##### 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 March 31, 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)



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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 April 30, 2004, there were 28,886,100 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 months ended March 31, 2004 and 2003                             |  | 1 
|           |  |                                                                                                                                                    
|           |  | Unaudited Consolidated Balance Sheets at March 31, 2004, and December 31, 2003                                                                      |  | 2 
|           |  |                                                                                                                                                    
|           |  | Unaudited Consolidated Statements of Changes in Shareholders Equity for the year ended December 31, 2003 and the three months ended March 31, 2004 |  | 3 
|           |  |                                                                                                                                                    
|           |  | Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 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                                                               |  | 10
|           |  |                                                                                                                                                    
|ITEM 3.    |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                          |  | 22
|           |  |                                                                                                                                                    
|ITEM 4.    |  | CONTROLS AND PROCEDURES                                                                                                                             |  | 22
|           |  |                                                                                                                                                    
|           |  | PART II.    OTHER INFORMATION                                                                                                                       |  |   
|           |  |                                                                                                                                                    
|ITEM 1.    |  | LEGAL PROCEEDINGS                                                                                                                                   |  | 23
|           |  |                                                                                                                                                    
|ITEM 2.    |  | CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES                                                                    |  | 23
|           |  |                                                                                                                                                    
|ITEM 3.    |  | DEFAULTS UPON SENIOR SECURITIES                                                                                                                     |  | 23
|           |  |                                                                                                                                                    
|ITEM 4.    |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                                 |  | 23
|           |  |                                                                                                                                                    
|ITEM 5.    |  | OTHER INFORMATION                                                                                                                                   |  | 23
|           |  |                                                                                                                                                    
|ITEM 6.    |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                                                                    |  | 23
|           | 
|SIGNATURES |  | 24                                                                                                                                                 



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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 March 31, |           
|                                                                              |  | 2004                         |            |   | 2003 |  
|Revenues:                                                                     |  |                              |            |   |      |   |            |  
|Premiums                                                                      |  | $                            | 406.7      |   |      | $ | 401.3      |  
|Net investment income                                                         |  |                              | 111.7      |   |      |   | 107.1      |  
|Net capital gains (losses)                                                    |  |                              | 4.5        |   |      |   | (1.1       | )
|Other                                                                         |  |                              | 1.6        |   |      |   | 1.4        |  
|                                                                              |  |                              |            |   |      |   |            |  
|Total revenues                                                                |  |                              | 524.5      |   |      |   | 508.7      |  
|                                                                              |  |                              |            |   |      |   |            |  
|Benefits and expenses:                                                        |  |                              |            |   |      |   |            |  
|Benefits to policyholders                                                     |  |                              | 319.4      |   |      |   | 324.2      |  
|Interest credited                                                             |  |                              | 18.3       |   |      |   | 18.6       |  
|Operating expenses                                                            |  |                              | 72.7       |   |      |   | 71.0       |  
|Commissions and bonuses                                                       |  |                              | 38.0       |   |      |   | 35.5       |  
|Premium taxes                                                                 |  |                              | 7.2        |   |      |   | 6.7        |  
|Interest expense                                                              |  |                              | 4.4        |   |      |   | 4.4        |  
|Net increase in deferred acquisition costs and value of business acquired     |  |                              | (2.7       | ) |      |   | (1.2       | )
|                                                                              |  |                              |            |   |      |   |            |  
|Total benefits and expenses                                                   |  |                              | 457.3      |   |      |   | 459.2      |  
|                                                                              |  |                              |            |   |      |   |            |  
|Income before income taxes                                                    |  |                              | 67.2       |   |      |   | 49.5       |  
|Income taxes                                                                  |  |                              | 23.6       |   |      |   | 17.3       |  
|                                                                              |  |                              |            |   |      |   |            |  
|Net income                                                                    |  |                              | 43.6       |   |      |   | 32.2       |  
|                                                                              |  |                             
|Other comprehensive income, net of tax:                                       |  |                              |            |   |      |   |            |  
|Unrealized capital gains on securities available-for-sale, net                |  |                              | 58.8       |   |      |   | 21.1       |  
|Reclassification adjustment for net capital gains included in net income, net |  |                              | (2.7       | ) |      |   | (0.6       | )
|                                                                              |  |                              |            |   |      |   |            |  
|Total                                                                         |  |                              | 56.1       |   |      |   | 20.5       |  
|                                                                              |  |                              |            |   |      |   |            |  
|Comprehensive income                                                          |  | $                            | 99.7       |   |      | $ | 52.7       |  
|                                                                              |  |                              |            |   |      |   |            |  
|Net income per common share:                                                  |  |                              |            |   |      |   |            |  
|Basic                                                                         |  | $                            | 1.49       |   |      | $ | 1.11       |  
|Diluted                                                                       |  |                              | 1.48       |   |      |   | 1.10       |  
|Weighted-average common shares outstanding:                                   |  |                              |            |   |      |   |            |  
|Basic                                                                         |  |                              | 29,170,374 |   |      |   | 28,934,602 |  
|Diluted                                                                       |  |                              | 29,537,927 |   |      |   | 29,222,728 |  



See Condensed Notes to
Unaudited Consolidated Financial Statements.



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STANCORP FINANCIAL GROUP, INC.



UNAUDITED CONSOLIDATED BALANCE SHEETS

(In millions)



|                                                                                                                                                    |  |                |          |                   |   |        
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | -------- | ----------------- | - | -------
|                                                                                                                                                    |  | March 31, 2004 |          | December 31, 2003
|A S S E T S                                                                                                                                         |  |                |          |                  
|Investments:                                                                                                                                        |  |                |          |                   |   |        
|Fixed maturity securities                                                                                                                           |  | $              | 4,712.7  |                   | $ | 4,524.8
|Commercial mortgage loans, net                                                                                                                      |  |                | 2,376.6  |                   |   | 2,319.8
|Real estate, net                                                                                                                                    |  |                | 80.3     |                   |   | 77.2   
|Policy loans                                                                                                                                        |  |                | 4.4      |                   |   | 4.6    
|                                                                                                                                                    |  |                |          |                   |   |        
|Total investments                                                                                                                                   |  |                | 7,174.0  |                   |   | 6,926.4
|                                                                                                                                                    |  |                |          |                   |   |        
|Cash and cash equivalents                                                                                                                           |  |                | 71.9     |                   |   | 34.5   
|Premiums and other receivables                                                                                                                      |  |                | 76.5     |                   |   | 73.3   
|Accrued investment income                                                                                                                           |  |                | 86.9     |                   |   | 82.8   
|Amounts recoverable from reinsurers                                                                                                                 |  |                | 882.4    |                   |   | 871.9  
|Deferred acquisition costs and value of business acquired, net                                                                                      |  |                | 199.4    |                   |   | 200.7  
|Property and equipment, net                                                                                                                         |  |                | 70.5     |                   |   | 71.3   
|Other assets                                                                                                                                        |  |                | 40.0     |                   |   | 35.1   
|Separate account assets                                                                                                                             |  |                | 1,847.2  |                   |   | 1,685.7
|                                                                                                                                                    |  |                |          |                   |   |        
|Total assets                                                                                                                                        |  | $              | 10,448.8 |                   | $ | 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                                                                                                                   |  | $              | 4,333.8  |                   | $ | 4,294.9
|Other policyholder funds                                                                                                                            |  |                | 2,183.7  |                   |   | 2,100.3
|Deferred tax liabilities                                                                                                                            |  |                | 177.0    |                   |   | 153.7  
|Short-term debt                                                                                                                                     |  |                | 2.6      |                   |   | 2.7    
|Long-term debt                                                                                                                                      |  |                | 272.0    |                   |   | 272.0  
|Other liabilities                                                                                                                                   |  |                | 233.9    |                   |   | 162.9  
|Separate account liabilities                                                                                                                        |  |                | 1,847.2  |                   |   | 1,685.7
|                                                                                                                                                    |  |                |          |                   |   |        
|Total liabilities                                                                                                                                   |  |                | 9,050.2  |                   |   | 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; 29,154,178 and 29,300,723 shares issued at March 31, 2004, and December 31, 2003,
respectively |  |                | 662.8    |                   |   | 673.4  
|Accumulated other comprehensive income                                                                                                              |  |                | 216.4    |                   |   | 160.3  
|Retained earnings                                                                                                                                   |  |                | 519.4    |                   |   | 475.8  
|                                                                                                                                                    |  |                |          |                   |   |        
|Total shareholders equity                                                                                                                          |  |                | 1,398.6  |                   |   | 1,309.5
|                                                                                                                                                    |  |                |          |                   |   |        
|Total liabilities and shareholders equity                                                                                                          |  | $              | 10,448.8 |                   | $ | 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

(In millionsexcept share data)



|                                       |  |              |   |  |                                        |       |                   |  |   |                            |  |   |       |   |  |   |         |  
|-------------------------------------- |  | ------------ | - |  | -------------------------------------- | ----- | ----------------- |  | - | -------------------------- |  | - | ----- | - |  | - | ------- | -
|                                       |  | 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                             |  |             |   |  |                                        |      |                   |  |   |                           |  |   | 43.6  |   |  |   | 43.6    |  
|Other comprehensive income, net of tax |  |             |   |  |                                        |      |                   |  |   | 56.1                       |  |   |      |   |  |   | 56.1    |  
|Common stock:                          |  |              |   |  |                                        |       |                   |  |   |                            |  |   |       |   |  |   |         |  
|Repurchased                            |  | (181,100     | ) |  |                                        | (11.8 | )                 |  |   |                           |  |   |      |   |  |   | (11.8   | )
|Issued to directors                    |  | 809          |   |  |                                        | 0.1   |                   |  |   |                           |  |   |      |   |  |   | 0.1     |  
|Issued under employee stock plans, net |  | 33,746       |   |  |                                        | 1.1   |                   |  |   |                           |  |   |      |   |  |   | 1.1     |  
|                                       |  |              |   |  |                                        |       |                   |  |   |                            |  |   |       |   |  |   |         |  
|Balance, March 31, 2004                |  | 29,154,178   |   |  | $                                      | 662.8 |                   |  | $ | 216.4                      |  | $ | 519.4 |   |  | $ | 1,398.6 |  
|                                       |  |              |   |  |                                        |       |                   |  |   |                            |  |   |       |   |  |   |         |  



See Condensed Notes to
Unaudited Consolidated Financial Statements.



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STANCORP FINANCIAL GROUP, INC.



UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)



|                                                                                  |  |                              |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                  |  | Three Months Ended March 31, |       
|                                                                                  |  | 2004                         |        |   | 2003 |  
|Operating:                                                                        |  |                              |        |   |      |   |        |  
|Net income                                                                        |  | $                            | 43.6   |   |      | $ | 32.2   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                              |        |   |      |   |        |  
|Net unrealized capital losses                                                     |  |                              |       |   |      |   | 2.6    |  
|Depreciation and amortization                                                     |  |                              | 20.5   |   |      |   | 11.9   |  
|Deferral of acquisition costs and value of business acquired, net                 |  |                              | (13.6  | ) |      |   | (9.6   | )
|Deferred income taxes                                                             |  |                              | (8.2   | ) |      |   | (2.0   | )
|Changes in other assets and liabilities:                                          |  |                              |        |   |      |   |        |  
|Receivables and accrued income                                                    |  |                              | (17.6  | ) |      |   | (4.1   | )
|Future policy benefits and claims                                                 |  |                              | 38.9   |   |      |   | 46.1   |  
|Other, net                                                                        |  |                              | 52.6   |   |      |   | 30.2   |  
|                                                                                  |  |                              |        |   |      |   |        |  
|Net cash provided by operating activities                                         |  |                              | 116.2  |   |      |   | 107.3  |  
|                                                                                  |  |                              |        |   |      |   |        |  
|Investing:                                                                        |  |                              |        |   |      |   |        |  
|Proceeds of investments sold, matured or repaid:                                  |  |                              |        |   |      |   |        |  
|Fixed maturity securities                                                         |  |                              | 172.1  |   |      |   | 162.5  |  
|Commercial mortgage loans                                                         |  |                              | 120.0  |   |      |   | 153.9  |  
|Real estate                                                                       |  |                              | 1.9    |   |      |   | 1.3    |  
|Other investments                                                                 |  |                              |       |   |      |   | 1.9    |  
|Costs of investments acquired or originated:                                      |  |                              |        |   |      |   |        |  
|Fixed maturity securities                                                         |  |                              | (265.2 | ) |      |   | (418.7 | )
|Commercial mortgage loans                                                         |  |                              | (176.8 | ) |      |   | (207.2 | )
|Real estate                                                                       |  |                              |       |   |      |   | (0.2   | )
|Property and equipment, net                                                       |  |                              | (2.3   | ) |      |   | (1.2   | )
|                                                                                  |  |                              |        |   |      |   |        |  
|Net cash used in investing activities                                             |  |                              | (150.3 | ) |      |   | (307.7 | )
|                                                                                  |  |                              |        |   |      |   |        |  
|Financing:                                                                        |  |                              |        |   |      |   |        |  
|Policyholder fund deposits                                                        |  |                              | 341.2  |   |      |   | 251.2  |  
|Policyholder fund withdrawals                                                     |  |                              | (257.8 | ) |      |   | (180.5 | )
|Short-term debt                                                                   |  |                              | (0.1   | ) |      |   |       |  
|Issuance of common stock, net                                                     |  |                              |       |   |      |   | (0.1   | )
|Repurchase of common stock                                                        |  |                              | (11.8  | ) |      |   | (8.0   | )
|                                                                                  |  |                              |        |   |      |   |        |  
|Net cash provided by financing activities                                         |  |                              | 71.5   |   |      |   | 62.6   |  
|                                                                                  |  |                              |        |   |      |   |        |  
|Increase (decrease) in cash and cash equivalents                                  |  |                              | 37.4   |   |      |   | (137.8 | )
|Cash and cash equivalents, beginning of period                                    |  |                              | 34.5   |   |      |   | 206.8  |  
|                                                                                  |  |                              |        |   |      |   |        |  
|Cash and cash equivalents, end of period                                          |  | $                            | 71.9   |   |      | $ | 69.0   |  
|                                                                                  |  |                              |        |   |      |   |        |  
|Supplemental disclosure of cash flow information:                                 |  |                              |        |   |      |   |        |  
|Cash paid during the year for:                                                    |  |                              |        |   |      |   |        |  
|Interest                                                                          |  | $                            | 20.6   |   |      | $ | 31.7   |  
|Income taxes                                                                      |  |                              | 3.1    |   |      |   | 15.3   |  



See Condensed Notes to
Unaudited Consolidated Financial Statements.



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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 March 31, 2004, and for the results
of operations and cash flows for the three month periods ended March 31, 2004 and 2003. Interim results for the three months ended March 31, 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



5



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##### Table of Contents

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 March 31,
|                                                   |  | 2004                         |            | 2003
|Net income (in millions)                           |  | $                            | 43.6       |      | $ | 32.2      
|                                                   |  |                              |            |      |   |           
|Basic weighted-average common shares outstanding   |  |                              | 29,170,374 |      |   | 28,934,602
|Stock options                                      |  |                              | 274,247    |      |   | 215,131   
|Restricted stock                                   |  |                              | 93,306     |      |   | 72,995    
|                                                   |  |                              |            |      |   |           
|Diluted weighted-average common shares outstanding |  |                              | 29,537,927 |      |   | 29,222,728
|                                                   |  |                              |            |      |   |           
|Net income per diluted common share                |  | $                            | 1.48       |      | $ | 1.10      
|                                                   |  |                              |            |      |   |           



3.    STOCK-BASED COMPENSATION



Effective January 1, 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting (SFAS) No. 123, Accounting forStock-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 Ended March 31,    |     
|                                                                                                                                            |  | 2004                            |      |   | 2003 |  
|                                                                                                                                            |  | (In millionsexcept share data) |     
|Net income, as reported                                                                                                                     |  | $                               | 43.6 |   |      | $ | 32.2 |  
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |                                 | 0.6  |   |      |   | 0.2  |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                 | (0.9 | ) |      |   | (0.7 | )
|                                                                                                                                            |  |                                 |      |   |      |   |      |  
|Pro forma net income                                                                                                                        |  | $                               | 43.3 |   |      | $ | 31.7 |  
|                                                                                                                                            |  |                                 |      |   |      |   |      |  
|Net income per share:                                                                                                                       |  |                                 |      |   |      |   |      |  
|Basicas reported                                                                                                                           |  | $                               | 1.49 |   |      | $ | 1.11 |  
|Basicpro forma                                                                                                                             |  |                                 | 1.48 |   |      |   | 1.10 |  
|Dilutedas reported                                                                                                                         |  |                                 | 1.48 |   |      |   | 1.10 |  
|Dilutedpro forma                                                                                                                           |  |                                 | 1.47 |   |      |   | 1.08 |  



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:



|                                |  |                              |   |  |           |  
|------------------------------- |  | ---------------------------- | - |  | --------- | -
|                                |  | Three Months Ended March 31, |  
|                                |  | 2004                         |   |  | 2003      |  
|Dividend yield                  |  | 1.27                         | % |  | 0.74      | %
|Expected stock price volatility |  | 30.6                         |   |  | 33.1      |  
|Risk-free interest rate         |  | 3.8                          |   |  | 3.4       |  
|Expected option lives           |  | 5.3 years                    |   |  | 6.5 years |  



6



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##### Table of Contents

4.    SEGMENTS



We operate through three segments: Employee Benefits, Individual Insurance, and Retirement Plans. Evaluation of performance
and resource allocation are done 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 March 31, 2004: |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Revenues:                          |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Premiums                           |  | $                 | 378.0   |                      | $ | 22.4             |  | $     | 6.3     |  | $     |      |   |  | $ | 406.7   
|Other revenues(1)                  |  |                   | 63.8    |                      |   | 28.0             |  |       | 14.3    |  |       | 11.7  |   |  |   | 117.8   
|                                   |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Total revenues                     |  |                   | 441.8   |                      |   | 50.4             |  |       | 20.6    |  |       | 11.7  |   |  |   | 524.5   
|                                   |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Benefits and expenses:             |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Benefits to policyholders(2)       |  |                   | 301.3   |                      |   | 26.8             |  |       | 9.6     |  |       |      |   |  |   | 337.7   
|Operating and other expenses(3)    |  |                   | 90.4    |                      |   | 12.4             |  |       | 9.3     |  |       | 7.5   |   |  |   | 119.6   
|                                   |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Total benefits and expenses        |  |                   | 391.7   |                      |   | 39.2             |  |       | 18.9    |  |       | 7.5   |   |  |   | 457.3   
|                                   |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Income before income taxes         |  | $                 | 50.1    |                      | $ | 11.2             |  | $     | 1.7     |  | $     | 4.2   |   |  | $ | 67.2    
|                                   |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Total assets                       |  | $                 | 4,456.7 |                      | $ | 2,812.9          |  | $     | 2,846.5 |  | $     | 332.7 |   |  | $ | 10,448.8
|                                   |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|                                   |  |                   |         |                      |  
|                                   |  | Employee Benefits |         | Individual Insurance |   | Retirement Plans |  | Other |         |  | Total
|                                   |  | (In millions)    
|Three months ended March 31, 2003: |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Revenues:                          |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Premiums                           |  | $                 | 375.9   |                      | $ | 20.3             |  | $     | 5.1     |  | $     |      |   |  | $ | 401.3   
|Other revenues(1)                  |  |                   | 63.1    |                      |   | 27.2             |  |       | 14.2    |  |       | 2.9   |   |  |   | 107.4   
|                                   |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Total revenues                     |  |                   | 439.0   |                      |   | 47.5             |  |       | 19.3    |  |       | 2.9   |   |  |   | 508.7   
|                                   |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Benefits and expenses:             |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Benefits to policyholders(2)       |  |                   | 305.5   |                      |   | 26.9             |  |       | 10.4    |  |       |      |   |  |   | 342.8   
|Operating and other expenses(3)    |  |                   | 88.9    |                      |   | 12.2             |  |       | 8.2     |  |       | 7.1   |   |  |   | 116.4   
|                                   |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Total benefits and expenses        |  |                   | 394.4   |                      |   | 39.1             |  |       | 18.6    |  |       | 7.1   |   |  |   | 459.2   
|                                   |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Income before income taxes         |  | $                 | 44.6    |                      | $ | 8.4              |  | $     | 0.7     |  | $     | (4.2  | ) |  | $ | 49.5    
|                                   |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         
|Total assets                       |  | $                 | 4,244.2 |                      | $ | 2,540.6          |  | $     | 1,965.1 |  | $     | 234.1 |   |  | $ | 8,984.0 
|                                   |  |                   |         |                      |   |                  |  |       |         |  |       |       |   |  |   |         

---

|(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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##### Table of Contents

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 also has a postretirement benefit plan, which includes medical, prescription drug benefits, and group term life insurance.
Participants are required to contribute specified amounts, which 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.



The following
table sets forth the components of net periodic benefit costs for the pension benefits and postretirement benefits for the three months ended March 31:



|                                                   |  |                  |      |   |                         |   |      |      |  |   |      |   |  |   |      |  
|-------------------------------------------------- |  | ---------------- | ---- | - | ----------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                                   |  | Pension Benefits |      |   | Postretirement Benefits |  
|                                                   |  | 2004             |      |   | 2003                    |   |      | 2004 |  |   | 2003 |  
|                                                   |  | (In millions)    |      |   | (In millions)           |  
|Components of net periodic benefit cost (benefit): |  |                  |      |   |                         |   |      |      |  |   |      |   |  |   |      |  
|Service cost                                       |  | $                | 1.5  |   |                         | $ | 1.3  |      |  | $ | 0.4  |   |  | $ | 0.5  |  
|Interest cost                                      |  |                  | 2.5  |   |                         |   | 2.3  |      |  |   | 0.4  |   |  |   | 0.5  |  
|Expected return on plan assets                     |  |                  | (2.8 | ) |                         |   | (2.3 | )    |  |   | (0.2 | ) |  |   | (0.2 | )
|Amortization of prior service cost                 |  |                  | (0.1 | ) |                         |   | (0.1 | )    |  |   | (0.1 | ) |  |   |     |  
|Amortization of transition assets                  |  |                  | (0.1 | ) |                         |   | (0.1 | )    |  |   |     |   |  |   |     |  
|Amortization of net loss                           |  |                  | 0.2  |   |                         |   | 0.2  |      |  |   | 0.1  |   |  |   | 0.1  |  
|                                                   |  |                  |      |   |                         |   |      |      |  |   |      |   |  |   |      |  
|Net periodic benefit costs                         |  | $                | 1.2  |   |                         | $ | 1.3  |      |  | $ | 0.6  |   |  | $ | 0.9  |  
|                                                   |  |                  |      |   |                         |   |      |      |  |   |      |   |  |   |      |  



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 plan in 2004 but is expected to contribute $0.8 million to its
postretirement benefit plan in 2004. As of March 31, 2004, the Company has contributed approximately $0.2 million to fund the postretirement benefit plan.



Substantially all full-time employees are covered by the deferred compensation plan under which a portion of the employee contribution is matched.
Effective January 1, 2004, Standard increased the company match to include 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 as of January 1,
2003 are automatically enrolled in a new 401 (k) retirement savings plan. Contributions to the new plan are made to the existing deferred compensation plan and are intended as a substitute for Standards defined benefit plan for employees hired
on or after January 1, 2003. Standards contributions to the plan were $1.7 million and $1.1 million for the first quarters of 2004 and 2003, respectively.



Eligible executive officers are covered by a non-qualified defined benefit plan, which is currently unfunded. The accrued benefit cost was $9.4 million
and $8.5 million for the quarters ended March 31, 2004 and 2003, respectively. Expenses related to the non-qualified defined benefit plan were $0.3 million and $0.4 million in the first quarters of 2004 and 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 March 31, 2004. In some instances, lawsuits include claims for punitive damages and similar types of relief in unspecified or substantial amounts,
in



8



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##### Table of Contents

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 currently have two unsecured credit agreements for $75 million each, with credit availability totaling $150 million. Both
agreements expire on June 28, 2004. Under the credit agreements, we are subject to customary covenants, which take into consideration the impact of material transactions, changes to the business, compliance with legal requirements and financial
performance. At March 31, 2004, we were in compliance with all covenants under the credit agreements and had no outstanding balance on the lines of credit. Standard, our largest operating insurance subsidiary, is a guarantor for the total amount of
both credit agreements. In addition, StanCorp Mortgage Investors also guarantees up to $25 million on each line 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 (NAIC) with respect to surplus notes, including provisions requiring the approval of the Oregon Insurance Division for any payments of principal or interest and subordinating any payments
with respect to the surplus note to Standards other obligations to policyholders, lenders and trade creditors. During the first quarter of 2004, Standard repaid $50.0 million of principal on its intercompany surplus note to StanCorp and paid
$6.4 million in accrued interest.



8.    ACCOUNTING
PRONOUNCEMENTS



In July 2003, the Accounting Standards
Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) SOP 03-1, Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate Accounts.This SOP requires, among other things, an insurance enterprise to make various determinations, such as qualification for separate account treatment, classification of securities
in separate account arrangements not meeting the criteria of the SOP, significance of mortality and morbidity risk, adjustments to contract holder liabilities, and adjustments to estimated gross profits or margins to determine the cumulative effect
of a change in accounting principle from adopting this SOP. This SOP is effective for financial statements for fiscal years beginning after December 15, 2003. This SOP does not have a material effect on the Companys business, financial
position, results of operations or cash flows.



9



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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 are 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 first quarter of 2004 were favorable. Net income for the first quarter of 2004 was $1.48 per diluted share, compared to
$1.10 per diluted share for the first quarter of 2003. Significant factors affecting our financial performance during the first quarter of 2004 included:



| |  | Continued slow growth in new sales and premiums in the Employee Benefits segment. New sales and premiums in this segment continued to be hampered by current economic conditions,
including slow job growth and the impact of medical cost inflation on employer budgets, and the impact of interest rates on pricing.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Favorable claims experience from both the Employee Benefits and Individual Insurance segments.
| | - | ----------------------------------------------------------------------------------------------



| |  | A $9 million reserve established as a result of a pricing miscalculation on long term disability contracts with one large Employee Benefits customer.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



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



Outlook for 2004



The Companys premium growth target range for 2004 is 6.5% to 8%. First quarter 2004 premium growth was below the
target range and Employee Benefits sales were down relative to the first quarter of 2003. Given first quarter 2004 premium and sales growth, achieving the premium growth target range for 2004 will be challenging. At this time, we are affirming the
target range of 6.5% to 8%, but we will monitor the trend of premium and new sales growth closely. We assume economic conditions for employers will improve for 2005 and therefore premium growth will return to our long term target range of 10% to
12%.



10



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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 March 31, 2004:                                                   |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Revenues:                                                                            |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Premiums                                                                             |  | $                 | 378.0   |                      | $ | 22.4    |                  |  | $ | 6.3     |   |  | $     |      |   |  | $ | 406.7    |  
|Net investment income                                                                |  |                   | 62.3    |                      |   | 27.9    |                  |  |   | 14.3    |   |  |       | 7.2   |   |  |   | 111.7    |  
|Net capital gains                                                                    |  |                   |        |                      |   |        |                  |  |   |        |   |  |       | 4.5   |   |  |   | 4.5      |  
|Other                                                                                |  |                   | 1.5     |                      |   | 0.1     |                  |  |   |        |   |  |       |      |   |  |   | 1.6      |  
|                                                                                     |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Total revenues                                                                       |  |                   | 441.8   |                      |   | 50.4    |                  |  |   | 20.6    |   |  |       | 11.7  |   |  |   | 524.5    |  
|                                                                                     |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Benefits and expenses:                                                               |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Benefits to policyholders                                                            |  |                   | 300.2   |                      |   | 17.6    |                  |  |   | 1.6     |   |  |       |      |   |  |   | 319.4    |  
|Interest credited                                                                    |  |                   | 1.1     |                      |   | 9.2     |                  |  |   | 8.0     |   |  |       |      |   |  |   | 18.3     |  
|Operating expenses                                                                   |  |                   | 55.2    |                      |   | 7.1     |                  |  |   | 7.3     |   |  |       | 3.1   |   |  |   | 72.7     |  
|Commissions and bonuses                                                              |  |                   | 26.0    |                      |   | 8.7     |                  |  |   | 3.3     |   |  |       |      |   |  |   | 38.0     |  
|Premium taxes                                                                        |  |                   | 6.7     |                      |   | 0.5     |                  |  |   |        |   |  |       |      |   |  |   | 7.2      |  
|Interest expense                                                                     |  |                   |        |                      |   |        |                  |  |   |        |   |  |       | 4.4   |   |  |   | 4.4      |  
|Net decrease (increase) in deferred acquisition costs and value of business acquired |  |                   | 2.5     |                      |   | (3.9    | )                |  |   | (1.3    | ) |  |       |      |   |  |   | (2.7     | )
|                                                                                     |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Total benefits and expenses                                                          |  |                   | 391.7   |                      |   | 39.2    |                  |  |   | 18.9    |   |  |       | 7.5   |   |  |   | 457.3    |  
|                                                                                     |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Income before income taxes                                                           |  | $                 | 50.1    |                      | $ | 11.2    |                  |  | $ | 1.7     |   |  | $     | 4.2   |   |  | $ | 67.2     |  
|                                                                                     |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Total assets                                                                         |  | $                 | 4,456.7 |                      | $ | 2,812.9 |                  |  | $ | 2,846.5 |   |  | $     | 332.7 |   |  | $ | 10,448.8 |  
|                                                                                     |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Total reserves, other policyholder funds and separate account                        |  | $                 | 3,211.6 |                      | $ | 2,392.9 |                  |  | $ | 2,760.2 |   |  | $     |      |   |  | $ | 8,364.7  |  
|                                                                                     |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|                                                                                     |  |                   |         |                      |  
|                                                                                     |  | Employee Benefits |         | Individual Insurance |   |         | Retirement Plans |  |   | Other   |   |  | Total |      
|                                                                                     |  | (In millions)     |        
|Three months ended March 31, 2003:                                                   |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Revenues:                                                                            |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Premiums                                                                             |  | $                 | 375.9   |                      | $ | 20.3    |                  |  | $ | 5.1     |   |  | $     |      |   |  | $ | 401.3    |  
|Net investment income                                                                |  |                   | 61.7    |                      |   | 27.2    |                  |  |   | 14.2    |   |  |       | 4.0   |   |  |   | 107.1    |  
|Net capital losses                                                                   |  |                   |        |                      |   |        |                  |  |   |        |   |  |       | (1.1  | ) |  |   | (1.1     | )
|Other                                                                                |  |                   | 1.4     |                      |   |        |                  |  |   |        |   |  |       |      |   |  |   | 1.4      |  
|                                                                                     |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Total revenues                                                                       |  |                   | 439.0   |                      |   | 47.5    |                  |  |   | 19.3    |   |  |       | 2.9   |   |  |   | 508.7    |  
|                                                                                     |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Benefits and expenses:                                                               |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Benefits to policyholders                                                            |  |                   | 304.3   |                      |   | 17.8    |                  |  |   | 2.1     |   |  |       |      |   |  |   | 324.2    |  
|Interest credited                                                                    |  |                   | 1.2     |                      |   | 9.1     |                  |  |   | 8.3     |   |  |       |      |   |  |   | 18.6     |  
|Operating expenses                                                                   |  |                   | 55.1    |                      |   | 6.4     |                  |  |   | 6.8     |   |  |       | 2.7   |   |  |   | 71.0     |  
|Commissions and bonuses                                                              |  |                   | 25.5    |                      |   | 7.5     |                  |  |   | 2.5     |   |  |       |      |   |  |   | 35.5     |  
|Premium taxes                                                                        |  |                   | 6.5     |                      |   | 0.2     |                  |  |   |        |   |  |       |      |   |  |   | 6.7      |  
|Interest expense                                                                     |  |                   |        |                      |   |        |                  |  |   |        |   |  |       | 4.4   |   |  |   | 4.4      |  
|Net decrease (increase) in deferred acquisition costs and value of business acquired |  |                   | 1.8     |                      |   | (1.9    | )                |  |   | (1.1    | ) |  |       |      |   |  |   | (1.2     | )
|                                                                                     |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Total benefits and expenses                                                          |  |                   | 394.4   |                      |   | 39.1    |                  |  |   | 18.6    |   |  |       | 7.1   |   |  |   | 459.2    |  
|                                                                                     |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Income (loss) before income taxes                                                    |  | $                 | 44.6    |                      | $ | 8.4     |                  |  | $ | 0.7     |   |  | $     | (4.2  | ) |  | $ | 49.5     |  
|                                                                                     |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Total assets                                                                         |  | $                 | 4,244.2 |                      | $ | 2,540.6 |                  |  | $ | 1,965.1 |   |  | $     | 234.1 |   |  | $ | 8,984.0  |  
|                                                                                     |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  
|Total reserves, other policyholder funds and separate account                        |  | $                 | 3,014.9 |                      | $ | 2,253.7 |                  |  | $ | 1,892.2 |   |  | $     |      |   |  | $ | 7,160.8  |  
|                                                                                     |  |                   |         |                      |   |         |                  |  |   |         |   |  |       |       |   |  |   |          |  



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Revenues



Total revenues increased $15.8 million, or 3.1%, in the first quarter of 2004 compared to the first quarter of 2003.
Revenues consist primarily of premiums, net investment income, and net capital gains and losses.



Premiums



The following table sets forth premiums by segment for the periods indicated:



|                              |  |                              |       |   |      |   |       |  
|----------------------------- |  | ---------------------------- | ----- | - | ---- | - | ----- | -
|                              |  | Three Months Ended March 31, |      
|                              |  | 2004                         |       |   | 2003 |  
|                              |  | (In millions)                |      
|Employee Benefits segment:    |  |                              |       |   |      |   |       |  
|Life and AD&D(1)              |  | $                            | 149.2 |   |      | $ | 150.0 |  
|Long term disability          |  |                              | 174.9 |   |      |   | 175.0 |  
|Short term disability         |  |                              | 42.0  |   |      |   | 40.6  |  
|Other                         |  |                              | 16.3  |   |      |   | 16.5  |  
|ERRs(2)                       |  |                              | (4.4  | ) |      |   | (6.2  | )
|                              |  |                              |       |   |      |   |       |  
|Total                         |  |                              | 378.0 |   |      |   | 375.9 |  
|                              |  |                              |       |   |      |   |       |  
|Individual Insurance segment: |  |                              |       |   |      |   |       |  
|Annuities                     |  |                              | 0.2   |   |      |   | 0.1   |  
|Disability                    |  |                              | 22.2  |   |      |   | 20.2  |  
|                              |  |                              |       |   |      |   |       |  
|Total                         |  |                              | 22.4  |   |      |   | 20.3  |  
|                              |  |                              |       |   |      |   |       |  
|Retirement Plans segment:     |  |                              |       |   |      |   |       |  
|Premiums                      |  |                              | 6.3   |   |      |   | 5.1   |  
|                              |  |                              |       |   |      |   |       |  
|Total premiums                |  | $                            | 406.7 |   |      | $ | 401.3 |  
|                              |  |                              |       |   |      |   |       |  

---

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

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



The following table sets forth Employee Benefits sales (annualized new
premiums) for the periods indicated:



|                      |  |                              |      |      |   |     
|--------------------- |  | ---------------------------- | ---- | ---- | - | ----
|                      |  | Three Months Ended March 31,
|                      |  | 2004                         |      | 2003
|                      |  | (In millions)               
|Life and AD&D         |  | $                            | 12.0 |      | $ | 16.1
|Long term disability  |  |                              | 14.3 |      |   | 16.9
|Short term disability |  |                              | 4.0  |      |   | 9.4 
|Other                 |  |                              | 2.4  |      |   | 4.5 
|                      |  |                              |      |      |   |     
|Total                 |  | $                            | 32.7 |      | $ | 46.9
|                      |  |                              |      |      |   |     



Sales and premium
growth in our Employee Benefits segment have been affected by current economic conditions, including slow job growth and the impact of medical cost inflation on employer budgets, that have made employers cautious and more price conscious when
purchasing benefits for employees. The impact of falling interest rates during 2002 and 2003 has made our products more expensive at the same time that rising medical costs have squeezed employer budgets for benefits. One of the key components of
our pricing decisions for our insurance products is the investment return available to us. In periods of decreasing interest rates, the returns available to us from our primary investments, fixed maturity securities and commercial mortgage loans,
decline. This requires 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



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##### Table of Contents

customer retention, slower premium growth, and increased sales force attrition.



We are currently evaluating our pricing strategies in each region of the country. If we decide to make pricing changes, it
will be to maximize our opportunity to compete in each market we serve on the cases we want to write. We will focus on the most effective ways to increase sales and in all cases we will seek to maintain appropriate pricing discipline. We will
continue to add to our sales force on an opportunistic basis. However, we will emphasize providing the essential resources necessary to support production levels of our current representatives rather than targeting specific sales representative
counts or additions.



Premium growth in the Employee Benefits
segment (excluding ERRs) was $0.3 million, or 0.1%, for the first quarter of 2004 compared to the first quarter of 2003. The low premium growth reflects reduced sales that continue to be hampered by current economic conditions and pricing
considerations as discussed above. Given first quarter 2004 premium and sales growth, achieving the consolidated premium growth target range for 2004 may be challenging. At this time, we are affirming the target range of 6.5% to 8%, but will monitor
it closely. Our premium growth target range for 2005 and future years is 10% to 12% growth per year.



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



|                                           |  |                              |      |      |   |     
|------------------------------------------ |  | ---------------------------- | ---- | ---- | - | ----
|                                           |  | Three Months Ended March 31,
|                                           |  | 2004                         |      | 2003
|                                           |  | (In millions)               
|Sales (annuity deposits)                   |  | $                            | 54.5 |      | $ | 29.8
|Sales (annualized new disability premiums) |  |                              | 4.0  |      |   | 2.9 
|                                           |  |                              |      |      |   |     
|Total                                      |  | $                            | 58.5 |      | $ | 32.7
|                                           |  |                              |      |      |   |     



Premium growth in our
Individual Insurance segment was $2.1 million, or 10.3%, for the first quarter of 2004 compared to the first quarter of 2003. Increases in both sales and premiums in the first quarter of 2004, for both individual disability insurance and individual
fixed-rate annuities, resulted from an expansion of distribution channels in recent years and the continuation of a national marketing agreement for individual disability products. The premiums for this segment included a $0.4 million and $1.4
million premium reduction for the three months ended March 31, 2004 and 2003, respectively, related to an experience rated reinsurance agreement covering individual disability policies related to the block of business assumed from Minnesota Life
Insurance Company (Minnesota Life) in 2000. Annuity deposits increased $24.7 million, or 82.9%, for the first quarter of 2004 compared to the first quarter of 2003. Annuity deposits are recorded as a liability and therefore not reflected
as premiums. Annuity deposits earn investment income, a portion of which is credited to the policyholders.



Premiums for the Retirement Plans segment include plan administration fees, fees based on average market values of assets under management, and premiums
for life contingent annuities sold, the last of which can vary significantly from period to period. Premium growth was $1.2 million, or 23.5%, for the first quarter of 2004 compared to the first quarter of 2003. Fees based on the average daily
market values of assets increased 30.0% in the first quarter of 2004 compared to the first quarter of 2003.



The following table sets forth assets under management for the periods indicated:



|                         |  |                              |         |      |   |        
|------------------------ |  | ---------------------------- | ------- | ---- | - | -------
|                         |  | Three Months Ended March 31,
|                         |  | 2004                         |         | 2003
|                         |  | (In millions)               
|Assets under management: |  |                              |         |      |   |        
|General account          |  | $                            | 913.0   |      | $ | 827.6  
|Separate account         |  |                              | 1,847.2 |      |   | 1,064.6
|                         |  |                              |         |      |   |        
|Total                    |  | $                            | 2,760.2 |      | $ | 1,892.2
|                         |  |                              |         |      |   |        



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##### Table of Contents

At March 31, 2004, assets under management for this segment totaled $2.76 billion, compared to $1.89
billion at March 31, 2003, representing a 45.9% increase. Increased average assets under management resulted primarily from strong customer retention, new sales growth and rising equity market values. 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 first quarter of 2004 consisted of net deposits of
approximately $130 million and net return on investments of approximately $50 million.



Net Investment Income



Net investment income for the first quarter of 2004 increased $4.6 million, or 4.3%, compared to the first quarter of 2003. Net investment income is primarily affected by changes in levels of invested assets and interest rates. Average
invested assets for the first quarter of 2004 were $7.03 billion, an increase of 10.5% compared to the first quarter of 2003. Average invested assets increased in all segments for the comparable periods. The portfolio yield for fixed maturity
securities decreased to 5.81% at March 31, 2004, from 6.09% at March 31, 2003. The portfolio yield for commercial mortgage loans decreased to 7.18% at March 31, 2004, from 7.82% at March 31, 2003. Both decreases in our portfolio yields are
consistent with changes in the overall interest rate environment.



Strong commercial mortgage loan prepayment fee revenue also positively affected net investment income. Commercial mortgage loan prepayment fees were $2.9 million and $2.7 million for the first quarters of 2004 and 2003, respectively, and
$17.0 million for the full year in 2003. We anticipate that refinancing activity will slow in 2004 below the levels we experienced in 2003 and therefore, expect lower prepayment fees in 2004 compared to 2003.



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 $4.5 million for the first quarter of 2004 compared to net capital losses of $1.1 million for the first quarter of 2003. Net capital gains for the first quarter of 2004 included gains from the sales of fixed maturity securities and real estate
investments. The first quarter of 2003 included $2.6 million of impairments on fixed maturity securities.



Benefits and Expenses



Benefits to Policyholders



Benefits to policyholders, including interest credited, decreased $5.1 million, or 1.5% in the first quarter of 2004 compared to the first quarter of
2003. We had very favorable claims experience in the first quarter of 2004 for both the Employee Benefits segment and the Individual Insurance segment. Claims results can be volatile when measured on a quarterly basis and can exceed or be below our
expected benefit ratios (the ratio of policyholder benefits to premiums). The following table sets forth benefit ratios for the periods indicated:



|                        |  |                              |   |  |      |  
|----------------------- |  | ---------------------------- | - |  | ---- | -
|                        |  | Three Months Ended March 31, |  
|                        |  | 2004                         |   |  | 2003 |  
|Employee Benefits(1)    |  | 79.7                         | % |  | 81.3 | %
|Individual Insurance(2) |  | 78.6                         |   |  | 87.7 |  

---

|(1) | Calculated as a percentage of total premiums and includes interest credited.
|--- | ----------------------------------------------------------------------------

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



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The Employee Benefits segment had favorable claim incidence and duration. The financial results for the
Employee Benefits segment were also affected by two additional factors in the first quarter of 2004. We established $9 million in reserves related to a pricing miscalculation on long term disability contracts for one customer. The contracts for the
customer included three-year rate guarantees, and we believe the reserves are adequate to cover deficiencies reasonably anticipated in the three-year period. The inadequate pricing was due to the failure to follow our established review procedures
and we have taken appropriate actions to address this matter.



Excluding the $9 million reserve, the benefit ratio for the Employee Benefits Insurance segment would have been 77.3% for the first quarter of 2004. The expected benefit ratio range for this segment is 81% to 83%. Also, we have continued to
experience favorable and sustained claims recovery patterns in our long term disability insurance and as a result, released $3 million of reserves in the first quarter of 2004. If the favorable recovery patterns continue, we may release
approximately $9 million more in similar reserves during 2004. Generally, the overall adequacy of our long term disability reserves is considered on an aggregate basis including both interest margin and morbidity adequacy together. The favorable
claims recovery patterns in both our reported and our incurred but not reported reserves are a good indicator of the morbidity adequacy in our long term disability reserves.



In the Employee Benefits segment, our discount rate for new reserves established during the quarter was 5.20%, unchanged
from the fourth quarter of 2003. Our new money investment rate of approximately 5.25% for the quarter was lower than in the fourth quarter of 2003. However, considering the increase in intermediate term interest rates late in the quarter and
subsequent to quarter end, and the adequacy of the margin between our discount rate and average new money investment rate over twelve months, no adjustment to the current quarter reserve discount rate or product pricing was deemed necessary.
Compared to December 31, 2003, intermediate rates were down approximately 40 basis points at the end of the first quarter of 2004 and currently have recovered to almost 15 basis points above year end rates. Our overall portfolio margin on in force
claim reserves remains roughly the same as at December 31, 2003 at approximately 40 basis points, including the block of business assumed from Teachers Insurance and Annuity Association of America (TIAA).



The expected benefit ratio range for the Individual Insurance segment is 80%
to 95%. The benefit ratio for this segment was 78.6% for the first quarter of 2004 compared to 87.7% for the first quarter of 2003. The more favorable experience in the first quarter of 2004 was primarily due to more claim terminations than
expected, a pattern we do not believe will continue. Generally, we expect the benefit ratio to decline from year to year 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 $1.7 million, or 2.4% in the first quarter of 2004 compared to the first quarter of 2003.



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



|                                                        |  |                              |   |  |      |  
|------------------------------------------------------- |  | ---------------------------- | - |  | ---- | -
|                                                        |  | Three Months Ended March 31, |  
|                                                        |  | 2004                         |   |  | 2003 |  
|Employee Benefits (% of total premiums)                 |  | 14.6                         | % |  | 14.7 | %
|Individual Insurance (% of revenues)                    |  | 14.1                         |   |  | 13.5 |  
|Retirement Plans (% of average assets under management) |  | 1.1                          |   |  | 1.5  |  



Operating expenses in
the Employee Benefits segment were relatively flat. Operating expenses in the first quarter of 2003 for the Employee Benefits segment included $5.9 million of transitional administrative fees



15



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##### Table of Contents

related to the TIAA block of business assumed in 2002. The TIAA transition was completed during the second quarter of 2003. During the first quarter of 2004,
we invested $2.7 million, as planned, in our customer service and product delivery systems. We anticipate expensing approximately $13 million during 2004 for these technology advancements.



Individual Insurance segment operating expenses increased $0.7 million in the
first quarter of 2004 compared to the first quarter of 2003 primarily to support business growth as evidenced by increased sales of annuity deposits. The increase in the operating expense ratio for the first quarter of 2004 compared to the first
quarter of 2003 was partially offset by premium reductions of $0.4 million and $1.4 million, respectively, from reinsurance agreements as discussed in the revenue section above.



Results of Other Businesses



Other businesses include StanCorp Mortgage Investors, which contributed income before income taxes of $1.7 million and $2.5 million for the first quarters
of 2004 and 2003, respectively, before intercompany eliminations. Supporting both internal and external investor demand, StanCorp Mortgage Investors originated $176.8 million of commercial mortgage loans in the first quarter of 2004, a 14.7%
decrease over the first quarter of 2003. The level of originations will vary by quarter depending on market conditions, including interest rates, available spreads and borrower demand. Commercial mortgage loan commitments in the second quarter of
2004 have increased from first quarter levels and we expect that originations in 2004 will exceed the level achieved in 2003. As of March 31, 2004, StanCorp Mortgage Investors was servicing $2.38 billion in commercial mortgage loans for subsidiaries
of StanCorp and $677.8 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. In meeting this objective, management may from time
to time 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 March 31, 2004 made adequate provision for the anticipated cash flows required to meet contractual obligations and related expenses, in light of the assets actually held.



There have been no material changes to the duration of our invested assets
and liabilities since those reported at December 31, 2003. Our investments are either generally not callable or have prepayment penalties. As a percentage of our fixed maturity investments, callable bonds were 1.88% at March 31, 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 was $116.2 million and $107.3 million for the
first quarters of 2004 and 2003, respectively.



16



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##### Table of Contents

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 $150.3 million and $307.7 million for the first quarters of 2004 and 2003, respectively. Net cash used in investing activities in the first quarter of 2003 included commercial mortgage loan originations of $207.2 million and reflected
continued investment in fixed maturity securities of the proceeds from both the TIAA business assumed and the initial public debt offering completed in 2002.



We target our investment portfolio to be approximately 60% fixed maturity securities and 40% commercial mortgage loans. At March 31, 2004, our portfolio
consisted of 65.7% fixed maturity securities and 33.1% commercial mortgage loans, with the remainder in real estate. Currently the ratio differs from our target ratio due to investing the proceeds from the block of business assumed from TIAA in 2002
in fixed maturity securities. As we originate new commercial mortgage loans we expect to return to our targeted investment ratio over time. We anticipate commercial mortgage loan activity during 2004 will allow us to achieve a year end investment
portfolio ratio of approximately 62% fixed maturity securities and 38% commercial mortgage loans, and return to our target levels in following years.



Our fixed maturity securities totaled $4.71 billion at March 31, 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 March 31, 2004. The percentage of fixed maturity securities below investment-grade was well below industry averages
at 3.4% and 3.2% at March 31, 2004 and 2003, respectively.



At
March 31, 2004, our fixed maturity securities portfolio had gross unrealized capital gains of $348.6 million and gross unrealized capital losses of $2.5 million. Unrealized losses primarily result from holding fixed maturity securities at
interest rates lower than those currently available.



At March
31, 2004, commercial mortgage loans in our investment portfolio totaled $2.38 billion. Collateralized properties in the commercial mortgage loan portfolio included the following at March 31, 2004:



| |  | 49.7% retail properties;
| | - | ------------------------



| |  | 21.8% industrial properties;
| | - | ----------------------------



| |  | 20.6% office properties; and
| | - | ----------------------------



| |  | 7.9% commercial, apartment, and agricultural properties.
| | - | --------------------------------------------------------



The average loan to value ratio of the overall portfolio was 59% at March 31, 2004, and the average loan size was approximately $0.8 million. The Company
receives personal recourse on almost all loans. At March 31, 2004, there were two loans totaling $2.1 million that were more than sixty days delinquent and in the process of foreclosure. We had a net balance of restructured loans of $2.2 million at
March 31, 2004, and a commercial mortgage loan loss reserve of $2.2 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. We currently have a portfolio of over 3,000 commercial mortgage loans. 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 March 31, 2004, our commercial mortgage loan portfolio was collateralized regionally as follows:



| |  | 52.9% Western region;
| | - | ---------------------



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##### Table of Contents

| |  | 22.9% Central region; and
| | - | -------------------------



| |  | 24.2% Eastern region.
| | - | ---------------------



In the normal course of business, we commit to fund commercial mortgage loans generally up to 90 days in advance. At March 31, 2004, the Company had
outstanding commitments to fund commercial mortgage loans with interest rates ranging from 4.625% to 7.0%, totaling $168.0 million. 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 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 $71.5 million for the first quarter of 2004 compared to $62.6 million for the first quarter 2003. The
increase in policyholder fund deposits net of withdrawals for the first quarter of 2004 primarily reflects 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 during that time period.



We currently have two unsecured credit agreements for $75 million each, with credit availability totaling $150 million. Both agreements expire on June 28,
2004. We expect to renew these lines or obtain satisfactory substitution prior to the expiration date. At March 31, 2004, we were in compliance with all covenants under the credit agreements and have no outstanding balance on the lines of credit.
Standard, our largest operating insurance subsidiary, is a guarantor for the total amount of both credit agreements. In addition, StanCorp Mortgage Investors also guarantees up to $25 million on each line 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 April
2004, 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 a debt to total capitalization ratio of 18.8% and 20.1% at March 31, 2004 and 2003, respectively. Our ratio of earnings to fixed
charges, including interest credited, for the three months ended March 31, 2004 and 2003, was 3.8x and 3.1x, 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.
| | - | ----------------------------------------------------------------------



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##### Table of Contents

The level of excess capital we generate varies in relation to our level of premium growth. At higher
levels of premium growth, we incur higher policy acquisition costs and therefore 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 given lower policy acquisition costs.



Recently, with premium growth at levels lower than our long-term objective, we have accumulated additional excess capital. Our total excess capital at March 31, 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 of capital would reduce return on average equity for 2004, as the rate of return we would earn on the related investments would 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 made an extraordinary distribution to StanCorp 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 extraordinary distribution is a reduction of the paid-in capital that was recorded in connection with StanCorps 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 Department 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.



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. During the first quarter of 2004, Standard distributed
approximately $56 million to StanCorp to pay interest and principal on the surplus note. The outstanding balance on the surplus note was $150 million at March 31, 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 up to approximately $100 million to
StanCorp in 2004, depending on StanCorps capital needs.



To support continued growth in The Standard Life Insurance Company of New York and meet our targeted capital level, we anticipate that StanCorp will contribute up to $10 million in capital to The Standard Life Insurance Company of New York
during 2004. There are no regulatory restrictions on dividends from non-insurance subsidiaries to StanCorp. StanCorp Mortgage Investors paid dividends of $13.2 million to StanCorp in 2003.



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



19



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growth opportunities. During the first quarter of 2004, we repurchased 181,100 shares of common stock at a total cost of $11.8 million for a volume
weighted-average price of $65.03 per common share. At March 31, 2004, approximately 1.3 million shares were 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 $62.6 million and $41.5 million for the first quarters of 2004 and 2003, respectively.
Capital and surplus, including asset valuation reserve, was $922.9 million and $803.8 million at March 31, 2004 and 2003, respectively.



Financial Strength Ratings



Financial strength ratings, which rate claims paying ability, are an important factor in establishing the competitive position of insurance companies.
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 downgrade could increase surrender levels for our annuity products, adversely affect our ability to market our products, and also could increase future debt costs.
Financial strength ratings are based primarily on statutory financial information. 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 April 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 March 31, 2004, aggregated $0.2 million. At March 31, 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.



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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 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 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:



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



| |  | claims experience and deterioration in morbidity, mortality and persistency;
| | - | ----------------------------------------------------------------------------



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



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



| |  | changes in interest rates 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;
| | - | ---------------------------------------



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



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



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



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



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.



|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 in the Securities Exchange Act
of 1934 Rules 13a-15(c) and 15-d-15(c)) 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 or 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 of Shares Purchased |  | (b) Average Price Paid per Share |       | (c) Total Number of Shares 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:             |  |                                      |  |                                  |       |                                                                                      |         |                                                                                    |          
|January 1-31, 2004  |  |                                     |  | $                                |      |                                                                                      |        |                                                                                    |         
|February 1-29, 2004 |  | 13,200                               |  |                                  | 65.83 |                                                                                      | 13,200  |                                                                                    | 1,486,800
|March 1-31, 2004    |  | 167,900                              |  |                                  | 64.96 |                                                                                      | 167,900 |                                                                                    | 1,318,900
|                    |  |                                      |  |                                  |       |                                                                                      |         |                                                                                    |          
|Total               |  | 181,100                              |  | $                                | 65.03 |                                                                                      | 181,100 |                                                                                    |          
|                    |  |                                      |  |                                  |       |                                                                                      |         |                                                                                    |          



Our previous share
repurchase program, authorizing the repurchase of 1.6 million shares of common stock on September 22, 2001, expired December 31, 2003 with 220,401 remaining shares available.



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
|------- |  | ---------------------------------------------------



None



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



None



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



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



|             |  |                                                                                                   
|------------ |  | --------------------------------------------------------------------------------------------------
|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 April 22, 2004 (responding to Items 7 and 12 on Form 8-K)



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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:  May 6, 2004 |  | By: |  | /s/    ERIC E.
PARSONS                                                                  
|                   |  |    
|                   |  |     |  | Eric E. Parsons President and Chief Executive Officer (Principal Executive Officer)     
|                   |  |    
|Date:  May 6, 2004 |  | By: |  | /s/    CINDY J.
MCPIKE                                                                  
|                   |  |    
|                   |  |     |  | Cindy J. McPike Vice President and Chief Financial Officer (Principal Financial Officer)



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EXHIBITS INDEX



|       |  |                                                                                                    |  |                 
|------ |  | -------------------------------------------------------------------------------------------------- |  | ----------------
|Number |  | Name                                                                                               |  | Method of Filing
|       |  |                                                                                                   
|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