James McCaughan - Chief Executive Officer of Principal Global Investors and President of Global Asset Management Daniel Houston - President of Retirement, Insurance and Financial Services Larry Zimpleman - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Director of Principal Life Terrance Lillis - Chief Financial Officer, Chief Accounting Officer and Senior Vice President Julia Lawler - Chief Investment Officer, Senior Vice President, Chief Investment Officer of Principal Life Insurance Company and Senior Vice President of Principal Life Insurance Company Norman Sorensen - President of International Asset Management & Accumulation, Chief Executive Officer of Principal International Inc, President of Principal International Inc. and Senior Vice President of Principal Life John Egan - Vice President of Investor Relations

Joanne Smith - Scotia Capital Inc. Darin Arita - Deutsche Bank AG Steven Schwartz - Raymond James & Associates Randy Binner - FBR Capital Markets & Co. John Nadel - Sterne Agee & Leach Inc. Jamminder Bhullar - JP Morgan Chase & Co Nigel Dally - Morgan Stanley Colin Devine - Citigroup Inc

Good morning, and welcome to the Principal Financial Group's Fourth Quarter 2010 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. John Egan, Vice President of Investor Relations.

Thank you, and good morning. Welcome to the Principal Financial Group's Fourth Quarter and Full Year Earnings Conference Call. As always, our earnings release, financial supplement and additional investment portfolio detail are available on our website at www.principal.com/investor. Following a reading of the Safe Harbor provision, CEO Larry Zimpleman; and CFO, Terry Lillis, will deliver some prepared remarks. Then, we will open up the call for questions. Others available for the Q&A are Dan Houston, Retirement and Investor Services and U.S. Insurance Solutions; Jim McCaughan, Principal Global Investors; Norman Sorensen, Principal and Financial; and Julia Lawler, Chief Investment Officer. Some of the comments made during this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events or changes in strategy. Risks and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company's most recent annual report on Form 10-K and quarterly report on Form 10-Q, filed by the company with the Securities and Exchange Commission. I would like to now turn the call over to Larry.

Thanks, John, and welcome to everyone on the call. This morning, I'll comment on three areas. First, I want to discuss fourth quarter and full year 2010 results. Second, I'll provide an update on our capital management plans. And finally, I'll talk about the longer-term opportunities of our strategy. Terry will then cover financial results in more detail following my comments. As we talked about at our Investor Day in December, we remain well positioned for the unprecedented opportunities for long-term growth, both in the U.S. and in key emerging international markets. We remain convinced that our strategies are the right ones to capitalize on these opportunities, and fourth quarter results validate that based on the continued signs of growth across our businesses. As to the fourth quarter, we are pleased with the operating earnings, given the accounting noise that Terry will discuss, and we see the same momentum in sales and flows as we mentioned on the last call. Items of note for the quarter are: record total company assets under management of $319 billion, including record assets under management and record net cash flows for Principal International; record sales for Principal Funds and strong full service accumulation sales results, with good momentum heading into 2011; and double-digit earnings growth on a combined basis for our high-growth segments, Retirement and Investor Services accumulation businesses, Principal Global Investors and Principal International. These results come in spite of an economic recovery that remains challenged, especially for the small, medium business sector, with slow employment growth and constrained credit conditions. Our broad distribution footprint, best in class solutions and operational discipline have allowed us to return to something closer to a normal operating environment despite the economic challenges. I'd like to discuss full year results in more detail as they better highlight…

Thanks, Larry. This morning, I'll focus on operating earnings for the quarter and full year, including continued strong expense management, net income including continued solid performance in the investment portfolio, and the strength of our capital position and strong balance sheet as we enter 2011. We view the fourth quarter and full-year 2010 as a continuation of an improving picture that began earlier in 2010. We continue to see positive trends in our businesses and as Larry said, we're excited about the growth opportunities in 2011 and beyond. Starting with total company results, most notably for the year, we finished 2010 with a record assets under management. At $319 billion, our assets under management exceed our pre-crisis high, through positive net cash flows despite volatile investment performance. Total company earnings improved 15% to $845 million for 2010, on 14% higher average assets under management. There were a number of items influencing comparability between the full year periods. Some of the bigger items include the reduced economic interest in our Brasilprev joint venture as of June 1, the scale back of our Investment Only business, and the impact of the equity markets on deferred acquisition cost amortization expense, and the assumption changes on net GAAP reserves. On an adjusted basis, full-year earnings were up 27% on a 14% increase in average assets under management compared to 2009, a very solid result, reflecting strong operational leverage. Fourth quarter 2010 operating earnings were up 5% to $214 million or $0.66 per share compared to a year ago. This result was negatively impacted by $0.04 due to an increase in net reserves in individual life, following a periodic long-term interest rate assumption review. Adjusting for this item, the run rate of earnings for the quarter is $0.70. DAC amortization expense benefited from the favorable…

[Operator Instructions] The first question will come from John Nadel with Sterne Agee. John Nadel - Sterne Agee & Leach Inc.: I have two questions for you. Terry, just following up on the comment on the $700 million of capital deployment, just want to clarify that that's in addition to common dividends and interest expense on your debt, so that we should be thinking about that as true return of capital?

Yes, John, this is Terry. Yes, you're absolutely right. That's an addition. John Nadel - Sterne Agee & Leach Inc.: And then I was hoping we could just get an update on the pipeline when you're thinking about the Full Service Accumulation, maybe you can throw Principal Global and Principal International into that as well. And specifically, I guess I'm interested in your views on first quarter sales outlook in FSA. Historically, that's been seasonally your best sales quarter, and I'm just wondering, given the strength of fourth quarter 2010 sales, whether that pulled something forward.

This is Larry. What I think, if it's okay, is have Dan comment a little bit on his thoughts relative to FSA, and have Norman talk just a minute about PI, and have Jim talk just a minute about PGI. So we’ll start with Dan.

Yes, John, good momentum leaving Q4 going into Q1. If we just look at that created pipeline, which we've talked about in previous calls, at the end of 2010, that number's up about 20% from where it was the previous year. So again, we've got a lot of good opportunities, and our close rate continues to tick up in Q4, and leads us right into, hopefully, a very strong first quarter of 2011. ESOPs and Defined Benefits seem to be coming back in terms of being part of our discussions with our Total Retirement Solutions products. And again, those were two products that were pretty flat over the course of 2010.

With January behind us, the January sales in the company were very, very strong. Brazil, for example, doubled sales in January from January of 2009. Asia is pulling together as well. Our deposits and net cash flows are increasing as they were in the fourth quarter. So we estimate a fairly, fairly interesting first quarter.

On the institutional market, we're seeing very good demand and a lot of conversations about real estate, about U.S. commercial real estate, about international equities. The investors are much less keen on U.S. equities, and there are very good allocations to international equities, particularly emerging. We're seeing interest in our currency product and in some of the high yield products, notably high yield and preferred securities. So the demand is moving towards the higher asset value specialty products. I don't want to deduce from one quarter, where we lost that one large mandate on a very low fee, but it looks to us as if many investors, many institutional investors are cutting out these large lower added value businesses, and going for the specialty high added value mandates, which actually suits us with our multi-boutique strategy.

The next question will come from Nigel Dally with Morgan Stanley.

On the excess capital deterioration that you saw this quarter, in particular, the hit from the BlackRock modeling of required capital, what was it about your holdings that drove such large charge? We haven't seen similar hits at other companies, so perhaps, you can provide some additional color there. Also with the $700 million of capital in that [ph] flow, M&A and buybacks this year, if you don't find any M&A opportunities, should we expect the full $700 million to be applied to buybacks? And perhaps, you can discuss the likely timing as to when you'd likely start your buyback program. Is there anything in particular that's leading you to hold back from buying back currently?

Nigel, I'll maybe take the first one, and then kick it over to Julia to talk a little about the BlackRock modeling. Certainly, as we have said, we think there's somewhere around $700 million over the next 12 months that's deployable relative to M&A and/or return to -- and/or do share buybacks. Having said that, we also commented that we're a little bit cautious relative to what seems to be an ongoing parade, sort of capital regulatory and accounting changes. And we certainly seen this in the banking sector, and we started to see it in the insurance sector, albeit there's a bit less of it than there has been. So I think that common sense would indicate that while I think some level of usage of that $700 million could start in the first half of the year, I also think it's likely that we'll want to be slightly cautious and conservative. So we certainly wouldn't plan to have all of that or necessarily even the majority of that in the first half of the year. It's likely to be more towards the back half as hopefully the economic picture improves. And I'll have Julia talk a bit about why our portfolio was impacted a little bit more.

The BlackRock model tended to impact the originally rated AA and A tranches of the CMBS CUSIP. So basically, they have some severe scenarios that took cumulative losses up through those AA originally rated bonds. Now if you had more AAs and As going into this, it would impact your portfolio more and we did. Those bonds, however, under other rating scenarios are currently still rated anywhere from BBB to BB, so other rating agencies, including ourselves, are not rating them as severely as this model is.

This is Larry. I'd make two additional comments. One is that as Julia said, the BlackRock scenarios are fairly draconian. So, for example, they still have about a 25% probability and the range of scenarios, they still attach about 25% probability that we'll actually see a second double dip as it relates to commercial real estate. And I think most folks would say that's becoming increasingly less likely. The other point I would just make on this is that, that is a snapshot as of 12/31, and we've already started to see some of the pricing in the marketplace improve fairly substantially on those securities. So again, we've seen quite a rally already. Whether that holds and over what period of time that 250 comes back is yet to be determined. But just recognize that sort of in our view that 250 is likely to come back over time.

The next question will come from Jim Bhullar with JPMorgan. Jamminder Bhullar - JP Morgan Chase & Co: Larry, you mentioned the deposits, obviously, they are pretty strong. But I want to see if you could talk about the draws in both the FSA and Asset Management businesses increasing this quarter, and what's really driving that? Whether that's from competition, and also what caused the loss of the large account you mentioned in PGI? And then secondly, longer term, do you see an impact on your business from a few of the changing rules in the 401(k) market like higher fee disclosure or the new fiduciary standard for distributors?

Let me just sort of set the context and then we can have Dan talk for just a minute about the FSA withdrawals, as well as the regulatory changes, and Jim can address PGI. But as we have seen in prior quarters, when the S&P is up substantially during the quarter, it always tends to put pressure on net cash flows. And just as a reminder, we saw the S&P up 10% in the third quarter, and we saw the S&P up 12% in the fourth quarter. So the nature of that where contract withdrawals tend to be processed toward the end of the quarter, if not, on the actual end of the quarter date, you'll get the full reflection of that on the payout side, and you don't necessarily have that on the deposit side. So just kind of understanding that in periods when the market is up substantially, it will pinch net cash flow and obviously, the reverse when the market goes the other way. Having said that, we don't think there's a systemic problem in FSA. I'll let Dan talk a little more about that, and then we'll shift to Jim for the PGI question.

Jimmy, a couple of quick comments. When we look at those withdrawals, we've dug into the gory details, and it's around our emerging and dynamic segments. It's not our Institutional division. We've identified specific clients, and some of it is a little bit of a hangover from ERISA Q, with both the advisor communities, as well as with some of those clients. We've also been very aggressive rolling out our TPA solution for those clients who want local Third-party Administrative services. And then if you take it down in more level of detail, you'll find out that there were a couple of Defined Benefit cases that had terminated, and one ESOP that flat out, went out of the existence, and those three cases were fairly significant impact on the withdrawals. As it relates to your question on fee disclosure and fiduciary standards, we're on it, and we've been in active conversations in the debate with the Department of Labor. As you know, this summer, there'll be a disclosure requirements for plan sponsors. That's still frankly in flex, and no final decisions are yet made. And then the participant piece comes at year end. We are fully prepared to do that. We're making the necessary systems adjustments. It does level the playing field. There's no one that's going to be held out as uncompetitive. And I would tell you, given the fact we've got our group annuity contract, as well as our registered product, we probably have as much flexibility as any 401(k) provider out there, and I would also pile on top of that to say, as you know, about 65% of our business is Total Retirement Solutions. So it really is a more consultative discussion around their DB, their DC, their not qualified, and their ESOP. The other issue that's open right now is around fiduciary standard. Today, we do help our plan sponsors in giving them choices for their investment options. The question becomes, will they have to be more self served on that score, and work more closely with their advisor, and their advisor becomes, in fact, the fiduciary to the plan, and the helping , the picking and the choosing of those investment options. And again, I would tell you that we have active conversations going on in Washington to debate the merits, and the extent by which these fiduciary standards are going to be levied across 401(k) service providers.

Jimmy, on the $1.3 billion lost mandate, that was a broad sector exposure for one of the world's top 10 investors. It had been in place for about four or five years. It had performed in accordance with what they wanted. They were happy. But they decided to move away from that sector in terms of a broad exposure. As far as we're concerned, it was only on a 15 basis point fee, as befits such a very large mandate. It's one of those interesting things in the Institutional business. Institutional asset managers tend to have, on average, something like 40 to 45 basis points of their average fee. What we're seeing with the changing mix of business quite a lot of range around that. And obviously, a 15 basis point fee even in over $1 billion is a lot less attractive than the type of business move that Terry referred to in real estate and international equities, where the typical fees are more like 50, 60, 70 basis points. It's that change of mix, modest change of mix which is why the flows in the quarter, even though they saw a capital outflow, actually saw incremental revenue so far as we're concerned. And I think that looking forward, obviously, we don't want to lose assets. We want to gain assets too, but it's more important that we gain revenues. Jamminder Bhullar - JP Morgan Chase & Co: In the $0.70 run rate number that you mentioned for earnings, you didn't indicate anything being abnormal in the Group Benefits business. So I was just wondering if the $30.2 million that you reported in that in the Specialty Benefits segment, is that a normal run rate we should expect going forward, or it seems like the benefits ratio was the best that it's been since middle of '06 or something.

Jimmy, this is Terry. You're absolutely right. I think the $0.70 run rate is an appropriate rate for this quarter. The only item that we really called out was the increase in the life reserve, and that was about a $0.04 from the reported basis. The other items kind of offset each other. But on the Group business, you're absolutely right. The fourth quarter was a better quarter, and there's typically a little bit of seasonality associated with that, the fourth quarter being the best quarter. First quarter might have little bit higher general claims, but I think that's an appropriate run rate for this quarter.

The next question will come from Randy Binner with FBR Capital Markets. Randy Binner - FBR Capital Markets & Co.: Just a couple of follow-ups on the excess capital questions. I guess just back to the BlackRock study, I appreciate all the commentary so far, but is that kind of the final answer from BlackRock and the NAIC, or is this still something that can be debated since it's a relatively new test?

It's Larry again. I would say that this is -- it's sort of like the baseball games. So we just played the first inning and again, we had known that this was coming. We didn't know what it was going to mean, again, until sort of late December. And while they had done some sort of preliminary interaction, if you will, with the companies, it was very, very late before they finally said, "Okay, so here are the scenarios, and here's how you apply them." I do think that there will be more iterations of this. So there again, just like the baseball game, there will be more innings, and it will change a little bit overtime, but let me have Julia comment a little further.

I think, Randy, that for 2010, it's likely that that's the results we're going to see, but we continue to be in communication with the NAIC on our views around more transparency around the scenarios, the impacts to certain CUSIPs, et cetera. So I do believe we're going to have a lot more communication going for 2011, and the impact for 2011. It's going to be more positive. Randy Binner - FBR Capital Markets & Co.: And then just hitting excess capital on another direction with FSOC, just wondering since we last discussed that the Investor Day in December, if there's anything substantive that came out of the first round of documents out from FSOC. We found them to be pretty inconclusive, but wondering if you got anything there or the NYU study that came out that might affect your excess capital thoughts, specifically, quantitatively.

It is one of the things that we do have our eye on, so maybe just to make a couple of comments around FSOC. As you know, they have begun a rule-making process to further flesh out what would be so-called systemically important financial institutions. And they've mentioned that, I think, there are approximately six criteria that they use in that determination. There has been also been the NYU study that was done. And I think out of sort of 10 names that were in there, there was about four -- there were insurance companies. We've began an active dialogue on two fronts, not to take you through all the gory details, but one is to begin or to at least consider how we can have more interaction with sort of the folks at NYU, since it appears that they're working under some arrangement with FSOC, to have more dialogue with them, to sort of explain methodologies that we think make more sense. That would be one point. The second point would be that as it sits right now, I think there's something like 13 members under Dodd-Frank on FSOC, and three of those, if you will, are allocated to the insurance side of the business. Unfortunately, today, only one of those three is actually named and in the seat, and actually taking part in the discussions. Two of those have not yet been filled, and so we're also working hard to make sure that we get those two seats filled, so that the discussion going forward can actually involve a greater level of expertise from the insurance industry relative to what systematically important really means. So again, a lot more to come. It is one of the reasons we're a little bit cautious. We're not only just watching it very carefully, but we're very, very fully engaged in that discussion, and we're going to do everything we can along with the industry to guide that going forward. Randy Binner - FBR Capital Markets & Co.: I guess the bottom line is though, I think, as investors, we should all plan to think of you as being included in FSOC, is that fair, just to be conservative?

Yes, I wouldn't draw that conclusion just yet. I think, again, what it comes down to is this elusive concept of interconnectedness. I think that is of the criteria that FSOC laid out. I think it is the interconnectedness one that will probably be the one criteria that's going to be more significant than others. And I think if you think about just generally speaking across financial services, where does there tend to be more interconnectedness? I think that ends up being more in the banking industry, and in some of the Wall Street securities firms, I think, tend to have much higher levels of interconnectedness than the insurance industry. So that would be my feeling at this point.

The next question will come from Steven Schwartz with Raymond James. Steven Schwartz - Raymond James & Associates: I do have a question though with regards to unbundling. As long as I've been covering the company, the story here has been, really, Total Retirement Solutions, TRS, and there seemed to be less of that, at least, in the prepared remarks, more about unbundling. I was wondering if you were seeing some type of sea change in the business?

My kind of overview on that would be is that if you think about TRS, what TRS does is, of course, it creates a stickier model, but what TRS does is it drives assets. TRS tends to be a concept that has more appeal across the sort of middle size and larger-sized clients. So we have profile, and continue to talk about TRS. And again in the fourth quarter, I think 69% of our sales, that $3.1 billion, were on TRS. So what TRS does is it drives assets. The reason you've heard us talk a little more recently about some of the activities around TPA, and unbundling is because that has more implications relative to case count. So as people have talked about case count and what you're doing around case count, part of the answer to that has been the TPA. So it's a little bit of a question of for what metric are you talking about. So that's sort of my take, and I'll let Dan comment further.

The other item I might add is that they're not mutually exclusive. Our TRS clients could either be a bundled solution or through one of our Third-Party Administrative partners. And so, again, that's a pretty powerful tool if I'm a local TPA, and I have the benefit of tapping into the Principal Financial Group’s, TRS way of doing business, not only for record-keeping but for administration, employee communications and the like. So again, probably my fault for not having been more clear in the past on that score. Steven Schwartz - Raymond James & Associates: Just a quick one for Jim McCaughan performance fees, at least, relative to how I model. Fees of PGI looked a little bit short. I was wondering if that was on the performance fee side, maybe Jim can talk about how they did it?

I'm not sure how you're modeling them, Steven, but we have a fairly modest amount right now of performance fees on an annual basis. If you went back over the last five years, there was one, quite large one, in real estate three years ago. That one though is on a five-year cycle. So there won't be anything on that one in 2010 or in 2011. And also, remember two or three years ago, there was a pretty big performance fee on the post-hedge fund business, but we sold that business to management. So there will be performance fees going forward, but I think not the sort of big hits that we got twice in the last five years.

The next question will come from Colin Devine with Citigroup.

Just a couple of points to clarify. First on the reserve addition, what type of life liabilities were those again, if it was a deal close box as to the value you wrote[ph], I figure just to clarify that first. Second, with respect to M&A, I just wanted to be sure. Is it still the most likely scenario something in Jim's area and perhaps, you must got by ways out there, shopping for as opposed to something in the 401(k) space? And then lastly for Dan, it is great to see transfer deposits up as dramatically as they were, but it also looks like withdrawals are up fairly significantly too and perhaps, you could just give us a bit more color. I've seen transfer withdrawals, as well, is behind that. Does that reflect increased competition or just planned terminations, just a bit more as to what's going on?

I'll just take the first one in terms of reserve addition. That increase in GAAP reserve was attributable, primarily, to UL with secondary guarantee policies. So that would be what that was on. In terms of M&A broadly, what I would say is that our priority remains international, and asset management is our sort of initial area, with also some focus around the retirement space. And maybe I'll ask Norman to comment briefly, as well as Jim sort of on their thoughts within those sectors.

This is Norman, Colin. There are a number of properties that have become available at some of these large banking institutions go back to their core businesses, which is basically taking deposits in commercial banking. So we're looking at some of those, both in Latin America and Asia, as well as some potentially attractive mutual fund acquisitions, relatively small, but potentially attractive to bundle on to our operations there.

And on the asset management side, Colin, our main aim here is to find further boutique asset managers that would benefit from being part of our multi-boutique structure. We have quite a good track record of adding such boutiques. And what we're looking for there is attractive products, which will be useful to our clients or alternately capacity in areas that are capacity constrained. So what that tends to mean is international, both equity and bonds, with a bias towards finding something in emerging markets. Those are really the things we're looking at most intensely. And it's a while since we've done a boutique asset manager, but I would remind you that we really want to see the culture, the product, the distribution appetite aligned. And we don't want to force it for the sake of it, but I'll be disappointed if we don't find some nice boutiques that are attractive to our clients, and where we can partner with very effectively sometime in the next year or so.

And I'll have Dan talk just quickly about transfer.

Well, In particular on the...

In lower withdrawals as to low...

Yes, right. So on the withdrawals, they're not unlike not what I had just mentioned, Colin. We do think this is an emerging and dynamic issue. We washed out the 1,400 ERISA accounts that would impact not only the case count, but impacted withdrawals as well. We've looked closely at it. We do not feel we've got a systemic issue. The competition's out there, but a number of things that we're doing to address competition. One is to be more aggressive in rolling out that TPA strategy. If we look at assets retained and new business with our TPA strategy in 2010, that number was $900 million. That's a significant increase from where it's been in the past. We've also designed a model to go out there and look at where some of these clients are at risk, and working with the advisers more closely to try to anticipate if they might move. I will tell you that the significant improvement that we've seen in our investment performance, that Jim's manufacturing for us, is also helping us go out, make a very strong argument that the proprietary in the boutique investment strategies that we have here in Principal are viable. And what probably gives me some confidence around the stemming of the tide on these withdrawals is just the sheer strength that we have right now going into Q1 on sales. If you looked at Q4, you had a twelve alliance firms that have more than $100 million in sales compared to $7 million in 2009. And if you also look closely, you'll find that we've been able to hold up our margins fairly well. So we are losing perhaps some of the lower margin, non-TRS, small 401(k) account balances. And that's something we'll just have to continue to adjust our model to reflect. Hopefully, that helps, Colin.

Just to draw into that, just so we're clear on sort of our run rate here. The 1,400 ERISA cases you mentioned left, how much did they represent in withdrawals? I assume that's sort of a one-time thing, and you sort of, I guess, backed that out as the $5.3 billion to get a sense of what's going on?

It's not a meaningful number, Colin. I don't have the total of it. But it's not a meaningful number. These average balances of that point were down to a fairly de minimis amount.

The average is about $50,000 for each one of those accounts.

The 5.3, then is the real number?

Yes.

The next question will come from Joanne Smith with Scotia Capital.

I just want to ask a question that you haven't talked about a little bit for a while, and that relates to, again, the withdrawals in the FSA business. But in the past, you've talked about as employees leave employment, and either retire or move to another employer, they have taken their assets, and you've been able to retain somewhere around 50% to 60% of those. Can you just give us an update, and if you can tell us if there's anything related to that, that might be impacting this withdrawal situation?

This is Larry. What we are talking about here, what we've been talking about here, the last couple of questions around withdrawals, is essentially, and again to your point, we need to be, perhaps, more specific but these have been -- what we've been talking about have been what we call contract withdrawals. So those are situations, where an employer in association with their advisor decides to move a plan from Principal to, and then pick your other provider, much as we get plans coming the other way from Fidelity to Principal or from T.Rowe to principal or whatever happens to be. So we're discussing sort of these contract plan-to-plan kinds of transfers. To your point on participant withdrawals, participant withdrawals, we continue to see about 50% to 52% retention of those participants withdrawals, and that trend has stayed very, very consistent quarter-by-quarter and year-by-year, and there's been certainly no deterioration in that. So again, this increase, which I will argue is still primarily associated one with ERISA Q; two, with the strong equity market performance, which tends to push net cash flow. But again, these are contract withdrawals more in the smaller and sort of mid-sized plan count areas.

This is a follow-up. I did hear you say that plan terminations were up 20%. I understand the difference between plan terminations and contract terminations, and that new plan formation was down 50%. I'm just looking at the overall flow trends, and you had net negative flows in both of the prior two quarters and I would've expected, given the strong sales results that net flows would've been significantly better. Is this something that we need to just look a little -- I mean, I understand Dan have scrubbed these numbers, but I'm just wondering if there's something else that we need to be considering here?

Again, it's relatively straightforward, and we're happy to sort of take it off-line and go into more detail. The nature again of the new sales, so that $3.1 billion sales number, Joanne, is that generally and again this won't hold in every quarter, but generally, only about 65% of that sales number actually shows up as dollars in the quarter, in which it's counted as a sale. So the other 35% will come in over succeeding quarters. So again, when you think about net cash flow, it's not that every dollar of sales is a dollar that will show up on your doorstep that particular quarter. But we're happy to sit down with you in more detail, and kind of walk down the sequencing of how that works.

Just one other question for Jim, I just like a little bit more color when you're talking about the low fee business, and how unattractive it has become to your clients. Can you just expand on that a little bit? I'm just wondering if we're going to see this wholesale across the industry as we go forward?

I think the answer is possibly. We're seeing quite a lot of investment institutions with large mandates, for example, in core equities or in the case of the one we lost last quarter, sector equities. And they're moving to essentially passive exposures to the sector. And that is affecting those who, for example, manage a lot of large mandates in U.S. equities. And I think that probably will continue, because you're seeing long-term relatively limited added value for most managers in those types of mandates. And of course, that won't help us, because we're not offering passive management in the institutional market. Having said that, it's kind of a core satellite thing. The more they put into these larger more passive or enhanced index mandates, the more appetite they have for the higher added value mandates, which range through international equities and real estate and some of the high-yielding sectors that we're very good at. So it would tend to be negative to us if it continues, which it might. It would tend to be negative for us in terms of the asset count. But it should actually ultimately be quite positive on the revenues, given that we have a strong focus on those satellite or high added-value mandates.

The next question will come from Darin Arita with Deutsche Bank.

I had a question on FSA. We've talked about the sales and the transfer deposits and the withdrawals. But on the recurring deposits as a percent of beginning assets, they were much lower than trend. Typically, it's around 12% to 13%, annualized. It was 11% this quarter. I was wondering what was the cause for that? And then also on the ROA, it seemed a little under pressure this quarter, and I was wondering what gets us back to the 30% to 32% set target?

I'll let Dan cover that. On the ROA, again, Darin, I would not want to drive too many conclusions when you're going to annualize one quarter. I think if you actually annualize it, it's 29% as compared to 30% to 32%, and I would argue that's well within the bounds of just statistical fluctuation, but I'll have Dan talk about your first question.

Those recurring deposits were down about 9% or $300 million couple, and it really falls into a couple different categories. One is that we saw strong improvement in the equity markets, and had bump up in interest rates, which reduced some of the Defined Benefit funding that would've otherwise had come in for Q4. There was a little bit of noise, just lumpiness from one quarter to the next throughout 2010 on reoccurring deposits, and we had some true-ups there. But if you were to just focus on the real drivers to reoccurring deposits, the good news is that both in the case of deferrals and in the case of match, they were both positive and upward. And so again, I think that in large part, as we see the economy continue to improve, we start seeing salary increases, we start seeing reinstituted matches, we see profiteering contributions. Perhaps, in the first quarter of 2010, we'll see these reoccurring deposits turn around again. Of the things we worry about, we think we've got this one calibrated quite well.

And then just one on international there, can you talk a little bit about what happened with the Mexican business and the DAC unlock and to what degree that affects go-forward earnings?

Sure, basically, every year, all the companies in Mexico, the pension companies in Mexico, Darin, go through a process of discussion with the regulator. And the regulator tries to level these fees on an industry-wide basis. Our negotiations, our discussions with the regulator were successful but it resulted in a drop in the average fee that we charge our customers there. So we took a hit on DAC, anticipating these future fees coming down a little bit.

Does that have an effect on the go-forward earnings to any degree?

Well, it does, obviously, about $2 million a quarter early[ph] until the growth picks up, but we anticipate for probably the next two or three quarters, about $2 million after tax per quarter.

We have reached the end of our Q&A. Mr. Zimpleman, your closing comments please.

In closing, I just want to say thanks to all of you for joining us, and your continuing interest in Principal. I actually want to close today by saying a few words about someone who's been an important part of our company for 34 years, and that's Ellen Lamale, our Chief Risk Officer, who'll be retiring in March as we announced earlier. Ellen's had a tremendous impact on this company throughout her career, but especially during the last few years of the financial crisis. So I just want to say thanks, Ellen, for all you've done to contribute to Principal's success, and give you best wishes in this exciting new phase of your life called retirement. We look forward to seeing many of you in the months ahead. Hope you all have a great day.

Thank you for participating in today's conference call. [Operator Instructions]Thank you, ladies and gentlemen. You may now disconnect.