1126328--2/27/2008--PRINCIPAL_FINANCIAL_GROUP

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{tax, income, asset}

{loan, real, estate}

{loss, insurance, financial}

{regulation, change, law}

{operation, international, foreign}

{product, market, service}

{financial, litigation, operation}

{debt, indebtedness, cash}

{operation, natural, condition}

{system, service, information}

{capital, credit, financial}

{stock, price, share}

{provision, law, control}

{condition, economic, financial}

{regulation, government, change}

A decline or increased volatility in the securities markets could result in investors withdrawing from the markets or decreasing their rates of investment, either of which could reduce our net income, revenues and AUM. Our investment portfolio is subject to several risks which may diminish the value of our invested assets and the investment returns credited to customers, which could reduce our sales, revenues, AUM and net income. An increase in defaults on our fixed maturity securities portfolio may reduce our profitability. An increased rate of delinquency and defaults on our commercial mortgage loans, especially those with balloon payments, could decrease our profitability. We may have difficulty selling our privately placed fixed maturity securities, commercial mortgage loans and real estate investments because they are less liquid than our publicly traded fixed maturity securities. Derivative instruments may not be honored by counterparties resulting in ineffective hedging of our risks. Environmental liability exposure may result from our commercial mortgage loan portfolio and real estate investments. Regional concentration of our commercial mortgage loan portfolio in California may subject us to economic downturns or losses attributable to earthquakes in that state. Competition from companies that may have greater financial resources, broader arrays of products, higher ratings and stronger financial performance may impair our ability to retain existing customers, attract new customers and maintain our profitability. A downgrade in our financial strength or credit ratings may increase policy surrenders and withdrawals, reduce new sales and terminate relationships with distributors, impact existing liabilities and increase our cost of capital, any of which could adversely affect our profitability and financial condition. Unforeseen increases in cash outflows may negatively impact our liquidity. Our efforts to reduce the impact of interest rate changes on our profitability and retained earnings may not be effective. If we are unable to attract and retain sales representatives and develop new distribution sources, sales of our products and services may be reduced. Our international businesses face political, legal, operational and other risks that could reduce our profitability in those businesses. We may face losses if our actual experience differs significantly from our pricing and reserving assumptions. Our ability to pay stockholder dividends and meet our obligations may be constrained by the limitations on dividends Iowa insurance laws impose on Principal Life. The pattern of amortizing our DPAC and other actuarial balances on our investment contract, participating life insurance and universal life-type products may change, impacting both the level of the asset and the timing of our net income. We may need to fund deficiencies in our Closed Block assets. A pandemic, terrorist attack, or other catastrophic event could adversely affect our net income. Our reinsurers could default on their obligations or increase their rates, which could adversely impact our net income and profitability. We face risks arising from acquisitions of businesses. Changes in laws, regulations or accounting standards may reduce our profitability. Changes in regulations may reduce our profitability. Changes in tax laws could increase our tax costs and reduce sales of our insurance, annuity and investment products. Repeal or modification of the federal estate tax could reduce our revenues. Changes in federal, state and foreign securities laws may reduce our profitability. Changes in accounting standards may reduce our profitability. A computer system failure or security breach could disrupt our business, damage our reputation and adversely impact our earnings. Results of litigation and regulatory investigations may affect our financial strength or reduce our profitability. Fluctuations in foreign currency exchange rates could reduce our profitability. Applicable laws and our stockholder rights plan, certificate of incorporation and by-laws may discourage takeovers and business combinations that our stockholders might consider in their best interests. Our financial results may be adversely impacted by global climate changes.

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1126328--2/27/2008--PRINCIPAL_FINANCIAL_GROUP_INC