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Des Moines, iowa 503921-800-986-eDge (3343)www.principal.coM

we’ll give You an edge®

BB 1345-14

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This 2008 Year in Review provides a company overview, financial highlights and summary financial statements. For complete financial statements, including notes and management’s discussion and analysis of financial condition and results of operations, please refer to the 2008 Form 10-K filed by the company with the Securities and Exchange Commission, which can be found at www.principal.com/10k. Forward Looking and Cautionary StatementsCertain statements made by the company in this Year in Review that are not historical facts may be considered forward-looking statements, including, without limitation, statements as to sales targets, sales and earnings trends, and management’s beliefs, expectations, goals and opinions. The company does not undertake to update these statements, which are based on a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Future events and their effects on the company may not be those anticipated, and actual results may differ materially from the results anticipated in these forward-looking statements. The risks, uncertainties and factors that could cause or contribute to such material differences are discussed in the company’s annual report on Form 10-K for the year ended Dec. 31, 2008, filed with the Securities and Exchange Commission. These risks and uncertainties include, without limitation: competitive factors; volatility of financial markets; decrease in ratings; interest rate changes; inability to attract and retain sales representatives; international business risks; foreign currency exchange rate fluctuations; a pandemic, terrorist attack or other catastrophic event; default of the company’s re-insurers; and investment portfolio risks. “The Principal Financial Group” and “The Principal” are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.

what you neeD to know. now. We’re all facing uncertain economic times. And we know you have questions about the economy and your own finances. We’re here to help. Find the latest information to help you make smart decisions and secure your financial future at www.principal.com/now.

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2008

Corporate Headquarters711 High St.Des Moines, Iowa 503921-800-986-EDGE (3343)

The Principal Financial Group on the InternetThe Principal home page, at www.principal.com, is your source for a vast array of information including company news releases, investment and savings tools, and details on our product and service solutions. The Investor Relations portion of the site provides up-to-the-minute information for shareholders and the investment community, including access to SEC filings, stock information, overview of corporate responsibility, dividend history and credit ratings. It also includes information of interest on the governance of Principal Financial Group, Inc., including:n Board of Directorsn Corporate Governance Guidelinesn Board Committee Chartersn Director Independence Standardsn Corporate Code of Ethics

Annual MeetingThe Annual Meeting of Shareholders will convene at 9 a.m. Central Time, May 19, 2009, in the auditorium at the corporate headquarters of Principal Financial Group, Inc., 711 High St., Des Moines, Iowa 50392.

Contact Investor RelationsIf you have a question for Investor Relations, please contact us as follows: The Principal Financial Group – Investor Relations 711 High Street, S-006-E41 Des Moines, Iowa 50392-0420 Phone: 1-800-986-3343 | Fax: 515-235-5491 E-mail: investor-relations@principal.com

Shareholder InformationExchange: NYSE

Transfer AgentPrincipal Financial Group, Inc. shareholder inquiries should be addressed to our transfer agent, Computershare Investor Services, LLC. Computershare can assist shareholders with a variety of services, including: address changes, certificate issuance, replacement of lost stock certificates, transfer of stock to another person, account statements, balance inquiries, shareholder dividend inquiries and selling of shares. You can call or write to the transfer agent at: Principal Financial Group, Inc. c/o Computershare Investor Services P.O. Box 43078 Providence, RI 02940-3078Toll-free phone: 866-781-1368Phone for hearing impaired: 312-588-4110Online Contact Form: www-us.computershare.com/contactus

Registered shareholders can also access information about their Principal Financial Group, Inc. common stock accounts via the Internet using Computershare’s Web site at www-us.computershare.com/investor. The Principal does not maintain or provide information directly to this site, makes no representations or warranties with respect to the information contained therein and takes no responsibility for supplementing, correcting or updating any such information.

A Special ThanksA special thanks to our 450,000 registered shareholders, who have owned Principal Financial Group, Inc. common stock since our initial public offering.

Top 10 Holders* of Principal Financial Group, Inc. Common Stock n Nippon Life Insurance Companyn Barclays Global Investors (U.S.)n State Street Global Advisorsn The Vanguard Group, Inc.n UBS Global Asset Management (Americas), Inc.n Davis Selected Advisers, L.P.n UBS Global Asset Management (Switzerland) AGn J.P. Morgan Investment Management, Inc.n Northern Trust Global Investmentsn TIAA-CREF Investment Management, Inc

*Based on public filings as of Dec. 31, 2008

principal financial group, inc.

For nearly 130 years, strong fundamentals

have been key to the success of the Principal Financial Group:

Our founder believed in the importance of long-term financial

security. He gave us perspective.

The Depression highlighted the need to carefully manage risk.

That taught us diversiFication and discipline.

The 1970s and 1980s brought sweeping pension reform and

the opportunity to help customers navigate the maze of ERISA

regulation. We demonstrated our commitment.

Through good times and bad, for more than a century, these

commonsense fundamentals have served us well.

Perspective. Diversification. Discipline. Commitment.

They are what we’re made of.

to our shareholders

We’ve all read the 2008 headlines:

Unprecedented market conditions.

Irrational market behavior. Economic

volatility. Fear and uncertainty.

Times have been tough.

And if all we had to go on were those headlines, the

outlook for financial services companies in 2009 would

indeed be grim. But as we’ve learned time and again,

throughout nearly 130 years in business, there’s always

more to the story.

When you dig deeper at the Principal Financial Group®

(The Principal®), you find that despite the very real

concerns in the global economy and in our industry,

and despite the continuing ripple effects of poor equity

markets, the fundamentals of our company are solid.

Just as they have been through more than a dozen

recessions since 1879 when our company was founded.

Strong fundamentals are what we’re made of:

Perspective. Diversification. Discipline. Commitment.

These fundamentals have carried us through before.

They’ll carry us through again.

Case in point: In 2008, poor equity markets and a

highly difficult business climate drove an 8 percent drop

in our operating earnings per share. Reflecting fear in

the marketplace around financial services companies

broadly, our stock price declined significantly.

While challenges clearly continue in this environment,

key performance measures remained strong in 2008 and

bode well for our future:

n Sales of our three key U.S. retirement and investment

products (Full Service Accumulation, Principal Funds

and Individual Annuities) were outstanding, despite a

difficult sales environment, with $21.1 billion combined

sales in 2008, compared to a record $21.7 billion

for 2007.

n Our three asset management and accumulation

segments had record deposits of $112 billion.

n We saw record net cash flows for the Full Service

Accumulation and Individual Annuities businesses,

which improved 17 percent and 38 percent, respectively.

n In a year when the S&P 500 Index declined 38 percent,

by comparison our total company assets under

management declined 21 percent. Importantly, since

becoming a public company in 2001, our assets under

management have increased more than 150 percent.

Also key to our future success:

n All of us at The Principal remain completely

committed to living our core values of customer

focus, people development, financial strength,

operational excellence and integrity. These values

guide our every move, in good times and bad.

n Our capital and liquidity positions remain strong.

We maintain very strong financial strength ratings

from all four rating agencies; these ratings help

reassure our customers that we can meet obligations.

n Customer retention and client/adviser satisfaction

levels remain high.

n For the seventh consecutive year, we were named one

of FORTUNE magazine’s 100 Best Companies to

Work For, ranking #17 on this prestigious list.

The Principal Financial Group | Letter to Shareholders2

20

to our shareholders

2008 Year in Review | Letter to Shareholders 3

Chairman of the Board Barry Griswell (upper left) and President and CEO Larry Zimpleman (center) remain committed to sharing information and soliciting input from stakeholders such as these employees.

Sticking to our fundamentals—relying on them to guide

our actions and decisions—is paying off. Here’s how:

Perspective. While it’s the short-term pain that’s taken

center stage these past few months, we all must

maintain a long-term view. This is advice we’ve

imparted to our customers for more than a century;

it’s also how we run our business.

Our long-term view is rooted in our business model:

n Our focus on meeting the needs of growing

businesses and their employees provides us stability.

According to 2008 estimates, small to medium-

sized businesses account for 99 percent of all U.S.

companies. We’re deeply rooted in this market;

our customer base includes more than 100,000

employers and millions of workers.

n Investment in our three key growth engines continues

to reap rewards. U.S. Asset Accumulation, Global

Asset Management and Principal International

continue to provide a strong foundation for

The Principal. These businesses require very little

capital to support organic growth, so we generate

substantial free cash flows on an ongoing basis.

n We’re leveraging our U.S. experience in providing

much-needed savings and retirement solutions

for growing middle-class populations in emerging

markets. Principal International is focused on

growing its business in Brazil, China and India, for

instance, which will account for the majority of the

world’s population growth in the next 10 to 20 years.

Diversification. The past year demonstrated that our

diverse product lines not only complement each other

but also strengthen The Principal overall. In a year

when earnings were down in our retirement business

due to equity market declines, for instance, our Life

and Health Insurance segment showed strong earnings

growth, and Principal International enjoyed record

revenues and earnings.

In addition, the breadth of our product offerings for

growing businesses and their employees is unrivaled.

From retirement, annuities, mutual funds and banking

products to life, health, dental and disability

insurance, wellness programs and executive benefit

solutions, we offer more ways for growing businesses

to provide financial security for their employees.

Our customers clearly appreciate these options:

two-thirds of our employer sales result in a multiple

product relationship.

Diversification of both investment type and client

base paid off for Principal Global Investors in 2008.

While new business in 2007 was predominantly

real estate and multi-sector fixed income from U.S.

clients, new business in 2008 was predominantly

international/global equities from an increasing

number of clients outside the United States.

Discipline. Discipline is important in good times,

and it’s critical when challenges arise. In 2008, our

disciplined approach to managing our business helped

us address key concerns as pressures mounted. For

instance, with tremendous help from our employees

in fourth quarter 2008, we decreased total company

operating expenses by $63.5 million compared to

fourth quarter 2007.

A l l o f u s At t h e P r i n c i P A l r e m A i n c o m P l e t e ly c o m m i t t e d t o

l i v i n g o u r c o r e vA l u e s o f c u s t o m e r f o c u s , P e o P l e d e v e l o P m e n t ,

f i n A n c i A l s t r e n g t h , o P e r At i o n A l e x c e l l e n c e A n d i n t e g r i t y .

t h e s e vA l u e s g u i d e o u r e v e ry m o v e , i n g o o d t i m e s A n d b A d .

The Principal Financial Group | Letter to Shareholders4

In addition, disciplined risk management helped us

minimize exposure to certain problematic areas:

n We discontinued our commercial mortgage securities

issuance operation, reducing the inventory from

$1.7 billion at the beginning of 2008 to $20 million

at year-end, with minimal losses.

n We purposely limited the size of our variable

annuities with living benefits business, an area

that’s strained capital for a number of peers.

And while there’s no way to avoid some losses in a

portfolio our size, it’s important to note that our

investment portfolio is high-quality and well-

diversified by industry, geography, property type

and individual borrower. Like others in the life

insurance and retirement sectors, our liabilities tend

to be longer-term and more predictable in nature.

We manage our investment portfolio to match these

liabilities. This long-term approach combined with

our discipline and strong liquidity means we have the

ability and intent to hold assets to maturity.

Commitment. As champions of financial security,

we’re committed to giving our customers an edge.

Since we launched our worksite solutions in 2005,

we’ve made personal financial assistance available

to more than 420,000 employees at nearly 2,000

companies across the United States. We’re heartened

to see that meetings are on the rise, a clear sign that

individuals are looking for assistance as they take

action to protect their investments.

We continue to enthusiastically embrace the important

role advisers play in our business. We share a

common goal with advisers: to simplify financial

decisions for businesses and individuals so they take

action to secure their financial futures. We’ve

continued to partner with them throughout 2008 to

make sure they and their clients have the information

they need to make smart decisions. In the December

2008 PlanAdviser Defined Contribution survey, we

were recognized as a top five provider for adviser

post-sale support, adviser sales and marketing support

and adviser fee structure.

These fundamentals are helping us remain strong now

and serving us well as we look to the future.

We hope the future is brighter for all of us. If that’s to

be the case, it’s clear changes are needed. Coordinated

regulation of all financial products. Comprehensive

and meaningful disclosure to ensure full transparency.

We have stepped forward to help shape those changes,

representing the more than 19 million customers we serve.

Your voices and our expertise can be part of the solution.

Finally, we’d be remiss if we left out the most important

thing we’re made of…

n Loyal customers who have reached out to us and to

their advisers for help securing their financial futures

n Talented employees who have rallied around

The Principal and who continue to offer customers

education, assistance and a sympathetic ear

n Dedicated advisers who are working tirelessly to provide

their customers the best guidance in this critical time

n Seasoned leaders, including a senior management team

that boasts an average 27.5 years of industry experience

n Committed shareholders who have invested in our

company for the long-term, confident in our ability to

face the current challenges head on and emerge stronger

We’re made of all of you. And we’re grateful to each of you.

As always, your opinions are important to us; we hope

you will continue to share your questions, comments and

concerns. And please be sure to cast your vote in time for

the Annual Meeting of Shareholders, May 19, 2009.

J. Barry Griswell

C H A I R M A n O F T H E B O A R D

Larry Zimpleman

P R E S I D E n T A n D C H I E F E x E C U T I v E O F F I C E R

2008 Year in Review | Letter to Shareholders 5

s u c c e s s c o m e s f r o m h Av i n g A n

e f f e c t i v e P l A n A n d m A n A g i n g

t o i t , e v e n w h e n t i m e s g e t t o u g h .

A t t h e P r i n c i P A l , o u r l o n g -

t e r m v i e w r e v o lv e s A r o u n d

m e e t i n g t h e n e e d s o f g r o w i n g

b u s i n e s s e s A n d t h e i r e m P l o y e e s .

g i v i n g t h e m A n e d g e .

Amid short-term pressures, we focus on the long-term view.

The Principal Financial Group | Perspective6

Amid short-term pressures, we focus on the long-term view.

W e continued to keep our long-term view in

mind as we supported growing businesses

and their employees. Examples include:

n Strengthening relationships with customers by offering

innovative solutions. Growing businesses

appreciate the ways we go above and beyond to

enhance their experience with The Principal.

• We’ve recently helped employers comply with new,

product-specific regulations—helping them

understand and implement changes to meet required

deadlines. For example, changes to nonqualified

deferred compensation plans and new retirement

plan fiduciary responsibilities.

• Our new, online benefits administration system,

eBenefits Edge, makes it easy for human resource

managers to administer benefits from multiple

providers. eBenefits Edge consolidates all employee

benefit information into one location, simplifying

day-to-day administration, reducing duplication and

providing extensive reporting capabilities. It saves

our customers valuable time and money.

n Building relationships with advisers and alliance partners.

Since launching our Privileged Partner Program

catering to key distributors of our insurance

products, sales have increased significantly.

Additionally, in 2008 we had the opportunity to

strengthen and expand our relationships with more

than 25 key distribution alliance partners. Overall,

nearly 2,000 advisers sold a plan with us. And just

within our 12 core retirement alliance partners, more

than 300 advisers sold their first plan with us in 2008.

n Advocating legislation that benefits our customers.

We were vocal advocates of legislation designed to

provide temporary funding relief for defined benefit

pension plans during the current economic crisis.

We were successful in getting some of the relief

approved in 2008 and continue advocating for

additional relief we feel is necessary for our clients.

n Expanding our client base outside the United States.

Along with our Malaysian partner, CIMB Group,

Principal Global Investors and Principal International

offer asset management services to meet the growing

global demand for Shariah-compliant investments.

Our future success relies on the success of our customers

and advisers. We look forward to continuing to work

with them and advocate for them in 2009 and beyond.

2008 Year in Review | Perspective 7

m u lt i P l e o P P o r t u n i t i e s f o r

s u c c e s s m A k e u s m o r e r e s i l i e n t

i n t h e f A c e o f c h A l l e n g e s .

A n d o u r c o m P l e m e n tA ry

P r o d u c t s A n d s e rv i c e s f u l f i l l

n u m e r o u s c u s t o m e r n e e d s .

A smart mix of products and investments provides us flexibility.

The Principal Financial Group | Diversification8

A smart mix of products and investments provides us flexibility.

O ur broad range of insurance and investment

products, diverse customer base and innovation

continue to strengthen The Principal:

n A proven approach. Our Total Retirement SuiteSM

approach has made us a leader in retirement-related

benefits. We remain the number one provider of

bundled 401(k) plans, defined benefit plans and

ESOP plans, as well as the number one recordkeeper

for nonqualified deferred compensation plans1.

n Expanding our reach. Principal International’s diverse

line-up proved beneficial as well. In Mexico, for

instance, our retail mutual fund business grew at a time

the industry overall was down. Overall, Principal

International’s customer base grew by 12 percent

to 7.2 million.

n Going green. Principal Real Estate Investors, the real

estate arm of Principal Global Investors, expanded its

commitment to the growing green real estate market.

In June, Real Estate Finance & Investment magazine

awarded the company its Green Giant Award,

recognizing the company’s portfolio of more than

$1.3 billion of green properties and its efforts to retrofit

existing properties so that they conform to Leadership

in Energy and Environmental Design standards.

n Meeting increasing demand for disciplined asset

allocation strategies. As of Dec. 31, 2008, more than

1 million retirement plan participants invested in

Principal LifeTime portfolios, our target date funds,

with more than 70 percent of plan sponsors offering

these options, 35 percent as a default. In addition,

our five actively managed Strategic Asset Management

(SAM) portfolios offer asset allocation solutions

for investors with varying risk tolerances. Our SAM

funds now have nearly $7.5 billion in assets under

management.

n Helping employers as they react to economic pressures.

In addition to our array of employer-sponsored benefit

products, we also provide voluntary products that enable

employers to offer benefits that matter to employees at

a time when budgets are squeezed. In 2008, group

voluntary products accounted for nearly 25 percent of

our $211 million in group specialty benefits sales,

which include group dental, vision, life and disability.

We’ve long believed it makes good business sense for

The Principal to have diverse lines of business that create

diverse streams of income. We’ve seen the wisdom in

that over many years; we’re seeing it again now.1Spectrem Group analysis of fully bundled 401(k) plans, 2008; Investment Advisor Magazine, November 2008; PLANSPONSOR, June 2008; PLANSPONSOR, January 2009 (based on number of plan records kept).

2008 Year in Review | Diversification 9

t h e r e ’ s A l o t o f c o n f u s i o n i n

t o d Ay ’ s e c o n o m y — A l o t o f n o i s e

A n d u n c e r tA i n t y . w e tA k e A

d e l i b e r At e A P P r o A c h t o m A n A g i n g

o u r b u s i n e s s , A d A P t i n g m o r e

t h A n A c e n t u ry o f e x P e r i e n c e

t o m e e t t h e s e n e w c h A l l e n g e s

A n d Av o i d d i s t r A c t i o n s .

Our success is rooted in 130 years of experience.

The Principal Financial Group | Discipline10

Our success is rooted in 130 years of experience.

D iscipline has helped keep our business

strong during unprecedented times.

Recent examples include:

n Maintaining strong liquidity and capital adequacy.

Responding to market conditions, we have continued

to enhance liquidity, increasing cash and cash

equivalent holdings by 94 percent from a year ago

to $2.6 billion at the end of 2008. Our capital

position—above what is needed for our current

credit rating—is estimated to be approximately

$800 million, up from approximately $375 million

at the end of third quarter 2008.

n Positioning businesses for future growth. A new strategy

has helped position our health insurance business for

success in 2009 and beyond. Our deliberate approach

includes a new focus on building owned healthcare

networks, resulting in better cost and increased

competitiveness in local markets. Because health

insurance is the first benefit employers implement, this

business is an important element of building a strong

franchise with growing businesses.

n Improving productivity. Along with numerous cost-

savings initiatives, employees have worked hard to

improve productivity. For instance, our Health

claim and contact centers have implemented new

business processes and procedures that have increased

productivity 12 percent already; they’re aiming to

reach more than 20 percent in 2009.

n Enhancing distribution. We continue to focus on

building quality distribution across the company.

Our rigorous hiring and training programs have

resulted in strong productivity and career agent

retention. In Principal Global Investors, despite

challenging markets, we met our goal of increasing

distribution through major wirehouses. These

national wirehouses represented $1.2 billion of

separately managed account sales for us in 2008.

We plan to increase this in 2009 as we continue

to build confidence among financial advisers,

facilitating sales of other products.

We have survived—and thrived in—challenging times

before. We’ll rely on our disciplined approach to see

us through again.

2008 Year in Review | Discipline 11

We’re champions of financial security in good times and bad.

The Principal Financial Group | Commitment12

t h e c u r r e n t e c o n o m i c c r i s i s m e A n s m o r e

P e o P l e A r e P Ay i n g At t e n t i o n t o t h e i r

f i n A n c i A l P l A n s t h A n e v e r b e f o r e .

m o r e A n d m o r e i n d i v i d u A l s A r e r e A l i z i n g

t h e y c A n ’ t o r d o n ’ t wA n t t o g o i t A l o n e .

w e ’ r e m A k i n g s u r e t h e y d o n ’ t h Av e t o .

We’re champions of financial security in good times and bad.

A s uncertainty grows, we’ve heard from advisers

and customers who are concerned. We’re

supporting them in numerous ways, including:

n Making it personal. We continue to provide personalized

service in meaningful ways. In 2008, we conducted

nearly 77,000 one-on-one meetings at employer

worksites—offering workers individualized assistance

and information to help them maximize their benefits.

And through Principal Connection, we fielded

approximately 250,000 calls from job-changers and

retirees, helping them make informed decisions

about their retirement plan assets.

n Providing excellent service. In fourth quarter, due to

the economic turmoil, we averaged 23 percent more

calls in our retirement contact center, compared to

fourth quarter 2007. not only were call volumes

higher, but calls were longer as customers addressed

multiple concerns related to their financial well-being.

We brought in extra resources, suspended off-phone

activities and scheduled overtime to meet the demand.

Throughout this time, we maintained an extremely

high customer satisfaction rate of 97 percent.

n Helping advisers sort through the economic confusion.

We’ve consistently reached out to advisers, offering our

expertise and perspective so they can best help their

customers. In recent months we’ve hosted two

conference calls featuring our leading retirement and

investment experts, both times inviting more than

12,000 retirement advisers to participate. These

calls received much positive feedback. And our monthly

e-mails to thousands of advisers provide the latest

economic updates and related marketing tools.

n Enhancing online tools. In May we launched our

My Principal® Edge Milestones online tool, enabling

individual investors to establish a retirement savings

goal, determine if they are on track and create a plan.

Approximately 30 percent of individuals using the

tool made a change to secure their financial future.

n Delivering on our promises. We continue to meet our

obligations to customers, delivering on the promises

we make when they take out a life, health, disability

or other insurance policy from us. Throughout 2008

we paid out $2.4 billion in insurance-related claims,

making sure our customers are taken care of in their

times of need.

We’ve had more interactions with individual customers

this year than ever before. We understand their concerns.

And we’re committed to helping them through this

uncertain time. For the latest information to help you

make smart decisions and secure your financial future,

visit www.principal.com/now.

2008 Year in Review | Commitment 13

The Principal Financial Group | At a Glance14

at a glance THE PRInCIPAL FInAnCIAL GROUP

operating segment What it does products & services

Global Asset Management Principal Global Investors and its affiliates provide a diverse range of asset management capabilities to institutional investors globally.

Institutional Asset Management Equities: n Growth, core and value U.S. equities n Small-, mid- and large-cap U.S. equities n Global ex-U.S. equitiesFixed income: n U.S. fixed income n Global fixed income n Specialty credit n StructuredReal estate: n Equity n Debt

U.S. Asset Accumulation Provides integrated retirement savings, payout solutions and related investment products and services to:n Growing businessesn Their employees and other individualsn Not-for-profit organizations n Large financial institutions and employers

n Full Service Accumulation (FSA) products and services: • Definedcontributionpensionplans (including 401(k) and 403(b) plans) • Definedbenefitpensionplans • EmployeeStockOwnershipplans • Nonqualifiedexecutivebenefitplansn Mutual Fundsn Annuities and Payout Solutionsn Bank and Trust Servicesn Investment Onlyn Full Service Payout

International Asset Management and Accumulation

Principal International provides retirement, investment and related financial services to:n Businessesn Their employees and other individualsn Institutions

Principal International has operations in Brazil, Chile, China, Hong Kong, India, Indonesia, Malaysia, Mexico and Singapore.

n Retirement products and servicesn Long-term mutual fundsn Annuitiesn Life insurance

Life and Health Insurance Offers a broad range of group and individual insurance products to meet the financial protection and security needs of growing businesses and individuals throughout the United States.

Focused on:n Businessesn Employees and other individualsn Business ownersn Executives

Individual life insurance: n Estate planning n Business continuation n Executive benefits n Financial planning n Nonqualified executive benefit plansHealth insurance: n Group medical, including combined high deductible health plans with health savings accounts n Wellness programs n Administrative servicesSpecialty benefits: n Group dental and vision insurance n Group life insurance n Group and individual disability insurance

2008 Year in Review | At a Glance 15

at a glancen Continued outstanding sales of the company’s three key retirement and investment products (FSA, Principal Funds and Individual Annuities) despite a difficult sales environment, with $21.1 billion of sales on a combined basis in 2008, compared to a record $21.7 billion for 2007. n Record net cash flows in 2008 of $5.5 billion for FSA and $2.8 billion for Individual Annuities, an increase from 2007 of 17 percent and 38 percent, respectively, reflecting excellent sales and retention. n Principal Bank delivered record operating earnings of $15.5 million, an increase of 22 percent from 2007; and total deposits of $2.1 billion, an increase of 21 percent. IRAs grew 22 percent to more than 460,000.n FSA serves more than 35,000 plans and 3.7 million customers.

n Longest client retention (an average of 10.3 years vs. an industry average of 8.1 years) in the Boston Research Group’s 2008 plan sponsor Defined Contribution study. (September 2008)n Earned 74 “Best in Class” awards from Chatham Partners Survey of defined benefit, defined contribution and combo clients with more than $5 million in assets, including our range of services, relationship managers, accessibility and actuaries’ knowledge and consulting skills. (December 2008)n Recognized as the #1 recordkeeper by plans for defined contribution and ESOP in PLANSPONSOR magazine’s Recordkeeping Survey. (June 2008)n Named the #1 recordkeeper of defined benefit plans by Investment Advisor Magazine. Named the #1 recordkeeper of bundled 401(k) plans in Spectrem Group’s analysis of fully bundled 401(k) providers. (2008)

n Received the DALBAR Seal of Excellence for defined contribution plan participant and plan sponsor Web sites. (September 2008) n Received the DALBAR Communication Seal of Excellence in customer communications for defined benefit, defined contribution, total retirement, variable annuity and mutual fund statements. (September 2008)n Recognized by Pensions & Investments as one of the magazine’s Eddy Award winners for excellence in investment education for defined contribution plan participants. (February 2009)n Principal Funds ranked as the fourth largest manager of target-date lifecycle funds by Financial Research Corporation. (September 2008)n Eighteen of our mutual funds were recognized as Lipper Leaders in 2008. We received awards in Value and Growth, Large-, Mid- and Small-Caps, U.S. and non-U.S., Real Estate and Traditional Fixed Income and High Yield Fixed Income.

n Principal Global Investors delivered record operating revenues of $598.5 million in 2008, an increase of 4 percent, in spite of the impact of poor market conditions on assets under management. n Near-record deposits for the segment of $54.3 billion in 2008, compared to a record $54.6 billion of deposits in 2007. n Principal Real Estate Investors named Green Giant of the Year by Real Estate Finance & Investment magazine for our portfolio of green properties and efforts to retrofit existing properties. (June 2008)

n More than 400 investment professionals in offices around the world, covering investment markets in more than 50 countries.n Manages assets for 12 of the top 25 largest U.S. pension plans based on Pensions & Investments P&I 1,000 report. (January 2009)n Recognized by Pensions & Investments as the fourth largest manager of real estate. (June 2008)n Ranked as the eighth largest 401(k) manager by Pensions & Investments based on U.S. institutional, tax-exempt assets as of Dec. 31, 2007. (July 2008)

n The 19th largest manager of U.S. institutional, tax-exempt assets, out of 300 managers profiled, according to Pensions & Investments. (December 2008)n Recognized as the 26th largest manager of international/global assets out of 150 managers profiled by Pensions & Investments. (December 2008)

n Record operating revenues for Principal International of $849.0 million, an increase of 7 percent. n Record operating earnings for Principal International of $126.3 million, an increase of 14 percent. n Joint venture partners include China Construction Bank (China), Banco do Brasil (Brazil), CIMB Group (Malaysia) and Punjab National Bank/Vijaya Bank (India).

n Principal Hong Kong won eight Lipper awards across asset categories of bond, mixed asset and equity. (March 2008)n Principal Hong Kong voted by AsianInvestor as the MPF (Mandatory Provident Fund) Master Trust of the Year. (April 2008)n Principal PNB Asset Management Company named Best Mutual Fund House by Outlook Money NDTV Profit Awards 2008. (June 2008)

n CIMB-Principal Asset Management Berhad won the AsianInvestor 2007 Achievement Award for Malaysia Fund House of the Year. (April 2008)n BrasilPrev (joint venture with Banco do Brasil) named one of the most admired companies in Brazil by Carta Capital magazine. (September 2008)

n Life and Health earnings improved $49.3 million, or 22 percent, in 2008 to $270.4 million, with improvement across each of the divisions, including strong earnings performance for the health division. n Segment return on equity improved 250 basis points to 13.5 percent as of Dec. 31, 2008. n Segment serves approximately 73,000 group employers and more than 5.2 million group covered members.

n Principal Life Insurance Company is the eighth largest U.S. life insurer based on HIGHLINEDATA 2008.n Recognized as the #2 provider of non-medical insurance (dental, life and disability) based on LIMRA data of 2007 employer coverages in force. (2008)

n Ranked #6 provider of non-cancelable individual disability income insurance based on LIMRA data of annualized premium in force in 2008. (2009)n Recognized by PLANSPONSOR magazine as the #1 deferred compensation plan service provider. (December 2008)

highlights

The Principal Financial Group | Investing for the Future16

investing For the Future PRInCIPAL FInAnCIAL GROUP, InC.

Following are highlights of some of the most important

ways we’ve given our customers and advisers an edge during

the past year—proving what we’re made of through value-

added solutions, greater investment choice, sales and service

and technology.

value-added solutions

FOR BUSInESSES…

Helping businesses attract and retain employees

n Through the new Principal Executive Bonus

PlusSM—Tax-Exempt retirement plan, The Principal

provides attractive benefits to key employees in non-

profit or tax-exempt organizations. In addition to our

strong 457 plan offering, this simplified and flexible

alternative is another option to help organizations

attract and retain good talent.

n The Principal sponsored a new 403(b) benchmarking

survey by the Profit Sharing/401k Council of America

to help not-for-profit organizations and their financial

professionals evaluate how their plans stack up to

others. This analysis can help them become more

competitive employers.

n In Chile, Principal International launched sales of the

APvC product (similar to a 401(k)). We were among the

very first companies to sell an APvC contract to help

employees in Chile save through the workplace.

Other business owner offerings/solutions

n Plan sponsors count on their annual actuarial valuation

reports to help them with defined benefit (DB) plan funding

decisions. In response to Pension Protection Act regulations,

The Principal revamped the report to help sponsors meet—

and understand—the new rules. The report gives each

actuarial DB client of The Principal customized data to

satisfy the requirements and new tools to make future

planning faster and easier.

n Addressing the multiple needs of small and medium-

sized business owners, The Principal introduced variable

Universal Life Income IISM (vUL Income II). One of the

most flexible policies to date, vUL Income II provides death

benefit protection, a tax-deferred investment and

supplemental income all in one place. These components

make it well suited for a wide range of business needs from

executive benefits for key employees to a business

succession tool to personal retirement income planning.

n We published our seventh benefits Best Practices Guide,

focused on the stories of 10 companies that are relying

on fundamental best practices to help employees secure

their financial futures amid troubling times. The guide

is based on our annual U.S. search, The Principal 10 Best

Companies for Employee Financial Security.

n Our Women in Business program helps us connect regularly

with nearly 6,500 women business leaders. A high

percentage of these women participated in one or more of

our 10 free, educational teleclasses in 2008. Topics

included preparing for the unexpected, brand-building,

using social media to build business and secrets of

successful women entrepreneurs.

Helping employers meet their fiduciary and compliance

responsibilities

n Market turbulence has eaten away at pension fund asset

values. Recognizing that funding levels could be low

enough to trigger new benefit payment restrictions put

in place by the Pension Protection Act, The Principal joined

with industry trade organizations to urge the U.S. Congress

to provide temporary relief from those rules for companies

with defined benefit pension plans.

n In light of complex rules from the Pension Protection

Act, we updated our easy-to-use fiduciary handbook that—

in plain language—helps plan sponsors and their financial

professionals feel more confident in their fiduciary duties.

The Fiduciary Handbook—A Guide to Plan Sponsor and

Plan Fiduciary Responsibilities is part of a package of tools

to help plan sponsors manage these critical responsibilities.

n Throughout the year we offered comprehensive assistance

to not-for-profits and their financial professionals to

address complex new 403(b) retirement plan rules. Our

403(b) Compliance Guides detailed step-by-step actions

to take in each stage of the plan transition and help them

fulfill their compliance obligations.

n For plan sponsors with nonqualified deferred compensation

arrangements, we continued to offer our plan design and

administrative service expertise as they complied with

Internal Revenue Code Section 409A final regulations,

effective Jan. 1, 2009.

2008 Year in Review | Investing for the Future 17

FOR ADvISERS…

n The Principal is helping baby boomers convert their hard-

earned savings into a retirement income for life. Our

white paper, Sustaining Income through Retirement: Four

Strategies for Retiring Clients, compares and contrasts

four key methods of turning retirement savings into an

income stream. It concludes there is no one-size-fits-all

solution and many boomers will need help from financial

professionals to find the right, personalized approach.

n In response to market volatility, The Principal introduced

a series of educational resources to help financial

professionals and employers weather the financial storm.

This includes a new guide, Navigating Your Way through

Market Turbulence, that takes a look at how the market

volatility may affect common types of retirement plans and

action steps to consider.

n Addressing the needs of retirement plan consultants and

independent registered investment advisers, The Principal

created a team to support both consultants and investment

advisory firms that service mid-size and large plan markets.

The team focuses on three key areas: corporate, non-profit

and Taft-Hartley plans and offers a comprehensive range of

solutions including defined contribution, defined benefit,

ESOP, nonqualified, investment only and income solutions.

n Retirement Dashboard, a new online account management

tool, gives retirement-focused financial professionals an

edge, with 24/7, tailored access to client data to help them

better manage their business and deliver top-notch service.

It includes at-a-glance client summaries, detailed information

that can be downloaded for easy sorting and analysis, and

a compliance tab to view the compliance testing results of

all qualified retirement plan clients.

n Our new Retirement Readiness Reviews guide, part of

our More Business. Less Time. client relationship

management program, helps financial professionals walk

their clients through retirement planning. The guide’s

checklists, workbook, timelines and worksheets give clients

a thorough way to plan.

n A new beneficiary planning tool from Principal Funds

equips financial professionals to help clients design a

personal and effective wealth-transfer strategy while

avoiding large and potentially unnecessary tax bills.

It’s the latest offering in our Art of the Rollover series.

n Principal Funds issued a research paper geared for financial

professionals, exploring how the dramatic and historic

decrease in housing values has significantly altered

the retirement plans of many Americans. The Impact of

Diminishing Wealth on Future Consumption: How Housing

Wealth Affects Retirement Planning helps financial

professionals address these new issues.

FOR EMPLOYEES AnD OTHER InDIvIDUALS.. .

n Employees overwhelmed by difficult benefit choices and

complex financial decisions now have a new tool to put

them on track. Our interactive program, My Principal®

Edge Milestones, analyzes financial needs, identifying

shortfalls in saving for retirement and gaps in other

financial needs. The program gives employees a

personalized action plan to help meet their long-term

financial goals. It’s available online and through our

Worksite Solutions programs.

n Addressing Americans’ desire for more life insurance

protection for a longer period of time, The Principal

increased the issue age and reduced the price on its

individual term products. Principal 20 year term is

now available until age 65 and Principal 30 year term is

available until age 55 (non-tobacco only), up five years

from previous policies. A couple with two term policies

from The Principal has the option to convert their policies

into one survivorship universal life (SUL) policy, offering

flexibility in estate planning.

n We renewed our pharmacy benefits contract with CvS

Caremark, adding new programs that will offer lower drug

prices, pharmacy discounts and access to healthcare services

through MinuteClinic, a subsidiary of CvS Caremark. All

of this adds up to member savings and lower premiums and

claims costs for employers.

The Principal Financial Group | Investing for the Future18

investing For the Future

n To help members currently diagnosed with diabetes protect

their vision, The Principal introduced a program that offers

a $50 voucher good toward a second eye exam each year to

check for potential problems, including retinopathy, which

can lead to severe vision loss or blindness if undetected.

n To help members prevent oral complications that can

accompany chemotherapy and head/neck radiation, The

Principal extended extra preventive dental benefits to those

undergoing cancer treatments. Dental insurance members

currently undergoing these treatments can receive up to

three fluoride treatments and an additional routine cleaning

yearly. The services are available at no extra cost to the

employer or member.

n In Hong Kong, Principal International launched the

Principal Special voluntary Contribution Program.

An extension of our mandatory provident fund products,

the program encourages the public to save for retirement.

The product offers an easy application process, diversified

investment choices, flexible premium payment options and

independence in making investment decisions.

greater investment choice

n Principal Funds added five new portfolios to its popular

Principal LifeTime funds series. Originally offered in

10-year increments, the new portfolios provide Principal

LifeTime funds at five-year intervals from 2010 through

2055 in share classes designed for retirement plan use and

institutional class shares. As another alternative for the

large plan retirement market, Principal Trust Company

has developed a collective investment trust target series.

The Principal Trust Target Funds embrace a multi-asset

class, multi-style and multi-manager approach.

n Principal Bank’s broad range of deposit products appealed

to investors seeking stability during this period of market

volatility. Responding to customer interest, the bank

created several new deposit products such as Easy

Ladder CDs and a high yield IRA money market account.

Principal Bank also joined the Certificate of Deposit

Account Registry Service (CDARS), which provides

customers easy access to multi-million dollar FDIC

protection along with the convenience of working with

just one bank.

n In India, Principal Asset Management launched its

new Principal Emerging Bluechip Fund, an open-ended

equity fund aimed at investing in local mid- and

small-cap companies.

n Principal International introduced life cycle funds in two

important markets—Mexico and Brazil—offering more

clients access to this simple, do-it-for-me solution. Our

LifeStyle Mutual Funds were the first target risk funds

offered in Mexico.

sales and service

n Our U.S. retirement sales force was nearly 120 strong in

43 local offices, maintaining relationships with more than

11,000 independent brokers, consultants and agents.

n We had more than 165 local retirement service

representatives, focused on the needs of plan sponsors,

and 150 education specialists to provide support to

retirement plan participants.

n In our life and health businesses, we had more than

1,000 career agents; 170 medical, non-medical, life and

disability wholesalers; and more than 120 service

representatives. Our agent retention rate remains slightly

better than the historical industry average.

technology

n By converting a previously very manual process into a

streamlined system, real estate professionals in Principal

Global Investors have begun more easily collaborating with

external parties to conduct real estate transactions securely,

effectively and quickly. The new system makes quick and

cost-effective work of the complex process of conducting

due diligence for real estate acquisitions.

n We continue our investment to support a global work

environment. Through our commitment, for example,

employees in Principal Global Investors can sit down at a

PC in Hong Kong, London, Tokyo, Singapore, Sydney,

new York or Des Moines and access the same desktop,

systems and applications needed to do their jobs.

n After introducing new technologies at our state-of-the-art

Print-to-Mail facility, we’re able to process year-end

retirement statements much faster for millions of customers,

at the same time saving $2 million.

2008 Year in Review | Awards and Recognition 19

Best Place to Work

n Earned our highest ranking to date (#17) on FORTUNE magazine’s list of 100 Best Companies to Work For. This marks our company’s seventh consecutive year

on the list. We were particularly noted for our

communications with employees and others throughout

the challenges of 2008.

n Included on Working Mother magazine’s 100 Best Companies for Working Mothers for the seventh year.

The Principal was noted for the addition of The Principal

Child Development Center, an on-site early learning and

childcare service provider exclusively available to employees

of the company.

n Included among the top 10 of the national Association

of Female Executives’ Top 30 Companies for Executive Women. The Principal has been on this prestigious list

for six consecutive years. It measures women’s

representation among top-paid and top-tier positions at

America’s largest companies.

n Included for the 11th consecutive year on LATInA Style

magazine’s list of 50 Best Companies for Latinas, which recognizes employers that actively recruit and

promote Latinas.

n Scored a 95 out of 100 on the Human Rights Campaign Foundation’s Corporate Equality Index. This annual

measure rates employers on the treatment of gay, lesbian,

bisexual and transgender employees, consumers and investors.

n One of only 11 companies awarded a Platinum rating out

of more than three dozen companies honored in the

national Business Group on Health’s list of the Best Employers for Healthy Lifestyles.

n Maintained the Platinum Well Workplace distinction from

the Wellness Councils of America.

n Ranked #26 on Computerworld’s list of 100 Best Places to Work in IT. This is our company’s seventh consecutive

year on the list. The Principal was noted for its support

of flexible schedules, including compressed work weeks,

part-time hours and telecommuting.

n Ranked #73 on Training Magazine’s Training Top 125,

which honors employers for investment in employee

development, the scope of development programs offered

and how closely such efforts are linked to business goals

and objectives.

Innovation

n Ranked #9 on Information Week magazine’s list of Top 500 Most Innovative Users of Information Technology.

Ethics/Integrity

n named one of the World’s Most Ethical Companies by Ethisphere Magazine. One of only four financial

service organizations selected, this marks the second

consecutive year The Principal has made the prestigious

list of 100 companies.

n named one of America’s Most Admired Companies for

2008 by FORTUNE magazine.

n The 19th company to receive the United Way Spirit of America award—the highest award recognizing a company

that exemplifies leadership and commitment in support of

an annual United Way campaign.

A t t h e P r i n c i P A l , o u r c o m m i t m e n t t o c u s t o m e r s b e g i n s w i t h A s t r o n g c o m m i t m e n t

t o e m P l o y e e s – c r e At i n g A P l A c e w h e r e h i g h - P e r f o r m i n g e m P l o y e e s wA n t t o w o r k .

o u r e f f o r t s c o n t i n u e t o P Ay o f f , A s s h o w n b y t h e t h i r d - P A r t y r e c o g n i t i o n w e ’ v e r e c e i v e d .

t A k e A l o o k At s o m e o f t h e r e A s o n s w e c o n t i n u e t o At t r A c t t h e b r i g h t e s t A n d b e s t .

A great company starts with great employees.

aWards & recognition

The Principal Financial Group | Financial Highlights

2004 2005 2006 2007 2008

15.115.9

17.6

18.619.1

2004 2005 2006 2007 2008

$167

$195

$257

$311

$247

2004 2005 2006 2007 2008

$0.55

$0.65

$0.80

$0.90

$0.45

2004 2005 2006 2007 2008

$40.94

$47.43

$58.70

$68.84

$22.57

T he Principal delivered solid

operating results for 2008, given

the difficult business environment.

Our revenue and earnings diversification and

strong business fundamentals helped minimize

the negative effects of these challenging times.

Since becoming a public company in 2001,

we’ve increased total company assets under

management by more than 150 percent1 —

despite essentially flat markets over that time.

And we’ve improved Return on Equity by 520

basis points1.

We remain well-positioned to capitalize

on growth opportunities when the markets

improve so we can continue to drive earnings

and earnings per share growth over the long-term.

We believe The Principal will emerge even

stronger from these challenges by:

n Maintaining our risk management focus

n Balancing expense discipline with the need

to invest in growth

n Staying true to our mission—to help growing

businesses, individuals and institutional

clients achieve financial security and success

customers2

(in millions)

assets undermanagement

(in billions)

dividends paid on common stock

common share priceas oF year end

20

Financial highlights

1 From Dec. 31, 2001, to Dec. 31, 2008.2 Includes employees and their dependents under employee benefit arrangements. 3 Certain reclassifications have been made to 2004, 2005, 2006 and 2007 to conform to 2008 presentation.4 See Page 25 for a reconciliation of non-GAAP measures to U.S. GAAP.5 Stockholders’ equity available to common stockholders excluding accumulated other comprehensive income (loss).

2008 Year in Review | Financial Highlights

2004 2005 2006 2007 2008

$826

$901

$1,031

$827

$425

2004 2005 2006 2007 2008

$747

$836

$943

$1,053

$943

2004 2005 2006 2007 2008

12.0%13.4%

14.8%

16.3%

14.2%

2004 2005 2006 2007 2008

$2.37

$2.87

$3.42

$3.93

$3.61

2004 2005 2006 2007 2008

$7,544$7,807

$7,861

$7,422

$2,473

2004 2005 2006 2007 2008

$8,321$9,040

$9,873

$10,907

$9,936

total revenue(in millions)

operating return onaverage equity3,4,5

net income available to common stockholders

(in millions)

operating earnings perdiluted common share3,4

stockholders’equity

(in millions)

operating earnings3,4

(in millions)

21

Financial highlights

The Principal Financial Group | Summary Consolidated Financials

summary consolidated statements oF incomePRInCIPAL FInAnCIAL GROUP, InC.

For the year ended December 31,

2008 2007 2006 (in millions, except per share data)

Revenues

Premiums and other considerations $ 4,209.2 $ 4,634.1 $ 4,305.3

Fees and other revenues 2,426.5 2,634.7 1,902.5

Net investment income 3,994.3 3,966.5 3,620.6

Net realized capital gains (losses) (694.1) (328.8) 44.7

Total revenues 9,935.9 10,906.5 9,873.1

Expenses

Benefits, claims and settlement expenses 6,219.9 6,435.3 5,692.4

Dividends to policyholders 267.3 293.8 290.7

Operating expenses 2,995.1 3,129.2 2,558.7

Total expenses 9,482.3 9,858.3 8,541.8

Income from continuing operations before income taxes 453.6 1,048.2 1,331.3

Income taxes (benefits) (4.5) 208.1 295.9

Income from continuing operations, net of related income taxes 458.1 840.1 1,035.4

Income from discontinued operations, net of related income taxes — 20.2 28.9

Net income 458.1 860.3 1,064.3

Preferred stock dividends 33.0 33.0 33.0

Net income available to common stockholders $ 425.1 $ 827.3 $ 1,031.3

Earnings per common share

Basic earnings per common share:

Income from continuing operations, net of related income taxes $ 1.64 $ 3.04 $ 3.67

Income from discontinued operations, net of related income taxes — 0.08 0.11

Net income $ 1.64 $ 3.12 $ 3.78

Diluted earnings per common share:

Income from continuing operations, net of related income taxes $ 1.63 $ 3.01 $ 3.64

Income from discontinued operations, net of related income taxes — 0.08 0.10

Net income $ 1.63 $ 3.09 $ 3.74

The information in the summary consolidated statements of income shown above has been prepared in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”). It is a replication of the information in the consolidated statements of operations in the Principal Financial Group, Inc.’s 2008 Form 10-K. For complete financial statements, including notes and management’s discussion and analysis of financial condition and results of operations, please refer to the 2008 Form 10-K filed by the company with the Securities and Exchange Commission, which can be found at www.principal.com/10k.

22

2008 Year in Review | Summary Consolidated Financials

summary consolidated balance sheetsPRInCIPAL FInAnCIAL GROUP, InC.

December 31,

2008 2007 (in millions)

Assets Fixed maturities, available for sale $ 40,117.2 $ 46,738.9Fixed maturities, trading 843.4 529.3Equity securities, available for sale 242.7 316.4Equity securities, trading 158.0 269.8Mortgage loans 13,113.6 12,659.6Real estate 919.4 862.5Policy loans 896.4 869.9Other investments 2,816.6 2,118.6 Total investments 59,107.3 64,365.0Cash and cash equivalents 2,608.0 1,344.4Accrued investment income 750.7 774.1Premiums due and other receivables 988.1 951.2Deferred policy acquisition costs 4,153.0 2,810.1Property and equipment 518.2 469.0Goodwill 375.5 374.7Other intangibles 925.3 1,006.9Separate account assets 55,142.6 80,486.8Other assets 3,613.7 1,938.0 Total assets $ 128,182.4 $ 154,520.2

Liabilities Contractholder funds $ 43,086.6 $ 40,288.9Future policy benefits and claims 18,494.2 18,454.7Other policyholder funds 536.2 540.5Short-term debt 500.9 290.8Long-term debt 1,290.5 1,398.8Income taxes currently payable 1.9 41.6Deferred income taxes 102.8 576.3Separate account liabilities 55,142.6 80,486.8Other liabilities 6,553.9 5,020.1 Total liabilities 125,709.6 147,098.5

Stockholders’ equity Series A preferred stock, par value $.01 with liquidation preference of $100 per share — 3.0 million shares authorized, issued and outstanding at December 31, 2008 and 2007 — —Series B preferred stock, par value $.01 with liquidation preference of $25 per share — 10.0 million shares authorized, issued and outstanding at December 31, 2008 and 2007 0.1 0.1Common stock, par value $.01 per share — 2,500.0 million shares authorized, 387.0 million and 385.8 million shares issued, and 259.3 million and 259.1 million shares outstanding at December 31, 2008 and 2007, respectively 3.9 3.9Additional paid in capital 8,376.5 8,295.4Retained earnings 3,722.5 3,414.3Accumulated other comprehensive income (loss) (4,911.6) 420.2Treasury stock, at cost (127.7 million and 126.7 million shares at December 31, 2008 and 2007, respectively) (4,718.6) (4,712.2) Total stockholders’ equity 2,472.8 7,421.7 Total liabilities and stockholders’ equity $ 128,182.4 $ 154,520.2

The information in the summary consolidated balance sheets shown above has been prepared in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”). It is a replication of the information in the consolidated statements of financial position in the Principal Financial Group, Inc.’s 2008 Form 10-K. For complete financial statements, including notes and management’s discussion and analysis of financial condition and results of operations, please refer to the 2008 Form 10-K filed by the company with the Securities and Exchange Commission, which can be found at www.principal.com/10k.

23

The Principal Financial Group | Summary Consolidated Financials

summary consolidated statements oF cash FloWsPRInCIPAL FInAnCIAL GROUP, InC.

For the year ended December 31,

2008 2007 2006 (in millions) Operating activities Net income $ 458.1 $ 860.3 $ 1,064.3Adjustments to reconcile net income to net cash provided by operating activities: Income from discontinued operations, net of related income taxes — (20.2) (28.9) Amortization of deferred policy acquisition costs 373.7 357.3 239.2 Additions to deferred policy acquisition costs (680.3) (606.1) (498.9) Accrued investment income 23.4 (52.1) (41.1) Net cash flows for trading securities (348.0) (258.2) (200.3) Premiums due and other receivables (39.2) 191.8 (419.1) Contractholder and policyholder liabilities and dividends 2,394.2 2,276.7 1,925.8 Current and deferred income taxes (219.7) (70.3) 169.6 Net realized capital (gains) losses 694.1 328.8 (44.7) Depreciation and amortization expense 145.0 130.2 101.3 Mortgage loans held for sale, acquired or originated (92.0) (83.8) (427.3) Mortgage loans held for sale, sold or repaid, net of gain 73.7 166.8 761.4 Real estate acquired through operating activities (77.5) (48.2) (82.3) Real estate sold through operating activities 24.5 43.7 88.6 Stock-based compensation 31.5 72.8 71.8 Other (536.7) (329.5) (403.9)Net adjustments 1,766.7 2,099.7 1,211.2Net cash provided by operating activities 2,224.8 2,960.0 2,275.5

Investing activities Available for sale securities: Purchases (6,605.8) (10,520.3) (7,765.4) Sales 1,343.5 3,039.6 1,438.9 Maturities 3,207.9 4,461.6 3,595.8Mortgage loans acquired or originated (3,484.9) (3,108.0) (2,600.2)Mortgage loans sold or repaid 2,902.0 2,112.8 2,102.6Real estate acquired (33.3) (115.2) (26.6)Real estate sold 70.6 53.0 174.1Net purchases of property and equipment (105.0) (98.4) (50.5)Purchases of interest in subsidiaries, net of cash acquired (20.3) (76.1) (769.2)Net change in other investments (191.9) (248.2) (9.9)Net cash used in investing activities (2,917.2) (4,499.2) (3,910.4)

Financing activities Issuance of common stock 36.4 73.6 66.2Acquisition of treasury stock (6.4) (756.3) (755.8)Proceeds from financing element derivatives 142.2 128.7 132.1Payments for financing element derivatives (114.6) (137.2) (141.0)Excess tax benefits from share-based payment arrangements 3.1 10.2 8.4Dividends to common stockholders (116.7) (235.6) (214.7)Dividends to preferred stockholders (33.0) (41.2) (24.7)Issuance of long-term debt 7.9 0.2 601.7Principal repayments of long-term debt (83.3) (115.0) (20.4)Net proceeds (repayments) of short-term borrowings 217.4 203.9 (390.5)Investment contract deposits 11,349.0 9,958.9 8,925.7Investment contract withdrawals (9,813.7) (8,209.9) (6,859.4)Net increase in banking operation deposits 373.1 417.1 258.9Other (5.4) (5.3) — Net cash provided by financing activities $ 1,956.0 $ 1,292.1 $ 1,586.5

The information in the summary consolidated statements of cash flows shown above has been prepared in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”). It is a replication of the information in the consolidated statements of cash flows in the Principal Financial Group, Inc.’s 2008 Form 10-K. For complete financial statements, including notes and management’s discussion and analysis of financial condition and results of operations, please refer to the 2008 Form 10-K filed by the company with the Securities and Exchange Commission, which can be found at www.principal.com/10k.

24

consolidated statements oF cash FloWsPRInCIPAL FInAnCIAL GROUP, InC.

use oF non-gaap Financial measuresPRInCIPAL FInAnCIAL GROUP, InC.

For the year ended December 31,

2008 2007 2006 (in millions, except as indicated) Discontinued operations Net cash provided by operating activities $ — $ 2.5 $ 1.9Net cash used in investing activities — (1.3) (3.4)Net cash used in financing activities — (0.5) (0.6)Net cash provided by (used in) discontinued operations — 0.7 (2.1)Net increase (decrease) in cash and cash equivalents 1,263.6 (246.4) (50.5)Cash and cash equivalents at beginning of year 1,344.4 1,590.8 1,641.3 Cash and cash equivalents at end of year $ 2,608.0 $ 1,344.4 $ 1,590.8

Cash and cash equivalents of discontinued operations included above At beginning of year $ — $ (0.7) $ 1.4At end of year $ — $ — $ (0.7) Supplemental Information: Cash paid for interest $ 111.3 $ 115.1 $ 80.1Cash paid for income taxes $ 206.1 $ 245.9 $ 139.5

For the year ended December 31,

2008 2007 2006 2005 2004 (in millions, except as indicated)Net income available to common stockholders per diluted share Operating earnings per diluted share $ 3.61 $ 3.93 $ 3.42 $ 2.87 $ 2.37Net realized capital gains (losses) (1.93) (0.85) 0.07 (0.06) (0.20)Other after-tax adjustments (0.05) 0.01 0.25 0.30 0.45Net income available to common stockholders per diluted share $ 1.63 $ 3.09 $ 3.74 $ 3.11 $ 2.62 Net income available to common stockholdersOperating earnings $ 942.7 $ 1,052.7 $ 943.4 $ 835.9 $ 747.2Net realized capital gains (losses) (505.3) (229.7) 18.0 (20.6) (62.3)Other after-tax adjustments (12.3) 4.3 69.9 86.0 140.7 Net income available to common stockholders $ 425.1 $ 827.3 $ 1,031.3 $ 901.3 $ 825.6 Total Stockholders’ Equity Stockholders’ equity x-OCI available to common stockholders $ 6,842.4 $ 6,459.5 $ 6,471.9 $ 6,270.4 $ 6,231.0Net unrealized capital gains (losses) (4,170.8) 317.1 859.0 1,027.9 1,403.9Foreign currency translation (173.5) 35.9 (26.6) (21.6) (85.3)Net unrecognized post-retirement benefit obligation (567.3) 67.2 14.5 - -Minimum pension liability - - - (11.5) (5.3)Preferred stock, at par 0.1 0.1 0.1 0.1 -Paid-in capital - preferred stock 541.9 541.9 541.9 541.9 - Total stockholders’ equity $ 2,472.8 $ 7,421.7 $ 7,860.8 $ 7,807.2 $ 7,544.3 Net income ROE available to common stockholders including OCI* Operating earnings ROE x-OCI 14.2% 16.3% 14.8% 13.4% 12.0%Net realized capital gains (losses) -7.6 -3.6 0.3 -0.3 -1.0Other after-tax adjustments -0.2 0.1 1.1 1.3 2.3 Net income ROE available to common stockholders x-OCI 6.4 12.8 16.2 14.4 13.3Net unrealized capital gains (losses) 2.7 -1.0 -2.2 -2.3 -2.4Foreign currency translation 0.1 0.0 0.1 0.1 0.1Net unrecognized post-retirement benefit obligation 0.5 -0.1 0.0 0.0 0.0Minimum pension liability 0.0 0.0 0.0 0.0 0.0Net income ROE available to common stockholders including OCI 9.7% 11.7% 14.1% 12.2% 11.0%

2008 Year in Review | Summary Consolidated Financials

The company uses a number of non-GAAP financial measures that management believes are important in understanding and evaluating the normal, recurring operations of our businesses. Non-GAAP measures included in the Year in Review are operating earnings per diluted share, operating earnings and operating return on average equity excluding other comprehensive income. While such measures are also consistent with metrics utilized by the investment community to evaluate performance, they are not a substitute for U.S. GAAP (GAAP) financial measures. Therefore, we provide below a reconciliation of the non-GAAP measures to the comparable GAAP financial measures.

*OCI, or Other Comprehensive Income, consists of three items — net unrealized gains (losses) on available-for-sale securities and derivative instruments, net foreign currency translation adjustments and unrecognized post-retirement benefit obligation.

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The Principal Financial Group | Board of Directors

board oF directorsPRInCIPAL FInAnCIAL GROUP, InC.

PRInCIPAL LIFE InSURAnCE COMPAnY

1 J. Barry Griswell Chairman of the Board The Principal Financial Group

2 Elizabeth E. Tallett Principal Hunter Partners, LLC

3 C. Daniel Gelatt President NMT Corporation

4 Arjun K. Mathrani Adjunct Professor – New York University’s Stern School of Business, St. John’s University, New York, and Cambridge University’s Judge Business School

5 Jocelyn Carter-Miller President TechEd Ventures

6 William T. Kerr Chairman of the Board Meredith Corporation

7 Sandra L. Helton Past Executive Vice President and Chief Financial Officer Telephone and Data Systems, Inc.

8 Gary E. Costley Managing Director C & G Capital and Management, LLC

9 Larry D. Zimpleman President and Chief Executive Officer The Principal Financial Group

10 Betsy J. Bernard Past President AT&T

11 Michael T. Dan Chairman, President and Chief Executive Officer The Brink’s Company

12 Richard L. Keyser Chairman of the Board W.W. Grainger, Inc.

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1 2 3 4

6 8 9

10 11 12

5

7

2008 Year in Review | Senior Management

senior managementPRInCIPAL FInAnCIAL GROUP | MARCH 2009

Norman R. SorensenExecutive Vice President

Gregory J. BurrowsSenior Vice President

Ronald L. DanilsonSenior Vice President

Gregory B. ElmingSenior Vice President and Controller

Ralph C. EucherSenior Vice President

Nora M. EverettSenior Vice President

Mary A. O’KeefeSenior Vice President andChief Marketing Officer

Gary P. ScholtenSenior Vice President andChief Information Officer

G. David ShaferSenior Vice President

Deanna D. StrableSenior Vice President

Thomas J. GrafSenior Vice President

Joyce N. HoffmanSenior Vice Presidentand Corporate Secretary

Ellen Z. LamaleSenior Vice Presidentand Chief Risk Officer

Julia M. LawlerSenior Vice President andChief Investment Officer

Terrance J. LillisSenior Vice Presidentand Chief Financial Officer

Timothy J. MinardSenior Vice President

J. Barry GriswellChairman of the Board

Larry D. ZimplemanPresident andChief Executive Officer

John E. AschenbrennerPresident, Insurance andFinancial Services

Daniel J. HoustonPresident, Retirement andInvestor Services

James P. McCaughanPresident, Global Asset Management

Karen E. ShaffExecutive Vice Presidentand General Counsel

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Principal FundsBond & Mortgage Securities FundCalifornia Municipal FundDisciplined LargeCap Blend FundDiversified International FundEquity Income FundGlobal Diversified Income FundGlobal Real Estate Securities FundGovernment & High Quality Bond FundHigh Quality Intermediate Term Bond FundHigh Yield FundHigh Yield Fund IIncome FundInflation Protection FundInternational Emerging Markets FundInternational Fund IInternational Growth FundLargeCap Blend Fund ILargeCap Blend Fund IILargeCap Growth FundLargeCap Growth Fund ILargeCap Growth Fund IILargeCap S&P 500 Index FundLargeCap Value FundLargeCap Value Fund ILargeCap Value Fund IILargeCap Value Fund IIILifeTime 2010 FundLifeTime 2015 FundLifeTime 2020 FundLifeTime 2025 FundLifeTime 2030 FundLifeTime 2035 FundLifeTime 2040 FundLifeTime 2045 FundLifeTime 2050 FundLifeTime 2055 FundLifeTime Strategic Income FundMidCap Blend FundMidCap Growth FundMidCap Growth Fund IIMidCap Growth Fund III

MidCap S&P 400 Index FundMidCap Stock FundMidCap Value Fund IMidCap Value Fund IIMidCap Value Fund IIIMoney Market FundMortgage Securities FundPreferred Securities FundReal Estate Securities FundStrategic Asset Management Balanced PortfolioStrategic Asset Management Conservative Balanced PortfolioStrategic Asset Management Conservative Growth PortfolioStrategic Asset Management Flexible Income PortfolioStrategic Asset Management Strategic Growth PortfolioShort-Term Bond FundShort-Term Income FundSmallCap Blend FundSmallCap Growth FundSmallCap Growth Fund ISmallCap Growth Fund IISmallCap Growth Fund IIISmallCap S&P 600 Index FundSmallCap Value FundSmallCap Value Fund ISmallCap Value Fund IISmallCap Value Fund IIITax-Exempt Bond FundUltra Short Bond FundWest Coast Equity Fund

Principal Variable Contracts Fund, Inc.*

U.S. Asset AccumulationDelaware Charter Guarantee & Trust Company d/b/a Principal Trust CompanyPrincipal BankPrincipal Financial Advisors, Inc.Principal Funds Distributor, Inc.Principal Life Insurance CompanyPrincipal Management CorporationPrincipal Shareholder Services, Inc.Princor Financial Services Corporation

Global Asset ManagementColumbus Circle InvestorsEdge Asset Management, Inc.Morley Capital Management, Inc.Morley Financial Services, Inc.Post Advisory Group, LLCPrincipal Commercial Acceptance, LLCPrincipal Commercial Funding, LLCPrincipal Enterprise Capital, LLCPrincipal Global Investors TrustPrincipal Global Investors, LLCPrincipal Real Estate Investors, LLCSpectrum Asset Management, Inc.Union Bond & Trust CompanyAustraliaPrincipal Global Investors (Australia) LimitedPrincipal Real Estate Investors (Australia) LimitedBrazilPrincipal Global Investors (Brazil) LimitedEuropePrincipal Global Investors (Europe) LimitedPrincipal Global Investors (Ireland) LimitedHong KongPrincipal Global Investors (Hong Kong) LimitedJapanPrincipal Global Investors (Japan) LimitedMalaysiaCIMB-Principal Islamic Asset Management BerhadSingaporePrincipal Global Investors (Singapore) Limited

International Asset Management& AccumulationBrazilBrasilPrev Seguros e Previdência S.A. ChilePrincipal Administradora General de Fondos S.A.Principal Asset Management Chile S.A.Principal Compañía de Seguros de Vida Chile S.A.Principal Créditos Hipotecarios, S.A.

ChinaCCB Principal Asset Management Company, LTDHong KongPrincipal Asset Management Company (Asia) LimitedPrincipal Insurance Company (Hong Kong) LimitedPrincipal Trust Company (Asia) LimitedPrincipal Global Investors (Asia) LimitedIndiaPNB Principal Financial Planners Private LimitedPNB Principal Insurance Broking Private LimitedPrincipal Consulting (India) Private LimitedPrincipal PNB Asset Management Company Private LimitedPrincipal Trustee Company Private LimitedIndonesiaPT CIMB – Principal Asset ManagementMalaysiaCIMB – Principal Asset Management BerhadCIMB Wealth Advisors BerhadMexicoPrincipal Afore, S.A. de C.V.Principal Fondos de Inversión, S.A. de C.V., Operadora de Fondos de InversionPrincipal Mexico Compañía de Seguros, S.A. de C.V.Principal Pensiones, S.A. de C.V.SingaporeCIMB-Principal Asset Management (Singapore) Pte Ltd

Life & Health InsuranceDiversified Dental Services, Inc.Employers Dental Services, Inc.HealthRisk Resource Group, LLCJF MOLLOY & Associates, Inc.Preferred Product Network, Inc.Principal Dental Services, Inc.Principal Edge Network – Georgia, LLCPrincipal Edge Network – Tennessee, LLCPrincipal Life Insurance CompanyPrincipal Life Insurance Company of IowaPrincipal Life Insurance Company of Iowa IIPrincipal National Life Insurance CompanyPrincipal Reinsurance Company of VermontPrincipal Wellness Company

Corporate and OtherPrincipal Development Investors, LLCPrincipal Global Services Private LimitedPrincipal Life Insurance CompanyPrincipal Real Estate Fund Investors, LLCPrincipal Real Estate Portfolio, Inc.

principal FundsORGAnIZED BY PRInCIPAL LIFE InSURAnCE COMPAnY | MARCH 2009

reportable segments oFprincipal Financial group, inc.

*Available only to fund investment options in certain variable annuity and variable life insurance contracts.

Mutual funds and variable contracts are distributed by Principal Funds Distributor, Inc. and Princor Financial Services Corporation, members of the Principal Financial Group, Des Moines, Iowa 50392-0200. Phone 1-800-222-5852.

The contents of this publication are for general information only and are not intended to solicit the purchase of products from companies of the Principal Financial Group.

The Principal Financial Group | Reportable Segments and Principal Funds28

0 2 l e t t e r t o s h a r e h o l d e r s 0 6 p e r s p e c t i v e 0 8 d i v e r s i f i c at i o n 1 0 d i s c i p l i n e 1 2 c o m m i t m e n t

1 4 at a g l a n c e 1 6 i n v e s t i n g f o r t h e f u t u r e 1 9 awa r d s & r e c o g n i t i o n 2 0 f i n a n c i a l h i g h l i g h t s

2 2 s u m m a rY c o n s o l i d a t e d f i n a n c i a l s 2 6 b o a r d o f d i r e c t o r s 2 7 s e n i o r m a n a g e m e n t

2 8 r e p o rta b l e s e g m e n t s a n d p r i n c i pa l f u n d s

This 2008 Year in Review provides a company overview, financial highlights and summary financial statements. For complete financial statements, including notes and management’s discussion and analysis of financial condition and results of operations, please refer to the 2008 Form 10-K filed by the company with the Securities and Exchange Commission, which can be found at www.principal.com/10k. Forward Looking and Cautionary StatementsCertain statements made by the company in this Year in Review that are not historical facts may be considered forward-looking statements, including, without limitation, statements as to sales targets, sales and earnings trends, and management’s beliefs, expectations, goals and opinions. The company does not undertake to update these statements, which are based on a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Future events and their effects on the company may not be those anticipated, and actual results may differ materially from the results anticipated in these forward-looking statements. The risks, uncertainties and factors that could cause or contribute to such material differences are discussed in the company’s annual report on Form 10-K for the year ended Dec. 31, 2008, filed with the Securities and Exchange Commission. These risks and uncertainties include, without limitation: competitive factors; volatility of financial markets; decrease in ratings; interest rate changes; inability to attract and retain sales representatives; international business risks; foreign currency exchange rate fluctuations; a pandemic, terrorist attack or other catastrophic event; default of the company’s re-insurers; and investment portfolio risks. “The Principal Financial Group” and “The Principal” are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.

what you neeD to know. now. We’re all facing uncertain economic times. And we know you have questions about the economy and your own finances. We’re here to help. Find the latest information to help you make smart decisions and secure your financial future at www.principal.com/now.

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2008

Corporate Headquarters711 High St.Des Moines, Iowa 503921-800-986-EDGE (3343)

The Principal Financial Group on the InternetThe Principal home page, at www.principal.com, is your source for a vast array of information including company news releases, investment and savings tools, and details on our product and service solutions. The Investor Relations portion of the site provides up-to-the-minute information for shareholders and the investment community, including access to SEC filings, stock information, overview of corporate responsibility, dividend history and credit ratings. It also includes information of interest on the governance of Principal Financial Group, Inc., including:n Board of Directorsn Corporate Governance Guidelinesn Board Committee Chartersn Director Independence Standardsn Corporate Code of Ethics

Annual MeetingThe Annual Meeting of Shareholders will convene at 9 a.m. Central Time, May 19, 2009, in the auditorium at the corporate headquarters of Principal Financial Group, Inc., 711 High St., Des Moines, Iowa 50392.

Contact Investor RelationsIf you have a question for Investor Relations, please contact us as follows: The Principal Financial Group – Investor Relations 711 High Street, S-006-E41 Des Moines, Iowa 50392-0420 Phone: 1-800-986-3343 | Fax: 515-235-5491 E-mail: investor-relations@principal.com

Shareholder InformationExchange: NYSE

Transfer AgentPrincipal Financial Group, Inc. shareholder inquiries should be addressed to our transfer agent, Computershare Investor Services, LLC. Computershare can assist shareholders with a variety of services, including: address changes, certificate issuance, replacement of lost stock certificates, transfer of stock to another person, account statements, balance inquiries, shareholder dividend inquiries and selling of shares. You can call or write to the transfer agent at: Principal Financial Group, Inc. c/o Computershare Investor Services P.O. Box 43078 Providence, RI 02940-3078Toll-free phone: 866-781-1368Phone for hearing impaired: 312-588-4110Online Contact Form: www-us.computershare.com/contactus

Registered shareholders can also access information about their Principal Financial Group, Inc. common stock accounts via the Internet using Computershare’s Web site at www-us.computershare.com/investor. The Principal does not maintain or provide information directly to this site, makes no representations or warranties with respect to the information contained therein and takes no responsibility for supplementing, correcting or updating any such information.

A Special ThanksA special thanks to our 450,000 registered shareholders, who have owned Principal Financial Group, Inc. common stock since our initial public offering.

Top 10 Holders* of Principal Financial Group, Inc. Common Stock n Nippon Life Insurance Companyn Barclays Global Investors (U.S.)n State Street Global Advisorsn The Vanguard Group, Inc.n UBS Global Asset Management (Americas), Inc.n Davis Selected Advisers, L.P.n UBS Global Asset Management (Switzerland) AGn J.P. Morgan Investment Management, Inc.n Northern Trust Global Investmentsn TIAA-CREF Investment Management, Inc

*Based on public filings as of Dec. 31, 2008

principal financial group, inc.

2 0 0 8 Y e a r i n r e v i e w

Des Moines, iowa 503921-800-986-eDge (3343)www.principal.coM

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