UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K/A

(Amendment No. 1)



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

For the fiscal year ended December 31, 2003

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



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)



Registrants telephone number, including area code: (503) 321-7000



Securities registered pursuant to Section 12(b) of the
Act:



|                                         |  |                                          
|---------------------------------------- |  | -----------------------------------------
|TITLE OF EACH CLASS                      |  | NAME OF EACH EXCHANGE ON WHICH REGISTERED
|Common Stock                             |  | New York Stock Exchange                  
|Series A Preferred Share Purchase Rights |  | New York Stock Exchange                  



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



Indicate by check
mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of the 10-K or any amendment to the Form 10-K. ̈



Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes x No ̈



The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2003, was approximately $1.52 billion based upon the closing price of $52.22 on June 30, 2003.



As of February 27, 2004, there were 29,315,167 shares of the Registrants common stock,
no par value, outstanding.



DOCUMENTS INCORPORATED BY
REFERENCE



Portions of the Registrants Proxy Statement dated March
26, 2004 in connection with the 2004 Annual Meeting of Shareholders are incorporated by reference in Part III.



---





Part II



ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Explanatory Note



This
Amendment No. 1 Form 10-K/A is being filed solely to correct an error in StanCorp Financial Group, Inc.s December 31, 2003 Form 10-K as filed electronically with the Securities and Exchange Commission on March 5, 2004. The error in the
electronic version appears in the second table under Value of business acquired in Note 1 of the Notes to Consolidated Financial Statements. The estimated net amortization of VOBA and the related intangible for 2004 was shown as $115.7
million and should have been $15.7 million. The error resulted from a print file conversion, and therefore was resident only in the electronic version filed with the Securities and Exchange Commission. Versions of StanCorp Financial Group,
Inc.s December 31, 2003 Form 10-K in its 2003 annual report distributed in paper copy to shareholders are correct.



|                                                                                                               |  |     
|-------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                               |  | PAGE
|                                                                                                              
|Independent Auditors Report                                                                                   |  | 29  
|Consolidated Statements of Income and Comprehensive Income for the years endedDecember 31, 2003, 2002 and 2001 |  | 30  
|Consolidated Balance Sheets at December 31, 2003 and 2002                                                      |  | 31  
|Consolidated Statements of Changes in Shareholders Equity for the years endedDecember 31, 2003, 2002 and 2001 |  | 32  
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001                     |  | 33  
|Notes to Consolidated Financial Statements                                                                     |  | 34  



StanCorp Financial Group, Inc.

28



---



INDEPENDENT AUDITORS REPORT



To the Board of Directors of

StanCorp Financial Group, Inc.

Portland, Oregon



We have audited the accompanying consolidated balance sheets of StanCorp
Financial Group, Inc. and subsidiaries (the Company) as of December 31, 2003 and 2002, and the related consolidated statements of income and comprehensive income, changes in shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2003. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of StanCorp
Financial Group, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2003, the
Company changed its method of accounting for stock-based compensation to conform to Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.



DELOITTE & TOUCHE LLP



Portland, Oregon

February 27, 2004



StanCorp Financial Group, Inc.

29



---





Part II



CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME



|                                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|---------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|Years Ended December 31 (In millionsexcept share data)                            |  | 2003 |            |   | 2002 |   |            | 2001 | 
|                                                                                   | 
|Revenues:                                                                          |  |      |            |   |      |   |            |      |  |   |            |  
|Premiums                                                                           |  | $    | 1,609.3    |   |      | $ | 1,383.3    |      |  | $ | 1,231.7    |  
|Net investment income                                                              |  |      | 441.8      |   |      |   | 385.1      |      |  |   | 352.6      |  
|Net capital gains (losses)                                                         |  |      | 9.3        |   |      |   | (19.7      | )    |  |   |           |  
|Other                                                                              |  |      | 6.4        |   |      |   | 5.9        |      |  |   | 5.1        |  
|                                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                   |  |      |           
|Total revenues                                                                     |  |      | 2,066.8    |   |      |   | 1,754.6    |      |  |   | 1,589.4    |  
|                                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                   |  |      |           
|Benefits and expenses:                                                             |  |      |            |   |      |   |            |      |  |   |            |  
|Benefits to policyholders                                                          |  |      | 1,297.8    |   |      |   | 1,117.1    |      |  |   | 1,017.0    |  
|Interest credited                                                                  |  |      | 75.0       |   |      |   | 72.9       |      |  |   | 78.7       |  
|Operating expenses                                                                 |  |      | 280.1      |   |      |   | 247.8      |      |  |   | 205.0      |  
|Commissions and bonuses                                                            |  |      | 144.1      |   |      |   | 132.6      |      |  |   | 118.3      |  
|Premium taxes                                                                      |  |      | 24.6       |   |      |   | 23.0       |      |  |   | 22.1       |  
|Interest expense                                                                   |  |      | 17.5       |   |      |   | 5.0        |      |  |   | 0.1        |  
|Net increase in deferred acquisition costs and value of business acquired          |  |      | (12.1      | ) |      |   | (15.8      | )    |  |   | (16.3      | )
|                                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                   |  |      |           
|Total benefits and expenses                                                        |  |      | 1,827.0    |   |      |   | 1,582.6    |      |  |   | 1,424.9    |  
|                                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                   |  |      |           
|Income before income taxes                                                         |  |      | 239.8      |   |      |   | 172.0      |      |  |   | 164.5      |  
|Income taxes                                                                       |  |      | 83.5       |   |      |   | 61.0       |      |  |   | 58.5       |  
|                                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                   |  |      |           
|Net income                                                                         |  |      | 156.3      |   |      |   | 111.0      |      |  |   | 106.0      |  
|                                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                   |  |      |           
|Other comprehensive income, net of tax:                                            |  |      |            |   |      |   |            |      |  |   |            |  
|Unrealized capital gains on securities available-for-sale, net                     |  |      | 15.5       |   |      |   | 114.8      |      |  |   | 28.2       |  
|Reclassification adjustment for capital (gains) losses included in net income, net |  |      | (2.6       | ) |      |   | (0.7       | )    |  |   | 3.2        |  
|                                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                   |  |      |           
|Total                                                                              |  |      | 12.9       |   |      |   | 114.1      |      |  |   | 31.4       |  
|                                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                   |  |      |           
|Comprehensive income                                                               |  | $    | 169.2      |   |      | $ | 225.1      |      |  | $ | 137.4      |  
|                                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                   | 
|Net income per common share:                                                       |  |      |            |   |      |   |            |      |  |   |            |  
|Basic                                                                              |  | $    | 5.39       |   |      | $ | 3.77       |      |  | $ | 3.47       |  
|Diluted                                                                            |  |      | 5.33       |   |      |   | 3.73       |      |  |   | 3.44       |  
|                                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                   | 
|Weighted-average common shares outstanding:                                        |  |      |            |   |      |   |            |      |  |   |            |  
|Basic                                                                              |  |      | 28,989,550 |   |      |   | 29,435,920 |      |  |   | 30,553,049 |  
|Diluted                                                                            |  |      | 29,334,559 |   |      |   | 29,772,402 |      |  |   | 30,835,722 |  
|                                                                                   |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                   | 



See Notes to
Consolidated Financial Statements.





StanCorp Financial Group, Inc.

30



---



CONSOLIDATED BALANCE SHEETS



|                                                                                                                                         |  |      |         |      |   |        
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|December 31 (Dollars in millions)                                                                                                        |  | 2003 |         | 2002
|                                                                                                                                        
|ASSETS                                                                                                                                   |  |      |         |      |   |        
|                                                                                                                                         |  |      |         |      |   |        
|                                                                                                                                        
|Investments:                                                                                                                             |  |      |         |      |   |        
|Investment securities                                                                                                                    |  | $    | 4,524.8 |      | $ | 4,134.4
|Commercial mortgage loans, net                                                                                                           |  |      | 2,319.8 |      |   | 1,989.1
|Real estate, net                                                                                                                         |  |      | 77.2    |      |   | 64.6   
|Policy loans                                                                                                                             |  |      | 4.6     |      |   | 5.3    
|                                                                                                                                         |  |      |         |      |   |        
|                                                                                                                                         |  |     
|Total investments                                                                                                                        |  |      | 6,926.4 |      |   | 6,193.4
|Cash and cash equivalents                                                                                                                |  |      | 34.5    |      |   | 206.8  
|Premiums and other receivables                                                                                                           |  |      | 73.3    |      |   | 79.6   
|Accrued investment income                                                                                                                |  |      | 82.8    |      |   | 77.1   
|Amounts recoverable from reinsurers                                                                                                      |  |      | 871.9   |      |   | 873.9  
|Deferred acquisition costs and value of business acquired, net                                                                           |  |      | 200.7   |      |   | 190.9  
|Property and equipment, net                                                                                                              |  |      | 71.3    |      |   | 74.7   
|Other assets                                                                                                                             |  |      | 35.1    |      |   | 31.5   
|Separate account assets                                                                                                                  |  |      | 1,685.7 |      |   | 1,018.6
|                                                                                                                                         |  |      |         |      |   |        
|                                                                                                                                         |  |     
|Total assets                                                                                                                             |  | $    | 9,981.7 |      | $ | 8,746.5
|                                                                                                                                         |  |     
|                                                                                                                                         |  |      |         |      |   |        
|                                                                                                                                        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                     |  |      |         |      |   |        
|                                                                                                                                         |  |      |         |      |   |        
|                                                                                                                                        
|                                                                                                                                         |  |     
|Liabilities:                                                                                                                             |  |      |         |      |   |        
|Future policy benefits and claims                                                                                                        |  | $    | 4,294.9 |      | $ | 4,114.9
|Other policyholder funds                                                                                                                 |  |      | 2,100.3 |      |   | 1,864.5
|Deferred tax liabilities                                                                                                                 |  |      | 153.7   |      |   | 164.7  
|Short-term debt                                                                                                                          |  |      | 2.7     |      |   | 0.2    
|Long-term debt                                                                                                                           |  |      | 272.0   |      |   | 259.0  
|Other liabilities                                                                                                                        |  |      | 162.9   |      |   | 172.0  
|Separate account liabilities                                                                                                             |  |      | 1,685.7 |      |   | 1,018.6
|                                                                                                                                         |  |      |         |      |   |        
|                                                                                                                                         |  |     
|Total liabilities                                                                                                                        |  |      | 8,672.2 |      |   | 7,593.9
|                                                                                                                                         |  |      |         |      |   |        
|                                                                                                                                         |  |     
|Contingencies and commitments                                                                                                            |  |      |         |      |   |        
|                                                                                                                                         |  |     
|Shareholders equity:                                                                                                                    |  |      |         |      |   |        
|Preferred stock, 100,000,000 shares authorized; none issued                                                                              |  |      |        |      |   |       
|Common stock, no par, 300,000,000 shares authorized; 29,300,723 and 29,185,276 shares issued at December 31, 2003 and 2002,
respectively |  |      | 673.4   |      |   | 665.3  
|Accumulated other comprehensive income                                                                                                   |  |      | 160.3   |      |   | 147.4  
|Retained earnings                                                                                                                        |  |      | 475.8   |      |   | 339.9  
|                                                                                                                                         |  |      |         |      |   |        
|                                                                                                                                         |  |     
|Total shareholders equity                                                                                                               |  |      | 1,309.5 |      |   | 1,152.6
|                                                                                                                                         |  |      |         |      |   |        
|                                                                                                                                         |  |     
|Total liabilities and shareholders equity                                                                                               |  | $    | 9,981.7 |      | $ | 8,746.5
|                                                                                                                                         |  |      |         |      |   |        
|                                                                                                                                        



See Notes to
Consolidated Financial Statements.





StanCorp Financial Group, Inc.

31



---





Part II



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY



|                                       |  |              |   |  |                                     |       |                  |  |   |                          |  |   |       |   |  |   |         |  
|-------------------------------------- |  | ------------ | - |  | ----------------------------------- | ----- | ---------------- |  | - | ------------------------ |  | - | ----- | - |  | - | ------- | -
|                                       |  | Common Stock |   |  | AccumulatedOtherComprehensiveIncome |       | RetainedEarnings |  |   | TotalShareholdersEquity | 
|(In millionsexcept share data)        |  | Shares       |   |  | Amount                              |       |                  |  |  
|                                       | 
|Balance, January 1, 2001               |  | 31,565,486   |   |  | $                                   | 778.7 |                  |  | $ | 1.9                      |  | $ | 143.8 |   |  | $ | 924.4   |  
|Net income                             |  |             |   |  |                                     |      |                  |  |   |                         |  |   | 106.0 |   |  |   | 106.0   |  
|Other comprehensive income, net of tax |  |             |   |  |                                     |      |                  |  |   | 31.4                     |  |   |      |   |  |   | 31.4    |  
|Common stock:                          |  |              |   |  |                                     |       |                  |  |   |                          |  |   |       |   |  |   |         |  
|Repurchased                            |  | (1,940,900   | ) |  |                                     | (84.7 | )                |  |   |                         |  |   |      |   |  |   | (84.7   | )
|Issued to directors                    |  | 2,952        |   |  |                                     | 0.1   |                  |  |   |                         |  |   |      |   |  |   | 0.1     |  
|Issued under employee stock plans, net |  | 155,428      |   |  |                                     | 5.7   |                  |  |   |                         |  |   |      |   |  |   | 5.7     |  
|Dividends declared on common stock     |  |             |   |  |                                     |      |                  |  |   |                         |  |   | (9.2  | ) |  |   | (9.2    | )
|                                       |  |              |   |  |                                     |       |                  |  |   |                          |  |   |       |   |  |   |         |  
|                                       |  |              |  
|Balance, December 31, 2001             |  | 29,782,966   |   |  |                                     | 699.8 |                  |  |   | 33.3                     |  |   | 240.6 |   |  |   | 973.7   |  
|                                       |  |              |   |  |                                     |       |                  |  |   |                          |  |   |       |   |  |   |         |  
|                                       | 
|                                       |  |              |   |  |                                    
|Net income                             |  |             |   |  |                                     |      |                  |  |   |                         |  |   | 111.0 |   |  |   | 111.0   |  
|Other comprehensive income, net of tax |  |             |   |  |                                     |      |                  |  |   | 114.1                    |  |   |      |   |  |   | 114.1   |  
|Common stock:                          |  |              |   |  |                                     |       |                  |  |   |                          |  |   |       |   |  |   |         |  
|Repurchased                            |  | (852,999     | ) |  |                                     | (45.5 | )                |  |   |                         |  |   |      |   |  |   | (45.5   | )
|Issued to directors                    |  | 2,672        |   |  |                                     | 0.1   |                  |  |   |                         |  |   |      |   |  |   | 0.1     |  
|Issued under employee stock plans, net |  | 252,637      |   |  |                                     | 10.9  |                  |  |   |                         |  |   |      |   |  |   | 10.9    |  
|Dividends declared on common stock     |  |             |   |  |                                     |      |                  |  |   |                         |  |   | (11.7 | ) |  |   | (11.7   | )
|                                       |  |              |   |  |                                     |       |                  |  |   |                          |  |   |       |   |  |   |         |  
|                                       |  |              |  
|Balance, December 31, 2002             |  | 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 |  
|                                       |  |              |   |  |                                     |       |                  |  |   |                          |  |   |       |   |  |   |         |  
|                                       | 



See Notes to
Consolidated Financial Statements.





StanCorp Financial Group, Inc.

32



---



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                  |  |      |         |   |      |   |          |      |  |   |        |  
|--------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | ---- |  | - | ------ | -
|Years Ended December 31 (In millions)                                             |  | 2003 |         |   | 2002 |   |          | 2001 | 
|                                                                                  | 
|Operating:                                                                        |  |      |         |   |      |   |          |      |  |   |        |  
|Net income                                                                        |  | $    | 156.3   |   |      | $ | 111.0    |      |  | $ | 106.0  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |         |   |      |   |          |      |  |   |        |  
|Net realized capital losses                                                       |  |      | 2.7     |   |      |   | 21.9     |      |  |   |       |  
|Depreciation and amortization                                                     |  |      | 70.6    |   |      |   | 42.4     |      |  |   | 29.7   |  
|Deferral of acquisition costs and value of business acquired, net                 |  |      | (46.6   | ) |      |   | (39.2    | )    |  |   | (36.9  | )
|Deferred income taxes                                                             |  |      | (18.3   | ) |      |   | (14.3    | )    |  |   | 61.8   |  
|Changes in other assets and liabilities:                                          |  |      |         |   |      |   |          |      |  |   |        |  
|Trading securities                                                                |  |      |        |   |      |   |         |      |  |   | 53.9   |  
|Receivables and accrued income                                                    |  |      | 3.3     |   |      |   | (13.8    | )    |  |   | (28.5  | )
|Future policy benefits and claims                                                 |  |      | 180.0   |   |      |   | 206.9    |      |  |   | 171.6  |  
|Other, net                                                                        |  |      | (10.6   | ) |      |   | 65.5     |      |  |   | (92.8  | )
|                                                                                  |  |      |         |   |      |   |          |      |  |   |        |  
|                                                                                  |  |      |        
|Net cash provided by operating activities                                         |  |      | 337.4   |   |      |   | 380.4    |      |  |   | 264.8  |  
|                                                                                  |  |      |         |   |      |   |          |      |  |   |        |  
|                                                                                  | 
|Investing:                                                                        |  |      |         |   |      |   |          |      |  |   |        |  
|Proceeds of investments sold, matured or repaid:                                  |  |      |         |   |      |   |          |      |  |   |        |  
|Fixed maturity securitiesavailable-for-sale                                      |  |      | 564.0   |   |      |   | 358.4    |      |  |   | 512.3  |  
|Commercial mortgage loans                                                         |  |      | 597.9   |   |      |   | 586.7    |      |  |   | 331.7  |  
|Real estate                                                                       |  |      | 3.5     |   |      |   | 5.9      |      |  |   | 17.8   |  
|Other investments                                                                 |  |      |        |   |      |   | (0.7     | )    |  |   | 30.7   |  
|Costs of investments acquired or originated:                                      |  |      |         |   |      |   |          |      |  |   |        |  
|Fixed maturity securitiesavailable-for-sale                                      |  |      | (948.9  | ) |      |   | (1,639.3 | )    |  |   | (938.9 | )
|Commercial mortgage loans                                                         |  |      | (930.6  | ) |      |   | (570.8   | )    |  |   | (430.1 | )
|Real estate                                                                       |  |      | (20.6   | ) |      |   | (0.8     | )    |  |   | (22.0  | )
|Property and equipment, net                                                       |  |      | (8.9    | ) |      |   | (9.3     | )    |  |   | (14.2  | )
|Acquisition (disposition) of blocks of business, net                              |  |      |        |   |      |   | 632.0    |      |  |   | (137.2 | )
|                                                                                  |  |      |         |   |      |   |          |      |  |   |        |  
|                                                                                  |  |      |        
|Net cash used in investing activities                                             |  |      | (743.6  | ) |      |   | (637.9   | )    |  |   | (649.9 | )
|                                                                                  |  |      |         |   |      |   |          |      |  |   |        |  
|                                                                                  | 
|Financing:                                                                        |  |      |         |   |      |   |          |      |  |   |        |  
|Policyholder fund deposits                                                        |  |      | 1,141.3 |   |      |   | 826.5    |      |  |   | 806.5  |  
|Policyholder fund withdrawals                                                     |  |      | (905.5  | ) |      |   | (690.9   | )    |  |   | (610.7 | )
|Short-term debt                                                                   |  |      | 2.5     |   |      |   | (81.3    | )    |  |   | 16.3   |  
|Long-term debt                                                                    |  |      | 13.0    |   |      |   | 249.9    |      |  |   | (0.3   | )
|Debt issuance costs                                                               |  |      |        |   |      |   | (3.8     | )    |  |   |       |  
|Issuance of common stock                                                          |  |      | 12.3    |   |      |   | 8.8      |      |  |   | 5.8    |  
|Repurchase of common stock                                                        |  |      | (9.3    | ) |      |   | (45.5    | )    |  |   | (84.7  | )
|Dividends paid on common stock                                                    |  |      | (20.4   | ) |      |   | (11.7    | )    |  |   | (9.2   | )
|                                                                                  |  |      |         |   |      |   |          |      |  |   |        |  
|                                                                                  |  |      |        
|Net cash provided by financing activities                                         |  |      | 233.9   |   |      |   | 252.0    |      |  |   | 123.7  |  
|                                                                                  |  |      |         |   |      |   |          |      |  |   |        |  
|                                                                                  | 
|Decrease in cash and cash equivalents                                             |  |      | (172.3  | ) |      |   | (5.5     | )    |  |   | (261.4 | )
|Cash and cash equivalents, beginning of year                                      |  |      | 206.8   |   |      |   | 212.3    |      |  |   | 473.7  |  
|                                                                                  |  |      |         |   |      |   |          |      |  |   |        |  
|                                                                                  |  |      |        
|Cash and cash equivalents, end of year                                            |  | $    | 34.5    |   |      | $ | 206.8    |      |  | $ | 212.3  |  
|                                                                                  |  |      |         |   |      |   |          |      |  |   |        |  
|                                                                                  | 
|Supplemental disclosure of cash flow information:                                 |  |      |         |   |      |   |          |      |  |   |        |  
|Cash paid during the year for:                                                    |  |      |         |   |      |   |          |      |  |   |        |  
|Interest                                                                          |  | $    | 86.4    |   |      | $ | 73.2     |      |  | $ | 91.9   |  
|Income taxes                                                                      |  |      | 110.6   |   |      |   | 53.0     |      |  |   | 75.8   |  
|                                                                                  |  |      |         |   |      |   |          |      |  |   |        |  
|                                                                                  | 



See Notes to
Consolidated Financial Statements.



StanCorp Financial Group, Inc.

33



---





Part II



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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



1.   Summary of Significant Accounting Policies



Organization and principles of consolidation

We were incorporated under the laws of Oregon as a parent holding company in 1998 and completed our initial public offering of 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. 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. As of December 31, 2003, StanCorp Mortgage Investors was servicing $2.32 billion in commercial mortgage loans for subsidiaries of StanCorp. Commercial mortgage loans serviced for other institutional investors
and associated capitalized mortgage servicing rights totaled $677.1 million and $1.7 million, respectively, at December 31, 2003.

StanCorp
Investment Advisers, Inc. 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.

The consolidated financial statements include StanCorp and its subsidiaries. All significant intercompany balances and
transactions have been eliminated. Certain 2002 and 2001 amounts have been reclassified to conform with the current presentation.



Use of estimates

Our
consolidated financial statements and certain disclosures made in this Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and require us to make estimates and
assumptions that affect reported amounts of assets and liabilities and contingent assets and contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The
estimates most susceptible to material changes due to significant judgment (the critical accounting policies) are those used in determining investment impairments, the reserves for future policy benefits and claims, deferred acquisition
costs (DAC) and value of business acquired (VOBA), 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 affect on our results of operations and financial condition.



Investments

For all investments, capital gains
and losses are recognized using the specific identification method. Net investment income and capital gains and losses related to separate account assets and liabilities are included in the separate account assets and liabilities. For all
investments, we record impairments when it is determined that the decline in fair value of an investment below its amortized cost basis is other than temporary. We reflect impairment charges in net capital gains or losses and permanently adjust the
cost basis of the investment to reflect the impairment. Factors considered in evaluating whether a decline in value of fixed maturity securities is other than temporary include the length of time and the extent to which the fair value has been less
than amortized cost, the financial condition and near-term prospects of the issuer, our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value, and the value of any security
interest we may have collateralized in the investment. See Note 5, Investment Securities.

For securities expected to be
sold, an other than temporary impairment charge is recorded if we do not expect the realizable market value of a security to recover to amortized cost prior to the expected date of sale. Once an impairment charge has been recorded, we continue to
review the other than temporarily impaired securities for further potential impairment on an on-going basis.

Investment securities include
fixed maturity securities. Fixed maturity securities are classified as available-for-sale and are carried at fair value on the consolidated balance sheets. Valuation adjustments are reported as net increases



StanCorp Financial Group, Inc.

34



---



or decreases to other comprehensive income
(loss), net of tax, on the consolidated statements of income and comprehensive income.

Commercial mortgage loans are stated at amortized
cost less a valuation allowance for uncollectible amounts.

Real estate held for investment is stated at cost less accumulated depreciation.
Depreciation generally is provided on the straight-line method, with property lives varying from 30 to 40 years. Accumulated depreciation totaled $29.6 million and $25.5 million at December 31, 2003 and 2002, respectively. Real estate acquired in
satisfaction of debt is held for sale and is stated at the lower of cost or fair value less estimated costs to sell.

Policy loans are
stated at their aggregate unpaid principal balances and are secured by policy cash values.



Cash equivalents

Cash equivalents include investments purchased with
original maturities at the time of acquisition of three or fewer months.



Deferred acquisition costs

Certain costs related to obtaining new business and acquiring business through
reinsurance agreements have been deferred to accomplish matching against related future premiums or gross profits, as appropriate. We normally defer certain acquisition-related commissions and incentive payments, certain costs of policy issuance and
underwriting, and certain printing costs. Assumptions used in developing DAC and amortization amounts each period include the amount of business in force, expected future persistency, withdrawals, interest rates, and profitability, which is
significantly affected by premium renewal assumptions. These estimates are modified to reflect actual experience when appropriate. If actual persistency, withdrawals, interest rates, or profitability are inconsistent with our assumptions, we could
be required to make adjustments to DAC and related amortization. DAC is charged to current earnings to the extent it is determined that future premiums or gross profits are not adequate to cover the remaining amounts deferred. DAC totaled $100.0
million and $75.8 million at December 31, 2003 and 2002, respectively.

The following table sets forth income statement activity for DAC for
the years ended December 31:



|                                           |  |      |       |   |      |   |       |      |  |   |       |  
|------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|(In millions)                              |  | 2003 |       |   | 2002 |   |       | 2001 | 
|                                           | 
|Deferred                                   |  | $    | 46.6  |   |      | $ | 39.1  |      |  | $ | 35.7  |  
|Amortized                                  |  |      | (20.1 | ) |      |   | (18.1 | )    |  |   | (16.1 | )
|                                           |  |      |       |   |      |   |       |      |  |   |       |  
|                                           |  |      |      
|Net increase in deferred acquisition costs |  | $    | 26.5  |   |      | $ | 21.0  |      |  | $ | 19.6  |  
|                                           |  |      |       |   |      |   |       |      |  |   |       |  
|                                           | 



Value of business acquired

VOBA represents the discounted future profits of business assumed through reinsurance agreements. VOBA is amortizedin proportion to future premiums or expected future profitability as appropriate. If actual premiums or future profitability are inconsistent with our assumptions, we could be required to make adjustments to VOBA and
related amortization. For the VOBA associated with the Minnesota Life Insurance Company (Minnesota Life) block of business reinsured, the amortization period is up to 30 years. The VOBA associated with the Teachers Insurance and Annuity
Association of America (TIAA) is comprised of two parts with differing amortization methods. The amortization periods are up to 10 years for VOBA that is amortized in proportion to premium and up to 20 years for VOBA that is amortized in
proportion to expected gross profits, although approximately 75% is expected to be amortized by year 5. The revenues and expenses generated by the assumed business are included in the Companys consolidated financial statements. The following
table reconciles VOBA and the intangible related to a marketing agreement with Minnesota Life for the years ended December 31:



|                        |  |      |       |   |      |   |       |      |  |   |      |  
|----------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ---- | -
|(In millions)           |  | 2003 |       |   | 2002 |   |       | 2001 | 
|                        | 
|Balance at January 1    |  | $    | 115.1 |   |      | $ | 58.9  |      |  | $ | 61.0 |  
|Acquisition of business |  |      |      |   |      |   | 61.4  |      |  |   |     |  
|Amortization            |  |      | (14.4 | ) |      |   | (5.2  | )    |  |   | (2.1 | )
|                        |  |      |       |   |      |   |       |      |  |   |      |  
|                        |  |      |      
|Balance at December 31  |  | $    | 100.7 |   |      | $ | 115.1 |      |  | $ | 58.9 |  
|                        |  |      |       |   |      |   |       |      |  |   |      |  
|                        | 



The estimated net
amortization of VOBA and the related intangible for each of the next five years is as follows:



|              |  |        |     
|------------- |  | ------ | ----
|(In millions) |  | Amount
|             
|2004          |  | $      | 15.7
|2005          |  |        | 9.2 
|2006          |  |        | 9.0 
|2007          |  |        | 7.9 
|2008          |  |        | 7.1 
|              |  |        |     
|             



Property and equipment,
net

The following table sets forth the major classifications of the Companys property and equipment, and accumulated
depreciation at December 31:



|                               |  |      |       |      |   |      
|------------------------------ |  | ---- | ----- | ---- | - | -----
|(In millions)                  |  | 2003 |       | 2002
|                              
|Home office properties         |  | $    | 96.3  |      | $ | 96.2 
|Office furniture and equipment |  |      | 69.9  |      |   | 63.1 
|Leasehold improvements         |  |      | 5.7   |      |   | 5.1  
|                               |  |      |       |      |   |      
|                               |  |     
|Subtotal                       |  |      | 171.9 |      |   | 164.4
|Less: accumulated depreciation |  |      | 100.6 |      |   | 89.7 
|                               |  |      |       |      |   |      
|                               |  |     
|Property and equipment, net    |  | $    | 71.3  |      | $ | 74.7 
|                               |  |      |       |      |   |      
|                              



Property and equipment
are stated at cost less accumulated depreciation. The Company provides for depreciation of property and equipment using the half year straight-line method over the estimated useful lives, which are generally 40 years for properties, and from three
to ten years for equipment. Leasehold improvements are amortized over the estimated useful life of the asset, not to exceed the life of the lease. Depreciation expense for 2003, 2002, and 2001 was $12.1 million, $11.6 million and $9.0 million, re
-



StanCorp Financial Group, Inc.

35



---





Part II



spectively. The
Company reviews property and equipment for impairment when circumstances or events indicate the carrying amount of the asset may not be recoverable and recognizes a charge to earnings if an asset is impaired.

Capitalized leases totaling $0.4 million are included in property and equipment. Capital leases are amortized over the life of the leases.

Non-affiliated tenants leased approximately 41.8%, 44.1%, and 44.5% of the home office properties at December 31, 2003, 2002, and 2001, respectively.
Income from the leases is included in net investment income.



Separate
account

Separate account assets and liabilities represent segregated funds held for the exclusive benefit of contract holders. The
activities of the account primarily relate to participant-directed 401(k) contracts. Standard charges the separate account asset management and plan administration fees associated with the contracts. Separate account assets and liabilities are
carried at fair value.



Future policy benefits and claims

For most of our product lines, we establish and carry as a liability actuarially determined reserves that are calculated to meet
our obligations for future policy benefits and claims. These reserves do not represent an exact calculation of our future benefit liabilities, but are instead estimates based on assumptions concerning a number of factors, including: the amount of
premiums on existing business that we will receive in the future; the rate of return on assets we purchase with premiums received; expected number and duration of claims; expenses; and persistency, which is the measurement of the percentage of
premiums remaining in force from year to year. In particular, our group and individual long term disability reserves are sensitive to assumptions regarding the following factors: claim incidence rates; claim termination rates; discount rates used to
value expected future claim payments and premiums; persistency rates; the amount of the monthly benefit paid to the insured (less claim amounts recovered from reinsurers); expense rates, including inflation; historical delay in reporting of claims
incurred; age and gender of the claimant, and for individual policies, occupation class of the claimant; year of issue for policy reserves or incurred date for claim reserves; time elapsed since disablement; and contract provisions and limitations.



Other policyholder funds

Other policyholder funds are liabilities for investment-type contracts and are based on the policy account balances including accumulated interest.



Recognition of premiums and benefits to policyholders

Premiums from group life, group and individual disability, and traditional life insurance contracts are recognized as revenue when
due. Benefits and expenses are matched with recognized premiums to result in recognition of profits over the life of the contracts. The match is accomplished by recording a provision for future policy benefits and unpaid claims and claim adjustment
expenses and by setting up and amortizing DAC. Investment-type contract premiums and other policy fee revenues consist of charges for policy administration and surrender charges assessed during the period. Charges related to services to be performed
are deferred until earned. The amounts received in excess of premiums and fees are included in other policyholder funds in the consolidated balance sheets. Experience rated refunds (ERRs) are computed in accordance with the terms of the
contracts with certain group policyholders and are accounted for as an adjustment to premiums.



Income taxes

The provision for income taxes includes amounts currently payable and deferred
amounts that result from temporary differences between financial reporting and tax bases of assets and liabilities as measured by current tax rates. Income taxes also include estimated amounts provided for potential adjustments related to Internal
Revenue Service examinations of open years, generally when the tax law is unclear. Although estimated amounts are adjusted when appropriate, amounts required to be provided upon the settlement of an examination may differ from amounts previously
estimated. Years currently open for audit by the Internal Revenue Service are 1996 through 2003.



Other comprehensive income

Other comprehensive income consists of the current increase or
decrease in unrealized capital gains and losses on investment securities available-for-sale, net of the related tax effects. The following table sets forth unrealized capital gains and losses and adjustments for realized capital gains and losses at
December 31:



|                                                                                  |  |      |      |   |      |   |       |      |  |   |     
|--------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ----- | ---- |  | - | ----
|(In millions)                                                                     |  | 2003 |      |   | 2002 |   |       | 2001
|                                                                                 
|Increase in unrealized capital gains on securities available-for-sale, net        |  | $    | 24.2 |   |      | $ | 179.0 |      |  | $ | 44.1
|Less: tax effects                                                                 |  |      | 8.7  |   |      |   | 64.2  |      |  |   | 15.9
|                                                                                  |  |      |      |   |      |   |       |      |  |   |     
|                                                                                  |  |     
|Increase in unrealized capital gains on securities available-for-sale, net of tax |  | $    | 15.5 |   |      | $ | 114.8 |      |  | $ | 28.2
|                                                                                  |  |      |      |   |      |   |       |      |  |   |     
|                                                                                  |  |     
|Adjustment for realized capital (gains) losses, net                               |  | $    | (4.0 | ) |      | $ | (1.0  | )    |  | $ | 5.1 
|Less: tax effects                                                                 |  |      | (1.4 | ) |      |   | (0.3  | )    |  |   | 1.9 
|                                                                                  |  |      |      |   |      |   |       |      |  |   |     
|                                                                                  |  |     
|Adjustment for realized capital (gains) losses, net of tax                        |  | $    | (2.6 | ) |      | $ | (0.7  | )    |  | $ | 3.2 
|                                                                                  |  |      |      |   |      |   |       |      |  |   |     
|                                                                                 





StanCorp Financial Group, Inc.

36



---



Stock-based Compensation

The Company has two stock-based employee compensation plans. See Note 12, Stock-based Compensation. Prior to
2003, the Company accounted for those plans under the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issues to Employees, and related interpretations. Other than restricted stock, no stock-based employee
compensation cost is reflected in net income prior to 2003, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2003, the Company adopted
the fair value recognition provisions of Statement of Financial Accounting (SFAS) No. 123, Accounting for Stock-Based Compensation prospectively to all employee awards granted, modified, or settled after January 1, 2003.

Awards under the Companys plans vest over periods ranging from one to four years. Therefore, the cost related to stock-based employee
compensation included in the determination of net income for 2003 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 years ended December 31:



|                                                                                                                                            |  |      |       |   |      |   |       |      |  |   |       |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|(In millionsexcept share data)                                                                                                             |  | 2003 |       |   | 2002 |   |       | 2001 | 
|                                                                                                                                            | 
|Net income, as reported                                                                                                                     |  | $    | 156.3 |   |      | $ | 111.0 |      |  | $ | 106.0 |  
|Add: Stock-based employee compensation expense included in reported net income, net of related tax effects                                  |  |      | 1.5   |   |      |   |      |      |  |   |      |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |      | (3.7  | ) |      |   | (4.5  | )    |  |   | (2.6  | )
|                                                                                                                                            |  |      |       |   |      |   |       |      |  |   |       |  
|                                                                                                                                            |  |      |      
|Pro forma net income                                                                                                                        |  | $    | 154.1 |   |      | $ | 106.5 |      |  | $ | 103.4 |  
|                                                                                                                                            |  |      |       |   |      |   |       |      |  |   |       |  
|                                                                                                                                            |  |      |      
|Net income per share:                                                                                                                       |  |      |       |   |      |   |       |      |  |   |       |  
|Basicas reported                                                                                                                           |  | $    | 5.39  |   |      | $ | 3.77  |      |  | $ | 3.47  |  
|Basicpro forma                                                                                                                             |  |      | 5.32  |   |      |   | 3.62  |      |  |   | 3.38  |  
|                                                                                                                                            |  |      |      
|Dilutedas reported                                                                                                                         |  |      | 5.33  |   |      |   | 3.73  |      |  |   | 3.44  |  
|Dilutedpro forma                                                                                                                           |  |      | 5.25  |   |      |   | 3.58  |      |  |   | 3.35  |  
|                                                                                                                                            |  |      |       |   |      |   |       |      |  |   |       |  
|                                                                                                                                            | 



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 years ended December 31:



|                                |  |           |   |  |           |   |  |           |  
|------------------------------- |  | --------- | - |  | --------- | - |  | --------- | -
|                                |  | 2003      |   |  | 2002      |   |  | 2001      |  
|                                | 
|Dividend yield                  |  | 0.74      | % |  | 0.74      | % |  | 0.70      | %
|Expected stock price volatility |  | 33.0      |   |  | 34.9      |   |  | 35.7      |  
|Risk-free interest rate         |  | 3.4       |   |  | 4.1       |   |  | 4.9       |  
|Expected option lives           |  | 6.5 years |   |  | 6.5 years |   |  | 9.1 years |  
|                                |  |           |   |  |           |   |  |           |  
|                                | 



Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) released Interpretation No. 46, Consolidation of
Variable Interest Entities(FIN 46) which requires that all primary beneficiaries of Variable Interest Entities (VIE) consolidate that entity. FIN 46 is effective immediately for VIEs created after January 31, 2003 and to
VIEs in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after December 15, 2003 to VIEs in which an enterprise holds a variable interest it acquired before February 1, 2003. In
December 2003, the FASB published a revision to FIN 46 (FIN 46R) to clarify some of the provisions of the interpretation and to defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, entities that
do not have interests in structures that are commonly referred to as special purpose entities are required to apply the provisions of the interpretation in financial statements for periods ending after March 15, 2004. We do not have interests in
special purpose entities.

We have a 50% interest in a real estate joint venture. During 2003, we fully guaranteed the existing debt of the
entity, and therefore, effective December 31, 2003, we consolidated the entity. The increase to our reported assets and liabilities was approximately $18.0 million for this entity that previously did not meet consolidation criteria. Certain
subsidiaries of StanCorp have interests in real estate low income housing partnerships that were established in previous years. Individually, the interests in these subsidiaries do not represent a significant subsidiary pursuant to the definition in
FIN 46, nor do they meet the requirements for consolidation. The total equity investment in these interests approximated $15 million at December 31, 2003.

In July 2003, the Accounting Standards Executive Committee (Ac SEC) 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. We
are currently evaluating this guidance and do not expect this SOP to have a material impact on our financial statements.



StanCorp Financial Group, Inc.

37



---





Part II



In
November 2003, the FASB Task Force reached a partial consensus under Emerging Issue Task Force (EITF) EITF 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.This EITF requires certain
quantitative and qualitative disclosures for securities accounted for under FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, that are impaired at the balance sheet date but for which an
other-than-temporary impairment has not been recognized. This EITF is effective for financial statements for fiscal years ending after December 15, 2003. Effective December 31, 2003, the required disclosures are included in the notes to consolidated
financial statements.

In December 2003, the FASB released FASB 132R, Employers Disclosures about Pensions and Other Postretirement
Benefits. This statement incorporates all of the disclosure requirements of FASB Statement No. 132, Employers Disclosure about Pensions and other Postretirement Benefits and replaces the disclosure requirements in FASB Statement No.
87, Employers Accounting for Pensions,No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,and No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions.The provisions of this statement shall be effective for fiscal years ending after December 15, 2003, while the interim-period disclosures required by this Statement shall be effective for interim
periods beginning after December 15, 2003. Effective December 31, 2003, the required disclosures are included in the notes to consolidated financial statements.



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 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 ofdilutive 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). For the years ended December 31,
2003, 2002, and 2001, antidilutive options were not material. Net income per diluted common share was calculated as follows, for the years ended December 31:



|                                                   |  |      |            |      |   |            |  |   |           
|-------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|                                                   |  | 2003 |            | 2002 |   | 2001      
|                                                  
|Net income (in millions)                           |  | $    | 156.3      |      | $ | 111.0      |  | $ | 106.0     
|                                                   |  |      |            |      |   |            |  |   |           
|                                                  
|Basic weighted-average common shares outstanding   |  |      | 28,989,550 |      |   | 29,435,920 |  |   | 30,553,049
|Stock options                                      |  |      | 240,952    |      |   | 265,381    |  |   | 236,079   
|Restricted stock                                   |  |      | 104,057    |      |   | 71,101     |  |   | 46,594    
|                                                   |  |      |            |      |   |            |  |   |           
|                                                   |  |     
|Diluted weighted-average common shares outstanding |  |      | 29,334,559 |      |   | 29,772,402 |  |   | 30,835,722
|                                                   |  |      |            |      |   |            |  |   |           
|                                                   |  |     
|Net income per diluted common share                |  | $    | 5.33       |      | $ | 3.73       |  | $ | 3.44      
|                                                   |  |      |            |      |   |            |  |   |           
|                                                  



3.   Segments

We operate through three segments: Employee Benefits, Individual Insurance, and Retirement Plans. Performance assessment 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, including life
contingent 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 our commercial mortgage
lending and other investment management subsidiaries.







StanCorp Financial Group, Inc.

38



---



The following tables set
forth select segment information at or for the years ended December 31:



|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|------------------------------------------------------------------------------------ |  | ---------------- | ------- | - | ------------------- | - | ------- | --------------- |  | - | ------- | - |  | ----- | ----- | - |  | - | ------- | -
|(In millions)                                                                        |  | EmployeeBenefits |         |   | IndividualInsurance |   |         | RetirementPlans |  |   | Other   |   |  | Total |      
|                                                                                     | 
|2003:                                                                                |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|Revenues:                                                                            |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|Premiums                                                                             |  | $                | 1,500.6 |   |                     | $ | 85.4    |                 |  | $ | 23.3    |   |  | $     |      |   |  | $ | 1,609.3 |  
|Net investment income                                                                |  |                  | 253.9   |   |                     |   | 109.3   |                 |  |   | 56.1    |   |  |       | 22.5  |   |  |   | 441.8   |  
|Net capital gains                                                                    |  |                  |        |   |                     |   |        |                 |  |   |        |   |  |       | 9.3   |   |  |   | 9.3     |  
|Other                                                                                |  |                  | 6.1     |   |                     |   | 0.3     |                 |  |   |        |   |  |       |      |   |  |   | 6.4     |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     |  |                  |        
|Total revenues                                                                       |  |                  | 1,760.6 |   |                     |   | 195.0   |                 |  |   | 79.4    |   |  |       | 31.8  |   |  |   | 2,066.8 |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     |  |                  |        
|Benefits and expenses:                                                               |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|Benefits to policyholders                                                            |  |                  | 1,215.0 |   |                     |   | 75.0    |                 |  |   | 7.8     |   |  |       |      |   |  |   | 1,297.8 |  
|Interest credited                                                                    |  |                  | 4.9     |   |                     |   | 36.1    |                 |  |   | 34.0    |   |  |       |      |   |  |   | 75.0    |  
|Operating expenses                                                                   |  |                  | 213.5   |   |                     |   | 27.2    |                 |  |   | 27.8    |   |  |       | 11.6  |   |  |   | 280.1   |  
|Commissions and bonuses                                                              |  |                  | 103.4   |   |                     |   | 31.0    |                 |  |   | 9.7     |   |  |       |      |   |  |   | 144.1   |  
|Premium taxes                                                                        |  |                  | 23.6    |   |                     |   | 1.0     |                 |  |   |        |   |  |       |      |   |  |   | 24.6    |  
|Interest expense                                                                     |  |                  |        |   |                     |   |        |                 |  |   |        |   |  |       | 17.5  |   |  |   | 17.5    |  
|Net (increase) decrease in deferred acquisition costs and value of business acquired |  |                  | 5.8     |   |                     |   | (12.7   | )               |  |   | (5.2    | ) |  |       |      |   |  |   | (12.1   | )
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     |  |                  |        
|Total benefits and expenses                                                          |  |                  | 1,566.2 |   |                     |   | 157.6   |                 |  |   | 74.1    |   |  |       | 29.1  |   |  |   | 1,827.0 |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     |  |                  |        
|Income before income taxes                                                           |  | $                | 194.4   |   |                     | $ | 37.4    |                 |  | $ | 5.3     |   |  | $     | 2.7   |   |  | $ | 239.8   |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     | 
|Total assets                                                                         |  | $                | 4,482.1 |   |                     | $ | 2,701.2 |                 |  | $ | 2,606.4 |   |  | $     | 192.0 |   |  | $ | 9,981.7 |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     | 
|2002:                                                                                |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|Revenues:                                                                            |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|Premiums                                                                             |  | $                | 1,284.3 |   |                     | $ | 80.0    |                 |  | $ | 19.0    |   |  | $     |      |   |  | $ | 1,383.3 |  
|Net investment income                                                                |  |                  | 207.0   |   |                     |   | 107.0   |                 |  |   | 52.9    |   |  |       | 18.2  |   |  |   | 385.1   |  
|Net capital losses                                                                   |  |                  |        |   |                     |   |        |                 |  |   |        |   |  |       | (19.7 | ) |  |   | (19.7   | )
|Other                                                                                |  |                  | 5.5     |   |                     |   | 0.4     |                 |  |   |        |   |  |       |      |   |  |   | 5.9     |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     |  |                  |        
|Total revenues                                                                       |  |                  | 1,496.8 |   |                     |   | 187.4   |                 |  |   | 71.9    |   |  |       | (1.5  | ) |  |   | 1,754.6 |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     |  |                  |        
|Benefits and expenses:                                                               |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|Benefits to policyholders                                                            |  |                  | 1,029.4 |   |                     |   | 79.8    |                 |  |   | 7.9     |   |  |       |      |   |  |   | 1,117.1 |  
|Interest credited                                                                    |  |                  | 4.7     |   |                     |   | 35.1    |                 |  |   | 32.5    |   |  |       | 0.6   |   |  |   | 72.9    |  
|Operating expenses                                                                   |  |                  | 185.8   |   |                     |   | 24.0    |                 |  |   | 27.0    |   |  |       | 11.0  |   |  |   | 247.8   |  
|Commissions and bonuses                                                              |  |                  | 98.8    |   |                     |   | 27.3    |                 |  |   | 6.5     |   |  |       |      |   |  |   | 132.6   |  
|Premium taxes                                                                        |  |                  | 22.4    |   |                     |   | 0.6     |                 |  |   |        |   |  |       |      |   |  |   | 23.0    |  
|Interest expense                                                                     |  |                  |        |   |                     |   |        |                 |  |   |        |   |  |       | 5.0   |   |  |   | 5.0     |  
|Net increase in deferred acquisition costs and value of business acquired            |  |                  | (2.7    | ) |                     |   | (11.1   | )               |  |   | (2.0    | ) |  |       |      |   |  |   | (15.8   | )
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     |  |                  |        
|Total benefits and expenses                                                          |  |                  | 1,338.4 |   |                     |   | 155.7   |                 |  |   | 71.9    |   |  |       | 16.6  |   |  |   | 1,582.6 |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     |  |                  |        
|Income (loss) before income taxes                                                    |  | $                | 158.4   |   |                     | $ | 31.7    |                 |  | $ |        |   |  | $     | (18.1 | ) |  | $ | 172.0   |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     | 
|Total assets                                                                         |  | $                | 3,765.1 |   |                     | $ | 2,763.8 |                 |  | $ | 1,897.9 |   |  | $     | 319.7 |   |  | $ | 8,746.5 |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     | 
|2001:                                                                                |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|Revenues:                                                                            |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|Premiums                                                                             |  | $                | 1,129.5 |   |                     | $ | 81.2    |                 |  | $ | 21.0    |   |  | $     |      |   |  | $ | 1,231.7 |  
|Net investment income                                                                |  |                  | 187.3   |   |                     |   | 98.9    |                 |  |   | 52.1    |   |  |       | 14.3  |   |  |   | 352.6   |  
|Other                                                                                |  |                  | 4.3     |   |                     |   | 0.8     |                 |  |   |        |   |  |       |      |   |  |   | 5.1     |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     |  |                  |        
|Total revenues                                                                       |  |                  | 1,321.1 |   |                     |   | 180.9   |                 |  |   | 73.1    |   |  |       | 14.3  |   |  |   | 1,589.4 |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     |  |                  |        
|Benefits and expenses:                                                               |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|Benefits to policyholders                                                            |  |                  | 921.6   |   |                     |   | 85.6    |                 |  |   | 9.8     |   |  |       |      |   |  |   | 1,017.0 |  
|Interest credited                                                                    |  |                  | 10.3    |   |                     |   | 32.8    |                 |  |   | 35.2    |   |  |       | 0.4   |   |  |   | 78.7    |  
|Operating expenses                                                                   |  |                  | 148.9   |   |                     |   | 22.9    |                 |  |   | 23.6    |   |  |       | 9.6   |   |  |   | 205.0   |  
|Commissions and bonuses                                                              |  |                  | 90.1    |   |                     |   | 22.6    |                 |  |   | 5.6     |   |  |       |      |   |  |   | 118.3   |  
|Premium taxes                                                                        |  |                  | 20.5    |   |                     |   | 1.6     |                 |  |   |        |   |  |       |      |   |  |   | 22.1    |  
|Interest expense                                                                     |  |                  |        |   |                     |   |        |                 |  |   |        |   |  |       | 0.1   |   |  |   | 0.1     |  
|Net increase in deferred acquisition costs and value of business acquired            |  |                  | (3.6    | ) |                     |   | (11.8   | )               |  |   | (0.9    | ) |  |       |      |   |  |   | (16.3   | )
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     |  |                  |        
|Total benefits and expenses                                                          |  |                  | 1,187.8 |   |                     |   | 153.7   |                 |  |   | 73.3    |   |  |       | 10.1  |   |  |   | 1,424.9 |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     |  |                  |        
|Income (loss) before income taxes                                                    |  | $                | 133.3   |   |                     | $ | 27.2    |                 |  | $ | (0.2    | ) |  | $     | 4.2   |   |  | $ | 164.5   |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     | 
|Total assets                                                                         |  | $                | 2,806.4 |   |                     | $ | 2,340.0 |                 |  | $ | 1,741.0 |   |  | $     | 389.6 |   |  | $ | 7,277.0 |  
|                                                                                     |  |                  |         |   |                     |   |         |                 |  |   |         |   |  |       |       |   |  |   |         |  
|                                                                                     | 

The accounting policies of the segments are the same as those described in the summary of
significant accounting policies.



StanCorp Financial Group, Inc.

39



---





Part II



4.   Fair
Value of Financial Instruments

The following table sets forth carrying amounts and estimated fair values for financial instruments at
December 31:



|                                                          |  |           |         |                |   |           |  |                |         |  |   |        
|--------------------------------------------------------- |  | --------- | ------- | -------------- | - | --------- |  | -------------- | ------- |  | - | -------
|                                                          |  | 2003      |         | 2002          
|                                                         
|(In millions)                                             |  | FairValue |         | CarryingAmount |   | FairValue |  | CarryingAmount
|                                                         
|Investments:                                              |  |           |         |                |   |           |  |                |         |  |   |        
|Investment securities                                     |  | $         | 4,524.8 |                | $ | 4,524.8   |  | $              | 4,134.4 |  | $ | 4,134.4
|Commercial mortgage loans, net                            |  |           | 2,436.5 |                |   | 2,319.8   |  |                | 2,185.9 |  |   | 1,989.1
|Policy loans                                              |  |           | 4.6     |                |   | 4.6       |  |                | 5.3     |  |   | 5.3    
|                                                          |  |           |         |                |   |           |  |                |         |  |   |        
|                                                         
|Liabilities:                                              |  |           |         |                |   |           |  |                |         |  |   |        
|Total other policyholder funds, investment type contracts |  | $         | 1,752.8 |                | $ | 1,764.6   |  | $              | 1,524.7 |  | $ | 1,532.3
|Long-term debt                                            |  |           | 294.4   |                |   | 272.0     |  |                | 261.3   |  |   | 259.0  
|                                                          |  |           |         |                |   |           |  |                |         |  |   |        
|                                                         



Investments

The fair values of investment securities were based on quoted market prices, where available, or on values obtained from independent pricing services.
The fair values of commercial mortgage loans were estimated using option adjusted valuation discount rates. The carrying values of policy loans approximate fair values. While potentially financial instruments, policy loans are an integral component
of the insurance contract and have no maturity date.



Liabilities

The fair values of other policyholder funds that are investment-type contracts were estimated using discounted cash flows at the
then-prevailing interest rates offered for similar contracts or as the amounts payable on demand less surrender charges at the balance sheet date. The fair value for long-term debt was based on quoted market prices.



5.   Investment Securities

The following table sets forth amortized cost and estimated fair values of investment securities available-for-sale at December 31:



|                                                       |  |               |         |                     |        |                    |  |   |     |  |   |        
|------------------------------------------------------ |  | ------------- | ------- | ------------------- | ------ | ------------------ |  | - | --- |  | - | -------
|                                                       |  | 2003         
|                                                      
|                                                       |  | AmortizedCost |         | UnrealizedEstimated |        | EstimatedFairValue
|(In millions)                                          |  |               | Gains   |                     | Losses |                   
|                                                      
|Available-for-sale:                                    |  |               |         |                     |        |                    |  |   |     |  |   |        
|U.S. government and agency bonds                       |  | $             | 379.0   |                     | $      | 19.4               |  | $ | 1.2 |  | $ | 397.2  
|Bonds of states and political subdivisions of the U.S. |  |               | 89.8    |                     |        | 6.4                |  |   | 0.5 |  |   | 95.7   
|Foreign government bonds                               |  |               | 25.5    |                     |        | 1.4                |  |   |    |  |   | 26.9   
|Corporate bonds                                        |  |               | 3,776.1 |                     |        | 237.0              |  |   | 8.1 |  |   | 4,005.0
|                                                       |  |               |         |                     |        |                    |  |   |     |  |   |        
|                                                       |  |              
|Total investment securities                            |  | $             | 4,270.4 |                     | $      | 264.2              |  | $ | 9.8 |  | $ | 4,524.8
|                                                       |  |               |         |                     |        |                    |  |   |     |  |   |        
|                                                      



|                                                       |  |               |         |                     |        |                    |  |   |      |  |   |        
|------------------------------------------------------ |  | ------------- | ------- | ------------------- | ------ | ------------------ |  | - | ---- |  | - | -------
|                                                       |  | 2002         
|                                                      
|                                                       |  | AmortizedCost |         | UnrealizedEstimated |        | EstimatedFairValue
|(In millions)                                          |  |               | Gains   |                     | Losses |                   
|                                                      
|Available-for-sale:                                    |  |               |         |                     |        |                    |  |   |      |  |   |        
|U.S. government and agency bonds                       |  | $             | 274.1   |                     | $      | 24.1               |  | $ | 0.1  |  | $ | 298.1  
|Bonds of states and political subdivisions of the U.S. |  |               | 166.2   |                     |        | 10.2               |  |   |     |  |   | 176.4  
|Foreign government bonds                               |  |               | 25.5    |                     |        | 2.1                |  |   |     |  |   | 27.6   
|Corporate bonds                                        |  |               | 3,436.6 |                     |        | 217.9              |  |   | 22.2 |  |   | 3,632.3
|                                                       |  |               |         |                     |        |                    |  |   |      |  |   |        
|                                                       |  |              
|Total investment securities                            |  | $             | 3,902.4 |                     | $      | 254.3              |  | $ | 22.3 |  | $ | 4,134.4
|                                                       |  |               |         |                     |        |                    |  |   |      |  |   |        
|                                                      



The following table
sets forth the contractual maturities of investment securities available-for-sale at December 31:



|                            |  |               |         |                    |   |               |  |                    |         |  |   |        
|--------------------------- |  | ------------- | ------- | ------------------ | - | ------------- |  | ------------------ | ------- |  | - | -------
|                            |  | 2003          |         | 2002              
|                           
|(In millions)               |  | AmortizedCost |         | EstimatedFairValue |   | AmortizedCost |  | EstimatedFairValue
|                           
|Available-for-sale:         |  |               |         |                    |   |               |  |                    |         |  |   |        
|Due in 1 year or less       |  | $             | 215.8   |                    | $ | 220.2         |  | $                  | 219.6   |  | $ | 222.8  
|Due 1-5 years               |  |               | 1,309.0 |                    |   | 1,403.2       |  |                    | 1,245.0 |  |   | 1,317.4
|Due 5-10 years              |  |               | 1,649.4 |                    |   | 1,740.8       |  |                    | 1,444.3 |  |   | 1,535.6
|Due after 10 years          |  |               | 1,096.2 |                    |   | 1,160.6       |  |                    | 993.5   |  |   | 1,058.6
|                            |  |               |         |                    |   |               |  |                    |         |  |   |        
|                            |  |              
|Total investment securities |  | $             | 4,270.4 |                    | $ | 4,524.8       |  | $                  | 3,902.4 |  | $ | 4,134.4
|                            |  |               |         |                    |   |               |  |                    |         |  |   |        
|                           



StanCorp Financial Group, Inc.

40



---





Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations. Callable bonds represent
1.85%, or $83.7 million, of our fixed maturity securities.

The following table sets forth net investment income summarized by type of
investment for the years ended December 31:



|                          |  |      |       |   |      |   |       |      |  |   |       |  
|------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|(In millions)             |  | 2003 |       |   | 2002 |   |       | 2001 | 
|                          | 
|Investment securities:    |  |      |       |   |      |   |       |      |  |   |       |  
|Available-for-sale        |  | $    | 253.8 |   |      | $ | 198.8 |      |  | $ | 174.3 |  
|Trading                   |  |      |      |   |      |   |      |      |  |   | 0.6   |  
|Commercial mortgage loans |  |      | 189.9 |   |      |   | 177.7 |      |  |   | 176.5 |  
|Real estate               |  |      | 4.6   |   |      |   | 6.0   |      |  |   | 7.3   |  
|Policy loans              |  |      | 0.3   |   |      |   | 0.4   |      |  |   | 0.5   |  
|Other                     |  |      | 2.3   |   |      |   | 11.7  |      |  |   | 5.3   |  
|                          |  |      |       |   |      |   |       |      |  |   |       |  
|                          |  |      |      
|Gross investment income   |  |      | 450.9 |   |      |   | 394.6 |      |  |   | 364.5 |  
|Investment expenses       |  |      | (9.1  | ) |      |   | (9.5  | )    |  |   | (11.9 | )
|                          |  |      |       |   |      |   |       |      |  |   |       |  
|                          |  |      |      
|Net investment income     |  | $    | 441.8 |   |      | $ | 385.1 |      |  | $ | 352.6 |  
|                          |  |      |       |   |      |   |       |      |  |   |       |  
|                          | 



The following table
sets forth capital gains (losses) for the years ended December 31:



|                                         |  |      |      |   |      |   |       |      |  |   |       |  
|---------------------------------------- |  | ---- | ---- | - | ---- | - | ----- | ---- |  | - | ----- | -
|(In millions)                            |  | 2003 |      |   | 2002 |   |       | 2001 | 
|                                         | 
|Gains:                                   |  |      |      |   |      |   |       |      |  |   |       |  
|Investment securities available-for-sale |  | $    | 12.3 |   |      | $ | 3.1   |      |  | $ | 8.7   |  
|Commercial mortgage loans                |  |      | 1.3  |   |      |   | 13.2  |      |  |   | 2.4   |  
|Real estate                              |  |      | 1.9  |   |      |   | 1.1   |      |  |   | 2.1   |  
|                                         |  |      |      |   |      |   |       |      |  |   |       |  
|                                         |  |      |     
|Gross capital gains                      |  |      | 15.5 |   |      |   | 17.4  |      |  |   | 13.2  |  
|                                         |  |      |      |   |      |   |       |      |  |   |       |  
|                                         |  |      |     
|Losses:                                  |  |      |      |   |      |   |       |      |  |   |       |  
|Investment securities available-for-sale |  |      | (6.2 | ) |      |   | (37.0 | )    |  |   | (12.7 | )
|Real estate                              |  |      |     |   |      |   | (0.1  | )    |  |   | (0.5  | )
|                                         |  |      |      |   |      |   |       |      |  |   |       |  
|                                         |  |      |     
|Gross capital losses                     |  |      | (6.2 | ) |      |   | (37.1 | )    |  |   | (13.2 | )
|                                         |  |      |      |   |      |   |       |      |  |   |       |  
|                                         |  |      |     
|Net capital gains (losses)               |  | $    | 9.3  |   |      | $ | (19.7 | )    |  | $ |      |  
|                                         |  |      |      |   |      |   |       |      |  |   |       |  
|                                         | 



Securities deposited
for the benefit of policyholders in various states, in accordance with state regulations, amounted to $6.3 million and $5.1 million at December 31, 2003 and 2002, respectively.

The following table sets forth our investments gross unrealized losses and fair value, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, at December 31, 2003:



|                                                   |  |                  |  |                    |  |                 
|-------------------------------------------------- |  | ---------------- |  | ------------------ |  | ----------------
|                                                   |  |                  |  | Aging             
|                                                  
|(In millions)                                      |  | December 31,2003 |  | Less than12 months |  | 12 or moremonths
|                                                  
|Debt securities:                                   |  |                  |  |                    |  |                 
|Aggregate unrealized losses                        |  | $(9.8)           |  | $(9.3)             |  | $(0.5)          
|Aggregate FMV of securities with unrealized losses |  | 526.2            |  | 514.9              |  | 11.3            
|                                                   |  |                  |  |                    |  |                 
|                                                  



A permanent impairment
is recognized on a security if its market value falls below 80% of its book value for 6 months or longer, and/or it is determined that the value will not recover. During the 6 month period, or as long as the holding is valued below 80% of its book
value, the holding is watched for potential permanent impairment. At December 31, 2003, we held two issues that had market values below 80% of their book values. One is secured by assets whose value exceeds the value of the debt issue and the other
is newly acquired. These are both expected to fully recover, and therefore have not been permanently impaired.



6.   Commercial Mortgage Loans, Net

The Company underwrites commercial mortgage loans and
requires collateral on either a partial or full recourse basis. Although the Company underwrites commercial mortgage loans throughout the United States, commercial mortgage loans in California represent a concentration of credit risk. The following
table sets forth the geographic concentration of commercial mortgage loans at December 31:



|                                |  |        |         |         |       |   |        |   |         |  |       |  
|------------------------------- |  | ------ | ------- | ------- | ----- | - | ------ | - | ------- |  | ----- | -
|                                |  | 2003   |         |         | 2002  |  
|                               
|(Dollars in millions)           |  | Amount |         | Percent |       |   | Amount |   | Percent | 
|                                | 
|California                      |  | $      | 858.3   |         | 37.0  | % |        | $ | 766.7   |  | 38.6  | %
|Texas                           |  |        | 195.7   |         | 8.4   |   |        |   | 157.9   |  | 7.9   |  
|Oregon                          |  |        | 113.0   |         | 4.9   |   |        |   | 112.5   |  | 5.7   |  
|Florida                         |  |        | 106.6   |         | 4.6   |   |        |   | 95.7    |  | 4.8   |  
|Other                           |  |        | 1,046.2 |         | 45.1  |   |        |   | 856.3   |  | 43.0  |  
|                                |  |        |         |         |       |   |        |   |         |  |       |  
|                                |  |        |        
|Total commercial mortgage loans |  | $      | 2,319.8 |         | 100.0 | % |        | $ | 1,989.1 |  | 100.0 | %
|                                |  |        |         |         |       |   |        |   |         |  |       |  
|                                | 



The commercial
mortgage loan valuation allowance is estimated based on evaluating known and inherent risks in the loan portfolio. The allowance is based on managements analysis of factors including changes in the size and composition of the loan portfolio,
actual loan loss experience, economic conditions, and individual loan analysis. A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including principal and interest. Loan impairment is
measured using discounted cash flows except when the current fair value, reduced by costs to sell, is determinable. Loans that are deemed uncollectible are written off against the allowance, and recoveries, if any, are credited to the allowance.
Commercial mortgage loans foreclosed and transferred to real estate were $1.6 million for 2003. There was no charge against the valuation allowance for the foreclosure in 2003. There were no commercial mortgage loans foreclosed and transferred to
real estate in 2002. There were no commercial mortgage loans more than 60 days delinquent or in the process of foreclosure at December 31, 2003 and 2002.



StanCorp Financial Group, Inc.

41



---





Part II



The
following table sets forth commercial mortgage loan valuation and allowance provisions for the years ended December 31:



|                                 |  |      |      |   |      |   |      |  |   |      |  
|-------------------------------- |  | ---- | ---- | - | ---- | - | ---- |  | - | ---- | -
|(In millions)                    |  | 2003 |      |   | 2002 |   | 2001 | 
|                                 | 
|Balance at beginning of the year |  | $    | 4.0  |   |      | $ | 3.6  |  | $ | 4.4  |  
|Provision (recapture)            |  |      | (1.4 | ) |      |   | 0.4  |  |   | (0.7 | )
|Net amount written off           |  |      |     |   |      |   |     |  |   | (0.1 | )
|                                 |  |      |      |   |      |   |      |  |   |      |  
|                                 |  |      |     
|Balance at end of the year       |  | $    | 2.6  |   |      | $ | 4.0  |  | $ | 3.6  |  
|                                 |  |      |      |   |      |   |      |  |   |      |  
|                                 | 



7.   Liability for Unpaid
Claims, Claims Adjustment Expenses, and

Other Policyholder Funds

The liability for unpaid claim includes claims adjustment expenses, and other policyholder funds include liabilities for insurance offered on products
such as group long term and short term disability, individual disability, group dental, and group AD&D. The liability for unpaid claims and claim adjustment expenses is included in future policy benefits and claims in the consolidated balance
sheets. The following table sets forth the change in the liabilities for unpaid claims and claim adjustment expenses for the years ended December 31:



|                               |  |      |         |   |      |   |         |      |  |   |         |  
|------------------------------ |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|(In millions)                  |  | 2003 |         |   | 2002 |   |         | 2001 | 
|                               | 
|Balance, beginning of year     |  | $    | 2,705.1 |   |      | $ | 1,919.3 |      |  | $ | 1,751.9 |  
|Liabilities acquired(1)        |  |      |        |   |      |   | 623.9   |      |  |   |        |  
|Less: reinsurance recoverable  |  |      | (2.9    | ) |      |   | (2.6    | )    |  |   | (3.3    | )
|                               |  |      |         |   |      |   |         |      |  |   |         |  
|                               |  |      |        
|Net balance, beginning of year |  |      | 2,702.2 |   |      |   | 2,540.6 |      |  |   | 1,748.6 |  
|                               |  |      |         |   |      |   |         |      |  |   |         |  
|                               |  |      |        
|Incurred related to:           |  |      |         |   |      |   |         |      |  |   |         |  
|Current year                   |  |      | 889.7   |   |      |   | 795.7   |      |  |   | 686.0   |  
|Prior years                    |  |      | (2.1    | ) |      |   | (0.6    | )    |  |   | 46.3    |  
|                               |  |      |         |   |      |   |         |      |  |   |         |  
|                               |  |      |        
|Total incurred                 |  |      | 887.6   |   |      |   | 795.1   |      |  |   | 732.3   |  
|                               |  |      |         |   |      |   |         |      |  |   |         |  
|                               |  |      |        
|Paid related to:               |  |      |         |   |      |   |         |      |  |   |         |  
|Current year                   |  |      | (235.2  | ) |      |   | (232.2  | )    |  |   | (203.5  | )
|Prior years                    |  |      | (525.5  | ) |      |   | (401.3  | )    |  |   | (360.7  | )
|                               |  |      |         |   |      |   |         |      |  |   |         |  
|                               |  |      |        
|Total paid                     |  |      | (760.7  | ) |      |   | (633.5  | )    |  |   | (564.2  | )
|                               |  |      |         |   |      |   |         |      |  |   |         |  
|                               |  |      |        
|Net balance, end of year       |  |      | 2,829.1 |   |      |   | 2,702.2 |      |  |   | 1,916.7 |  
|Plus: reinsurance recoverable  |  |      | 4.1     |   |      |   | 2.9     |      |  |   | 2.6     |  
|                               |  |      |         |   |      |   |         |      |  |   |         |  
|                               |  |      |        
|Balance, end of year           |  | $    | 2,833.2 |   |      | $ | 2,705.1 |      |  | $ | 1,919.3 |  
|                               |  |      |         |   |      |   |         |      |  |   |         |  
|                               | 

| | (1) | Effective October 1, 2002, Standard entered into a reinsurance agreement with TIAA.
| | --- | -----------------------------------------------------------------------------------



Other policyholder funds at December 31, 2003 and 2002 included $818.1 million and $710.5 million, respectively, of
employer-sponsored defined contribution and benefit plans deposits, and $776.5 million and $655.5 million, respectively, of individual deferred annuity deposits.



8.   Long-term Debt

The following table sets forth the Companys long-term debt at December 31:



|                           |  |      |       |      |   |      
|-------------------------- |  | ---- | ----- | ---- | - | -----
|(In millions)              |  | 2003 |       | 2002
|                          
|Long-term debt:            |  |      |       |      |   |      
|Senior notes               |  | $    | 250.0 |      | $ | 250.0
|Other long-term borrowings |  |      | 22.0  |      |   | 9.0  
|                           |  |      |       |      |   |      
|                           |  |     
|Total long-term debt       |  | $    | 272.0 |      | $ | 259.0
|                           |  |      |       |      |   |      
|                          



StanCorp filed a $1.0
billion shelf registration statement with the SEC, which became effective on July 23, 2002, registering common stock, preferred stock, debt securities, and warrants. On September 25, 2002, we completed an initial public debt offering of $250.0
million of 6.875%, 10-year senior notes, pursuant to the shelf registration statement. The principal amount of the senior notes is payable at maturity and interest is payable semi-annually in April and October.



9.   Income Taxes

The provision for income taxes was as follows for the years ended December 31:



|                   |  |      |       |   |      |   |       |      |  |   |      |  
|------------------ |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ---- | -
|(In millions)      |  | 2003 |       |   | 2002 |   |       | 2001 | 
|                   | 
|Current            |  | $    | 101.8 |   |      | $ | 75.3  |      |  | $ | (3.3 | )
|Deferred           |  |      | (18.3 | ) |      |   | (14.3 | )    |  |   | 61.8 |  
|                   |  |      |       |   |      |   |       |      |  |   |      |  
|                   |  |      |      
|Total income taxes |  | $    | 83.5  |   |      | $ | 61.0  |      |  | $ | 58.5 |  
|                   |  |      |       |   |      |   |       |      |  |   |      |  
|                   | 



The difference between
taxes calculated as if the statutory federal tax rate of 35% was applied to income before income taxes and the recorded tax expense is reconciled as follows:



|                                            |  |      |      |   |      |   |      |      |  |   |      |  
|------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|(In millions)                               |  | 2003 |      |   | 2002 |   |      | 2001 | 
|                                            | 
|Tax at corporate federal rate of 35%        |  | $    | 83.9 |   |      | $ | 60.2 |      |  | $ | 57.6 |  
|Increase (decrease) in rate resulting from: |  |      |      |   |      |   |      |      |  |   |      |  
|Tax exempt interest                         |  |      | (0.5 | ) |      |   | (0.6 | )    |  |   | (1.0 | )
|Dividend received deduction                 |  |      | (0.7 | ) |      |   | (0.6 | )    |  |   | (0.4 | )
|State income taxes, net of federal benefit  |  |      | 3.7  |   |      |   | 1.0  |      |  |   | 1.4  |  
|Uncertainties and adjustments               |  |      | (1.4 | ) |      |   | 2.6  |      |  |   | 2.9  |  
|Other                                       |  |      | (1.5 | ) |      |   | (1.6 | )    |  |   | (2.0 | )
|                                            |  |      |      |   |      |   |      |      |  |   |      |  
|                                            |  |      |     
|Total income taxes                          |  | $    | 83.5 |   |      | $ | 61.0 |      |  | $ | 58.5 |  
|                                            |  |      |      |   |      |   |      |      |  |   |      |  
|                                            | 



StanCorp Financial Group, Inc.

42



---



The tax effect of temporary
differences that gave rise to significant portions of the net deferred tax liability was as follows at December 31:



|                                                            |  |      |       |      |   |       |  |   |      
|----------------------------------------------------------- |  | ---- | ----- | ---- | - | ----- |  | - | -----
|(In millions)                                               |  | 2003 |       | 2002 |   | 2001 
|                                                           
|Policyholder liabilities                                    |  | $    | 3.7   |      | $ | 5.7   |  | $ |     
|Deferred acquisition costs on disposal of block of business |  |      | 3.9   |      |   | 3.9   |  |   | 8.4  
|Retirement Plans for employees                              |  |      | 4.8   |      |   | 5.8   |  |   | 4.7  
|                                                            |  |      |       |      |   |       |  |   |      
|                                                            |  |     
|Total deferred tax assets                                   |  |      | 12.4  |      |   | 15.4  |  |   | 13.1 
|                                                            |  |      |       |      |   |       |  |   |      
|                                                            |  |     
|Investments                                                 |  |      | 21.3  |      |   | 37.0  |  |   | 54.9 
|Net unrealized capital gains                                |  |      | 89.9  |      |   | 82.7  |  |   | 18.8 
|Policyholder liabilities                                    |  |      |      |      |   |      |  |   | 23.2 
|Deferred policy acquisition costs                           |  |      | 49.9  |      |   | 55.0  |  |   | 30.3 
|Other                                                       |  |      | 5.0   |      |   | 5.4   |  |   | 1.2  
|                                                            |  |      |       |      |   |       |  |   |      
|                                                            |  |     
|Total deferred tax liabilities                              |  |      | 166.1 |      |   | 180.1 |  |   | 128.4
|                                                            |  |      |       |      |   |       |  |   |      
|                                                            |  |     
|Net deferred tax liability                                  |  | $    | 153.7 |      | $ | 164.7 |  | $ | 115.3
|                                                            |  |      |       |      |   |       |  |   |      
|                                                           



10.   Pension Benefits

The Company has two non-contributory defined benefit pension plans: the Home Office Pension Plan and the Field Personnel Pension Plan.
The defined benefit pension plans provide benefits based on years of service and final average pay. The accounting for the Home Office Pension Plan reflects several 2003 plan amendments, which include limiting future participation in the plan and
reducing future benefit accruals by increasing the integration level, and no longer accruing cost of living adjustments for benefits.

The
Company uses a December 31 measurement date for all plans. The following table provides a reconciliation of the changes in the pension plans projected benefit obligations, fair value of assets and the funded status for the years ended December
31:



|                                                  |  |      |       |   |      |   |       |  
|------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|(In millions)                                     |  | 2003 |       |   | 2002 |  
|                                                  | 
|Change in benefit obligation:                     |  |      |       |   |      |   |       |  
|Projected benefit obligation at beginning of year |  | $    | 139.7 |   |      | $ | 112.9 |  
|Service cost                                      |  |      | 5.1   |   |      |   | 7.2   |  
|Interest cost                                     |  |      | 9.0   |   |      |   | 9.0   |  
|Amendments                                        |  |      | (4.4  | ) |      |   |      |  
|Actuarial loss                                    |  |      | 7.1   |   |      |   | 14.0  |  
|Benefits paid                                     |  |      | (3.6  | ) |      |   | (3.4  | )
|                                                  |  |      |       |   |      |   |       |  
|                                                  |  |      |      
|Projected benefit obligation at end of year       |  |      | 152.9 |   |      |   | 139.7 |  
|                                                  |  |      |       |   |      |   |       |  
|                                                  |  |      |      
|Change in plan assets:                            |  |      |       |   |      |   |       |  
|Fair value of plan assets at beginning of year    |  |      | 121.3 |   |      |   | 129.0 |  
|Actual gain (loss) on plan assets                 |  |      | 19.2  |   |      |   | (7.1  | )
|Employer contributions                            |  |      | 11.5  |   |      |   | 3.0   |  
|Benefits paid and estimated expenses              |  |      | (3.8  | ) |      |   | (3.6  | )
|                                                  |  |      |       |   |      |   |       |  
|                                                  |  |      |      
|Fair value of plan assets at end of year          |  |      | 148.2 |   |      |   | 121.3 |  
|                                                  |  |      |       |   |      |   |       |  
|                                                  |  |      |      
|Funded status                                     |  |      | (4.7  | ) |      |   | (18.4 | )
|Unrecognized net transition asset                 |  |      | (0.6  | ) |      |   | (0.8  | )
|Unrecognized net actuarial loss                   |  |      | 23.9  |   |      |   | 25.8  |  
|Unrecognized prior service cost                   |  |      | (3.5  | ) |      |   | 0.5   |  
|                                                  |  |      |       |   |      |   |       |  
|                                                  |  |      |      
|Prepaid benefit cost                              |  | $    | 15.1  |   |      | $ | 7.1   |  
|                                                  |  |      |       |   |      |   |       |  
|                                                  | 



Amounts recognized in
the statement of financial position consist of:



|                      |  |      |      |      |   |    
|--------------------- |  | ---- | ---- | ---- | - | ---
|(In millions)         |  | 2003 |      | 2002
|                     
|Prepaid benefit cost  |  | $    | 15.1 |      | $ | 7.1
|Accrued benefit cost  |  |      |     |      |   |   
|                      |  |      |      |      |   |    
|                      |  |     
|Net amount recognized |  | $    | 15.1 |      | $ | 7.1
|                      |  |      |      |      |   |    
|                     



A minimum pension
liability adjustment is required when the actuarial present value of the accumulated benefit obligation exceeds plan assets. The plan assets of our plans exceed the accumulated benefit obligation. The following table summarizes the projected and
accumulated benefit obligations and the fair value of assets for our plans for the years ended December 31:



|                               |  |      |       |      |   |      
|------------------------------ |  | ---- | ----- | ---- | - | -----
|(In millions)                  |  | 2003 |       | 2002
|                              
|Projected benefit obligation   |  | $    | 152.9 |      | $ | 139.7
|Accumulated benefit obligation |  |      | 130.1 |      |   | 109.5
|Fair value of assets           |  |      | 148.2 |      |   | 121.3
|                               |  |      |       |      |   |      
|                              



Plan assets

The following table sets forth the Companys weighted average asset allocations for defined benefit pension plans for the
years ended December 31:



|                  |  |                  |   |  |                          |   |  |       |  
|----------------- |  | ---------------- | - |  | ------------------------ | - |  | ----- | -
|                  |  |                  |   |  | 2003                     |   |  | 2002  |  
|                  | 
|                  |  | TargetAllocation |   |  | Percentage ofPlan Assets |  
|                 
|Asset Category:   |  |                  |   |  |                          |   |  |       |  
|Equity securities |  | 50.0             | % |  | 50.7                     | % |  | 42.0  | %
|Debt securities   |  | 50.0             |   |  | 49.3                     |   |  | 58.0  |  
|                  |  |                  |   |  |                          |   |  |       |  
|                  |  |                  |  
|Total             |  | 100.0            | % |  | 100.0                    | % |  | 100.0 | %
|                  |  |                  |   |  |                          |   |  |       |  
|                  | 



The investment goal of
the Home Office Pension Plan is to produce long run portfolio returns that are consistent with reasonable contribution rates and a well-funded plan. To manage the overall risk of the portfolio, the portfolio is rebalanced as necessary to keep the
allocation within tolerance levels of the target allocation. The portfolio is diversified across a number of equity asset categories and stable value assets. The investment goal of the Field Personnel Pension Plan is to invest in stable value assets
in order to maintain its funded status.



StanCorp Financial Group, Inc.

43



---





Part II



The
following table sets forth net periodic benefit cost and obligation assumptions used in the measurement of the benefit obligations for the years ended December 31:



|                                                  |  |      |      |   |      |   |      |      |  |   |      |  
|------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|(Dollars in millions)                             |  | 2003 |      |   | 2002 |   |      | 2001 | 
|                                                  | 
|Service cost                                      |  | $    | 5.3  |   |      | $ | 7.2  |      |  | $ | 6.2  |  
|Interest cost                                     |  |      | 9.0  |   |      |   | 9.0  |      |  |   | 8.0  |  
|Expected return on plan assets                    |  |      | (9.3 | ) |      |   | (9.8 | )    |  |   | (8.8 | )
|Amortization of unrecognized net transition asset |  |      | (0.2 | ) |      |   | (0.2 | )    |  |   | (0.2 | )
|Amortization of prior service cost                |  |      | (0.3 | ) |      |   | 0.1  |      |  |   |     |  
|Amortization of net actuarial (gain) loss         |  |      | 0.8  |   |      |   | 0.1  |      |  |   | (0.4 | )
|                                                  |  |      |      |   |      |   |      |      |  |   |      |  
|                                                  |  |      |     
|Net periodic benefit cost                         |  | $    | 5.3  |   |      | $ | 6.4  |      |  | $ | 4.8  |  
|                                                  |  |      |      |   |      |   |      |      |  |   |      |  
|                                                  | 
|Weighted average assumptions:                     |  |      |      |   |      |   |      |      |  |   |      |  
|Assumptions used for net periodic benefit cost:   |  |      |      |   |      |   |      |      |  |   |      |  
|Discount rate                                     |  |      | 6.75 | % |      |   | 7.50 | %    |  |   | 7.75 | %
|Expected return on plan assets                    |  |      | 7.65 |   |      |   | 7.65 |      |  |   | 7.65 |  
|Rate of compensation increase                     |  |      | 5.00 |   |      |   | 5.20 |      |  |   | 5.90 |  
|Assumption used to determine benefit obligations: |  |      |      |   |      |   |      |      |  |   |      |  
|Discount rate                                     |  |      | 6.25 | % |      |   | 6.75 | %    |  |   | 7.50 | %
|Rate of compensation increase                     |  |      | 5.00 |   |      |   | 5.20 |      |  |   | 5.90 |  
|                                                  |  |      |      |   |      |   |      |      |  |   |      |  
|                                                  | 



The long run rate of
return for the Home Office Pension Plan portfolio is derived by calculating the average return for the portfolio monthly, from 1971 to the present, using the average mutual fund manager returns in each asset category, weighted by the target
allocation to each category. Because the average equity market value returns over the last 30 years generally have been higher than the long run expected rate of return, the historical average return used to determine the expected return on plan
assets was reduced by 20%.

Equity securities of the Home Office Pension Plan portfolio were $67.0 million and $45.5 million at December 31,
2003 and 2002, respectively. The plan held no StanCorp securities as plan assets at December 31, 2003 and 2002.

The Company does not
anticipate that it will be required to contribute to its defined benefit pension plans in 2004.

Substantially all full-time employees are
covered by deferred compensation plans under which a portion of the employee contribution is matched. Contributions by Standard to the plans for 2003, 2002, and 2001 were $3.1 million, $2.8 million and $2.5 million, respectively.

Eligible executive officers are covered by a non-qualified supplemental retirement plan, which is currently unfunded. The accrued benefit cost was $9.2
million and $8.2 million at December 31, 2003 and 2002, respectively. Expenses, including the company match related to the non-qualified supplemental retirement plan were $1.4 million, $1.5 million and $1.4 million in 2003, 2002, and 2001,
respectively.



11.   Postretirement Benefits Other than Pensions

The Company has a postretirement benefit plan, which includes medical, prescription drug benefits, and groupterm 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 Company uses a December 31
measurement date for the postretirement benefit plan. The following table provides a reconciliation of the changes in the postretirement plans accumulated benefit obligations, fair value of assets and the funded status for the years ended
December 31:



|                                                                   |  |      |       |   |      |   |       |  
|------------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | -
|(In millions)                                                      |  | 2003 |       |   | 2002 |  
|                                                                   | 
|Change in postretirement benefit obligation:                       |  |      |       |   |      |   |       |  
|Accumulated postretirement benefit obligation at beginning of year |  | $    | 32.6  |   |      | $ | 16.4  |  
|Service cost                                                       |  |      | 1.5   |   |      |   | 1.8   |  
|Interest cost                                                      |  |      | 1.6   |   |      |   | 2.0   |  
|Amendments                                                         |  |      | (7.3  | ) |      |   | (1.0  | )
|Actuarial (gain) loss                                              |  |      | (0.4  | ) |      |   | 14.2  |  
|Benefits paid                                                      |  |      | (0.5  | ) |      |   | (0.8  | )
|                                                                   |  |      |       |   |      |   |       |  
|                                                                   |  |      |      
|Accumulated postretirement benefit obligation at end of year       |  |      | 27.5  |   |      |   | 32.6  |  
|                                                                   |  |      |       |   |      |   |       |  
|                                                                   |  |      |      
|Change in postretirement plan assets:                              |  |      |       |   |      |   |       |  
|Fair value of plan assets at beginning of year                     |  |      | 12.2  |   |      |   | 11.6  |  
|Actual gain on plan assets                                         |  |      | 1.6   |   |      |   | 0.2   |  
|Employer contributions                                             |  |      | 1.0   |   |      |   | 1.2   |  
|Benefits paid and estimated expenses                               |  |      | (0.5  | ) |      |   | (0.8  | )
|                                                                   |  |      |       |   |      |   |       |  
|                                                                   |  |      |      
|Fair value of plan assets at end of year                           |  |      | 14.3  |   |      |   | 12.2  |  
|                                                                   |  |      |       |   |      |   |       |  
|                                                                   |  |      |      
|Funded status                                                      |  |      | (13.2 | ) |      |   | (20.4 | )
|Unrecognized net actuarial loss                                    |  |      | 9.1   |   |      |   | 10.7  |  
|Unrecognized prior service cost                                    |  |      | (7.7  | ) |      |   | (0.9  | )
|                                                                   |  |      |       |   |      |   |       |  
|                                                                   |  |      |      
|Accrued benefit cost                                               |  | $    | (11.8 | ) |      | $ | (10.6 | )
|                                                                   |  |      |       |   |      |   |       |  
|                                                                   | 



Amounts recognized in
the statement of financial position consist of:



|                      |  |      |       |   |      |   |       |  
|--------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|(In millions)         |  | 2003 |       |   | 2002 |  
|                      | 
|Prepaid benefit cost  |  | $    |      |   |      | $ |      |  
|Accrued benefit cost  |  |      | (11.8 | ) |      |   | (10.6 | )
|                      |  |      |       |   |      |   |       |  
|                      |  |      |      
|Net amount recognized |  | $    | (11.8 | ) |      | $ | (10.6 | )
|                      |  |      |       |   |      |   |       |  
|                      | 



The projected
discounted cash flow obligation for the postretirement plan at December 31, 2003 was $47.3 million.

For the postretirement benefit plan,
the assumed health care cost trend rates were as follows for the years ended December 31:



|                                                                                     |  |       |   |  |       |  
|------------------------------------------------------------------------------------ |  | ----- | - |  | ----- | -
|                                                                                     |  | 2003  |   |  | 2002  |  
|                                                                                     | 
|Health care cost trend rate assumed for next year:                                   |  |       |   |  |       |  
|Medical                                                                              |  | 10.00 | % |  | 12.00 | %
|Prescription                                                                         |  | 14.00 |   |  | 18.00 |  
|HMO (blended)                                                                        |  | 11.10 |   |  | 13.50 |  
|Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)(1) |  | 5.25  |   |  | 5.25  |  
|                                                                                     |  |       |   |  |       |  
|                                                                                     | 

| | (1) | Year that the rate reaches the ultimate trend is 2009
| | --- | -----------------------------------------------------



StanCorp Financial Group, Inc.

44



---



Assumed health care cost
trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:



|                                             |  |                  |     |                  |   |      |  
|-------------------------------------------- |  | ---------------- | --- | ---------------- | - | ---- | -
|(In millions)                                |  | 1% PointIncrease |     | 1% PointDecrease |  
|                                             | 
|Effect on total of service and interest cost |  | $                | 0.6 |                  | $ | (0.5 | )
|Effect on postretirement benefit obligation  |  |                  | 4.8 |                  |   | (3.8 | )
|                                             |  |                  |     |                  |   |      |  
|                                             | 



The Companys
actual weighted average asset allocations for the postretirement benefit plans were the same as target allocation100% debt securities at December 31, 2003 and 2002. These debt securities have long term maturities and fixed coupon rates. The
coupon payments are normally paid quarterly and semiannually.

Net periodic benefit cost and obligation assumptions used in the measurement
of the postretirement benefit obligations were as follows for the years ended December 31:



|                                                   |  |      |      |   |      |   |              |      |  |   |              |  
|-------------------------------------------------- |  | ---- | ---- | - | ---- | - | ------------ | ---- |  | - | ------------ | -
|(Dollars in millions)                              |  | 2003 |      |   | 2002 |   |              | 2001 | 
|                                                   | 
|Service cost                                       |  | $    | 1.5  |   |      | $ | 1.8          |      |  | $ | 0.7          |  
|Interest cost                                      |  |      | 1.6  |   |      |   | 2.0          |      |  |   | 1.2          |  
|Expected return on plan assets                     |  |      | (0.7 | ) |      |   | (0.6         | )    |  |   | (0.5         | )
|Amortization of prior service cost                 |  |      | (0.5 | ) |      |   |             |      |  |   |             |  
|Amortization of net actuarial (gain) loss          |  |      | 0.3  |   |      |   | 0.2          |      |  |   | (0.1         | )
|                                                   |  |      |      |   |      |   |              |      |  |   |              |  
|                                                   |  |      |     
|Net periodic benefit cost                          |  | $    | 2.2  |   |      | $ | 3.4          |      |  | $ | 1.3          |  
|                                                   |  |      |      |   |      |   |              |      |  |   |              |  
|                                                   | 
|Weighted average assumptions:                      |  |      |      |   |      |   |              |      |  |   |              |  
|Assumptions used for net periodic benefit cost:    |  |      |      |   |      |   |              |      |  |   |              |  
|Discount rate                                      |  |      | 6.75 | % |      |   | 7.50         | %    |  |   | 7.75         | %
|Expected return on plan assets                     |  |      | 5.50 |   |      |   | 5.50         |      |  |   | 5.00         |  
|Rate of compensation increase graded by            |  |      | age  |   |      |   | age &service |      |  |   | age &service |  
|Assumptions used to determine benefit obligations: |  |      |      |   |      |   |              |      |  |   |              |  
|Discount rate                                      |  |      | 6.25 | % |      |   | 6.75         | %    |  |   | 7.50         | %
|Rate of compensation increase graded by            |  |      | age  |   |      |   | age &service |      |  |   | age &service |  
|                                                   |  |      |      |   |      |   |              |      |  |   |              |  
|                                                   | 



The Company expects to
make contributions of $0.8 million to its postretirement benefit plan in 2004.

On December 8, 2003, the Medicare Prescription Drug,
Improvement and Modernization Act (the Act) was enacted. The provisions of the Act will impact the Companys postretirement benefit plan prescription drug benefits. However, the Company elects to defer the recognition of the effect
of the Act until specific authoritative guidance on accounting for the federal subsidy has been issued by the FASB. Therefore, the current financial statements do not reflect any of the Acts impact on the accumulated prescription benefit
obligation or net periodic postretirement benefit. When specific authoritative guidance on the accounting for the federal subsidy provided by the Act is issued, the Company may change previously reported
information. We do not expect this legislation to have a material impact on our financial statements.



12.   Stock-Based Compensation

The 1999 Omnibus Stock Incentive Plan authorizes the board of
directors of StanCorp to grant eligible employees certain incentive or non-statutory stock options, bonuses and performance stock options, restricted and foreign stock awards, and stock appreciation and cash bonus rights related to StanCorps
common stock. All options are granted at a stock price of not less than the market value at the date of the option grant and may be exercised for a period not exceeding ten years from the date of the grant. The maximum number of shares of common
stock that may be issued under this plan is 1.7 million. By the end of 2003, 1.6 million shares, or options for shares, had been issued under this plan.

In 2002, we adopted the 2002 Stock Incentive Plan. This plan authorizes the board of directors to grant eligible employees and certain related parties incentive or non-statutory stock options and restricted stock. The
maximum number of shares of common stock that may be issued under this plan is 1.5 million. By the end of 2003, options for 266,409 shares had been issued under the 2002 plan.

During 2003, options were granted under the 2002 Stock Incentive Plan to purchase 272,859 shares of common stock at prices ranging from $47.31 to $62.70
per share. These options were granted to members of StanCorps board of directors and employee groups consisting of officer and non-officer employees. Members of StanCorps board of directors received grants of options totaling 46,709
shares of common stock. Officers and other employees received grants of options totaling 226,150 shares of common stock. The employee options are subject to a four year annual step-vesting schedule beginning one year after the date of grant.
Directors options are vested in one year.

The following tables set forth option activity under the stock-based compensation plan for
the years ended December 31:



|                    |  |           |   |      |                      |       |        |           |   |                      |   |        |  |         |                      |  |   |      
|------------------- |  | --------- | - | ---- | -------------------- | ----- | ------ | --------- | - | -------------------- | - | ------ |  | ------- | -------------------- |  | - | -----
|                    |  | 2003      |   | 2002 |                      | 2001 
|                   
|                    |  | Shares    |   |      | WeightedAveragePrice |       | Shares |           |   | WeightedAveragePrice |   | Shares |  |         | WeightedAveragePrice
|                   
|Beginning of period |  | 1,117,311 |   |      | $                    | 35.75 |        | 978,766   |   |                      | $ | 28.22  |  | 827,470 |                      |  | $ | 23.95
|Granted             |  | 272,859   |   |      |                      | 49.75 |        | 315,050   |   |                      |   | 53.35  |  | 221,900 |                      |  |   | 42.89
|Exercised           |  | (229,273  | ) |      |                      | 24.23 |        | (153,251  | ) |                      |   | 24.16  |  | (57,875 | )                    |  |   | 23.99
|Canceled            |  | (13,488   | ) |      |                      | 48.99 |        | (23,254   | ) |                      |   | 33.67  |  | (12,729 | )                    |  |   | 23.93
|                    |  |           |   |      |                      |       |        |           |   |                      |   |        |  |         |                      |  |   |      
|                    |  |          
|End of period       |  | 1,147,409 |   |      |                      | 41.23 |        | 1,117,311 |   |                      |   | 35.75  |  | 978,766 |                      |  |   | 28.22
|Exercisable         |  | 585,904   |   |      | $                    | 33.21 |        | 615,813   |   |                      | $ | 25.32  |  | 541,999 |                      |  | $ | 23.61
|                    |  |           |   |      |                      |       |        |           |   |                      |   |        |  |         |                      |  |   |      
|                   



StanCorp Financial Group, Inc.

45



---





Part II



Options outstanding at December 31, 2003 had the following characteristics:



|                      |             |                    |           |                                             |     |                       |   |                   |  |                         |  |   |      
|--------------------- | ----------- | ------------------ | --------- | ------------------------------------------- | --- | --------------------- | - | ----------------- |  | ----------------------- |  | - | -----
|                      |             | OptionsOutstanding |           | OptionsExercisable                         
|                     
|Range ofExercisePrice |             | NumberOutstanding  |           | Wt. AverageRemainingContractualLife (years) |     | Wt. Avg.ExercisePrice |   | NumberExercisable |  | Wt.AverageExercisePrice
|                     
|$                     | 20.00-30.00 |                    | 363,378   |                                             | 5.5 |                       | $ | 23.94             |  | 363,378                 |  | $ | 23.94
|                      | 30.01-40.00 |                    | 8,417     |                                             | 6.7 |                       |   | 35.16             |  | 7,792                   |  |   | 34.83
|                      | 40.01-50.00 |                    | 430,979   |                                             | 7.8 |                       |   | 46.03             |  | 110,712                 |  |   | 43.25
|                      | 50.01-60.00 |                    | 343,135   |                                             | 7.8 |                       |   | 53.56             |  | 104,022                 |  |   | 54.80
|                      | 60.01-70.00 |                    | 1,500     |                                             | 9.9 |                       |   | 62.61             |  |                        |  |   |     
|                      |             |                    |           |                                             |     |                       |   |                   |  |                         |  |   |      
|                     
|                      |             |                    | 1,147,409 |                                             | 7.1 |                       | $ | 41.23             |  | 585,904                 |  | $ | 33.21
|                      |             |                    |           |                                             |     |                       |   |                   |  |                         |  |   |      
|                     



The weighted-average
grant date fair value of option awards in 2003, 2002, and 2001 was $18.28, $21.14, and $20.95, respectively.

The Company grants to certain
key management employees restricted stock in which full ownership is not vested until the attainment of certain financial benchmarks (performance shares), or the completion of a specified period of employment with the Company
(retention shares). Performance shares were first issued in 2000 and will be released, subject to the attainment of financial goals, through 2004. The Companys experience with performance shares through 2003 has been as follows:



|                        |  |         |   |  |         |   |  |         |  
|----------------------- |  | ------- | - |  | ------- | - |  | ------- | -
|                        |  | 2003    |   |  | 2002    |   |  | 2001    |  
|                        | 
|Beginning of the period |  | 156,974 |   |  | 155,000 |   |  | 175,000 |  
|Shares granted          |  |        |   |  | 40,000  |   |  | 8,000   |  
|Shares released         |  | (50,466 | ) |  | (29,526 | ) |  | (28,000 | )
|Shares canceled         |  |        |   |  | (8,500  | ) |  |        |  
|                        |  |         |   |  |         |   |  |         |  
|                        |  |         |  
|Restricted at year end  |  | 106,508 |   |  | 156,974 |   |  | 155,000 |  
|                        |  |         |   |  |         |   |  |         |  
|                        | 



Also during 2003,
19,000 retention shares were granted. These shares had a grant date fair value of $48.81.

The Companys Employee Share Purchase Plan
allows eligible employees to purchase common stock at 85% of the lesser of the fair market value of the stock on either the commencement date of each six month offering period or the end-of-the-period purchase date. Under the terms of the plan, each
eligible employee may elect to have up to 10% of the employees gross total cash compensation for the period withheld to purchase common stock. No employee may purchase common stock having a fair market value in excess of $25,000 in any
calendar year.



13.   Reinsurance

We manage risk through diversification of products, industry, geography, and customers. Product diversification also yields risk-based capital synergies
because of the varying capital requirements for different risks assumed. In addition, we manage risks by ceding exposure over certain limits.



To limit our exposure to large losses, we transfer insurance liability to others by entering into reinsurance agreements. Under these reinsurance
agreements, the maximum liability retention limit per individual for group life and AD&D policies combined is $500,000. For group disability policies, the maximum retention limit is $10,000 gross monthly benefit per individual. Except for
certain policies in the block of business we assumed from Minnesota Life in 2000, the maximum retention for individual disability policies is generally $3,500 monthly benefit per individual. On certain policies in the Minnesota Life block, Standard
has a maximum retention limit of $6,000 monthly benefit per individual.

Standard is involved in a reinsurance and third-party
administration arrangement with The Northwestern Mutual Life Insurance Company (Northwestern Mutual) under which group long term and short term disability products are sold using Northwestern Mutuals agency distribution system.
Generally, Standard assumes 60% of the risk, and receives 60% of the premiums for the policies issued. Premiums assumed by Standard for the Northwestern Mutual business accounted for 3.5%, 3.6%, and 3.9% of the Companys total premiums in 2003,
2002, and 2001, respectively. In addition to assuming reinsurance risk, Standard provides product design, pricing, state regulatory filings, underwriting, legal support, claims management and other administrative services under the arrangement. If
Standard were to become unable to meet its obligations, Northwestern Mutual would retain the reinsured liabilities. Therefore, in accordance with an agreement with Northwestern Mutual, Standard established a trust for the benefit of Northwestern
Mutual with the market value of assets in the trust equal to Northwestern Mutuals reinsurance receivable from Standard. The market value of assets required to be maintained in the trust at December 31, 2003 was $181.8 million.

During 2002, Standard formed a strategic marketing alliance with Ameritas Life Insurance Corp. (Ameritas) that offers Standards
policyholders new and more flexible dental coverage options and access to Ameritas nationwide preferred provider organization panel of dentists. As part of this alliance, Standard and Ameritas entered into a reinsurance agreement that provides
for approximately 15% of the net dental premiums written by Standard to be ceded to Ameritas.

In addition to product-specific reinsurance
arrangements, we have maintained reinsurance coverage in the past for certain catastrophe losses related to group life and AD&D. Subsequent to the terrorist events of September 11, 2001, the availability of reinsurance for catastrophe coverage
became less certain and more expensive. Accordingly, we en
-



StanCorp Financial Group, Inc.

46



---



tered into a catastrophe reinsurance pool
with other insurance companies. This pool spreads catastrophe losses on group life and AD&D over approximately 35 participating members. The reinsurance pool exposes us to potential losses experienced by other participating members. However,
through this pool, our catastrophe reinsurance coverage is increased to approximately $265 million per event. If the Company had been in the pool on September 11, 2001, the estimated pre-tax charges related to the terrorist events would have been
approximately $15 million compared topre-tax charges of $5 million actually incurred. An occurrence of a significant catastrophic event or a change in the on-going nature and availability of reinsurance
and catastrophe reinsurance could have a material adverse effect on the Companys business, financial position, results of operations or cash flows. The annual fees paid by the Company to participate in the pool and claims to date have been
immaterial.

The following table sets forth reinsurance information at or for the years ended December 31:



|                              |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|----------------------------- |  | ----------- | --------- | ---------------------- | - | ------------------------- |  | --------- | -------- | -------------------------------- | - | --------- |  | ---- | -
|(Dollars in millions)         |  | GrossAmount |           | Ceded toOtherCompanies |   | AssumedFromOtherCompanies |  | NetAmount |          | Percentageof AmountAssumedto Net |  
|                              | 
|2003:                         |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|Life insurance in force       |  | $           | 189,998.2 |                        | $ | 6,145.3                   |  | $         | 13,188.2 |                                  | $ | 197,041.1 |  | 6.7  | %
|                              |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|                              |  |             |          
|Premiums:                     |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|Life insurance and annuities  |  | $           | 602.1     |                        | $ | 73.9                      |  | $         | 52.9     |                                  | $ | 581.1     |  | 9.1  | %
|Accident and health insurance |  |             | 857.3     |                        |   | 46.7                      |  |           | 217.6    |                                  |   | 1,028.2   |  | 21.2 |  
|                              |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|                              |  |             |          
|Total premiums                |  | $           | 1,459.4   |                        | $ | 120.6                     |  | $         | 270.5    |                                  | $ | 1,609.3   |  | 16.8 | %
|                              |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|                              |  |             |          
|2002:                         |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|Life insurance in force       |  | $           | 172,615.9 |                        | $ | 6,398.6                   |  | $         | 25,514.6 |                                  | $ | 191,731.9 |  | 13.3 | %
|                              |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|                              |  |             |          
|Premiums:                     |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|Life insurance and annuities  |  | $           | 538.8     |                        | $ | 79.0                      |  | $         | 16.2     |                                  | $ | 476.0     |  | 3.4  | %
|Accident and health insurance |  |             | 805.6     |                        |   | 36.9                      |  |           | 138.6    |                                  |   | 907.3     |  | 15.3 |  
|                              |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|                              |  |             |          
|Total premiums                |  | $           | 1,344.4   |                        | $ | 115.9                     |  | $         | 154.8    |                                  | $ | 1,383.3   |  | 11.2 | %
|                              |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|                              |  |             |          
|2001:                         |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|Life insurance in force       |  | $           | 148,914.5 |                        | $ | 6,851.7                   |  | $         |         |                                  | $ | 142,062.8 |  |     | %
|                              |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|                              |  |             |          
|Premiums:                     |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|Life insurance and annuities  |  | $           | 535.1     |                        | $ | 85.7                      |  | $         |         |                                  | $ | 449.4     |  |     | %
|Accident and health insurance |  |             | 684.1     |                        |   | 17.7                      |  |           | 115.9    |                                  |   | 782.3     |  | 14.8 |  
|                              |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|                              |  |             |          
|Total premiums                |  | $           | 1,219.2   |                        | $ | 103.4                     |  | $         | 115.9    |                                  | $ | 1,231.7   |  | 9.4  | %
|                              |  |             |           |                        |   |                           |  |           |          |                                  |   |           |  |      |  
|                              | 





Recoveries recognized under reinsurance agreements were $50.3 million, $42.4 million and $34.9 million for 2003, 2002, and 2001, respectively. Amounts
recoverable from reinsurers were $871.9 million and $873.9 million at December 31, 2003 and 2002, respectively. Of these amounts, $777.5 million and $809.3 million were from the reinsurance transaction with Protective Life Insurance Company
(Protective Life) effective January 1, 2001. See Note 14, Reinsurance of Blocks of Business.



14.   Reinsurance of Blocks of Business

Effective October 1, 2002, Standard entered into a reinsurance agreement with TIAA to assume TIAAs group disability and group life insurance business. This business included approximately 1,800 group insurance contracts, representing
650,000 insured individuals. Standard paid a ceding commission of approximately $75 million and received approximately $705 million in assets and corresponding statutory liabilities. If Standard were to become unable to meet its obligations, TIAA
would retain the reinsured liabilities. In accordance with the agreement with TIAA, Standard established a trust for the benefit of TIAA with the market value of assets in the trust equal to TIAAs
reinsurance receivable from Standard. The market value of assets required to be maintained in the trust is determined quarterly. The market value of assets required to be maintained in the trust at December 31, 2003 was approximately $726 million.
Approximately $60 million in VOBA was capitalized related to the reinsurance agreement.

Effective October 1, 2000, Standard assumed through
a reinsurance agreement, the individual disability insurance business of Minnesota Life. Standard paid a ceding commission of approximately $55 million and received approximately $500 million in assets and corresponding statutory liabilities. If
Standard were to become unable to meet its obligations, Minnesota Life would retain the reinsured liabilities. Therefore, in accordance with the agreement with Minnesota Life, Standard established a trust for the benefit of Minnesota Life with the
market value of assets in the trust equal to Minnesota Lifes reinsurance receivable from Stan
-



StanCorp Financial Group, Inc.

47



---





Part II



dard. The trust is
required to be trued up quarterly. The market value of assets required to be maintained in the trust at December 31, 2003 was $574 million. Accompanying the transaction was a national marketing agreement that provides access to Minnesota Life
agents, some of whom now market Standards individual disability insurance products. We recently signed an extension of the national marketing agreement through 2007.

Effective January 1, 2001, Standard ceded to Protective Life, through a reinsurance agreement Standards individual life insurance product line. Standard received aceding commission of approximately $90 million and transferred to Protective Life approximately $790 million in assets and corresponding statutory liabilities. If Protective Life were to become unable to meet its obligations, Standard would
retain the reinsured liabilities. Therefore, the liabilities remain on Standards books and an equal amount is recorded as a recoverable from reinsurer. In accordance with the agreement, Protective Life established a trust for the benefit of
Standard with assets in the trust required to be equal to Standards reinsurance receivable from Protective Life.





15.   Insurance Information

The following table sets forth insurance information at or for the years ended December 31:



|                     |  |                          |       |                               |   |                         |  |                |         |                     |   |                                   |  |                                         |       |  |                        |         |  |   |      |   |  |   |      
|-------------------- |  | ------------------------ | ----- | ----------------------------- | - | ----------------------- |  | -------------- | ------- | ------------------- | - | --------------------------------- |  | --------------------------------------- | ----- |  | ---------------------- | ------- |  | - | ---- | - |  | - | -----
|(In millions)        |  | DeferredAcquisitionCosts |       | FuturePolicyBenefitsandClaims |   | OtherPolicy-holderFunds |  | PremiumRevenue |         | NetInvestmentIncome |   | Benefits,ClaimsandInterestExpense |  | Amortizationof DeferredAcquisitionCosts |       |  | OtherOperatingExpenses
|                    
|2003:                |  |                          |       |                               |   |                         |  |                |         |                     |   |                                   |  |                                         |       |  |                        |         |  |   |      |   |  |   |      
|Employee Benefits    |  | $                        | 86.3  |                               | $ | 2,941.1                 |  | $              | 224.1   |                     | $ | 1,500.6                           |  | $                                       | 253.9 |  | $                      | 1,219.9 |  | $ | 25.9 |   |  | $ | 346.3
|Individual Insurance |  |                          | 107.6 |                               |   | 1,282.1                 |  |                | 1,056.1 |                     |   | 85.4                              |  |                                         | 109.3 |  |                        | 111.1   |  |   | 9.1  |   |  |   | 46.5 
|Retirement Plans     |  |                          | 6.8   |                               |   | 71.7                    |  |                | 820.1   |                     |   | 23.3                              |  |                                         | 56.1  |  |                        | 41.8    |  |   | (0.5 | ) |  |   | 32.3 
|                     |  |                          |       |                               |   |                         |  |                |         |                     |   |                                   |  |                                         |       |  |                        |         |  |   |      |   |  |   |      
|                     |  |                         
|Total                |  | $                        | 200.7 |                               | $ | 4,294.9                 |  | $              | 2,100.3 |                     | $ | 1,609.3                           |  | $                                       | 419.3 |  | $                      | 1,372.8 |  | $ | 34.5 |   |  | $ | 425.1
|                     |  |                          |       |                               |   |                         |  |                |         |                     |   |                                   |  |                                         |       |  |                        |         |  |   |      |   |  |   |      
|                     |  |                         
|2002:                |  |                          |       |                               |   |                         |  |                |         |                     |   |                                   |  |                                         |       |  |                        |         |  |   |      |   |  |   |      
|Employee Benefits    |  | $                        | 92.3  |                               | $ | 2,762.7                 |  | $              | 205.4   |                     | $ | 1,284.3                           |  | $                                       | 207.0 |  | $                      | 1,034.1 |  | $ | 15.1 |   |  | $ | 304.3
|Individual Insurance |  |                          | 95.6  |                               |   | 1,278.1                 |  |                | 948.6   |                     |   | 80.0                              |  |                                         | 107.0 |  |                        | 114.9   |  |   | 7.9  |   |  |   | 40.8 
|Retirement Plans     |  |                          | 3.0   |                               |   | 74.1                    |  |                | 710.5   |                     |   | 19.0                              |  |                                         | 52.9  |  |                        | 40.4    |  |   | 0.3  |   |  |   | 31.5 
|                     |  |                          |       |                               |   |                         |  |                |         |                     |   |                                   |  |                                         |       |  |                        |         |  |   |      |   |  |   |      
|                     |  |                         
|Total                |  | $                        | 190.9 |                               | $ | 4,114.9                 |  | $              | 1,864.5 |                     | $ | 1,383.3                           |  | $                                       | 366.9 |  | $                      | 1,189.4 |  | $ | 23.3 |   |  | $ | 376.6
|                     |  |                          |       |                               |   |                         |  |                |         |                     |   |                                   |  |                                         |       |  |                        |         |  |   |      |   |  |   |      
|                     |  |                         
|2001:                |  |                          |       |                               |   |                         |  |                |         |                     |   |                                   |  |                                         |       |  |                        |         |  |   |      |   |  |   |      
|Employee Benefits    |  | $                        | 28.2  |                               | $ | 1,858.9                 |  | $              | 206.0   |                     | $ | 1,129.5                           |  | $                                       | 187.3 |  | $                      | 931.9   |  | $ | 11.5 |   |  | $ | 255.9
|Individual Insurance |  |                          | 85.9  |                               |   | 1,264.9                 |  |                | 846.0   |                     |   | 81.2                              |  |                                         | 98.9  |  |                        | 118.4   |  |   | 7.9  |   |  |   | 35.3 
|Retirement Plans     |  |                          | 1.0   |                               |   | 74.7                    |  |                | 676.9   |                     |   | 21.0                              |  |                                         | 52.1  |  |                        | 45.0    |  |   |     |   |  |   | 28.3 
|                     |  |                          |       |                               |   |                         |  |                |         |                     |   |                                   |  |                                         |       |  |                        |         |  |   |      |   |  |   |      
|                     |  |                         
|Total                |  | $                        | 115.1 |                               | $ | 3,198.5                 |  | $              | 1,728.9 |                     | $ | 1,231.7                           |  | $                                       | 338.3 |  | $                      | 1,095.3 |  | $ | 19.4 |   |  | $ | 319.5
|                     |  |                          |       |                               |   |                         |  |                |         |                     |   |                                   |  |                                         |       |  |                        |         |  |   |      |   |  |   |      
|                    



DAC and related
amortization include VOBA. Other operating expenses include operating expenses, commissions and bonuses, and the net increase in DAC.



16.   Regulatory Matters

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 (SSAP), set forth in publications of the National Association of Insurance Commissioners (NAIC).

In March 1998, the NAIC adopted the Codification of Statutory Accounting Principles (Codification), which became effective January 1, 2001.
Codification standardized regulatory accounting and reporting among state insurance departments. However, statutory accounting principles alsowill continue to be established by individual state laws and
permitted practices. The Companys adoption of Codification increased statutory capital and surplus as of January 1, 2001 by approximately $6.1 million. As of January 1, 2003, an additional increase of $6.2 million in surplus was reported in
accordance with SSAP 37 to release the unamortized mortgage prepayment penalties included in the Interest Maintenance Reserves (IMR). Beginning in 2003, mortgage prepayment penalties are reported as investment income instead of realized
capital gains, which are subject to the IMR amortization. The effect of this accounting change on 2003 statutory net income was an increase of $5.8 million.

Statutory accounting practices differ in some respects from GAAP. The principal statutory practices which differ



StanCorp Financial Group, Inc.

48



---



from GAAP are: a) bonds and commercial
mortgage loans are reported principally at amortized cost; b) asset valuation and interest maintenance reserves are provided as prescribed by the NAIC; c) certain assets designated as non-admitted, principally deferred tax assets, furniture,
equipment, and unsecured receivables, are not recognized as assets, resulting in a charge to statutory surplus; d) annuity considerations with life contingencies, or purchase rate guarantees, are recognized as income when received; e) reserves for
life and disability policies and contracts are reported net of ceded reinsurance and calculated based on statutory requirements, including required discount rates; f) commissions, including initial commissions and expense allowance paid for
reinsurance assumed, and other policy acquisition expenses are expensed as incurred; g) initial commissions and expense allowance received for a block of reinsurance ceded net of taxes are reported as deferred gains in surplus and recognized as
income in subsequent periods; h) federal income tax expense includes current income taxes defined as current year estimates of federal income taxes and tax contingencies for current and all prior years and amounts incurred or received during the
year relating to prior periods, to the extent not previously provided; i) deferred tax assets, net of deferred tax liabilities, are included in the regulatory financial statements, and represent the expected future tax consequences of differences
between the tax and the financial statement bases of assets and liabilities; and j) surplus notes are included in capital and surplus.

Standard and The Standard Life Insurance Company of New York are subject to statutory restrictions that limit the maximum amount of dividends and distributions that they could declare and pay to StanCorp without prior approval of the states
in which the subsidiaries are domiciled. In August 2003, Standard made an extraordinary distribution of $200 million to StanCorp from Standards paid-in capital and contributed surplus. Concurrently, Standard borrowed the distributed amount
from StanCorp and issued a $200 million subordinate 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 to fundthe 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 NAIC with respect to surplus notes, including provisions requiring the approval of the Oregon Department 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. In addition, as long as the surplus note is outstanding, distributions from Standard will first be applied to
repayment of the principal balance and interest on the surplus note.

State insurance departments require insurance enterprises to adhere to
minimum Risk-Based Capital (RBC) requirements promulgated by the NAIC. At December 31, 2003 and 2002, the insurance subsidiaries RBC levels were significantly in excess of that which would require corrective action by the insurance
subsidiaries or regulatory agencies. The authorized control level RBC was $145.6 million and $141.0 million of statutory capital and surplus at December 31, 2003 and 2002, respectively.

The following table reconciles the statutory capital and surplus of the insurance subsidiaries as reported to state insurance regulatory authorities with
the Companys GAAP equity at December 31:



|                                                      |  |      |         |   |      |   |         |  
|----------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|(In millions)                                         |  | 2003 |         |   | 2002 |  
|                                                      | 
|Statutory capital and surplus                         |  | $    | 876.1   |   |      | $ | 817.6   |  
|Adjustments to reconcile to GAAP equity:              |  |      |         |   |      |   |         |  
|Future policy benefits and other policyholder funds   |  |      | 137.7   |   |      |   | 139.9   |  
|Deferred acquisition costs                            |  |      | 100.1   |   |      |   | 75.8    |  
|Deferred tax liabilities                              |  |      | (200.5  | ) |      |   | (211.9  | )
|Federal income taxes accrued                          |  |      | 23.8    |   |      |   | 42.3    |  
|Reinsurance receivable                                |  |      | 84.7    |   |      |   | 66.3    |  
|Premiums receivable                                   |  |      | (6.3    | ) |      |   | (8.6    | )
|Asset valuation reserve                               |  |      | 54.3    |   |      |   | 35.8    |  
|Interest maintenance reserve                          |  |      | 2.3     |   |      |   | 3.1     |  
|Valuation of investments                              |  |      | 163.6   |   |      |   | 143.8   |  
|Equity of StanCorp and its non-insurance subsidiaries |  |      | 10.3    |   |      |   | (233.5  | )
|Non-admitted assets                                   |  |      | 178.4   |   |      |   | 171.5   |  
|Surplus note                                          |  |      | (200.0  | ) |      |   |        |  
|Reinsurance assumed                                   |  |      | 100.7   |   |      |   | 115.1   |  
|Other, net                                            |  |      | (15.7   | ) |      |   | (4.6    | )
|                                                      |  |      |         |   |      |   |         |  
|                                                      |  |      |        
|GAAP equity                                           |  | $    | 1,309.5 |   |      | $ | 1,152.6 |  
|                                                      |  |      |         |   |      |   |         |  
|                                                      | 



StanCorp Financial Group, Inc.

49



---





Part II



The
following table reconciles statutory gain from operations as reported to insurance regulatory authorities with GAAP net income for the years ended December 31:



|                                                                               |  |      |       |   |      |   |       |      |  |   |       |  
|------------------------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|(In millions)                                                                  |  | 2003 |       |   | 2002 |   |       | 2001 | 
|                                                                               | 
|Statutory gain from operations                                                 |  | $    | 137.7 |   |      | $ | 19.1  |      |  | $ | 128.4 |  
|Adjustments to reconcile to GAAP net income:                                   |  |      |       |   |      |   |       |      |  |   |       |  
|Future policy benefits and other policyholder funds                            |  |      | 16.2  |   |      |   | (7.5  | )    |  |   | 13.6  |  
|Deferred acquisition costs and value of business acquired, net of amortization |  |      | 12.3  |   |      |   | 15.8  |      |  |   | 16.3  |  
|Deferred income taxes                                                          |  |      | 18.3  |   |      |   | 14.3  |      |  |   | (61.8 | )
|Current income taxes                                                           |  |      | (26.6 | ) |      |   | 3.5   |      |  |   | (5.0  | )
|Earnings of StanCorp and its non-insurance subsidiaries                        |  |      | 3.6   |   |      |   | 0.4   |      |  |   | 1.3   |  
|Reinsurance ceding commission, net of tax                                      |  |      | (7.6  | ) |      |   | 69.2  |      |  |   |      |  
|Other, net                                                                     |  |      | 2.4   |   |      |   | (3.8  | )    |  |   | 13.2  |  
|                                                                               |  |      |       |   |      |   |       |      |  |   |       |  
|                                                                               |  |      |      
|GAAP net income                                                                |  | $    | 156.3 |   |      | $ | 111.0 |      |  | $ | 106.0 |  
|                                                                               |  |      |       |   |      |   |       |      |  |   |       |  
|                                                                               | 



17.   Parent Holding Company
Condensed Financial Information

Set forth below are the unconsolidated condensed financial statements of StanCorp. The significant
accounting policies used in preparing the financial statements are substantially the same as those used in the preparation of the consolidated financial statements of the Company except that StanCorps subsidiaries are carried under the equity
method.

The following table presents StanCorps condensed statements of income for the years ended December 31:



|                                                                  |  |      |       |   |      |   |       |      |  |   |       |  
|----------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|(In millions)                                                     |  | 2003 |       |   | 2002 |   |       | 2001 | 
|                                                                  | 
|Revenues:                                                         |  |      |       |   |      |   |       |      |  |   |       |  
|Net investment income                                             |  | $    |      |   |      | $ |      |      |  | $ | 0.5   |  
|                                                                  |  |      |       |   |      |   |       |      |  |   |       |  
|                                                                  |  |      |      
|Total                                                             |  |      |      |   |      |   |      |      |  |   | 0.5   |  
|                                                                  |  |      |       |   |      |   |       |      |  |   |       |  
|                                                                  |  |      |      
|Expenses:                                                         |  |      |       |   |      |   |       |      |  |   |       |  
|Interest expense                                                  |  |      | 17.6  |   |      |   | 5.6   |      |  |   | 1.9   |  
|Operating expenses                                                |  |      | 3.2   |   |      |   | 2.7   |      |  |   | 2.6   |  
|                                                                  |  |      |       |   |      |   |       |      |  |   |       |  
|                                                                  |  |      |      
|Total                                                             |  |      | 20.8  |   |      |   | 8.3   |      |  |   | 4.5   |  
|                                                                  |  |      |       |   |      |   |       |      |  |   |       |  
|                                                                  |  |      |      
|Loss before income taxes and equity in net income of subsidiaries |  |      | (20.8 | ) |      |   | (8.3  | )    |  |   | (4.0  | )
|Income taxes                                                      |  |      | (2.9  | ) |      |   | (0.3  | )    |  |   | 0.7   |  
|Surplus note interest, affiliated entity                          |  |      | 4.3   |   |      |   |      |      |  |   |      |  
|Equity in net income of subsidiaries                              |  |      | 169.9 |   |      |   | 119.0 |      |  |   | 110.7 |  
|                                                                  |  |      |       |   |      |   |       |      |  |   |       |  
|                                                                  |  |      |      
|Net income                                                        |  | $    | 156.3 |   |      | $ | 111.0 |      |  | $ | 106.0 |  
|                                                                  |  |      |       |   |      |   |       |      |  |   |       |  
|                                                                  | 





The following table presents StanCorps condensed balance sheets at December 31:



|                                                        |  |      |         |      |   |         |  |   |        
|------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|(In millions)                                           |  | 2003 |         | 2002 |   | 2001   
|                                                       
|Assets                                                  |  |      |         |      |   |         |  |   |        
|Cash and cash equivalents                               |  | $    | 12.4    |      | $ | 0.1     |  | $ | 0.6    
|Investment in subsidiaries                              |  |      | 1,315.5 |      |   | 1,405.7 |  |   | 1,027.6
|Receivable from subsidiaries                            |  |      | 19.7    |      |   | 10.6    |  |   | 25.7   
|Surplus note and interest receivable, affiliated entity |  |      | 204.3   |      |   |        |  |   |       
|Other assets                                            |  |      | 16.7    |      |   | 14.5    |  |   | 10.1   
|                                                        |  |      |         |      |   |         |  |   |        
|                                                        |  |     
|Total                                                   |  | $    | 1,568.6 |      | $ | 1,430.9 |  | $ | 1,064.0
|                                                        |  |      |        
|Liabilities And Shareholders Equity                    |  |      |         |      |   |         |  |   |        
|Payable to subsidiaries                                 |  | $    | 0.1     |      | $ | 17.4    |  | $ | 2.3    
|Other liabilities                                       |  |      | 259.0   |      |   | 260.9   |  |   | 88.0   
|Total shareholders equity                              |  |      | 1,309.5 |      |   | 1,152.6 |  |   | 973.7  
|                                                        |  |      |         |      |   |         |  |   |        
|                                                        |  |     
|Total                                                   |  | $    | 1,568.6 |      | $ | 1,430.9 |  | $ | 1,064.0
|                                                        |  |      |         |      |   |         |  |   |        
|                                                       



The following table
presents StanCorps condensed statements of cash flows for the years ended December 31:



|                                                    |  |      |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|(In millions)                                       |  | 2003 |        |   | 2002 |   |        | 2001 | 
|                                                    | 
|Operating:                                          |  |      |        |   |      |   |        |      |  |   |        |  
|Net income                                          |  | $    | 156.3  |   |      | $ | 111.0  |      |  | $ | 106.0  |  
|Change in operating assets and liabilities          |  |      | (22.0  | ) |      |   | 5.1    |      |  |   | 0.9    |  
|                                                    |  |      |        |   |      |   |        |      |  |   |        |  
|                                                    |  |      |       
|Net cash provided by operating activities           |  |      | 134.3  |   |      |   | 116.1  |      |  |   | 106.9  |  
|Investing:                                          |  |      |        |   |      |   |        |      |  |   |        |  
|Investment in subsidiaries                          |  |      | 25.0   |   |      |   | (320.5 | )    |  |   | (111.2 | )
|Dividends received from subsidiaries                |  |      | 78.1   |   |      |   | 56.5   |      |  |   | 95.5   |  
|Other investments                                   |  |      | (205.0 | ) |      |   | (0.1   | )    |  |   |       |  
|                                                    |  |      |        |   |      |   |        |      |  |   |        |  
|                                                    |  |      |       
|Net cash used in investing activities               |  |      | (101.9 | ) |      |   | (264.1 | )    |  |   | (15.7  | )
|Financing:                                          |  |      |        |   |      |   |        |      |  |   |        |  
|Receivable from (payable to) affiliates, net        |  |      | (7.7   | ) |      |   | 28.8   |      |  |   | (24.0  | )
|Line of credit, net                                 |  |      |       |   |      |   | (81.3  | )    |  |   | 16.3   |  
|Proceeds from issuance of senior notes              |  |      |       |   |      |   | 246.2  |      |  |   |       |  
|Issuance and repurchase of common stock, net        |  |      | 8.0    |   |      |   | (34.5  | )    |  |   | (78.9  | )
|Dividends on common stock                           |  |      | (20.4  | ) |      |   | (11.7  | )    |  |   | (9.2   | )
|                                                    |  |      |        |   |      |   |        |      |  |   |        |  
|                                                    |  |      |       
|Net cash provided by (used in) financing activities |  |      | (20.1  | ) |      |   | 147.5  |      |  |   | (95.8  | )
|Increase (decrease) in cash and cash equivalents    |  |      | 12.3   |   |      |   | (0.5   | )    |  |   | (4.6   | )
|Cash and cash equivalents, beginning of year        |  |      | 0.1    |   |      |   | 0.6    |      |  |   | 5.2    |  
|                                                    |  |      |        |   |      |   |        |      |  |   |        |  
|                                                    |  |      |       
|Cash and cash equivalents, end of year              |  | $    | 12.4   |   |      | $ | 0.1    |      |  | $ | 0.6    |  
|                                                    |  |      |        |   |      |   |        |      |  |   |        |  
|                                                    | 



StanCorp Financial Group, Inc.

50



---



18.   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 December 31, 2003. In some instances, lawsuits include claims for punitive damages and similar types of relief in unspecified or substantial amounts, in addition to amounts for alleged contractual liability
or other compensatory damages. In the opinion of management, the ultimate liability, if any, arising from the actions or proceedings is not expected to have a material adverse effect on the Companys business, financial position, results of
operations or cash flows.

We currently have two unsecured credit agreements for $75 million each with credit availability totaling $150
million, expiring 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. The financial covenants include limitations on indebtedness (funded debt to net worth less than or equal to 0.5 to 1.0), financial liquidity (fixed charge ratio greater or equal to 2.5 to 1.0 and statutory net income to total income
percentage greater than or equal to 0), and risk-based capital (greater than or equal to 175% of the company action level). We are not required to maintain compensating balances, but pay commitment fees. Interest charged for use of the facilities is
based on either the federal funds rate, the banks prime rate, or the London Interbank Offered Rate (LIBOR) at the time of borrowing. In addition, there is an incremental basis point charge, which varies by agreement, type of
borrowing, and the amount outstanding on the lines. At December 31, 2003 and 2002, 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 the lines of credit. We currently have no commitments for standby letters of credit, standby
repurchase obligations, or other related commercial commitments under the credit agreements.

The Company leases certain buildings and
equipment under non-cancelable capital and operating leases that expire in various years through 2011, with renewal options for periods ranging from one to five years. Future minimum payments under the leases are 2004, $12.8 million; 2005, $11.5
million; 2006, $8.9 million; 2007, $7.0 million; 2008, $5.8 million and thereafter, $4.3 million. Total rent expense was $12.2 million, $13.9 million and $12.0 million for theyears ended December 31,
2003, 2002, and 2001, respectively. At December 31, 2003, minimum future rental receivables on non-cancelable leases with initial terms of one year or more were 2004, $11.7 million; 2005, $10.2 million; 2006, $8.8 million; 2007, $8.1 million; 2008,
$6.5 million and thereafter, $13.6 million.

The Company has certain software maintenance, licensing, and telecommunications commitments
that expire in various years through 2008, with renewal options for a two-year period. Future minimum payments under these commitments are 2004, $1.3 million; 2005, $0.8 million; 2006, $0.2 million; 2007, $0.04 million; and 2008, $0.04 million.
Total expense for these agreements was $0.9 million, $1.2 million and $1.7 million for the years ended December 31, 2003, 2002, and 2001, respectively.

The following table summarizes the Companys contractual obligations as of December 31, 2003. The Companys financing obligations generally include debts, lease payment obligations, commitments to fund
commercial mortgage loans, and loan guarantees. The remaining obligations reflect purchase commitments for goods and services and the long-term liabilities portion of the Companys Other Liabilities. This table does not reflect the
Companys obligations under our insurance and annuity product contracts.



|                                                 |  |                        |       |                  |   |             |  |             |      |                   |   |      |  |   |      
|------------------------------------------------ |  | ---------------------- | ----- | ---------------- | - | ----------- |  | ----------- | ---- | ----------------- | - | ---- |  | - | -----
|                                                 |  | Payments due by period
|                                                
|(In millions)                                    |  | Total                  |       | Less than 1 year |   | 1 to 3years |  | 3 to 5years |      | More than 5 years
|                                                
|Contractual Obligations:                         |  |                        |       |                  |   |             |  |             |      |                   |   |      |  |   |      
|Short-term debtobligations                       |  | $                      | 2.7   |                  | $ | 2.7         |  | $           |     |                   | $ |     |  | $ |     
|Long-term debt obligations                       |  |                        | 272.0 |                  |   |            |  |             | 15.4 |                   |   | 0.4  |  |   | 256.2
|Interest on long-term obligations                |  |                        | 161.9 |                  |   | 17.8        |  |             | 35.4 |                   |   | 35.4 |  |   | 73.3 
|Capital lease obligations                        |  |                        | 0.6   |                  |   | 0.2         |  |             | 0.3  |                   |   | 0.1  |  |   |     
|Operating leaseobligations                       |  |                        | 52.1  |                  |   | 13.9        |  |             | 21.1 |                   |   | 12.8 |  |   | 4.3  
|Funding requirementsfor commercialmortgage loans |  |                        | 102.8 |                  |   | 102.8       |  |             |     |                   |   |     |  |   |     
|Purchase obligations                             |  |                        |      |                  |   |            |  |             |     |                   |   |     |  |   |     
|Other long-termliabilities according toGAAP      |  |                        | 51.7  |                  |   | 6.0         |  |             | 6.9  |                   |   | 4.5  |  |   | 34.3 
|                                                 |  |                        |       |                  |   |             |  |             |      |                   |   |      |  |   |      
|                                                 |  |                       
|Total                                            |  | $                      | 643.8 |                  | $ | 143.4       |  | $           | 79.1 |                   | $ | 53.2 |  | $ | 368.1
|                                                 |  |                        |       |                  |   |             |  |             |      |                   |   |      |  |   |      
|                                                



The Companys
long-term debt obligations consist primarily of the $250.0 million 6.875%, 10-year senior notes pursuant to the shelf registration statement. Total interest payable related to the total long-term obligations amount to $161.9 million. The operating
lease obligations include leases on certain buildings and equipment under non-cancelable operating leases, software maintenance, licensing, and telecommunication commitments, all expiring in



StanCorp Financial Group, Inc.

51



---





Part II



various years
through 2010 with renewal options ranging from one to five years.

In the normal course of business, the Company commits to fund commercial
mortgage loans that generally have fixed expiration dates. At December 31, 2003, the Company had outstanding commitments to fund commercial mortgage loans with fixed interest rates ranging from 5.25% to 7.00%, totaling $102.8 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, the Company will retain the
commitment fee and good faith deposit. Alternatively, if the Company terminates a commitment due to its disapproval of a commitment requirement, the commitment fee and deposit will be refunded to the borrower, less an administrative fee.

Other long-term liabilities reflected in the Companys balance sheet at December 31, 2003 consisted of an $11.5 million tax reimbursement
liability related to the block of life insurance business sold to Protective Life in 2001, $17.4 million in liabilities for deferred compensation and supplemental retirement plans, $9.3 million in capital commitments related to our joint venture
businesses, and $0.9 million accrued guarantee association payments.

Also included in the other long-term liabilities is $0.8 million that
the Company expects to contribute to its postretirement plan in 2004 and the accumulated postretirement benefit obligation totaling $27.5 million at the end of the year, partially funded by plan assets giving us a net liability of $11.8 million
reflected in our balance sheet. The projected discounted cash flow obligation for the postretirement plan at December 31, 2003 was $47.3 million.

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 other potential growth opportunities. During
2003, we repurchased 185,700 shares of common stock at a total cost of $9.3 million, for a volume weighted-average price of $50.35 per common share.

During 2002, we repurchased 852,999 shares of common stock, at a total cost of $45.5 million, for a volume weighted-average price of $53.34 per common share. Currently, 1.5 million shares are authorized under a share repurchase program
approved by the board of directors on February 9, 2004. The program expires December 31, 2005.



QUARTERLY FINANCIAL INFORMATION (Unaudited)

The following tables set forth select unaudited financial information by
calendar quarter:



|                                |  |        |       |        |   |       |        |  |   |        |   |  |   |       |  
|------------------------------- |  | ------ | ----- | ------ | - | ----- | ------ |  | - | ------ | - |  | - | ----- | -
|                                |  | 2003   |      
|                               
|(In millionsexcept share data) |  | 4thQtr |       | 3rdQtr |   |       | 2ndQtr |  |   | 1stQtr |  
|                                | 
|Premiums                        |  | $      | 396.7 |        | $ | 405.3 |        |  | $ | 406.0  |   |  | $ | 401.3 |  
|Net investment income           |  |        | 111.1 |        |   | 114.1 |        |  |   | 109.5  |   |  |   | 107.1 |  
|Net capital gains (losses)      |  |        | 1.3   |        |   | 5.4   |        |  |   | 3.7    |   |  |   | (1.1  | )
|Total revenues                  |  |        | 510.7 |        |   | 526.5 |        |  |   | 520.9  |   |  |   | 508.7 |  
|Benefits to policyholders       |  |        | 310.6 |        |   | 330.0 |        |  |   | 333.0  |   |  |   | 324.2 |  
|Net income                      |  |        | 44.5  |        |   | 42.4  |        |  |   | 37.2   |   |  |   | 32.2  |  
|Net income per common share:    |  |        |       |        |   |       |        |  |   |        |   |  |   |       |  
|Basic                           |  | $      | 1.53  |        | $ | 1.46  |        |  | $ | 1.29   |   |  | $ | 1.11  |  
|Diluted                         |  |        | 1.51  |        |   | 1.45  |        |  |   | 1.27   |   |  |   | 1.10  |  
|                                |  |        |       |        |   |       |        |  |   |        |   |  |   |       |  
|                                | 
|                                | 
|                                |  | 2002   |      
|                               
|(In millionsexcept share data) |  | 4thQtr |       | 3rdQtr |   |       | 2ndQtr |  |   | 1stQtr |  
|                                | 
|Premiums                        |  | $      | 382.6 |        | $ | 332.1 |        |  | $ | 336.3  |   |  | $ | 332.3 |  
|Net investment income           |  |        | 104.9 |        |   | 96.0  |        |  |   | 92.7   |   |  |   | 91.5  |  
|Net capital gains (losses)      |  |        | 4.6   |        |   | (3.6  | )      |  |   | (21.2  | ) |  |   | 0.5   |  
|Total revenues                  |  |        | 493.7 |        |   | 425.8 |        |  |   | 409.3  |   |  |   | 425.8 |  
|Benefits to policyholders       |  |        | 309.1 |        |   | 268.8 |        |  |   | 267.9  |   |  |   | 271.3 |  
|Net income                      |  |        | 33.9  |        |   | 27.6  |        |  |   | 19.9   |   |  |   | 29.6  |  
|Net income per common share:    |  |        |       |        |   |       |        |  |   |        |   |  |   |       |  
|Basic                           |  | $      | 1.16  |        | $ | 0.94  |        |  | $ | 0.67   |   |  | $ | 1.00  |  
|Diluted                         |  |        | 1.15  |        |   | 0.93  |        |  |   | 0.66   |   |  |   | 0.99  |  
|                                |  |        |       |        |   |       |        |  |   |        |   |  |   |       |  
|                                | 





StanCorp Financial Group, Inc.

52



---





Part IV



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized in Portland, Oregon on March 18, 2004



STANCORP FINANCIAL GROUP, INC.By:

/s/    Cindy J. McPikeName:

Cindy J. McPikeTitle:

Vice President and Chief Financial Officer




StanCorp Financial Group, Inc.

56



---





Part IV



EXHIBITS INDEX



|       |  |                                                                                                    |  |                 
|------ |  | -------------------------------------------------------------------------------------------------- |  | ----------------
|Number |  | Name                                                                                               |  | Method of Filing
|      
|       |  |                                                                                                   
|23     |  | Independent Auditors Consent                                                                      |  | Filed herewith  
|       |  |                                                                                                   
|31.1   |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  | Filed herewith  
|       |  |                                                                                                   
|31.2   |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  | Filed herewith  
|       |  |                                                                                                   
|32.1   |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | Filed herewith  
|       |  |                                                                                                   
|32.2   |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  | Filed herewith  



StanCorp Financial Group, Inc.

58