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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the fiscal year ended December 31, 2006
 OR
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    TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the transition period from          to
 Commission file number 333-129763-94
 Principal Life Income Fundings Trust 2006-85
 (by Principal Life Insurance Company as sponsor and depositor)
  Principal Life Insurance Company
  Principal Life Insurance Company
  Iowa
    
    42-0127290(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 Principal Life Income Fundings Trust 2006-85
c/o Principal Life Insurance Company, as depositor
711 High Street
Des Moines, Iowa 50392-0001
(515) 247-5111
  (515) 247-5111
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INFORMATION PROVIDED PURSUANT TO GENERAL
INSTRUCTION J TO FORM 10-K
 Item 1112(b) of Regulation AB. Significant Obligors of Pool Assets (Financial Information).
  http://www.sec.gov
  Item 1114(b)(2) of Regulation AB. Credit Enhancement and Other Support, Except for Derivatives
(Information Regarding Significant Enhancement Providers).
  Item 1115(b) of Regulation AB. Certain Derivative Instruments (Financial Information).
  Item 1117 of Regulation AB. Legal proceedings.
  Item 1119 of Regulation AB. Affiliations and certain relationships and related transactions.
  Item 1122 of Regulation AB. Compliance with applicable servicing criteria.
   Item 1123 of Regulation AB. Servicer compliance statement.
  PART I
 Item 1B. Unresolved Staff Comments.
  PART II
 Item 9B. Other Information.
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PART IV
 Item 15. Exhibits, Financial Statement Schedules.
 Exhibit 3
    
    Trust Agreement entered into between U.S. Bank Trust National Association,
as trustee, and GSS Holdings II, Inc., as trust beneficial owner dated
November 13, 2006; incorporated by reference to Exhibit 3 to Principal
Lifes Current Report on Form 8-K, filed on November 22, 2006.Exhibit 4.1
    
    Indenture entered into between Citibank, N.A., as indenture trustee, and
U.S. Bank Trust National Association, as trustee, on behalf of the Trust
dated November 22, 2006; incorporated by reference to Exhibit 4.1 to
Principal Lifes Current Report on Form 8-K, filed on November 22, 2006.Exhibit 4.2
    
    Notes issued by the Trust dated November 22, 2006; incorporated by
reference to Exhibit 4.2 to Principal Lifes Current Report on Form 8-K,
filed on November 22, 2006.Exhibit 10.1
    
    Form of Expense and Indemnity Agreement by and between Principal Life and
U.S. Bank Trust National Association, as trustee (on behalf of itself and
each trust); incorporated by reference to Exhibit 10.1 to Registration
Statement File Nos. 333-129763 and 333-129763-01, filed on December 22,
2005.Exhibit 10.2
    
    Funding Agreement issued by Principal Life to the Trust dated November 22,
2006; incorporated by reference to Exhibit 10.2 to Principal Lifes Current
Report on Form 8-K, filed on November 22, 2006.Exhibit 10.3
    
    Guarantee issued by Principal Financial Group, Inc. to the Trust dated
November 22, 2006 incorporated by reference to Exhibit 10.3 to Principal
Lifes Current Report on Form 8-K, filed on November 22, 2006.Exhibit 31.1
    
    Section 302 Certification.Exhibit 33.1
    
    Report on Assessment of Compliance with Servicing Criteria of Citibank, N.A.Exhibit 33.2
    
    Report on Assessment of Compliance with Servicing Criteria of Bankers Trust
Company, N.A.Exhibit 33.3
    
    Report on Assessment of Compliance with Servicing Criteria of Principal
Life Insurance CompanyExhibit 34.1
    
    Attestation Report on Assessment of Compliance with Servicing Criteria of
KPMG, accountants for Citibank, N.A.Exhibit 34.2
    
    Attestation Report on Assessment of Compliance with Servicing Criteria of
KPMG, accountants for Bankers Trust Company, N.A.Exhibit 34.3
    
    Attestation Report on Assessment of Compliance with Servicing Criteria of
Ernst & Young LLP, accountants for Principal Life Insurance CompanyExhibit 35.1
    
    Servicer Compliance Statement
 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY
REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
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SIGNATURES
  PRINCIPAL LIFE INSURANCE COMPANY
(Depositor)Date: March 28, 2007
    By:

/s/ Kokmeng KohName:
    Kokmeng KohTitle:
    Second Vice President 4




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EXHIBIT INDEX
 ExhibitNumber
    
    DescriptionExhibit 3
    
    Trust Agreement entered into between U.S. Bank Trust National Association, as
trustee, and GSS Holdings II, Inc., as trust beneficial owner dated November 13,
2006; incorporated by reference to Exhibit 3 to Principal Lifes Current Report
on Form 8-K, filed on November 22, 2006.Exhibit 4.1
    
    Indenture entered into between Citibank, N.A., as indenture trustee, and U.S.
Bank Trust National Association, as trustee, on behalf of the Trust dated
November 22, 2006; incorporated by reference to Exhibit 4.1 to Principal Lifes
Current Report on Form 8-K, filed on November 22, 2006.Exhibit 4.2
    
    Notes issued by the Trust dated November 22, 2006; incorporated by reference to
Exhibit 4.2 to the Principal Lifes Current Report on Form 8-K, filed on November
22, 2006.Exhibit 10.1
    
    Form of Expense and Indemnity Agreement by and between Principal Life and U.S.
Bank Trust National Association, as trustee (on behalf of itself and each trust);
incorporated by reference to Exhibit 10.1 to Registration Statement File Nos.
333-129763 and 333-129763-01, filed on December 22, 2005.Exhibit 10.2
    
    Funding Agreement issued by Principal Life to the Trust dated November 22, 2006;
incorporated by reference to Exhibit 10.2 to Principal Lifes Current Report on
Form 8-K, filed on November 22, 2006.Exhibit 10.3
    
    Guarantee issued by Principal Financial Group, Inc. to the Trust dated November
22, 2006; incorporated by reference to Exhibit 10.3 to Principal Lifes Current
Report on Form 8-K , filed on November 22, 2006.Exhibit 31.1
    
    Section 302 Certification.Exhibit 33.1
    
    Report on Assessment of Compliance with Servicing Criteria of Citibank, N.A.Exhibit 33.2
    
    Report on Assessment of Compliance with Servicing Criteria of Bankers Trust
Company, N.A.Exhibit 33.3
    
    Report on Assessment of Compliance with Servicing Criteria of Principal Life
Insurance CompanyExhibit 34.1
    
    Attestation Report on Assessment of Compliance with Servicing Criteria of KPMG,
accountants for Citibank, N.A.Exhibit 34.2
    
    Attestation Report on Assessment of Compliance with Servicing Criteria of KPMG,
accountants for Bankers Trust Company, N.A.Exhibit 34.3
    
    Attestation Report on Assessment of Compliance with Servicing Criteria of Ernst &
Young LLP, accountants for Principal Life Insurance Company.Exhibit 35.1
    
    Servicer Compliance Statement
 5