 2004                            |      |   | 2003                      |   |      | 2004 |  |   | 2003 |  
|                                                                                                                                            |  | (In millionsexcept share data) |     
|Net income, as reported                                                                                                                     |  | $                               | 52.5 |   |                           | $ | 37.2 |      |  | $ | 96.1 |   |  | $ | 69.4 |  
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |                                 | 0.6  |   |                           |   | 0.4  |      |  |   | 1.2  |   |  |   | 0.6  |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                 | (0.9 | ) |                           |   | (1.0 | )    |  |   | (1.8 | ) |  |   | (1.7 | )
|                                                                                                                                            |  |                                 |      |   |                           |   |      |      |  |   |      |   |  |   |      |  
|Pro forma net income                                                                                                                        |  | $                               | 52.2 |   |                           | $ | 36.6 |      |  | $ | 95.5 |   |  | $ | 68.3 |  
|                                                                                                                                            |  |                                 |      |   |                           |   |      |      |  |   |      |   |  |   |      |  
|Net income per share:                                                                                                                       |  |                                 |      |   |                           |   |      |      |  |   |      |   |  |   |      |  
|Basicas reported                                                                                                                           |  | $                               | 1.84 |   |                           | $ | 1.29 |      |  | $ | 3.33 |   |  | $ | 2.40 |  
|Basicpro forma                                                                                                                             |  |                                 | 1.83 |   |                           |   | 1.26 |      |  |   | 3.31 |   |  |   | 2.36 |  
|Dilutedas reported                                                                                                                         |  |                                 | 1.82 |   |                           |   | 1.27 |      |  |   | 3.29 |   |  |   | 2.37 |  
|Dilutedpro forma                                                                                                                           |  |                                 | 1.81 |   |                           |   | 1.26 |      |  |   | 3.27 |   |  |   | 2.34 |  



For purposes of
determining the pro forma expense, the fair value of each option was estimated using the Black-Scholes option pricing model as of the grant date, with the following assumptions for the periods indicated:



|                                |  |                           |   |  |             |  
|------------------------------- |  | ------------------------- | - |  | ----------- | -
|                                |  | Six Months Ended June 30, |  
|                                |  | 2004                      |   |  | 2003        |  
|Dividend yield                  |  | 1.27                      | % |  | 0.74        | %
|Expected stock price volatility |  | 29.9 - 30.6               |   |  | 32.2 - 33.1 |  
|Risk-free interest rate         |  | 3.6 - 4.2                 |   |  | 3.2 - 3.4   |  
|Expected option lives           |  | 5.2 - 6.5 years           |   |  | 6.5 years   |  



6



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4.    SEGMENTS



We operate through three segments: Employee Benefits, Individual Insurance, and Retirement Plans. Resources are allocated
and performance is evaluated at the segment level. The Employee Benefits segment sells group disability and life insurance, group dental insurance, and AD&D insurance. The Individual Insurance segment sells disability insurance and fixed-rate
annuities to individuals. The Retirement Plans segment sells full-service 401(k), defined benefit, money purchase, profit sharing and deferred compensation plan products and services to small and medium-sized employers.



Amounts reported as Other primarily include net capital gains and
losses on investments, return on capital not allocated to the product segments, other financial service businesses, holding company expenses, interest on senior notes and adjustments made in consolidation. Other financial service businesses are
generally non-insurance related and include StanCorp Mortgage Investors, our commercial mortgage lending business and StanCorp Investment Advisers, our registered investment adviser.



The following tables set forth select segment information at or for the periods indicated:



|                                  |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|--------------------------------- |  | ----------------- | ------- | -------------------- | - | ---------------- |  | ----- | ------- | ----- | - | ----- |  | - | --------
|                                  |  | Employee Benefits |         | Individual Insurance |   | Retirement Plans |  | Other |         | Total
|                                  |  | (In millions)    
|Three months ended June 30, 2004: |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Revenues:                         |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Premiums                          |  | $                 | 381.1   |                      | $ | 22.2             |  | $     | 6.2     |       | $ |      |  | $ | 409.5   
|Other revenues(1)                 |  |                   | 64.6    |                      |   | 27.6             |  |       | 14.8    |       |   | 9.0   |  |   | 116.0   
|                                  |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Total revenues                    |  |                   | 445.7   |                      |   | 49.8             |  |       | 21.0    |       |   | 9.0   |  |   | 525.5   
|                                  |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Benefits and expenses:            |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Benefits to policyholders(2)      |  |                   | 293.5   |                      |   | 29.1             |  |       | 9.6     |       |   |      |  |   | 332.2   
|Operating and other expenses(3)   |  |                   | 89.3    |                      |   | 12.1             |  |       | 8.9     |       |   | 7.7   |  |   | 118.0   
|                                  |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Total benefits and expenses       |  |                   | 382.8   |                      |   | 41.2             |  |       | 18.5    |       |   | 7.7   |  |   | 450.2   
|                                  |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Income before income taxes        |  | $                 | 62.9    |                      | $ | 8.6              |  | $     | 2.5     |       | $ | 1.3   |  | $ | 75.3    
|                                  |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|                                  |  |                   |         |                      |  
|                                  |  | Employee Benefits |         | Individual Insurance |   | Retirement Plans |  | Other |         | Total
|                                  |  | (In millions)    
|Six months ended June 30, 2004:   |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Revenues:                         |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Premiums                          |  | $                 | 759.1   |                      | $ | 44.6             |  | $     | 12.5    |       | $ |      |  | $ | 816.2   
|Other revenues(1)                 |  |                   | 128.4   |                      |   | 55.6             |  |       | 29.1    |       |   | 20.7  |  |   | 233.8   
|                                  |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Total revenues                    |  |                   | 887.5   |                      |   | 100.2            |  |       | 41.6    |       |   | 20.7  |  |   | 1,050.0 
|                                  |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Benefits and expenses:            |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Benefits to policyholders(2)      |  |                   | 594.8   |                      |   | 55.9             |  |       | 19.2    |       |   |      |  |   | 669.9   
|Operating and other expenses(3)   |  |                   | 179.7   |                      |   | 24.5             |  |       | 18.2    |       |   | 15.2  |  |   | 237.6   
|                                  |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Total benefits and expenses       |  |                   | 774.5   |                      |   | 80.4             |  |       | 37.4    |       |   | 15.2  |  |   | 907.5   
|                                  |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Income before income taxes        |  | $                 | 113.0   |                      | $ | 19.8             |  | $     | 4.2     |       | $ | 5.5   |  | $ | 142.5   
|                                  |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         
|Total assets                      |  | $                 | 4,468.2 |                      | $ | 2,795.8          |  | $     | 2,942.4 |       | $ | 274.4 |  | $ | 10,480.8
|                                  |  |                   |         |                      |   |                  |  |       |         |       |   |       |  |   |         

---

|(1) | Includes net investment income, net capital gains (losses), and other sources of revenue.
|--- | -----------------------------------------------------------------------------------------

|(2) | Includes benefits to policyholders and interest credited.
|--- | ---------------------------------------------------------

|(3) | Includes operating expenses, commissions and bonuses, premium taxes, interest expense, and the net change in deferred acquisition costs and value of business acquired.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|                                  |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|--------------------------------- |  | ----------------- | ------- | -------------------- | - | ---------------- |  | ----- | ------- |  | ----- | ----- | - |  | - | -------
|                                  |  | EmployeeBenefits  |         | IndividualInsurance  |   | RetirementPlans  |  | Other |         |  | Total
|                                  |  | (In millions)    
|Three months ended June 30, 2003: |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Revenues:                         |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Premiums                          |  | $                 | 375.3   |                      | $ | 25.0             |  | $     | 5.7     |  | $     |      |   |  | $ | 406.0  
|Other revenues(1)                 |  |                   | 63.6    |                      |   | 27.4             |  |       | 14.0    |  |       | 9.9   |   |  |   | 114.9  
|                                  |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Total revenues                    |  |                   | 438.9   |                      |   | 52.4             |  |       | 19.7    |  |       | 9.9   |   |  |   | 520.9  
|                                  |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Benefits and expenses:            |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Benefits to policyholders(2)      |  |                   | 312.4   |                      |   | 28.9             |  |       | 10.9    |  |       |      |   |  |   | 352.2  
|Operating and other expenses(3)   |  |                   | 84.2    |                      |   | 11.9             |  |       | 7.9     |  |       | 7.4   |   |  |   | 111.4  
|                                  |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Total benefits and expenses       |  |                   | 396.6   |                      |   | 40.8             |  |       | 18.8    |  |       | 7.4   |   |  |   | 463.6  
|                                  |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Income before income taxes        |  | $                 | 42.3    |                      | $ | 11.6             |  | $     | 0.9     |  | $     | 2.5   |   |  | $ | 57.3   
|                                  |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|                                  |  |                   |         |                      |  
|                                  |  | Employee Benefits |         | Individual Insurance |   | Retirement Plans |  | Other |         |  | Total
|                                  |  | (In millions)    
|Six months ended June 30, 2003:   |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Revenues:                         |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Premiums                          |  | $                 | 751.2   |                      | $ | 45.3             |  | $     | 10.8    |  | $     |      |   |  | $ | 807.3  
|Other revenues(1)                 |  |                   | 126.7   |                      |   | 54.6             |  |       | 28.2    |  |       | 12.8  |   |  |   | 222.3  
|                                  |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Total revenues                    |  |                   | 877.9   |                      |   | 99.9             |  |       | 39.0    |  |       | 12.8  |   |  |   | 1,029.6
|                                  |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Benefits and expenses:            |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Benefits to policyholders(2)      |  |                   | 617.9   |                      |   | 55.8             |  |       | 21.3    |  |       |      |   |  |   | 695.0  
|Operating and other expenses(3)   |  |                   | 173.1   |                      |   | 24.1             |  |       | 16.1    |  |       | 14.5  |   |  |   | 227.8  
|                                  |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Total benefits and expenses       |  |                   | 791.0   |                      |   | 79.9             |  |       | 37.4    |  |       | 14.5  |   |  |   | 922.8  
|                                  |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Income (loss) before income taxes |  | $                 | 86.9    |                      | $ | 20.0             |  | $     | 1.6     |  | $     | (1.7  | ) |  | $ | 106.8  
|                                  |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        
|Total assets                      |  | $                 | 4,420.1 |                      | $ | 2,690.2          |  | $     | 2,215.9 |  | $     | 161.0 |   |  | $ | 9,487.2
|                                  |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |        

---

|(1) | Includes net investment income, net capital gains (losses), and other sources of revenue.
|--- | -----------------------------------------------------------------------------------------

|(2) | Includes benefits to policyholders and interest credited.
|--- | ---------------------------------------------------------

|(3) | Includes operating expenses, commissions and bonuses, premium taxes, interest expense, and the net change in deferred acquisition costs and value of business acquired.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



5.    RETIREMENT BENEFITS



The Company has two non-contributory defined benefit pension plans: the
home office pension plan and the field personnel pension plan. The pension plans provide benefits based on years of service and final average pay. During 2003, several amendments were made to the home office plan. These included limiting future
participation in the plan and reducing future benefit accruals by increasing the integration level, and no longer accruing cost of living adjustments.



In addition, the Company has a postretirement benefit plan that includes medical coverage, prescription drug benefits, and group term life insurance.
Participants are required to contribute specified amounts that are determined periodically, and are based on participants employment status and service. During 2003, the cost sharing between the Company and participants was changed for
participants retiring after December 31, 2003, shifting a greater portion toward participants.



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The following table sets forth the components of net periodic benefit costs for the pension benefits and
postretirement benefits for the six months ended June 30:



|                                                   |  |                  |      |   |                         |   |      |      |  |   |      |   |  |   |      |  
|-------------------------------------------------- |  | ---------------- | ---- | - | ----------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                                   |  | Pension Benefits |      |   | Postretirement Benefits |  
|                                                   |  | 2004             |      |   | 2003                    |   |      | 2004 |  |   | 2003 |  
|                                                   |  | (In millions)    |      |   | (In millions)           |  
|Components of net periodic benefit cost (benefit): |  |                  |      |   |                         |   |      |      |  |   |      |   |  |   |      |  
|Service cost                                       |  | $                | 3.0  |   |                         | $ | 2.6  |      |  | $ | 0.7  |   |  | $ | 1.0  |  
|Interest cost                                      |  |                  | 5.0  |   |                         |   | 4.4  |      |  |   | 0.8  |   |  |   | 1.0  |  
|Expected return on plan assets                     |  |                  | (5.6 | ) |                         |   | (4.6 | )    |  |   | (0.4 | ) |  |   | (0.4 | )
|Amortization of prior service cost                 |  |                  | (0.2 | ) |                         |   | (0.1 | )    |  |   | (0.3 | ) |  |   | (0.2 | )
|Amortization of transition assets                  |  |                  | (0.1 | ) |                         |   | (0.1 | )    |  |   |     |   |  |   |     |  
|Amortization of net loss                           |  |                  | 0.4  |   |                         |   | 0.4  |      |  |   | 0.2  |   |  |   | 0.1  |  
|                                                   |  |                  |      |   |                         |   |      |      |  |   |      |   |  |   |      |  
|Net periodic benefit costs                         |  | $                | 2.5  |   |                         | $ | 2.6  |      |  | $ | 1.0  |   |  | $ | 1.5  |  
|                                                   |  |                  |      |   |                         |   |      |      |  |   |      |   |  |   |      |  



As previously
disclosed in the financial statements for the year ended December 31, 2003, the Company does not anticipate that it will be required to contribute to its defined benefit pension plans in 2004 but expects to contribute $0.8 million to its
postretirement benefit plan in 2004. As of June 30, 2004, the Company had contributed approximately $0.4 million to fund the postretirement benefit plan.



All eligible employees are covered by a deferred compensation plan under which a portion of the employee contribution is matched. Effective January 1,
2004, Standard increased the company match to 100% of the first 3% and 50% of the next 2% of eligible compensation for participants who have at least one year of service. In addition, employees hired after January 1, 2003 are eligible for an
additional non-elective contribution. Non-elective contributions made to the existing deferred compensation plan are intended as a substitute for Standards defined benefit pension plan. Standards contributions to the plans were $1.7
million and $2.9 million for the three and six months ended June 30, 2004, respectively, compared to $1.1 million and $1.8 million for the three and six months ended June 30, 2003, respectively.



Eligible executive officers are covered by a non-qualified defined benefit
plan that is currently unfunded. The accrued benefit cost was $9.6 million and $9.2 million at June 30, 2004 and December 31, 2003, respectively. Expenses related to the non-qualified defined benefit plan were $0.3 million and $0.7 million for the
three and six months ended June 30, 2004, respectively, compared to $0.4 million and $0.7 million for the three and six months ended June 30, 2003, respectively.



6.    CONTINGENCIES AND COMMITMENTS



In the normal course of business, the Company is involved in various legal actions and other state and federal proceedings.
A number of actions or proceedings were pending as of June 30, 2004. In some instances, lawsuits include claims for punitive damages and similar types of relief in unspecified or substantial amounts, in addition to amounts for alleged contractual
liability or other compensatory damages. In the opinion of management, the ultimate liability, if any, arising from the actions or proceedings is not expected to have a material adverse effect on the Companys business, financial position,
results of operations, or cash flows.



We have two unsecured
lines of credit for $75 million each, with credit availability totaling $150 million. Prior to expiration in June 2004, we entered into amendments extending the expiration date of the credit agreements to June 27, 2005. The amended agreements also
release Standard and StanCorp Mortgage Investors from guarantees required under the original agreements. Under the credit agreements, we are subject to customary covenants that take into consideration the impact of material transactions, changes to
the business, compliance with legal requirements and financial performance. The financial covenants include limitations on



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indebtedness, financial liquidity, and risk-based capital. At June 30, 2004, we were in compliance with all covenants under the credit agreements and had a
$49.4 million outstanding balance on the lines of credit. The Company is not required to maintain compensating balances, but pays commitment fees. Interest charged on borrowings is based on either the federal funds rate, the banks prime rate
or the London Interbank Offered Rate at the time of borrowing plus an incremental basis point charge that varies by agreement, type of borrowing and the amount outstanding on the lines. At December 31, 2003 we had no outstanding borrowings on the
previous lines of credit. We currently have no commitments for standby letters of credit, standby repurchase obligations, or other related commercial commitments under the credit agreements.



7.    STATUTORY ACCOUNTING AND REGULATORY MATTERS



In August 2003, Standard distributed to StanCorp an extraordinary
distribution of $200 million from its paid-in capital and contributed surplus. Concurrently, Standard borrowed the same amount from StanCorp and issued a $200 million subordinated surplus note. Both transactions eliminate in consolidation. The
surplus note matures in August 2018 and bears an interest rate of 6.44% per annum. The form of the surplus note complies with the requirements of the National Association of Insurance Commissioners with respect to surplus notes, including provisions
requiring the approval of the Oregon Insurance Division for any repayments of principal or for any payments of interest and subordinating any payments with respect to the surplus note to Standards other obligations to policyholders, lenders,
and trade creditors.



Standards board of directors has
approved distributions to StanCorp in 2004 to pay accrued interest and to make partial repayment of principal on the intercompany surplus note. The current amount approved by the board of directors, based on excess capital at December 31, 2003, is
up to $155 million. At June 30, 2004, Standard had distributed a total of approximately $56 million to StanCorp for interest and principal payments on the surplus note. The outstanding principal balance on the surplus note was $150.0 million at June
30, 2004. While the surplus note is outstanding, any distributions from Standard to StanCorp will be applied to the interest and outstanding principal on the surplus note. Based on Standards capital adequacy, we anticipate that Standard may be
able to distribute an additional amount to StanCorp in 2004 up to the difference between the $155 million approved by the board of directors and the $56 million already distributed, depending on StanCorps capital needs and subject to approval
from the Oregon Insurance Division.



8.    ACCOUNTING
PRONOUNCEMENTS



In May 2004, Financial Accounting
Standards Board Staff Position (FSP) No. FAS 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003was issued. The FSP addresses the accounting and
disclosure requirements resulting from the Medicare Prescription Drug, Improvement and Modernization Act (the Act) that was enacted on December 8, 2003. The Act introduces a prescription drug benefit under Medicare (Medicare Part D) as
well as a federal subsidy to sponsors of retiree health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The FSP is effective for the first interim or annual period beginning after June 15, 2004, with
early adoption allowed. During the second quarter of 2004, the Company elected early adoption and we estimate that the accumulated postretirement benefit obligation will decrease by $3.0 million as a result of the FSP. Net periodic benefit costs for
the remainder of 2004 will decrease by $0.5 million, and the $2.5 million balance will be amortized through net periodic benefit costs in future years.



10



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



As used in this Form 10-Q, the terms StanCorp, Company, we, us and
our refer to StanCorp Financial Group, Inc. and its subsidiaries, unless the context otherwise requires. The following analysis of the consolidated financial condition and results of operations of StanCorp should be read in conjunction
with the unaudited consolidated financial statements and related condensed notes thereto. See Part 1, Item 1, Financial Statements.



Our filings with the Securities and Exchange Commission (SEC) include our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, proxy statements, registration statements and amendments to those reports. Access to all filed reports is available free of charge on our website at www.stancorpfinancial.com as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at
www.sec.gov.



We have made in this Form 10-Q, and from time to
time may make in our public filings, news releases and oral presentations and discussions, certain statements which are not based on historical facts. These statements are forward-looking and, accordingly, involve risks and uncertainties
that could cause actual results to differ materially from those discussed. Although such forward-looking statements have been made in good faith and are based on reasonable assumptions, there is no assurance that the expected results will be
achieved. Please refer to our discussion of such forward-looking statements under the heading Forward-Looking Statements.



Executive Summary



Financial Results Overview



Our financial results for the second quarter of 2004 were very strong. Net income per diluted share increased 43.3% to $1.82 for the second quarter of
2004, compared to $1.27 for the second quarter of 2003. Net income for the second quarter of 2004 was $52.5 million compared to $37.2 million for the second quarter of 2003. Significant factors affecting our financial performance during the second
quarter of 2004 included:



| |  | A very favorable benefit ratio (the ratio of benefits to policyholders to premiums) in the Employee Benefits segment primarily due to favorable claims experience and the release of
$3 million of reserves as a result of continuing favorable claims recovery patterns.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | A reduction in federal income tax expense of approximately $4 million, or $0.13 per diluted share, from the resolution of prior years tax examinations.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Increased commercial mortgage loan originations.
| | - | ------------------------------------------------



| |  | Strong growth in assets under management in the retirement plans and individual annuities businesses.
| | - | -----------------------------------------------------------------------------------------------------



| |  | Continued slow growth in new sales and premiums in the Employee Benefits segment. New sales and premium growth in this segment continued to be hampered by current economic
conditions, including continued pressure on employer budgets from medical coverage cost inflation and slower growth from our existing customers that would normally result from employment and salary growth.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Net income per diluted share increased 38.8% to $3.29 for the six months
ended June 30, 2004, compared to $2.37 for the same period in 2003. Net income for the six months ended June 30, 2004 was $96.1 million primarily due to very favorable claims experience and the release of $6 million of reserves as a result of
continuing favorable claims recovery patterns in our Employee Benefits segment. Net income for the six months ended June 30, 2004 also included a $9 million reserve established in the first quarter of 2004 as a result of a pricing miscalculation on
long term disability contracts with one large Employee Benefits customer. Net income for the six months ended June 30, 2003 was $69.4 million.



11



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##### Table of Contents

Outlook for 2004



Significant factors that are likely to influence our financial results for the remainder of 2004 include:



| |  | At the beginning of 2004, the Company disclosed an annual premium growth target range for 2004 of 6.5% to 8%. Due to current economic conditions, including continued slow job growth
and the impact of medical coverage cost inflation on employer budgets, premium growth was 0.7% for the six months ended June 30, 2004. New Employee Benefits sales were also down during the six months ended June 30, 2004 compared to the six months
ended June 30, 2003. The Company now expects its full year 2004 premium growth is likely to be under 4%. We expect economic conditions for employers will continue to improve and therefore premium growth will return to our long term target range of
10% to 12% for 2005.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We had very favorable claims experience in our Employee Benefits segment during the three and six months ended June 30, 2004.
| | - | -----------------------------------------------------------------------------------------------------------------------------



| |  | If the favorable and sustained claims recovery patterns continue in our long term disability insurance, we may release approximately $6 million more in reserves during 2004.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The three and six months ended June 30, 2004 included expenses related to our customer service and product delivery systems of $1.2 million and $3.9 million, respectively. We
continue to anticipate expensing approximately $13 million during 2004 for these systems.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Commercial mortgage loan prepayment fees were $7.8 million for the six months ended June 30, 2004 compared to $6.1 million for the six months ended June 30, 2003 and $17.0 million
for the full year in 2003. Considering the recent rise in interest rates and the increasing portion of our commercial mortgage loan portfolio that has full prepayment penalties, we anticipate that refinancing activity will slow, and therefore
prepayment fees will decrease prospectively.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Consolidated Results of Operations



The following tables set forth select segment information at or for the periods indicated:



|                                                                                     |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|------------------------------------------------------------------------------------ |  | ----------------- | ----- | -------------------- | - | ----- | ---------------- |  | - | ----- | - | ----- | - | ---- |  | - | ------- | -
|                                                                                     |  | Employee Benefits |       | Individual Insurance |   |       | Retirement Plans |  |   | Other |   | Total |  
|                                                                                     |  | (In millions)     |      
|Three months ended June 30, 2004:                                                    |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|Revenues:                                                                            |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|Premiums                                                                             |  | $                 | 381.1 |                      | $ | 22.2  |                  |  | $ | 6.2   |   |       | $ |     |  | $ | 409.5   |  
|Net investment income                                                                |  |                   | 62.9  |                      |   | 27.5  |                  |  |   | 14.8  |   |       |   | 7.4  |  |   | 112.6   |  
|Net capital gains                                                                    |  |                   |      |                      |   |      |                  |  |   |      |   |       |   | 1.6  |  |   | 1.6     |  
|Other revenues                                                                       |  |                   | 1.7   |                      |   | 0.1   |                  |  |   |      |   |       |   |     |  |   | 1.8     |  
|                                                                                     |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|Total revenues                                                                       |  |                   | 445.7 |                      |   | 49.8  |                  |  |   | 21.0  |   |       |   | 9.0  |  |   | 525.5   |  
|                                                                                     |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|Benefits and expenses:                                                               |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|Benefits to policyholders                                                            |  |                   | 292.3 |                      |   | 18.8  |                  |  |   | 1.7   |   |       |   |     |  |   | 312.8   |  
|Interest credited                                                                    |  |                   | 1.2   |                      |   | 10.3  |                  |  |   | 7.9   |   |       |   |     |  |   | 19.4    |  
|Operating expenses                                                                   |  |                   | 54.8  |                      |   | 6.9   |                  |  |   | 7.4   |   |       |   | 3.4  |  |   | 72.5    |  
|Commissions and bonuses                                                              |  |                   | 26.6  |                      |   | 8.0   |                  |  |   | 2.8   |   |       |   |     |  |   | 37.4    |  
|Premium taxes                                                                        |  |                   | 6.7   |                      |   | 0.6   |                  |  |   |      |   |       |   |     |  |   | 7.3     |  
|Interest expense                                                                     |  |                   |      |                      |   |      |                  |  |   |      |   |       |   | 4.3  |  |   | 4.3     |  
|Net decrease (increase) in deferred acquisition costs and value of business acquired |  |                   | 1.2   |                      |   | (3.4  | )                |  |   | (1.3  | ) |       |   |     |  |   | (3.5    | )
|                                                                                     |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|Total benefits and expenses                                                          |  |                   | 382.8 |                      |   | 41.2  |                  |  |   | 18.5  |   |       |   | 7.7  |  |   | 450.2   |  
|                                                                                     |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|Income before income taxes                                                           |  | $                 | 62.9  |                      | $ | 8.6   |                  |  | $ | 2.5   |   |       | $ | 1.3  |  | $ | 75.3    |  
|                                                                                     |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|                                                                                     |  |                   |       |                      |  
|                                                                                     |  | Employee Benefits |       | Individual Insurance |   |       | Retirement Plans |  |   | Other |   | Total |  
|                                                                                     |  | (In millions)     |      
|Six months ended June 30, 2004:                                                      |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|Revenues:                                                                            |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|Premiums                                                                             |  | $                 | 759.1 |                      | $ | 44.6  |                  |  | $ | 12.5  |   |       | $ |     |  | $ | 816.2   |  
|Net investment income                                                                |  |                   | 125.2 |                      |   | 55.4  |                  |  |   | 29.1  |   |       |   | 14.6 |  |   | 224.3   |  
|Net capital gains                                                                    |  |                   |      |                      |   |      |                  |  |   |      |   |       |   | 6.1  |  |   | 6.1     |  
|Other revenues                                                                       |  |                   | 3.2   |                      |   | 0.2   |                  |  |   |      |   |       |   |     |  |   | 3.4     |  
|                                                                                     |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|Total revenues                                                                       |  |                   | 887.5 |                      |   | 100.2 |                  |  |   | 41.6  |   |       |   | 20.7 |  |   | 1,050.0 |  
|                                                                                     |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|Benefits and expenses:                                                               |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|Benefits to policyholders                                                            |  |                   | 592.5 |                      |   | 36.4  |                  |  |   | 3.3   |   |       |   |     |  |   | 632.2   |  
|Interest credited                                                                    |  |                   | 2.3   |                      |   | 19.5  |                  |  |   | 15.9  |   |       |   |     |  |   | 37.7    |  
|Operating expenses                                                                   |  |                   | 110.0 |                      |   | 14.0  |                  |  |   | 14.7  |   |       |   | 6.5  |  |   | 145.2   |  
|Commissions and bonuses                                                              |  |                   | 52.6  |                      |   | 16.7  |                  |  |   | 6.1   |   |       |   |     |  |   | 75.4    |  
|Premium taxes                                                                        |  |                   | 13.4  |                      |   | 1.1   |                  |  |   |      |   |       |   |     |  |   | 14.5    |  
|Interest expense                                                                     |  |                   |      |                      |   |      |                  |  |   |      |   |       |   | 8.7  |  |   | 8.7     |  
|Net decrease (increase) in deferred acquisition costs and value of business acquired |  |                   | 3.7   |                      |   | (7.3  | )                |  |   | (2.6  | ) |       |   |     |  |   | (6.2    | )
|                                                                                     |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|Total benefits and expenses                                                          |  |                   | 774.5 |                      |   | 80.4  |                  |  |   | 37.4  |   |       |   | 15.2 |  |   | 907.5   |  
|                                                                                     |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  
|Income before income taxes                                                           |  | $                 | 113.0 |                      | $ | 19.8  |                  |  | $ | 4.2   |   |       | $ | 5.5  |  | $ | 142.5   |  
|                                                                                     |  |                   |       |                      |   |       |                  |  |   |       |   |       |   |      |  |   |         |  



13



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##### Table of Contents

|                                                                                     |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|------------------------------------------------------------------------------------ |  | ----------------- | ----- | -------------------- | - | ---- | ---------------- |  | - | ----- | - |  | ----- | ---- | - |  | - | ------- | -
|                                                                                     |  | Employee Benefits |       | Individual Insurance |   |      | Retirement Plans |  |   | Other |   |  | Total |     
|                                                                                     |  | (In millions)     |      
|Three months ended June 30, 2003:                                                    |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|Revenues:                                                                            |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|Premiums                                                                             |  | $                 | 375.3 |                      | $ | 25.0 |                  |  | $ | 5.7   |   |  | $     |     |   |  | $ | 406.0   |  
|Net investment income                                                                |  |                   | 62.0  |                      |   | 27.3 |                  |  |   | 14.0  |   |  |       | 6.2  |   |  |   | 109.5   |  
|Net capital gains                                                                    |  |                   |      |                      |   |     |                  |  |   |      |   |  |       | 3.7  |   |  |   | 3.7     |  
|Other revenues                                                                       |  |                   | 1.6   |                      |   | 0.1  |                  |  |   |      |   |  |       |     |   |  |   | 1.7     |  
|                                                                                     |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|Total revenues                                                                       |  |                   | 438.9 |                      |   | 52.4 |                  |  |   | 19.7  |   |  |       | 9.9  |   |  |   | 520.9   |  
|                                                                                     |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|Benefits and expenses:                                                               |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|Benefits to policyholders                                                            |  |                   | 311.0 |                      |   | 19.9 |                  |  |   | 2.1   |   |  |       |     |   |  |   | 333.0   |  
|Interest credited                                                                    |  |                   | 1.4   |                      |   | 9.0  |                  |  |   | 8.8   |   |  |       |     |   |  |   | 19.2    |  
|Operating expenses                                                                   |  |                   | 51.5  |                      |   | 6.4  |                  |  |   | 6.8   |   |  |       | 3.0  |   |  |   | 67.7    |  
|Commissions and bonuses                                                              |  |                   | 26.8  |                      |   | 7.4  |                  |  |   | 2.3   |   |  |       |     |   |  |   | 36.5    |  
|Premium taxes                                                                        |  |                   | 4.9   |                      |   | 0.1  |                  |  |   |      |   |  |       |     |   |  |   | 5.0     |  
|Interest expense                                                                     |  |                   |      |                      |   |     |                  |  |   |      |   |  |       | 4.4  |   |  |   | 4.4     |  
|Net decrease (increase) in deferred acquisition costs and value of business acquired |  |                   | 1.0   |                      |   | (2.0 | )                |  |   | (1.2  | ) |  |       |     |   |  |   | (2.2    | )
|                                                                                     |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|Total benefits and expenses                                                          |  |                   | 396.6 |                      |   | 40.8 |                  |  |   | 18.8  |   |  |       | 7.4  |   |  |   | 463.6   |  
|                                                                                     |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|Income before income taxes                                                           |  | $                 | 42.3  |                      | $ | 11.6 |                  |  | $ | 0.9   |   |  | $     | 2.5  |   |  | $ | 57.3    |  
|                                                                                     |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|                                                                                     |  |                   |       |                      |  
|                                                                                     |  | Employee Benefits |       | Individual Insurance |   |      | Retirement Plans |  |   | Other |   |  | Total |     
|                                                                                     |  | (In millions)     |      
|Six months ended June 30, 2003:                                                      |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|Revenues:                                                                            |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|Premiums                                                                             |  | $                 | 751.2 |                      | $ | 45.3 |                  |  | $ | 10.8  |   |  | $     |     |   |  | $ | 807.3   |  
|Net investment income                                                                |  |                   | 123.7 |                      |   | 54.5 |                  |  |   | 28.2  |   |  |       | 10.2 |   |  |   | 216.6   |  
|Net capital gains                                                                    |  |                   |      |                      |   |     |                  |  |   |      |   |  |       | 2.6  |   |  |   | 2.6     |  
|Other revenues                                                                       |  |                   | 3.0   |                      |   | 0.1  |                  |  |   |      |   |  |       |     |   |  |   | 3.1     |  
|                                                                                     |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|Total revenues                                                                       |  |                   | 877.9 |                      |   | 99.9 |                  |  |   | 39.0  |   |  |       | 12.8 |   |  |   | 1,029.6 |  
|                                                                                     |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|Benefits and expenses:                                                               |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|Benefits to policyholders                                                            |  |                   | 615.3 |                      |   | 37.7 |                  |  |   | 4.2   |   |  |       |     |   |  |   | 657.2   |  
|Interest credited                                                                    |  |                   | 2.6   |                      |   | 18.1 |                  |  |   | 17.1  |   |  |       |     |   |  |   | 37.8    |  
|Operating expenses                                                                   |  |                   | 106.6 |                      |   | 12.8 |                  |  |   | 13.6  |   |  |       | 5.7  |   |  |   | 138.7   |  
|Commissions and bonuses                                                              |  |                   | 52.3  |                      |   | 14.9 |                  |  |   | 4.8   |   |  |       |     |   |  |   | 72.0    |  
|Premium taxes                                                                        |  |                   | 11.4  |                      |   | 0.3  |                  |  |   |      |   |  |       |     |   |  |   | 11.7    |  
|Interest expense                                                                     |  |                   |      |                      |   |     |                  |  |   |      |   |  |       | 8.8  |   |  |   | 8.8     |  
|Net decrease (increase) in deferred acquisition costs and value of business acquired |  |                   | 2.8   |                      |   | (3.9 | )                |  |   | (2.3  | ) |  |       |     |   |  |   | (3.4    | )
|                                                                                     |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|Total benefits and expenses                                                          |  |                   | 791.0 |                      |   | 79.9 |                  |  |   | 37.4  |   |  |       | 14.5 |   |  |   | 922.8   |  
|                                                                                     |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  
|Income (loss) before income taxes                                                    |  | $                 | 86.9  |                      | $ | 20.0 |                  |  | $ | 1.6   |   |  | $     | (1.7 | ) |  | $ | 106.8   |  
|                                                                                     |  |                   |       |                      |   |      |                  |  |   |       |   |  |       |      |   |  |   |         |  



Revenues



Total revenues increased $4.6 million, or 0.9%, for
the second quarter of 2004, compared to the second quarter of 2003, and $20.4 million, or 2.0%, for the six months ended June 30, 2004, compared to the six months ended June 30, 2003. Revenues consist primarily of premiums and net investment income.



14



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##### Table of Contents

Premiums and Sales



The following table sets forth premiums and sales for the Employee Benefits segment for the periods indicated:



|                                      |  |                             |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|------------------------------------- |  | --------------------------- | ----- | - | ------------------------ | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                      |  | Three Months Ended June 30, |       |   | Six Months EndedJune 30, |  
|                                      |  | 2004                        |       |   | 2003                     |   |       | 2004 |  |   | 2003  |  
|                                      |  | (In millions)               |      
|Employee Benefits Premiums:           |  |                             |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|Life and AD&D(1)                      |  | $                           | 152.1 |   |                          | $ | 151.7 |      |  | $ | 301.3 |   |  | $ | 301.7 |  
|Long term disability                  |  |                             | 175.7 |   |                          |   | 173.2 |      |  |   | 350.6 |   |  |   | 348.2 |  
|Short term disability                 |  |                             | 42.8  |   |                          |   | 40.3  |      |  |   | 84.8  |   |  |   | 80.9  |  
|Other                                 |  |                             | 15.6  |   |                          |   | 16.7  |      |  |   | 31.9  |   |  |   | 33.2  |  
|ERRs(2)                               |  |                             | (5.1  | ) |                          |   | (6.6  | )    |  |   | (9.5  | ) |  |   | (12.8 | )
|                                      |  |                             |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|Total premiums                        |  | $                           | 381.1 |   |                          | $ | 375.3 |      |  | $ | 759.1 |   |  | $ | 751.2 |  
|                                      |  |                             |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|Employee Benefits Sales:              |  |                             |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|Life and AD&D(1)                      |  | $                           | 12.8  |   |                          | $ | 20.6  |      |  | $ | 24.8  |   |  | $ | 36.7  |  
|Long term disability                  |  |                             | 12.1  |   |                          |   | 13.6  |      |  |   | 26.4  |   |  |   | 30.5  |  
|Short term disability                 |  |                             | 8.4   |   |                          |   | 7.7   |      |  |   | 12.4  |   |  |   | 17.1  |  
|Other                                 |  |                             | 3.7   |   |                          |   | 3.8   |      |  |   | 6.1   |   |  |   | 8.3   |  
|                                      |  |                             |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|Total sales (annualized new premiums) |  | $                           | 37.0  |   |                          | $ | 45.7  |      |  | $ | 69.7  |   |  | $ | 92.6  |  
|                                      |  |                             |       |   |                          |   |       |      |  |   |       |   |  |   |       |  

---

|(1) | Group life and accidental death and dismemberment.
|--- | --------------------------------------------------

|(2) | Experience rated refunds represent refunds on certain large group insurance contracts.
|--- | --------------------------------------------------------------------------------------



Premiums in our Employee Benefits segment (excluding experience rated refunds) increased $4.3 million, or 1.1%, for the
second quarter of 2004, compared to the second quarter of 2003, and $4.6 million, or 0.6%, for the six months ended June 30, 2004, compared to the six months ended June 30, 2003. Premium growth in our Employee Benefits segment during both
comparative periods was affected by slower sales primarily due to continued pressure on employer budgets from medical coverage cost inflation and slower growth from our existing customers that would normally result from employment and salary growth.
In addition, the reinsurance of a block of business from Teachers Insurance and Annuity Association (TIAA) in 2002 has affected our premium growth this year as we have not renewed business where our profitability objectives were not met.
The transaction is meeting our acquisition expectations from an overall profitability perspective, but it has had a negative effect on premium growth for the six months ended June 30, 2004, compared to the same period of 2003, of approximately 1% to
2%. Because we have now completed a full annual renewal cycle, we believe the size and profitability of the block has stabilized and therefore the negative effect on premium growth will be minimal, prospectively.



One of the key components of our pricing decisions for our insurance products
is the investment return available to us. In recent years when interest rates declined, the returns available to us from our primary investments, fixed maturity securities and commercial mortgage loans, declined. This required us to increase the
price of some of our products in order to maintain our targeted returns. While we believe our products provide superior value to our customers, a significant price difference between our products and those of some of our competitors may result in
periods of declining new sales, reduced customer retention, slower premium growth, and increased sales force attrition. Based on a recent pricing review and increasing interest rates in the second quarter of 2004, we have taken pricing action and
added flexibility in select segments and industries. We have also realigned our compensation plan for field representatives and are continuing to enhance our product offerings.



15



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##### Table of Contents

The following table sets forth premiums and sales for the Individual Insurance segment for the periods
indicated:



|                                           |  |                            |      |                           |   |      |  |      |       |  |   |     
|------------------------------------------ |  | -------------------------- | ---- | ------------------------- | - | ---- |  | ---- | ----- |  | - | ----
|                                           |  | Three Months EndedJune 30, |      | Six Months Ended June 30,
|                                           |  | 2004                       |      | 2003                      |   | 2004 |  | 2003
|                                           |  | (In millions)             
|Individual Insurance Premiums:             |  |                            |      |                           |   |      |  |      |       |  |   |     
|Annuities                                  |  | $                          | 1.1  |                           | $ | 0.7  |  | $    | 1.3   |  | $ | 0.8 
|Disability                                 |  |                            | 21.1 |                           |   | 24.3 |  |      | 43.3  |  |   | 44.5
|                                           |  |                            |      |                           |   |      |  |      |       |  |   |     
|Total premiums                             |  | $                          | 22.2 |                           | $ | 25.0 |  | $    | 44.6  |  | $ | 45.3
|                                           |  |                            |      |                           |   |      |  |      |       |  |   |     
|Individual Insurance Sales:                |  |                            |      |                           |   |      |  |      |       |  |   |     
|Sales (annuity deposits)                   |  | $                          | 42.7 |                           | $ | 26.9 |  | $    | 97.2  |  | $ | 56.7
|Sales (annualized new disability premiums) |  |                            | 4.3  |                           |   | 3.8  |  |      | 8.3   |  |   | 6.7 
|                                           |  |                            |      |                           |   |      |  |      |       |  |   |     
|Total sales                                |  | $                          | 47.0 |                           | $ | 30.7 |  | $    | 105.5 |  | $ | 63.4
|                                           |  |                            |      |                           |   |      |  |      |       |  |   |     



Premiums in our
Individual Insurance segment decreased $2.8 million, or 11.2%, for the second quarter of 2004, compared to the second quarter of 2003, and $0.7 million, or 1.5%, for the six months ended June 30, 2004, compared to the six months ended June 30, 2003.
Premiums for this segment can fluctuate from quarter to quarter due in part to an experience-rated reinsurance agreement on a block of disability policies. Reinsurance premiums under this agreement, which are recorded as an adjustment to premiums,
reduced premiums by $2.1 million in the second quarter of 2004, compared to a $2.9 million increase in premiums in the second quarter of 2003. If claims experience is consistent with our expectations, this reinsurance agreement is expected to reduce
premiums by approximately $13 million and income before income taxes by approximately $1 million, both on an annual basis.



Individual annuity deposits increased $15.8 million, or 58.7%, for the second quarter of 2004, compared to the second quarter of 2003, and $40.5 million,
or 71.4%, for the six months ended June 30, 2004, compared to the six months ended June 30, 2003. Fixed-rate annuity sales have been strong in the six months ended June 30, 2004, and are expected to remain strong in the second half of 2004 due to
recent increases in interest rates and growth in distribution channels. Individual annuity assets under management reached a record $1.01 billion at June 30, 2004. Annuity deposits are recorded as a liability and therefore are not reflected as
premiums. Annuity deposits earn investment income, a portion of which is credited to the policyholders.



The following table sets forth premiums and assets under management for the Retirement Plans segment for the periods indicated:



|                              |  |                            |     |                           |   |      |  |      |         |  |   |        
|----------------------------- |  | -------------------------- | --- | ------------------------- | - | ---- |  | ---- | ------- |  | - | -------
|                              |  | Three Months EndedJune 30, |     | Six Months Ended June 30,
|                              |  | 2004                       |     | 2003                      |   | 2004 |  | 2003
|                              |  | (In millions)             
|Retirement Plans:             |  |                            |     |                           |   |      |  |      |         |  |   |        
|Premiums                      |  | $                          | 6.2 |                           | $ | 5.7  |  | $    | 12.5    |  | $ | 10.8   
|                              |  |                            |     |                           |   |      |  |      |         |  |   |        
|Assets under management:      |  |                            |     |                           |   |      |  |      |         |  |   |        
|General account               |  |                            |     |                           |   |      |  | $    | 957.4   |  | $ | 835.1  
|Separate account              |  |                            |     |                           |   |      |  |      | 1,952.5 |  |   | 1,296.1
|                              |  |                            |     |                           |   |      |  |      |         |  |   |        
|Total assets under management |  |                            |     |                           |   |      |  | $    | 2,909.9 |  | $ | 2,131.2
|                              |  |                            |     |                           |   |      |  |      |         |  |   |        



Premiums for the
Retirement Plans segment are generated from two sources, plan administration fees that are primarily based on average market values of assets under management, and life contingent annuities sold that can vary significantly from period to period.
Premiums increased $0.5 million, or 8.8%, for the second quarter of



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2004, compared to the second quarter of 2003, and $1.7 million, or 15.7%, for the six months ended June 30, 2004, compared to the six months ended
June 30, 2003. The increases in both comparable periods were due to offsetting factors. Fees based on the average daily market values of assets were $6.1 million and $5.0 million for the three months ended June 30, 2004 and 2003, respectively, and
$11.7 million and $9.3 million for the six months ended June 30, 2004 and 2003, respectively. Premiums for life contingent annuities were $0.1 million and $0.7 million for the three months ended June 30, 2004 and 2003, respectively, and $0.8 million
and $1.5 million for the six months ended June 30, 2004 and 2003, respectively.



At June 30, 2004, assets under management for this segment increased 36.6% to $2.91 billion compared to $2.13 billion at June 30, 2003. Increased average assets under management resulted primarily from continued
deposit growth, good customer retention, strong sales, and higher market values of equity investments in the separate account. In recent years, we have lost less than 4% annually of our average assets due to plan terminations. At December 31, 2003,
assets under management for this segment totaled $2.58 billion. The increase in assets under management for the six months ended June 30, 2004 included net deposits of approximately $250 million and net return on investments of approximately $83
million.



Net Investment Income



Net investment income for the second quarter of 2004 increased $3.1 million,
or 2.8%, compared to the second quarter of 2003, and $7.7 million, or 3.6%, for the six months ended June 30, 2004, compared to the six months ended June 30, 2003. Net investment income is primarily affected by changes in levels of invested assets
and interest rates. Average invested assets for the second quarter and six months ended June 30, 2004 increased 6.7% and 7.7%, respectively, to $7.12 billion and $7.01 billion, respectively, compared to the second quarter and six months ended June
30, 2003. Average invested assets increased in all segments for the comparable periods. The portfolio yield for fixed maturity securities decreased to 5.84% at June 30, 2004, from 6.01% at June 30, 2003. The portfolio yield for commercial mortgage
loans decreased to 6.95% at June 30, 2004, from 7.65% at June 30, 2003. Both decreases in our portfolio yields are consistent with changes in the overall interest rate environment.



Commercial mortgage loan prepayment fees were $4.9 million and $7.8 million for the three and six months ended June 30,
2004, respectively, and $3.4 million and $6.1 million for the three and six months ended June 30, 2003, respectively. Commercial mortgage loan prepayment fees were $17.0 million for the full year in 2003. Considering the recent rise in interest
rates and the increasing portion of our commercial mortgage loan portfolio that has full prepayment penalties, we anticipate that refinancing activity will slow, and therefore prepayment fees will decrease prospectively.



Net Capital Gains (Losses)



Net capital gains and losses occur as a result of sale or impairment of the
Companys invested assets, neither of which is likely to occur in regular patterns. While impairments are generally not controllable, management does have significant discretion over the timing of sales of invested assets. Net capital gains
were $1.6 million and $3.7 million for the second quarters of 2004 and 2003, respectively. Net capital gains were $6.1 million and $2.6 million for the six months ended June 30, 2004 and 2003, respectively. Net capital gains for the second quarter
of 2004 resulted primarily from sales of bonds, while net capital gains in the second quarter of 2003 resulted from sales of bonds and real estate. Net capital gains during the six months ended June 30, 2004 primarily resulted from sales of bonds
and real estate. The six months ended June 30, 2003 included a first quarter $2.6 million impairment loss on fixed maturity securities.



Benefits and Expenses



Benefits to Policyholders



Benefits to policyholders, including interest credited, decreased $20.0 million, or 5.7%, in the second quarter of 2004, compared to the second quarter of
2003, and $25.1 million, or 3.6%, for the six months ended



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June 30, 2004, compared to the six months ended June 30, 2003. Claims results can be volatile when measured on a quarterly basis and can be above or below
our expected benefit ratio range (the ratio of benefits to policyholders to premiums). The following table sets forth benefit ratios for the periods indicated:



|                         |  |                            |   |  |                          |   |  |      |   |  |      |  
|------------------------ |  | -------------------------- | - |  | ------------------------ | - |  | ---- | - |  | ---- | -
|                         |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|                         |  | 2004                       |   |  | 2003                     |   |  | 2004 |   |  | 2003 |  
|Employee Benefits(1) (2) |  | 77.0                       | % |  | 83.2                     | % |  | 78.4 | % |  | 82.3 | %
|Individual Insurance(2)  |  | 84.7                       |   |  | 79.6                     |   |  | 81.6 |   |  | 83.2 |  

---

|(1) | Benefits to policyholders include interest credited.
|--- | ----------------------------------------------------

|(2) | Calculated as a percentage of total premiums.
|--- | ---------------------------------------------



We had very favorable claims experience during the three and six months ended June 30, 2004 in the Employee Benefits segment, primarily in our large case
market. In addition, we continued to experience favorable and sustained claims recovery patterns for long term disability insurance, and as a result, released another $3 million of reserves in the second quarter of 2004, for a total of $6 million
during the six months ended June 30, 2004. These factors are reflected in benefit ratios of 77.0% for the second quarter of 2004 and 78.4% for the six months ended June 30, 2004. If the favorable recovery patterns continue, we may release
approximately $6 million more in similar reserves during 2004. Our expected benefit ratio for the Employee Benefits segment is 81% to 83% over time.



In the Employee Benefits segment, our discount rate for new reserves established during the quarter remained at 5.20%, unchanged from the first quarter of
2004, reflecting our expectation that our new money rate will continue to increase during the third quarter of 2004. The interest margin in our long term disability reserve portfolio was 37 basis points at June 30, 2004, compared to 40 basis points
at December 31, 2003. Based on our current size, a 0.25% change in the discount rate will result in a quarterly change of approximately $2 million in benefits to policyholders. An increase in the discount rate will result in recording lower benefits
to policyholders on the income statement while a decrease in the rate will result in recording higher benefits to policyholders on the income statement.



The 2004 expected benefit ratio range for the Individual Insurance segment is 80% to 95%. The benefit ratio for this segment was 84.7% for the second
quarter of 2004, compared to 79.6% for the second quarter of 2003. The lower benefit ratio in the second quarter of 2003 was primarily due to an experience-rated reinsurance agreement on a block of disability policies. Generally, we expect the
benefit ratio to decline from year to year for this segment, as the growth in business changes the revenue mix between net investment income and premiums. The expected decrease from year to year in the expected benefit ratio does not necessarily
indicate an increase in profitability; rather it reflects a change in the mix of revenues from the segment.



Operating Expenses



Operating expenses increased $4.8 million, or 7.1%, in the second quarter of 2004, compared to the second quarter of 2003, and $6.5 million, or 4.7%, for
the six months ended June 30, 2004, compared to the six months ended June 30, 2003.



The following table sets forth relevant operating expense ratios by segment for the periods indicated:



|                                                        |  |                            |   |  |                          |   |  |      |   |  |      |  
|------------------------------------------------------- |  | -------------------------- | - |  | ------------------------ | - |  | ---- | - |  | ---- | -
|                                                        |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 30, |  
|                                                        |  | 2004                       |   |  | 2003                     |   |  | 2004 |   |  | 2003 |  
|Employee Benefits (% of total premiums)                 |  | 14.4                       | % |  | 13.7                     | % |  | 14.5 | % |  | 14.2 | %
|Individual Insurance (% of revenues)                    |  | 13.9                       |   |  | 12.2                     |   |  | 14.0 |   |  | 12.8 |  
|Retirement Plans (% of average assets under management) |  | 1.0                        |   |  | 1.4                      |   |  | 1.1  |   |  | 1.4  |  



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Operating expenses in the Employee Benefits segment increased $3.3 million, or 6.4%, in the second
quarter of 2004, compared to the second quarter of 2003, and $3.4 million, or 3.2%, for the six months ended June 30, 2004, compared to the six months ended June 30, 2003. The three and six months ended June 30, 2004 included expenses related to our
customer service and product delivery systems of $1.2 million and $3.9 million, respectively. We continue to anticipate expensing approximately $13 million during 2004 for these systems. The three and six months ended June 30, 2003 included $2.2
million and $8.1 million, respectively, of transitional administrative fees related to the TIAA block of business assumed in 2002. The TIAA transition was completed during the second quarter of 2003. In addition, the increases in operating expenses
for both comparable periods also were to support business growth.



Income Taxes



Our effective income tax rate
was 30.3% and 35.1% for the second quarters of 2004 and 2003, respectively, and 32.6% and 35.0% for the six months ended June 30, 2004 and 2003, respectively. The effective rate for the second quarter of 2004 reflected resolution of Internal Revenue
Service examinations for the 1996-1999 and 2000-2001 tax years. As a result, income taxes were reduced by approximately $4 million.



Results of Other Businesses



Other businesses include StanCorp Mortgage Investors, LLC (StanCorp Mortgage Investors) which contributed income before income taxes and
intercompany eliminations of $3.6 million and $2.8 million for the second quarters of 2004 and 2003, respectively, and $5.3 million for each of the six month periods ended June 30, 2004 and 2003. Supporting both internal and external investor
demand, StanCorp Mortgage Investors commercial mortgage loan originations increased 64.2% to $372.0 million in the second quarter of 2004, compared to $226.5 million in the comparable period in 2003. During the six months ended June 30, 2004,
originations increased 26.5% to $548.8 million, compared to $433.7 million in the comparable period in 2003. The level of commercial mortgage loan originations was influenced by commercial mortgage loan prepayments and demand from Standard Insurance
Company (Standard) to allocate more invested assets to commercial mortgage loans, and commercial mortgage loan prepayments. We expect that originations for the full year 2004 will exceed the level achieved in 2003. As of June 30, 2004,
StanCorp Mortgage Investors was servicing $2.61 billion in commercial mortgage loans for subsidiaries of StanCorp and $673.5 million for other institutional investors.



Liquidity and Capital Resources



Asset/Liability Matching and Interest Rate Risk Management



It is managements objective to align generally the cash flow characteristics of assets and liabilities to ensure that
the Companys financial obligations can be met under a wide variety of economic conditions. From time to time, management may choose to liquidate certain investments and reinvest in alternate investments to better match the cash flow
characteristics of assets to liabilities. See Investing Cash Flows.



The Company manages interest rate risk, in part, through asset/liability duration analyses. As part of this strategy, detailed actuarial models of the cash flows associated with each type of insurance liability and
the financial assets related to the liability are generated under various interest rate scenarios. Both interest rate risk and investment strategies are examined. The actuarial models include those used to support the statutory Statement of
Actuarial Opinion required annually by insurance regulators. According to presently accepted actuarial standards of practice, statutory reserves of Standard and related items at June 30, 2004 made adequate provision for the anticipated cash flows
required to meet contractual obligations and related expenses, in light of the assets held.



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The duration of our invested assets was well matched against the duration of our liabilities,
approximating 5.1 and 5.5, respectively at December 31, 2003. There have been no material changes in the duration of our invested assets and liabilities since those reported at December 31, 2003. Our investments generally have prepayment penalties
or are not callable. As a percentage of our fixed maturity investments, callable bonds were 1.9% at June 30, 2004.



Operating Cash Flows



Net cash provided by operations is net income adjusted for non cash items and accruals primarily related to net realized capital gains and losses,
deferred income taxes, changes in reserves, and changes in other assets and liabilities. Net cash provided by operating activities increased to $174.2 million for the six months ended June 30, 2004 compared to $157.7 million for the six months ended
June 30, 2003. The increase was driven by a higher level of net income.



Investing Cash Flows



The Company
maintains a diversified investment portfolio consisting primarily of fixed maturity securities and fixed-rate commercial mortgage loans. Investing cash inflows consist primarily of the proceeds of investments sold, matured, or repaid. Investing cash
outflows consist primarily of payments for investments acquired or originated. Net cash used in investing activities was $320.0 million and $470.7 million for the six months ended June 30, 2004 and 2003, respectively. Net cash used in investing
activities for the six months ended June 30, 2003 included investments in fixed maturity securities primarily related to the proceeds from the business assumed from TIAA. Net cash used in investing activities for the six months ended June 30, 2004
included an increase in commercial mortgage loan originations, which reflected continued progress toward our target investment portfolio allocation.



Our target investment portfolio allocation is approximately 60% fixed maturity securities and 40% commercial mortgage loans. Our current allocation
differs from our target because the proceeds from the block of business assumed from TIAA in 2002 were invested initially in fixed maturity securities. At June 30, 2004, our portfolio consisted of 62.1% fixed maturity securities and 36.7% commercial
mortgage loans, with the remainder in real estate. Taking into account the expected level of commercial mortgage loan activity, we anticipate that commercial mortgage loans will represent more than 38% of our investment portfolio by the end of 2004
and approximately 40% by the end of 2005.



Our fixed maturity
securities totaled $4.41 billion at June 30, 2004. We believe that we maintain prudent diversification across industries, issuers, and maturities. The overall credit quality of our fixed maturity securities investment portfolio was A (Standard &
Poors) as of June 30, 2004. The percentages of fixed maturity securities below investment-grade, at 3.6% and 3.0% at June 30, 2004 and 2003, respectively, were well below industry averages.



At June 30, 2004, our fixed maturity securities portfolio had gross
unrealized capital gains of $168.6 million and gross unrealized capital losses of $42.4 million. Gross unrealized capital losses increased $39.9 million since the end of the first quarter of 2004 primarily reflecting market value changes in bonds
due to increases in interest rates during the quarter. Unrealized losses primarily result from holding fixed maturity securities with interest rates lower than those currently available. Bonds on our credit quality watch list totaled approximately
$1 million in carrying value at June 30, 2004. Should the credit quality of our fixed maturity securities decline, there could be a material adverse effect on the Companys business, financial position, results of operations or cash flows.



At June 30, 2004, commercial mortgage loans in our investment
portfolio totaled $2.61 billion. We currently have a portfolio of almost 3,300 commercial mortgage loans. The average loan to value ratio in the overall portfolio was 58% at June 30, 2004, and the average loan size was approximately $0.8 million.
The



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Company receives personal recourse on almost all loans. At June 30, 2004, there were three loans totaling $3.0 million that were more than sixty days
delinquent and in the process of foreclosure, two of which have since been resolved. We had a net balance of restructured loans of $2.2 million at June 30, 2004, and a commercial mortgage loan loss reserve of $2.6 million. The delinquency and loss
performance of our commercial mortgage loan portfolio have been consistently better than industry averages as reported by the American Council of Life Insurers. The performance of our commercial mortgage loan portfolio may fluctuate in the future.
Should the delinquency rate or loss performance of our commercial mortgage loan portfolio increase, the increase could have a material adverse effect on the Companys business, financial position, results of operations or cash flows.



At June 30, 2004, our commercial mortgage loan portfolio was
collateralized as follows:



| |  | 47.7% retail properties;
| | - | ------------------------



| |  | 21.5% industrial properties;
| | - | ----------------------------



| |  | 20.5% office properties; and
| | - | ----------------------------



| |  | 10.3% commercial, apartment, and agricultural properties.
| | - | ---------------------------------------------------------



At June 30, 2004, our commercial mortgage loan portfolio was collateralized regionally as follows:



| |  | 50.8% Western region;
| | - | ---------------------



| |  | 22.6% Central region; and
| | - | -------------------------



| |  | 26.6% Eastern region.
| | - | ---------------------



In the normal course of business, we commit to fund commercial mortgage loans generally up to 90 days in advance. At June 30, 2004, the Company had
outstanding commitments to fund commercial mortgage loans totaling $270.1 million, with interest rates ranging from 4.375% to 8.125%. These commitments generally have fixed expiration dates. A small percentage of commitments expire due to the
borrowers failure to deliver the requirements of the commitment by the expiration date. In these cases, we will retain the commitment fee and good faith deposit. Alternatively, if we terminate a commitment due to the disapproval of a
commitment requirement, the commitment fee and good faith deposit may be refunded to the borrower, less an administrative fee.



Financing Cash Flows



Financing cash flows consist primarily of policyholder fund deposits and withdrawals, borrowings and repayments on the line of credit, borrowings and
repayments on long-term debt, repurchase of common stock, and dividends paid on common stock. Net cash provided by financing activities was $155.5 million for the six months ended June 30, 2004 compared to $126.6 million for the six months ended
June 30, 2003. The increase in policyholder fund deposits net of withdrawals for the six months ended June 30, 2004 primarily reflected higher individual annuity sales in the Individual Insurance segment and higher deposits into the Retirement Plans
segment general account assets, both of which reflected continued consumer interest in fixed-income investments.



We have two unsecured lines of credit for $75 million each, with credit availability totaling $150 million. Prior to expiration in June 2004, we entered
into amendments extending the expiration date of the credit agreements to June 27, 2005. The amended agreements also release Standard and StanCorp Mortgage Investors from guarantees required under the original agreements. Under the credit
agreements, we are subject to customary covenants that take into consideration the impact of material transactions, changes to the business, compliance with legal requirements and financial performance. The financial covenants include limitations on
indebtedness, financial liquidity, and risk-based capital. At June 30, 2004, we were in compliance with all covenants under the credit agreements and had a $49.4 million outstanding balance on the lines of credit. The Company is not required to
maintain compensating balances, but pays commitment fees. Interest charged on



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borrowings is based on either the federal funds rate, the banks prime rate or the London Interbank Offered Rate at the time of borrowing plus an
incremental basis point charge that varies by agreement, type of borrowing and the amount outstanding on the lines. At December 31, 2003 we had no outstanding borrowings on the previous lines of credit. We currently have no commitments for standby
letters of credit, standby repurchase obligations, or other related commercial commitments under the credit agreements.



Standard & Poors, Moodys Investors Service, Inc., Fitch, Inc., and A.M. Best Company provide debt ratings on our senior notes. As of July
2004, debt ratings from these agencies were BBB+, Baa1, A-, and bbb+, respectively.



Our current ratings allow up to a 25% debt to total capitalization ratio. We had debt to total capitalization ratios of 21.4% and 20.7% at June 30, 2004 and 2003, respectively. Our ratios of earnings to fixed charges,
including interest credited on policyholder accounts, for the six months ended June 30, 2004 and 2003, were 3.9x and 3.2x, respectively.



Capital Management



State insurance departments require insurance enterprises to maintain minimum levels of capital and surplus. Our target is generally to maintain capital
at 265% to 275% of the minimum company action level of Risk-Based Capital (RBC) required by regulators to avoid remedial action by our insurance subsidiaries (this equates to 530% to 550% of the authorized control level RBC by our states
of domicile), plus an amount approximating 5% of consolidated equity excluding accumulated other comprehensive income. The primary reason we maintain capital above targeted levels is to provide timing flexibility around accessing capital markets in
order to finance growth or acquisitions. We will continue to maintain our three priorities, in the following order, for excess capital:



| |  | fund internal growth,
| | - | ---------------------



| |  | fund acquisitions that are consistent with our mission and meet our return objectives, and
| | - | ------------------------------------------------------------------------------------------



| |  | provide a return to shareholders, via share repurchases and dividends.
| | - | ----------------------------------------------------------------------



The levels of excess capital we generate varies in relation to our levels of premium growth. At higher levels of premium growth, we generate less excess
capital (at very high levels of premium growth, we generate the need for capital infusions). At lower levels of premium growth, we therefore generate more excess capital.



Recently, with premium growth at levels lower than our long-term objective, we have accumulated additional excess capital.
Our total excess capital at June 30, 2004 approximated $190 million, of which we seek to maintain approximately 5% of consolidated equity excluding accumulated other comprehensive income, or $60 million, for future growth. In addition, this excess
capital will be used for holding company expenses approximating $50 million annually. If not utilized, the remaining excess capital could reduce return on average equity for 2004, as the rate of return available from the related investments could be
less than we would expect to achieve if invested in businesses meeting our return objectives.



Dividends from Subsidiaries



StanCorps ability to pay dividends to its shareholders, repurchase its shares, and meet its obligations substantially depends upon the receipt of distributions from its subsidiaries, including Standard.
Standards ability to pay dividends to StanCorp is affected by factors deemed relevant by Standards board of directors, including the ability to maintain adequate capital according to Oregon law.



In August 2003, Standard distributed to StanCorp an extraordinary
distribution of $200 million from its paid-in capital and contributed surplus. Concurrently, Standard borrowed the same amount from StanCorp and



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issued a $200 million subordinated surplus note. Both transactions eliminate in consolidation. The extraordinary distribution is a reduction of the paid-in
capital that was recorded in connection with StanCorps $200 million contribution to Standard in 2002. The contribution was used to fund the reinsurance agreement with TIAA to assume TIAAs group disability and group life insurance
business. The surplus note matures in August 2018 and bears an interest rate of 6.44% per annum. The form of the surplus note complies with the requirements of the National Association of Insurance Commissioners (NAIC) with respect to
surplus notes, including provisions requiring the approval of the Oregon Insurance Division for any repayments of principal or payments of interest, and subordinating any payments with respect to the surplus note to Standards other obligations
to policyholders, lenders and trade creditors.



In the first
quarter of 2004, the board of directors approved, based on excess capital at December 31, 2003, repayments of principal and interest on the intercompany surplus note of up to $155 million. As of June 30, 2004, Standard had distributed a total of
approximately $56 million to StanCorp for interest and principal payments on the surplus note. The outstanding balance on the surplus note was $150.0 million at June 30, 2004. While the surplus note is outstanding, any distributions from Standard to
StanCorp will be applied to the interest and outstanding principal on the surplus note. Based on Standards capital adequacy, we anticipate that Standard may be able to distribute an additional amount to StanCorp in 2004 up to the difference
between the $155 million approved by the board of directors and the $56 million already distributed, depending on StanCorps capital needs and subject to approval from the Oregon Insurance Division.



Share Repurchases



From time to time, the board of directors has authorized share repurchase
programs. Share repurchases are to be effected in the open market or in negotiated transactions in compliance with the safe harbor provisions of Rule 10b-18 under regulations of the Securities Exchange Act of 1934. Execution of the share repurchase
program is based upon managements assessment of market conditions for its common stock and potential growth opportunities. During the second quarter of 2004, we repurchased 882,000 shares of common stock at a total cost of $54.8 million for a
volume weighted-average price of $62.19 per common share. For the six months ended June 30, 2004, we repurchased approximately 1.1 million shares of common stock at a total cost of $66.6 million at a volume weighted-average price of $62.67 per
common share. At June 30, 2004, there were 436,900 shares remaining under the currently authorized share repurchase program, which expires December 31, 2005.



Statutory Financial Accounting



Standard and The Standard Life Insurance Company of New York prepare their statutory financial statements in accordance with accounting practices
prescribed or permitted by their states of domicile. Prescribed statutory accounting practices include state laws, regulations, and general administrative rules, as well as the Statements of Statutory Accounting Practices set forth in publications
of the NAIC. Statutory net gains from insurance operations before federal income taxes were $64.1 million and $126.7 million for the three and six months ended June 30, 2004, respectively, compared to $56.7 million and $98.2 million for the three
and six months ended June 30, 2003, respectively. The combination of capital and surplus, including asset valuation reserve, was $985.9 million and $840.7 million at June 30, 2004 and 2003, respectively. The resolution of prior years tax
examinations resulted in a $15 million reduction of statutory income taxes in the second quarter of 2004.



Financial Strength Ratings



Financial strength ratings, which rate claims paying ability, are an important factor in establishing the competitive position of insurance companies. Financial strength ratings are based primarily on statutory financial information.
Ratings are important in maintaining public confidence in our company and in our ability to market products. Rating organizations regularly review the financial performance and condition of insurance companies, including ours. In addition, debt
ratings on our senior notes are tied to our financial strength ratings. A ratings



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##### Table of Contents

downgrade could increase surrender levels for our annuity products, adversely affect our ability to market our products, and also could increase costs of
future debt issuances. Standard & Poors, Moodys Investors Service, Inc., Fitch, Inc., and A.M. Best Company provide assessments of our overall financial position.



Standards financial strength ratings as of July 2004 were:



| |  | A+ (Strong) by Standard & Poors5th of 16 ratings
| | - | --------------------------------------------------



| |  | A1 (Good) by Moodys5th of 16 ratings
| | - | --------------------------------------



| |  | A (Excellent) by A.M. Best3rd of 13 ratings
| | - | --------------------------------------------



| |  | AA- (Very Strong) by Fitch4th of 16 ratings
| | - | --------------------------------------------



In January 2004, Standard & Poors reaffirmed our debt and financial strength ratings, and raised its outlook on our ratings from stable to
positive.



Insolvency Assessments



Insolvency regulations exist in many of the jurisdictions in which
subsidiaries of the Company do business. Such regulations may require insurance companies operating within the jurisdiction to participate in guaranty associations. The associations levy assessments against their members for the purpose of paying
benefits due to policyholders of impaired or insolvent insurance companies. Association assessments levied against the Company from January 1, 2002, through June 30, 2004, aggregated $0.2 million. At June 30, 2004, the Company maintained a reserve
of $0.9 million for future assessments with respect to currently impaired, insolvent, or failed insurers.



Contingencies and Litigation



See Item 1, Financial StatementsCondensed Notes to Unaudited Consolidated Financial StatementsNote 6, Contingencies and Commitments.



New and Adopted Accounting Pronouncements



See Item 1, Financial StatementsCondensed Notes to Unaudited Consolidated Financial StatementsNote 8, Accounting
Pronouncements.



Critical Accounting Policies and Estimates



Our consolidated financial statements and certain
disclosures made in this Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and require us to make estimates and assumptions that affect reported amounts of
assets and liabilities and contingent assets and contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The estimates most susceptible to material changes due
to significant judgment (identified as the critical accounting policies) are those used in determining investment impairments, the reserves for future policy benefits and claims, deferred acquisition costs and value of business acquired,
and the provision for income taxes. The results of these estimates are critical because they affect our profitability and may affect key indicators used to measure the Companys performance. These estimates have a material effect on our results
of operations and financial condition. Please refer to our discussion of critical accounting policies in our Form 10-K for the year ended December 31, 2003.



Forward-looking Statements



We have made in this Form 10-Q, and from time to time may make in our public filings, news releases and oral presentations and discussions, certain
statements which are not based on historical facts. These statements



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are forward-looking and, accordingly, involve risks and uncertainties that could cause actual results to differ materially from those discussed.
Although such forward-looking statements have been made in good faith and are based on reasonable assumptions, there is no assurance that the expected results will be achieved. These statements include, without limitation, statements as to future
expectations, beliefs, plans, strategies, objectives, events, conditions and financial performance, and are identified by words such as believes, expects, intends, may, will,
if, should, anticipates, or the negative of those words or other comparable terminology.



In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Company is providing this cautionary statement
to identify important factors that could cause actual results to differ materially from those anticipated. The following factors could cause results to differ materially from management expectations as suggested by such forward-looking statements:



| |  | achievement of financial objectives, including growth of premiums and annuity deposits, earnings, assets under management including performance of equities in the separate account,
return on equity, or expense management objectives;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | benefit ratio, including changes in morbidity, mortality and recoveries;
| | - | ------------------------------------------------------------------------



| |  | persistency;
| | - | ------------



| |  | adequacy of reserves established for future policy benefits;
| | - | ------------------------------------------------------------



| |  | changes in interest rates, commercial mortgage loan prepayment fees, or the condition of the economy;
| | - | -----------------------------------------------------------------------------------------------------



| |  | the impact of rising medical costs on employer budgets for employee benefits;
| | - | -----------------------------------------------------------------------------



| |  | integration and performance of business assumed through reinsurance;
| | - | --------------------------------------------------------------------



| |  | concentration of commercial mortgage loan assets collateralized in California;
| | - | ------------------------------------------------------------------------------



| |  | environmental liability exposure resulting from commercial mortgage loan and real estate investments;
| | - | -----------------------------------------------------------------------------------------------------



| |  | competition from other insurers and financial services companies;
| | - | -----------------------------------------------------------------



| |  | declines in financial strength ratings;
| | - | ---------------------------------------



| |  | changes in the regulatory environment at the state or federal level;
| | - | --------------------------------------------------------------------



| |  | adverse findings in litigation or other legal proceedings;
| | - | ----------------------------------------------------------



| |  | receipt of dividends from, or contributions to, our subsidiaries;
| | - | -----------------------------------------------------------------



| |  | adequacy of the diversification of risk by industry, geography and customer size;
| | - | ---------------------------------------------------------------------------------



| |  | adequacy of matching between assets and liabilities;
| | - | ----------------------------------------------------



| |  | ability to attract and retain employee sales representatives and managers;
| | - | --------------------------------------------------------------------------



| |  | concentration of risk inherent in group life products;
| | - | ------------------------------------------------------



| |  | availability and adequacy of reinsurance and catastrophe reinsurance coverage and potential charges incurred; and
| | - | -----------------------------------------------------------------------------------------------------------------



| |  | events of terrorism, natural disasters, or other catastrophic events.
| | - | ---------------------------------------------------------------------



Given these uncertainties or circumstances, you should not place undue reliance on these forward-looking statements. Except to the extent required by the
federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



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|ITEM 3: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------



There have been no material changes in market risks faced by the Company since those reported at December 31, 2003, in the Companys annual report on
Form 10-K.



|ITEM 4: | CONTROLS AND PROCEDURES
|------- | -----------------------



(a)Evaluation of disclosure controls and procedures.    Management of the Company has evaluated, under
the supervision and with the participation of the Companys chief executive officer and chief financial officer, the effectiveness of the Companys disclosure controls and procedures, as defined by the Securities and Exchange
Commission, as of the end of the period covered by this report. Based on this evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective and designed to ensure that
material information relating to us and our consolidated subsidiaries would be made known to allow timely decisions regarding required disclosure.



(b)Changes in internal control.    There were no changes in our internal control over financial
reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II.    OTHER INFORMATION



|ITEM 1: | LEGAL PROCEEDINGS
|------- | -----------------



None



|ITEM 2: | CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | --------------------------------------------------------------------------------



(e)    The following table sets forth share purchases made, for the periods indicated:



|                     |  |                                     |  |                                  |       |                                                                                     |         |                                                                                    |        
|-------------------- |  | ----------------------------------- |  | -------------------------------- | ----- | ----------------------------------------------------------------------------------- | ------- | ---------------------------------------------------------------------------------- | -------
|                     |  | (a) Total Number ofShares Purchased |  | (b) Average Price Paid per Share |       | (c) Total Number ofShares Purchased as Part of Publicly Announced
Plans or Programs |         | (d) Maximum Number of Shares that May Yet Be Purchased Under the Plans
or Programs
|Period:              |  |                                     |  |                                  |       |                                                                                     |         |                                                                                    |        
|April 1-30, 2004     |  | 333,700                             |  | $                                | 63.45 |                                                                                     | 333,700 |                                                                                    | 985,200
|May 1-31, 2004       |  | 489,900                             |  |                                  | 61.12 |                                                                                     | 489,900 |                                                                                    | 495,300
|June 1-30, 2004      |  | 58,400                              |  |                                  | 63.96 |                                                                                     | 58,400  |                                                                                    | 436,900
|                     |  |                                     |  |                                  |       |                                                                                     |         |                                                                                    |        
|Total second quarter |  | 882,000                             |  |                                  | 62.19 |                                                                                     | 882,000 |                                                                                    |        
|                     |  |                                     |  |                                  |       |                                                                                     |         |                                                                                    |        



On February 9, 2004,
the board of directors authorized the repurchase of 1.5 million shares of common stock under a new share repurchase program. The program expires on December 31, 2005.



|ITEM 3: | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------



None



|ITEM 4: | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------



At the Annual Meeting of the Shareholders, held on May 3, 2004, the following matters were submitted to a vote: the election of four directors to serve
for three-year terms expiring in 2007, as listed in the proxy statement; the ratification of the appointment of Deloitte & Touche LLP as Independent Auditors for the current year; approval of the amended 2002 Stock Incentive Plan; and a
shareholder proposal concerning the nomination of directors. The results of the voting on these matters were as follows:



|   |  |                                                             |  |            |  |                |  |           |  |                
|-- |  | ----------------------------------------------------------- |  | ---------- |  | -------------- |  | --------- |  | ---------------
|   |  |                                                             |  | Votes For  |  | Votes Withheld |  |           |  |                
|1. |  | Election of Directors:                                      |  |            |  |                |  |           |  |                
|   |  | Jerome J. Meyer                                             |  | 18,928,891 |  | 1,427,560      |  |           |  |                
|   |  | Ralph R. Peterson                                           |  | 18,813,393 |  | 1,543,058      |  |           |  |                
|   |  | E. Kay Stepp                                                |  | 19,018,894 |  | 1,337,557      |  |           |  |                
|   |  | Michael G. Thorne                                           |  | 19,282,492 |  | 1,073,959      |  |           |  |                
|   |  |                                                             |  |            | 
|   |  |                                                             |  | Votes For  |  | Votes Withheld |  | Abstained |  | BrokerNon-Votes
|2. |  | Ratification of the Appointment of Independent Auditors     |  | 19,517,166 |  | 171,884        |  | 667,400   |  |               
|   |  |                                                             |  |            | 
|3. |  | Approval of the amended 2002 Stock Incentive Plan           |  | 15,790,502 |  | 1,523,332      |  | 873,500   |  | 2,169,117      
|   |  |                                                             |  |            | 
|4. |  | Shareholder proposal concerning the nomination of directors |  | 1,210,193  |  | 16,164,579     |  | 812,559   |  | 2,169,120      



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|ITEM 5: | OTHER INFORMATION
|------- | -----------------



None



|ITEM 6: | EXHIBITS AND REPORTS ON FORM 8-K
|------- | --------------------------------



|(a) | Exhibit Index
|--- | -------------



|             |  |                                                                                                                                                          
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 10.1 |  | Second Amendment to the Credit Agreement Between StanCorp Financial Group, Inc. and U.S. Bank National Association Dated as of June 28, 2004, $75,000,000
|             | 
|Exhibit 10.2 |  | Second Amendment to the Credit Agreement Between StanCorp Financial Group, Inc. and Keybank National Association Dated as of June 28, 2004, $75,000,000  
|             | 
|Exhibit 31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                       
|             | 
|Exhibit 31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                       
|             | 
|Exhibit 32.1 |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                       
|             | 
|Exhibit 32.2 |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                       



|(b) | Reports on Form 8-K
|--- | -------------------



Current report on Form 8-K filed with the SEC on July 22, 2004 (responding to Items 7 and 12 on Form 8-K reporting the Companys second quarter 2004
financial results).



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SIGNATURES



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.



|                      |  |     |  |                                                                                                
|--------------------- |  | --- |  | -----------------------------------------------------------------------------------------------
|Date:  August 5, 2004 |  | By: |  | /s/    ERIC E.
PARSONS                                                                         
|                      |  |     |  | Eric E. Parsons Chairman, President and Chief Executive
Officer (Principal Executive Officer)  
|                      |  |    
|Date:  August 5, 2004 |  | By: |  | /s/    CINDY J.
MCPIKE                                                                         
|                      |  |     |  | Cindy J. McPike Senior Vice President and Chief Financial
Officer (Principal Financial Officer)



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EXHIBITS INDEX



|       |  |                                                                                                                                                           |  |                 
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------
|Number |  | Name                                                                                                                                                      |  | Method of Filing
|10.1   |  | Second Amendment to the Credit Agreement Between StanCorp Financial Group, Inc. and U.S. Bank National Association Dated as of June 28, 2004, $75,000,000 |  | Filed herewith  
|       |  |                                                                                                                                                          
|10.2   |  | Second Amendment to the Credit Agreement Between StanCorp Financial Group, Inc. and Keybank National Association Dated as of June 28, 2004, $75,000,000   |  | Filed herewith  
|       |  |                                                                                                                                                          
|31.1   |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                        |  | Filed herewith  
|       |  |                                                                                                                                                          
|31.2   |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                        |  | Filed herewith  
|       |  |                                                                                                                                                          
|32.1   |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                        |  | Filed herewith  
|       |  |                                                                                                                                                          
|32.2   |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                        |  | Filed herewith  



30