Full Description

Principal Financial Group, Inc. (PFG) is a provider of retirement savings, investment and insurance products and services. The Company’s United States and international operations is engaged on the asset accumulation and asset management. In addition, the Company is also engaged in providing a range of individual and group life insurance, group health insurance, individual and group disability insurance and group dental and vision insurance. The Company operates in four business segments: U.S. Asset Accumulation, Global Asset Management, International Asset Management and Accumulation, and Life and Health Insurance.

U.S. Asset Accumulation

The Company organizes the United States asset accumulation operations into six product and service categories: full service accumulation, principal funds (the mutual fund business), individual annuities, bank and trust services, investment only and full service payout. PFG offers a range of investment and administrative products for defined contribution pension plans, including 401(k) and 403(b) plans, defined benefit pension plans, nonqualified executive benefit plans and employee stock ownership/option plan (ESOPs). During the year ended December 31, 2008, the Company provided full service accumulation products to 33,054 defined contribution pension plans, of which 27,195 were 401(k) plans, covering 3.3 million plan participants, and to 2,710 defined benefit pension plans, covering 351,409 plan participants.

PEG is engaged in providing mutual funds to individuals, businesses and institutional investors for use within variable life and variable annuity contracts, for use in employer-sponsored pension plans, as a rollover investment option, and for general investment purposes. As of December 31, 2008, Principal Funds, Inc. offered 72 investment options. This fund also offers four retail classes of shares to individuals for individual retirement account (IRA) rollovers (J shares) and general investment purposes (A, B and C shares) and a class of shares (I shares) offered to specified institutional investors. Principal Variable Contracts Funds, Inc. is a series mutual fund, which provided 40 investment options for use as funding choices in variable annuity and variable life insurance contracts issued by Principal Life Insurance Company (Principal Life) and other insurance companies. Principal Managed Portfolio is a wrap product offered by the Company’s investment advisor Princor Financial Services Corporation (Princor), which permits the client to invest in a range of investments. Principal Advisory Select is a non-discretionary wrap product offered by Princor, which permits the client to invest in a range of investments. On December 31, 2006, the Company completed the acquisition of WM Advisors, Inc.

Individual annuities offer a tax-deferred means of accumulating retirement savings, as well as a tax-efficient source of income during the payout period. The Company offers both fixed and variable annuities to individuals and pension plans. Individual annuities may be categorized in two ways: deferred, in which case assets accumulate until the contract is surrendered, the customer dies or the customer begins receiving benefits under an annuity payout option, or immediate/payout, in which case payments begin within one year of issue and continue for a fixed period of time or for life.

The individual fixed deferred annuities consist of both single premium deferred annuity contracts and flexible premium deferred annuity contracts (FPDAs). Some FPDA contracts limit the period of time deposits are allowed. For most contracts, the principal amount is guaranteed. The source of income from fixed deferred annuities is the spread between the investment income earned on the underlying general account assets and the interest rate credited to the contracts.

Individual variable deferred annuities are savings vehicles through which the customer makes one or more deposits of varying amounts and intervals. Customers have the flexibility to allocate their deposits to investment sub-accounts managed by Principal Global Investors, or other third-party asset managers. The individual fixed immediate annuities consist of single premium immediate annuity contracts (SPIAs). SPIAs are products where the customer makes a single deposit, and from which periodic benefit payments are made. Payments may be contingent upon the survival of one or two individuals, or payments may be fixed, meaning payments are contractually guaranteed and do not depend on the continuing survival of any individual.

The bank and trust services include Principal Bank and Principal Trust Company. The products and services include a range of consumer checking and savings accounts, money market accounts, certificates of deposit, consumer loans, home equity loans, home equity lines of credit, credit cards, debit cards, small account rollovers from qualified retirement plans and health savings accounts (HSAs). In addition, the Company offer deposit and loan services to small and medium-sized businesses. Principal Trust Company is engaged in providing trust solutions directed at self-directed tax-advantaged savings accounts, such as IRAs, personal trusts and a full array of employee benefit plans and accounts including 401(k) and 403(b) plans, defined benefit pension plans, nonqualified executive benefit plans and ESOPs.

The products for which the Company offers investment only services are guaranteed investment certificates (GICs), funding agreements and other investment only products. GICs and funding agreements pay a specified rate of return. The rate of return can be a floating rate based on an external market index or a fixed rate. The investment only products contain provisions disallowing or limiting early surrenders, including penalties for early surrenders and minimum notice requirements. Deposits to investment only products are in the form of single payments.

Full service payout products respond to the needs of pension plan participants who, upon retirement or termination of their employment, seek a guaranteed income stream. The Company offers single premium group annuities, which are immediate or deferred annuities that provide a current or future specific income amount, fully guaranteed by it.

Global Asset Management Segment

The Global Asset Management segment consists of Principal Global Investors and its affiliates. The Company is focused on providing a range of asset management services covering a range of asset classes, investment styles and portfolio structures to the other segments and third-party institutional clients.

The fee mandate business provides focused investment advisory services across a range of asset classes, investment styles and portfolio structures. The Company is diversified across three primary asset classes. As of December 31, 2008, Principal Global Investors, along with Columbus Circle Investors and Edge Asset Management managed $41.9 billion in global equity assets. The equity investments include large-cap, mid-cap and small-cap stocks in developed and emerging markets globally. In 2008, 38% of equity assets under management (AUM) were derived from the pension products, 30% from other products of PFG and the remaining 32% from third-party institutional clients. The Company provides its clients with access to investment-grade corporate debt, government bonds, mortgage-backed, asset-backed and commercial mortgage-backed securities, high yield and municipal bonds, private and syndicated debt instruments and preferred securities. Principal Global Investors, through its affiliate Principal Real Estate Investors, managed a portfolio of the United States commercial real estate assets.

The spread and securitization business consists of principal commercial acceptance and the terminated commercial mortgage securities issuance operation. Principal commercial acceptance offers commercial real estate financing opportunities, including bridge/mezzanine loans and land loans.

International Asset Management and Accumulation Segment

The International Asset Management and Accumulation segment consists of Principal International, which has operations in Brazil, Chile, China, Hong Kong Special Administrative Region (SAR), India, Indonesia, Malaysia, Mexico and Singapore. In Brazil, the Company offer pension, retirement and asset accumulation products through a minority-held joint venture, Brasilprev Vida e Previdencia, arrangement with Banco do Brasil, which had over a 4,000 branch network as of September 30, 2008.

In Chile, the Company offer long-term savings products, retirement annuities, mutual funds, life insurance accumulation products, mortgage loans and institutional asset management services. The Company offer retirement annuities to individuals exiting the pre-retirement accumulation system. The Company distributes the annuity products through a network of brokers and independent agents. In addition, the Company offer life insurance accumulation products (qualified and nonqualified) to individuals through brokers and financial advisors.

In China, the Company offer mutual funds through a minority-held joint venture with China Construction Bank (CCB). The Company sells mutual funds through its partner bank, CCB. This bank delivers distribution capabilities for the joint venture in terms of brand awareness and the number of outlets. In Hong Kong, the Company sells defined contribution pension, mutual fund and institutional asset management products. In India, the Company offer funds and asset management services to both retail and corporate customers. In Malaysia, the Company offers conventional and Islamic mutual funds through its minority-held joint venture with CIMB Group. In Mexico, the Company offers defined contribution pension products, mutual funds, annuities and asset management services to institutional clients.

Life and Health Insurance Segment

The Life and Health Insurance segment offers individual life insurance, group health insurance and specialty benefits, which includes group dental, group vision, group life, group long-term disability, group short-term disability and individual disability insurance throughout the United States.

The Company offers a range of individual life insurance products, including universal and variable universal life insurance and term life insurance. Universal and variable universal life insurance products offer life insurance protection for which both the premium and the death benefit may be adjusted by the policyholder. Traditional life insurance includes participating whole life, adjustable life products and non-participating term life insurance products.

The Company offers a range of group health insurance products described below include a range of programs and services designed to meet the needs of the members across the health care continuum. These programs include the spectrum of wellness services, utilization management, case management, disease management and specialty programs including transplant services. The products of the Company include group health insurance, fee-for-service and wellness company.

Specialty benefits, which includes group dental, vision and life insurance, as well as individual and group disability insurance, is an important component of the employee benefit offering at small and medium-sized businesses. The products and services provided by the Company include group dental and vision insurance, group life insurance, group disability insurance and individual disability insurance.

The Company competes with Fidelity, ING, Mass Mutual, Vanguard, John Hancock, Black Rock, PIMCO, J.P. Morgan Chase, Morgan Stanley Investment Management, T.Rowe Price, ING, AXA, Allianz, American International Group, Inc. (AIG), UNUM, Lincoln Financial Group, MetLife, Manulife, Blue Cross and Blue Shield, UnitedHealthcare, Aetna and CIGNA.