exv4w1



 







STANDARD INDENTURE TERMS




with respect to




PRINCIPAL
LIFE INCOME FUNDINGS TRUSTS

Secured Medium-Term Notes,

Secured Medium-Term Retail Notes and

Principal® Life CoreNotes®




Dated
as of November 21, 2007



“CoreNotes®” is a registered service mark of Merrill Lynch & Co.



“Principal®” is a registered service mark of Principal Financial Services, Inc. and is used under
license.





 









 








TABLE OF CONTENTS




	 	 	 	 	 
	ARTICLE 1
	 	 	 	 
	Definitions and Other Provisions of General Application
	 	 	 	 
	 
	 	 	 	 
	SECTION 1.01. Definitions
	 	 	1	 
	SECTION 1.02. Compliance Certificates and Opinions
	 	 	11	 
	SECTION 1.03. Form of Documents Delivered to Indenture Trustee
	 	 	11	 
	SECTION 1.04. Acts of Holders
	 	 	13	 
	SECTION 1.05. Notices
	 	 	15	 
	SECTION 1.06. Notice to Holders; Waiver
	 	 	16	 
	SECTION 1.07. Severability
	 	 	17	 
	SECTION 1.08. Successors and Assigns
	 	 	17	 
	SECTION 1.09. Benefits of Indenture
	 	 	17	 
	SECTION 1.10. Language of Notices
	 	 	17	 
	SECTION 1.11. Governing Law
	 	 	17	 
	SECTION 1.12. Waiver of Jury Trial
	 	 	18	 
	SECTION 1.13. Counterparts
	 	 	18	 
	SECTION 1.14. Third Party Beneficiaries
	 	 	18	 
	SECTION 1.15. Conflict with Trust Indenture Act
	 	 	18	 
	 
	 	 	 	 
	ARTICLE 2
	 	 	 	 
	The Notes
	 	 	 	 
	 
	 	 	 	 
	SECTION 2.01. Forms Generally
	 	 	18	 
	SECTION 2.02. No Limitation on Aggregate Principal Amount of Notes
	 	 	21	 
	SECTION 2.03. Listing
	 	 	21	 
	SECTION 2.04. Redemption and Repayment
	 	 	21	 
	SECTION 2.05. Execution, Authentication and Delivery Generally
	 	 	23	 
	SECTION 2.06. Registration
	 	 	26	 
	SECTION 2.07. Transfer
	 	 	26	 
	SECTION 2.08. Mutilated, Destroyed, Lost and Stolen Notes
	 	 	27	 
	SECTION 2.09. Payment of Interest; Rights To Interest Preserved
	 	 	28	 
	SECTION 2.10. Cancellation
	 	 	29	 
	SECTION 2.11. Persons Deemed Owners
	 	 	29	 
	SECTION 2.12. Tax Treatment; Tax Returns and Reports
	 	 	29	 
	SECTION 2.13. No Association
	 	 	30	 
	SECTION 2.14. Administrative Procedures
	 	 	30	 
	 
	 	 	 	 
	ARTICLE 3
	 	 	 	 
	Covenants, Representations and Warranties
	 	 	 	 
	 
	 	 	 	 
	SECTION 3.01. Payment of Principal and any Premium, Interest and Additional Amounts
	 	 	30	 
	SECTION 3.02. Collection Account
	 	 	30	 
	SECTION 3.03. Agreements of the Paying Agent
	 	 	30	 






i 









 






	 	 	 	 	 
	SECTION 3.04. Maintenance of Office or Agency
	 	 	33	 
	SECTION 3.05. Duties of the Agents
	 	 	33	 
	SECTION 3.06. Duties of the Transfer Agent
	 	 	34	 
	SECTION 3.07. Duties of the Registrar
	 	 	35	 
	SECTION 3.08. Unclaimed Monies
	 	 	36	 
	SECTION 3.09. Protection of Collateral
	 	 	36	 
	SECTION 3.10. Opinions as to Collateral; Annual Statement as to Compliance
	 	 	38	 
	SECTION 3.11. Performance of Obligations
	 	 	40	 
	SECTION 3.12. Existence
	 	 	40	 
	SECTION 3.13. Reports; Financial Information; Notices of Defaults
	 	 	40	 
	SECTION 3.14. Payment of Taxes and Other Claims
	 	 	42	 
	SECTION 3.15. Negative Covenants
	 	 	42	 
	SECTION 3.16. Non-Petition
	 	 	44	 
	SECTION 3.17. Title to the Collateral
	 	 	44	 
	SECTION 3.18. Withholding and Payment of Additional Amounts
	 	 	45	 
	SECTION 3.19. Additional Representations and Warranties
	 	 	47	 
	SECTION 3.20. Ancillary Documents
	 	 	48	 
	 
	 	 	 	 
	ARTICLE 4
	 	 	 	 
	Granting of Security Interest and Assignment for Collateral Purposes
	 	 	 	 
	 
	 	 	 	 
	SECTION 4.01. Creation
	 	 	48	 
	SECTION 4.02. Scope
	 	 	49	 
	SECTION 4.03. Termination of Security Interest
	 	 	50	 
	 
	 	 	 	 
	ARTICLE 5
	 	 	 	 
	Satisfaction and Discharge; Subrogation
	 	 	 	 
	 
	 	 	 	 
	SECTION 5.01. Satisfaction and Discharge of Indenture
	 	 	50	 
	SECTION 5.02. Application of Trust Money
	 	 	51	 
	 
	 	 	 	 
	ARTICLE 6

Defaults and Remedies
	 	 	 	 
	 
	 	 	 	 
	SECTION 6.01. Events of Default
	 	 	52	 
	SECTION 6.02. Acceleration of Maturity Date; Rescission and Annulment
	 	 	53	 
	SECTION 6.03. Collection of Indebtedness and Suits for Enforcement
	 	 	54	 
	SECTION 6.04. Indenture Trustee May File Proofs of Claim
	 	 	55	 
	SECTION 6.05. Indenture Trustee May Enforce Claims Without Possession of Notes
	 	 	56	 
	SECTION 6.06. Application of Money Collected
	 	 	56	 
	SECTION 6.07. Limitation on Suits
	 	 	57	 
	SECTION 6.08. Unconditional Rights of Holders to Receive Payments
	 	 	57	 
	SECTION 6.09. Restoration of Rights and Remedies
	 	 	57	 
	SECTION 6.10. Rights and Remedies Cumulative
	 	 	58	 
	SECTION 6.11. Delay or Omission Not Waiver
	 	 	58	 
	SECTION 6.12. Control by Holders
	 	 	58	 






ii 









 






	 	 	 	 	 
	SECTION 6.13. Waiver of Past Defaults
	 	 	58	 
	SECTION 6.14. Undertaking for Costs
	 	 	59	 
	SECTION 6.15. Waiver of Stay or Extension Laws
	 	 	59	 
	 
	 	 	 	 
	ARTICLE 7
	 	 	 	 
	The Indenture Trustee and Other Agents
	 	 	 	 
	 
	 	 	 	 
	SECTION 7.01. Duties of Indenture Trustee
	 	 	59	 
	SECTION 7.02. No Liability to Invest
	 	 	61	 
	SECTION 7.03. Performance Upon Default
	 	 	61	 
	SECTION 7.04. No Assumption by Paying Agent, Transfer Agent, Calculation Agent or Registrar
	 	 	61	 
	SECTION 7.05. Notice of Default
	 	 	61	 
	SECTION 7.06. Rights of Indenture Trustee
	 	 	62	 
	SECTION 7.07. Not Responsible for Recitals or Issuance of Notes
	 	 	63	 
	SECTION 7.08. Indenture Trustee May Hold Notes
	 	 	64	 
	SECTION 7.09. Money Held in Trust
	 	 	64	 
	SECTION 7.10. Compensation and Reimbursement
	 	 	64	 
	SECTION 7.11. Eligibility
	 	 	64	 
	SECTION 7.12. Resignation and Removal; Appointment of Successor
	 	 	65	 
	SECTION 7.13. Acceptance of Appointment by Successor
	 	 	66	 
	SECTION 7.14. Merger, Conversion, Consolidation or Succession to Business of Indenture Trustee
	 	 	66	 
	SECTION 7.15. Co-trustees
	 	 	67	 
	SECTION 7.16. Appointment and Duties of the Calculation Agent
	 	 	68	 
	SECTION 7.17. Changes in Agents
	 	 	69	 
	SECTION 7.18. Limitation of Trustee Liability
	 	 	71	 
	 
	 	 	 	 
	ARTICLE 8
	 	 	 	 
	Supplemental Indentures
	 	 	 	 
	 
	 	 	 	 
	SECTION 8.01. Supplemental Indentures Without Consent of Holders
	 	 	71	 
	SECTION 8.02. Supplemental Indenture With Consent of Holders
	 	 	72	 
	SECTION 8.03. Execution of Supplemental Indentures
	 	 	73	 
	SECTION 8.04. Effect of Supplemental Indenture
	 	 	74	 
	SECTION 8.05. Reference in Notes to Supplemental Indentures
	 	 	74	 
	SECTION 8.06. Conformity with Trust Indenture Act
	 	 	74	 
	 
	 	 	 	 
	ARTICLE 9
	 	 	 	 
	Non-Recourse Provisions
	 	 	 	 
	 
	 	 	 	 
	SECTION 9.01. Nonrecourse Enforcement
	 	 	74	 
	 
	 	 	 	 
	ARTICLE 10
	 	 	 	 
	Meetings of Holders of Notes
	 	 	 	 
	 
	 	 	 	 
	SECTION 10.01. Purposes for Which Meetings May be Called
	 	 	75	 
	SECTION 10.02. Call, Notice and Place of Meetings
	 	 	75	 






iii 









 







	 	 	 	 	 
	SECTION 10.03. Persons Entitled to Vote at Meetings
	 	 	75	 
	SECTION 10.04. Quorum; Action
	 	 	76	 
	SECTION 10.05. Determination of Voting Rights; Conduct and Adjournment of Meetings
	 	 	77	 
	SECTION 10.06. Counting Votes and Recording Action of Meetings
	 	 	77	 
	 
	 	 	 	 
	ARTICLE 11
	 	 	 	 
	Notes in Foreign Currencies
	 	 	 	 
	 
	 	 	 	 
	SECTION 11.01. Notes in Foreign Currencies
	 	 	78	 






	 	 	 
	EXHIBIT A-1

	 	Form of Global Note for the
Principal® Life CoreNotes® Program
	EXHIBIT A-2

	 	Form of Global Note for the Secured Medium-Term Notes Program
	EXHIBIT A-3

	 	Form of Global Note for the Secured Medium-Term Notes Retail Program
	EXHIBIT B

	 	Indenture Trustee Report








 




			
	
 “Principal®” is a registered service mark of Principal Financial Services, Inc. and is
used under license.
	 
	“CoreNotes®” is a registered service mark of Merrill Lynch & Co., Inc.






iv 









 





Reconciliation and tie between

Trust Indenture Act of 1939 (the “Trust Indenture Act”)

and Indenture




	 	 	 	 	 
	Trust Indenture Act Section	 	Indenture Section	 
	ss.310(a)
	 	 	7.11	 
	(b)
	 	 	7.11	 
	ss.311(a)
	 	 	7.08	 
	ss.312(a)
	 	 	3.13	 
	(b)
	 	 	3.13	 
	(c)
	 	 	3.13	 
	ss.313(a)
	 	 	3.13	 
	(b)
	 	 	3.13	 
	(c)
	 	 	3.13	 
	(d)
	 	 	3.13	 
	ss.314(a)
	 	 	3.10	 
	(b)
	 	 	3.10	 
	(c)
	 	 	3.10	 
	(d)
	 	 	3.10	 
	(e)
	 	 	1.03,  3.10	 
	ss.315(c)
	 	 	7.01	 
	ss.316(a)(1)(A)
	 	 	6.02,  6.12	 
	(a)(1)(B)
	 	 	6.13	 
	(b)
	 	 	6.08	 
	(c)
	 	 	1.04	 
	ss.317(a)(1)
	 	 	6.03	 
	(a) (2)
	 	 	6.04	 
	(b)
	 	 	3.03	 
	ss.318(a)
	 	 	1.15	 
	(c)
	 	 	1.15	 





Note: This reconciliation and tie shall not, for any purpose, be deemed to be part of the Indenture.



Attention should also be directed to Section 318(c) of the Trust Indenture Act, which provides that certain provisions of Sections 310 to and including 317 are a part of and govern every qualified indenture, whether or not physically contained herein.

















 








STANDARD INDENTURE TERMS




     This
document constitutes the Standard Indenture Terms, dated as of
November 21, 2007, which are incorporated
by reference in the Indenture (specified in Section C of the Omnibus Instrument, as defined below),
by and among the Trust named in the Omnibus Instrument and the Indenture Trustee, Registrar,
Transfer Agent, Paying Agent and Calculation Agent for such Trust, in connection with the Program
(all as defined in the Indenture).



     These Standard Indenture Terms shall be of no force and effect unless and until incorporated
by reference into, and then only to the extent not modified by, such Indenture.



     The following terms and provisions shall govern the Notes subject to contrary terms and
provisions expressly adopted in such Indenture, any supplemental indenture or the Notes, which
contrary terms shall be controlling.



ARTICLE 1

Definitions and Other Provisions of General Application




     SECTION 1.01. Definitions. For all purposes of the Indenture, of all indentures supplemental
to the Indenture and of all Notes issued under the Indenture, except as otherwise expressly
provided or unless the context otherwise requires:



          (a) the terms defined in the Indenture have the meanings assigned to them in this Article 1,
and include the plural as well as the singular;




          (b) all accounting terms not otherwise defined in the Indenture have the meanings assigned to
them in accordance with generally accepted accounting principles in the United States, and, except
as otherwise expressly provided in the Indenture, the term “generally accepted accounting
principles” with respect to any computation required or permitted under the Indenture shall mean
such accounting principles as are generally accepted at the date of such computation in the United
States;




          (c) the word “including” shall be construed to be followed by the words “without limitation”;




          (d) Article and Section headings are for the convenience of the reader and shall not be
considered in interpreting the Indenture or the intent of the parties to the Indenture;




          (e) the words “hereby,” “herein,” “hereof” and “hereunder” and other words of similar import
refer to the Indenture as a whole and not to any particular Article, Section, Exhibit or other
subdivision; and




          (f) references in the Indenture to Articles, Sections, Exhibits and Schedules shall, refer
respectively to Articles, Sections, Exhibits and Schedules of these Standard Indenture Terms,
unless otherwise expressly provided.




     “Act”, with respect to any Holder, has the meaning set forth in Section 1.04.



1









 





     “Additional Amounts” means additional amounts that are required by the Indenture or the Notes
to be paid by the Trust to Holders pursuant to Section 3.18 or additional amounts that are
required pursuant to the Funding Agreement, under circumstances specified therein, to be paid by
Principal Life to the Funding Agreement Holder, to compensate for any withholding or deduction for
or on the account of any present or future taxes, duties, levies, assessments or other governmental
charges of whatever nature imposed or levied on payments in respect of such Notes or Funding
Agreement, as applicable, by or on behalf of any governmental authority in the United States having
the power to tax, so that the net amount received by the Holders or the Funding Agreement Holder,
will equal the amount that would have been received under such Notes or Funding Agreement, as
applicable, had no such deduction or withholding been required.



     “Affiliate” means, as applied to any Person, any other Person directly or indirectly
controlling, controlled by, or under direct or indirect common control with, that Person and, in
the case of an individual, any spouse or other member of that individual’s immediate family. For
the purposes of this definition, “control” (including with correlative meanings, the terms
“controlling”, “controlled by” and “under common control with”), as applied to any Person, means
the possession, directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting securities or by
contract or otherwise.



     “Agent” means any of the Registrar, Transfer Agent, Paying Agent or Calculation Agent.



     “Authorized Newspaper” means a newspaper, in an official language of the place of publication
or in the English language, customarily published on each day that is a business day in the place
of publication, whether or not published on days that are not business days in the place of
publication, and of general circulation in each place in connection with which the term is used or
in the financial community of each such place. Where successive publications are required to be
made in Authorized Newspapers, the successive publications may be made in the same or in different
newspapers in the same city meeting the foregoing requirements and, in each case, on any day that
is a business day in the place of publication.



     “Authorized Signatories” mean Responsible Officers authorized to execute documents on behalf
of the Trust.



     “Banking Day” means a day (other than a Saturday or Sunday) on which commercial banks are
generally open for business (including dealings in foreign exchange and foreign currency deposits)
in the place where the specified office of the Paying Agent or, as the case may be, the Registrar
is located.



     “Business Day” means (except as otherwise specified in the Pricing Supplement) for any Note,
any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which
commercial banks are authorized or required by law, regulation or executive order to close in The
City of New York; provided, however, that, with respect to foreign currency notes, the day must
also not be a day on which commercial banks are authorized or required by law, regulation or
executive order to close in the Principal Financial Center (as defined below) of the country
issuing the Specified Currency (or, if the Specified Currency is the euro, the day must also be a
day on which the Trans-European Automated Real-Time Gross Settlement Express Transfer



2









 




(TARGET) System is open (a “TARGET Settlement Date”); provided, further, that, with respect to
notes as to which LIBOR (as defined below) is an applicable Interest Rate Basis (as defined below),
the day must also be a London Banking Day, which means a day on which commercial banks are open for
business (including dealings in the LIBOR Currency (as defined below)) in London.




     “Calculation Agent” means the institution appointed as calculation agent for the Notes and
named as such in the relevant Pricing Supplement or its successors or assigns. For such purpose,
the Paying Agent accepts its appointment as the initial Calculation Agent pursuant to Section
7.16.



     “Clearing System” means DTC and any other clearing system specified in the relevant Pricing
Supplement.



     “Code” means the Internal Revenue Code of 1986, as amended, including any successor or
amendatory statutes and any applicable rules, regulations, notices or orders promulgated
thereunder.



     “Collateral” means the right, title, benefits, remedies and interests of the Trust in, to and
under (i) the Funding Agreement, (ii) all Proceeds of the Funding Agreement and the Guarantee and
all amounts and instruments on deposit from time to time in the Collection Account, (iii) the
Guarantee, (iv) all books and records pertaining to the Funding Agreement and the Guarantee, and
(v) all rights of the Trust pertaining to the foregoing.



     “Collection Account” means a non-interest bearing account with the Indenture Trustee in the
name of the Trust or such other account with a depositary institution that is rated at least AA-
or Aa3 by a nationally recognized statistical rating organization as may be designated by the
Trustee, which account shall be segregated from other accounts held by the Indenture Trustee or
such other depositary institution.



     “Commission” means the Securities and Exchange Commission or any successor body performing
such duties of the Commission.



     “Contingent Obligation” means, as applied to any Person, without duplication, any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to any Indebtedness,
lease, dividend, letter of credit or other obligation of another if the primary purpose or intent
thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of
such obligation of another that such obligation of another will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such obligation will be
protected (in whole or in part) against loss in respect thereof, (ii) under any letter of credit
issued for the account of or for which that Person is otherwise liable for reimbursement thereof,
(iii) under agreements providing for the hedging or limitation of interest rate or currency risk,
(iv) under any performance bond or other surety arrangement, (v) under any direct or indirect
guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such Person of the
obligation of another, or (vi) for the obligations of another through any agreement (contingent or
otherwise).



3









 





     “Corporate Trust Office” means the office of the Indenture Trustee at which the corporate
trust business of the Indenture Trustee shall, at any particular time, be principally administered,
which office at the date of the Indenture is located as indicated in Section 1.05.



     “Default” means any occurrence that is, or with notice or the lapse of time or both would
become, an Event of Default.



     “Defaulted Interest” has the meaning set forth in Section 2.09.



     “Definitive Note” means a Note issued in certificated and registered form.



     “Depositary” means the Person designated as Depositary by the Trust pursuant to the Indenture,
which Person, if required by any applicable law, regulation or exchange requirement, must be a
clearing agency registered under the Securities Exchange Act and, if so provided with respect to
any Note, any successor to such Person. Initially, the “Depositary” shall be DTC.



     “Distribution
Agreement” means that certain Distribution Agreement, dated
November 21, 2007, by and among
Principal Life, PFG and the agents named therein and acknowledged and agreed to by the Trust,
relating to the issuance and sale of the Notes under the Program, as the same may be amended,
modified or supplemented from time to time.



     “Dollars”, “$”, “U.S. $”, “United States dollars” and “U.S. Dollars” mean such coin or
currency of the United States as at the time shall be legal tender for the payment of public or
private debts.



     “DTC” means The Depository Trust Company, New York, New York, and its successors and assigns.



     “European Union Directive” means any law, regulation, directive or any interpretation by the
European Union or a member nation of the European Union which requires the withholding or deduction
of any amounts payable under the Notes, the Indenture or the Funding Agreement.



     “Event of Default” has the meaning set forth in Section 6.01.



     “Expense and Indemnity Agreement” means, as applicable, (i) that certain Expense and Indemnity
Agreement, dated November 21, 2007, by and between Principal Life and the Trustee, on behalf of itself and each
trust organized under the Program, including the Trust, (ii) that certain Expense and Indemnity
Agreement, dated November 21, 2007, by and between Principal Life and the Indenture Trustee, (iii) that certain
Expense and Indemnity Agreement, dated November 21, 2007, by and between Principal Life and the Trust Beneficial
Owner and (iv) that certain Expense and Indemnity Agreement,
dated November 21, 2007, by and between Principal Life
and Bankers Trust Company, N.A., as each may be amended, modified or supplemented from time to
time.



     “Funding Agreement” means that certain funding agreement designated in the Indenture, entered
into by and between Principal Life and the Trust, as it may be modified, restated, replaced,
supplemented or otherwise amended from time to time in accordance with the terms thereof.



4









 





     “Funding Agreement Holder” means, with respect to the Notes, the “Agreement Holder” as
specified in the Funding Agreement.



     “Global Note” means a Note issued in book-entry and registered form.



     “Guarantee” means that certain guarantee issued by PFG to the Trust designated in the
Indenture, which fully and unconditionally guarantees Principal Life’s payment obligations under
the Funding Agreement, as it may be modified, restated, replaced, supplemented or otherwise amended
from time to time in accordance with the terms thereof.



     “Holder” means the Person in whose name a Note or Notes is registered in the Register.



     “Indebtedness” means, as applied to any Person, (i) all indebtedness for borrowed money or for
the deferred purchase price of property or services in respect of which such Person is liable,
contingent or otherwise, or in respect of which such Person otherwise assures a creditor against
loss (excluding trade accounts payable and accrued expenses arising in the ordinary course of
business as determined in good faith by such Person), (ii) that portion of obligations with respect
to capital leases which is properly classified as a liability on a balance sheet in conformity with
generally accepted accounting principles, (iii) obligations evidenced by bonds, notes, debentures
or similar instruments of such Person, and notes payable by such Person and drafts accepted by such
Person representing extensions of credit whether or not representing obligations for borrowed
money, including the face amount of all drafts drawn thereunder, and (iv) all indebtedness secured
by any Lien on any property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is non-recourse to the
credit of that Person.



     “Indenture” means that certain Indenture, contained in, and dated as of the date specified in
the Omnibus Instrument, by and among the Indenture Trustee, Registrar, Transfer Agent, Paying Agent
and Calculation Agent and the Trust, as may be amended, modified or supplemented from time to time,
which incorporates by reference these Standard Indenture Terms, and shall include the terms of the
Notes established as contemplated hereunder and thereunder.



     “Indenture Trustee” means, unless otherwise specified in the Indenture, Citibank, N.A. and,
subject to the provisions of Article 7, shall also include its successors and assigns as
Indenture Trustee under the Indenture.



     “Interest Payment Date” means each date on which interest is due and payable to the Holders of
the Notes as specified in the Indenture.



     “Interest Rate Basis” has the meaning set forth in the relevant Pricing Supplement.



     “Investment Company Act” means the Investment Company Act of 1940, as it may be amended or
supplemented from time to time, and any successor statute thereto, and the rules, regulations and
published interpretations of the Commission promulgated thereunder from time to time.



5









 





     “LIBOR Currency” means the currency specified in the Pricing Supplement as to which LIBOR
shall be calculated or, if no currency is specified in the Pricing Supplement, United States
Dollars.



     “LIBOR Notes” means Notes that bear interest based on LIBOR (as defined in the Notes).



     “License Agreement” means that certain License Agreement by and between the Trustee, on behalf
of the Trust, and Principal Financial Services, Inc., contained in and dated as of the date
specified in the Omnibus Instrument, as the same may be amended, modified or supplemented from time
to time.



     “Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including without limitation any
conditional sale or other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of any financing statement under the
UCC or comparable law of any jurisdiction).



     “Maturity Date” means the date on which the principal of the Notes becomes due and payable as
provided therein or in the Indenture, whether at the Stated Maturity Date thereof, by declaration
of acceleration, notice of redemption of the Trust, notice of the Holder’s option to elect
repayment or otherwise.



     “Nonrecourse Parties” has the meaning set forth in Section 9.01.



     “Note” means any secured note of the Trust designated in the Indenture and authenticated and
delivered under the Indenture, which is in registered form and may be represented by a Global Note
or a Definitive Note, and which shall be substantially in the forms attached as Exhibit
A-1, Exhibit A-2 and Exhibit A-3 to the Indenture and “Notes” means the secured
notes of the Trust represented by such Note.



     “Notice of Default” has the meaning set forth in Section 6.01.



     “Office or Agency” means an office or agency of the Trust, the Indenture Trustee, the Paying
Agent or the Registrar, as the case may be, maintained or designated as the Place of Payment for
the Notes pursuant to Section 3.04 or any other office or agency of the Trust, Indenture
Trustee, Paying Agent or Registrar, as the case may be, maintained or designated for such Notes
pursuant to Section 3.04.



     “Omnibus Instrument” means the omnibus instrument pursuant to which certain Program Documents
are executed.



     “Opinion of Counsel” means a written opinion addressed to the Indenture Trustee (among other
addressees) by legal counsel, who may be internal legal counsel to Principal Life, who may, except
as otherwise expressly provided in the Indenture, be counsel for the Trust or Principal Life or
other counsel and who shall be reasonably satisfactory to the Indenture Trustee.



6









 





     “Original Issue Date” with respect to the Notes, means the original issue date of the Notes,
as specified in the Pricing Supplement.



     “Outstanding” means as of any date of determination, all of the Notes theretofore
authenticated and delivered under the Indenture or in one or more indentures supplemental to the
Indenture, except:




          (i) Notes theretofore cancelled by the Indenture Trustee or delivered to the
Indenture Trustee for cancellation;




          (ii) Notes or portions thereof for the payment or redemption of which money in
the necessary amount has been theretofore deposited with the Indenture Trustee or
any Paying Agent in trust for the Holders of the Notes, provided that, if the Notes
are to be redeemed, notice of such redemption has been duly given pursuant to the
Indenture or provision therefor satisfactory to the Indenture Trustee has been made;




          (iii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to the Indenture unless proof satisfactory to
the Indenture Trustee is presented that any such Notes are held by a holder in due
course;




          (iv) Notes alleged to have been destroyed, lost, stolen or mutilated and
surrendered to the Indenture Trustee for which either replacement Notes have been
issued or payment has been made as provided for in Section 2.08 unless proof
satisfactory to the Indenture Trustee is presented that any such Notes are held by a
holder in due course; and




          (v) Notes represented by Global Notes to the extent that they shall have been
duly exchanged for Definitive Notes pursuant to the Indenture unless proof
satisfactory to the Indenture Trustee is presented that any such Notes are held by a
holder in due course;


provided further, however, that in determining whether the Holders of the requisite percentage of
the principal amount of the Outstanding Notes have given any request, demand, authorization,
direction, notice, consent or waiver under the Indenture, Notes owned by the Trust or any Affiliate
of the Trust shall be disregarded and deemed not to be Outstanding, except that in determining
whether the Indenture Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes that the Indenture Trustee knows to
be so owned shall be so disregarded. Notes so owned that have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the Indenture Trustee
that the pledgee is entitled so to act with respect to such Notes and that the pledgee is not the
Trust or any Affiliate of the Trust.




     “Paying Agent” means, unless otherwise specified in the Indenture or a supplemental indenture,
the Indenture Trustee, in its capacity as paying agent under the Indenture or its successors or
assigns.



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     “Person” means any natural person, corporation, limited partnership, general partnership,
joint stock company, joint venture, association, company, limited liability company, trust
(including any beneficiary thereof), bank, trust company, land trust, business trust or other
organization, whether or not a legal entity, and governments and agencies and political
subdivisions thereof.



     “PFG” means Principal Financial Group, Inc., a Delaware corporation and the indirect parent of
Principal Life, or any successor thereto.



     “Place of Payment” means the place where the principal of, premium, if any, and interest on
the Notes are payable which, unless otherwise specified in the Indenture, shall be the address
specified in Section 1.05 for the Indenture Trustee.



     “Pricing Supplement” means the pricing supplement attached to the Omnibus Instrument as
Exhibit D as prepared by the Trust in connection with the issuance and sale by the Trust of the
Notes and agreed to by Principal Life, the Trust and the Relevant Agents appointed under the
Distribution Agreement, as such Pricing Supplement may be amended, modified, supplemented or
replaced from time to time.



     “Principal Financial Center” means, as applicable, the capital city of the country issuing the
Specified Currency or the capital city of the country to which the LIBOR Currency relates;
provided, however, that with respect to United States dollars, Australian dollars, Canadian
dollars, the euro, South African rand and Swiss francs, the “Principal Financial Center” shall be
The City of New York, Sydney, Toronto, London (solely in the case of the LIBOR Currency),
Johannesburg and Zurich, respectively.



     “Principal Life” means Principal Life Insurance Company, an Iowa insurance company, or any
successor thereto.



     “Proceeds” means all of the proceeds of, and all other profits, products, rents, principal
payments, interest payments or other receipts, in whatever form, arising from the collection, sale,
lease, exchange, assignment, licensing or other disposition or maturity of, or other realization
upon, the Funding Agreement or the Guarantee, including without limitation all claims of the Trust
against third parties for loss of, damage to or destruction of, or for proceeds payable under, the
Funding Agreement or the Guarantee, in each case whether now existing or hereafter arising.



     “Program” means, collectively, the Secured Medium-Term Notes Program, the Secured Medium-Term
Notes Retail Program and the Principal® Life CoreNotes® Program, in each case, of the Principal
Life Income Fundings Trusts.



     “Program Documents” means the Indenture, the Notes, the Trust Agreement, the Funding
Agreement, the Guarantee, the Distribution Agreement, the License Agreement and each Expense and
Indemnity Agreement and any other documents or instruments entered into by, with respect to, or on
behalf of, the Trust.



     “Rating Agency” means any rating agency that has rated the Program or the Notes.



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     “Redemption Price” means the price at which the Notes are to be redeemed pursuant to
Section 2.04, as set forth in the applicable Pricing Supplement or a supplemental
indenture.



     “Register” has the meaning set forth in Section 2.06.



     “Registrar” means, unless otherwise specified in the Indenture or a supplemental indenture,
the Indenture Trustee, in its capacity as registrar under the Indenture, or its successors or
assigns.



     “Registration Statement” means (a) a registration statement on Form S-3 or other appropriate
form, including the prospectus, prospectus supplements and the exhibits included therein and
including any documents or filings incorporated by reference therein, any pre-effective or
post-effective amendments thereto and any registration statements filed subsequent thereto under
rules promulgated under the Securities Act, relating to the registration under the Securities Act
of the Notes, the Funding Agreement and the Guarantee, (b) any preliminary prospectus or prospectus
supplements thereto relating to the Notes whether or not required to be filed pursuant to the
Securities Act and any documents or filings incorporated therein by reference, and (c) a
registration statement and such other documents, forms or filings as may be required by the
Securities Act or the Trust Indenture Act, or other securities laws in each case relating to the
Notes.



     “Regular Record Date” for the interest payable on any Interest Payment Date means the date
specified for that purpose in the Notes or the Indenture.



     “Relevant Agents” means the agent or agents (in a firm commitment offering of Notes or in a
best efforts offering of Notes) appointed pursuant to the Distribution Agreement.



     “Responsible Officer” means, with respect to the Indenture Trustee or the Trustee, any vice
president, any assistant vice president, any assistant secretary, any assistant treasurer, any
trust officer or assistant trust officer, or any other officer of the Indenture Trustee or the
Trustee, as the case may be, customarily performing functions similar to those performed by any of
the above designated officers and also, with respect to a particular corporate trust matter, any
other officer to whom such matter is referred because of his or her knowledge of and familiarity
with the particular subject, and also, with respect to the Trustee, having direct responsibility
for the administration of the Trust, or with respect to the Indenture Trustee, having direct
responsibility for the administration of the Indenture.



     “Secured Obligations” means the obligations of the Trust secured under the Notes and the
Indenture, including (i) all principal of, premium, if any, and interest (including, without
limitation, any interest which accrues after the commencement of any case, proceeding or other
action relating to the bankruptcy, insolvency or reorganization of the Trust, whether or not
allowed or allowable as a claim in any such proceeding) on such Notes or pursuant to the Indenture,
(ii) all other amounts payable by the Trust under the Indenture or under such Notes including all
Additional Amounts (if applicable) and all costs and expenses (including without limitation
attorneys’ fees) incurred by the Indenture Trustee (to the extent not paid pursuant to the
applicable Expense and Indemnity Agreement) and (iii) any renewals or extensions of the foregoing.



9









 





     “Securities Act” means the Securities Act of 1933, as it may be amended or supplemented from
time to time, and any successor statute thereto, and the rules, regulations and published
interpretations of the Commission promulgated thereunder from time to time.



     “Securities Exchange Act” means the Securities Exchange Act of 1934, as it may be amended or
supplemented from time to time, and any successor statute thereto, and the rules, regulations and
published interpretations of the Commission promulgated thereunder from time to time.



     “Special Record Date” means a date fixed by the Indenture Trustee pursuant to Section
2.09 for the payment of any Defaulted Interest on any Note.



     “Specified Currency” means the currency in which the Notes are denominated (or, if such
currency is no longer legal tender for the payment of public and private debts in the country
issuing such currency or, in the case of the euro, in the member states of the European Union that
have adopted the single currency in accordance with the treaty establishing the European Community,
as amended by the treaty on European Union, such currency which is then such legal tender).



     “Standard
Indenture Terms” means these Standard Indenture Terms, dated
as of November 21, 2007.



     “Stated Maturity Date” means the date specified in the Notes, as the fixed date on which the
principal of such Notes is due and payable, which date will be a day between nine months and thirty
years from the date of original issuance of the Notes and be on the last scheduled Interest Payment
Date.



     “Sterling” means such coin or currency of the United Kingdom as at the time shall be legal
tender for the payment of public or private debts.



     “TARGET System” means the Trans-European Automated Real-Time Gross Settlement Express Transfer
System.



     “Terms Agreement” has the meaning set forth in the Distribution Agreement.



     “Transfer Agent” means, unless otherwise specified in the Indenture or a supplemental
indenture, the Indenture Trustee, in its capacity as transfer agent under the Indenture or its
successors or assigns.



     “Treasury Regulations” means the regulations promulgated by the United States Treasury
Department pursuant to the Code.



     “Trust” means the Principal Life Income Fundings Trust named in the Omnibus Instrument, which
shall be a trust, formed under the laws of the jurisdiction specified in the Trust Agreement,
together with its permitted successors and assigns; provided, however, unless the context requires
otherwise, all references in the Indenture to the “Trust” shall also include the Trustee, on behalf
of the Trust.



10









 





     “Trust Agreement” means that certain Trust Agreement, contained in, and dated as of the date
specified in the Omnibus Instrument, by and between the Trustee and the Trust Beneficial Owner,
declaring and establishing the Trust, as may be amended, modified or supplemented from time to
time.



     “Trust Beneficial Interest” has the meaning set forth in the Trust Agreement.



     “Trust Beneficial Owner” means the beneficial owner of the Trust Beneficial Interest.



     “Trust Certificate” means a certificate signed by one or more Responsible Officers of the
Trustee on behalf of the Trust and delivered to the Indenture Trustee.



     “Trust Indenture Act” means the Trust Indenture Act of 1939, as it may be amended or
supplemented from time to time, and any successor statute thereto, and the rules, regulations and
published interpretations of the Commission promulgated thereunder from time to time.



     “Trust Order” or “Trust Request” means a written statement, request or order of the Trust
signed in its name by one or more Responsible Officers of the Trustee and delivered to the
Indenture Trustee.



     “Trustee” means, unless otherwise specified in the Trust Agreement, U.S. Bank Trust National
Association, not in its individual capacity, but solely as the Trustee under the Trust Agreement,
and shall also include its permitted successors and assigns under the Trust Agreement.



     “UCC” means the Uniform Commercial Code, as from time to time in effect in the State of New
York; provided that, with respect to the perfection, effect of perfection or non-perfection, or
priority of any security interest in the Collateral, “UCC” shall mean the Uniform Commercial Code,
as from time to time in effect in the applicable jurisdiction whose law governs such perfection,
non-perfection or priority.



     “United States” means the United States of America (including the States and the District of
Columbia), its territories, its possessions and other areas subject to its jurisdiction.



     SECTION 1.02. Compliance Certificates and Opinions. Upon any application or request by the
Trust to the Indenture Trustee to take any action under any provision of the Indenture, the Trust
shall furnish to the Indenture Trustee a Trust Certificate stating that all conditions precedent,
if any, provided for in the Indenture relating to the proposed action have been complied with and
an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if
any, have been complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision of the Indenture,
no additional certificate or opinion need be furnished.



     SECTION 1.03. Form of Documents Delivered to Indenture Trustee.



          (a) In any case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be certified by, or
covered by the opinion of, only one such Person, or that they be so certified or



11









 






covered by only one document, but one such Person may certify or give an opinion with respect
to some matters and one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.




          (b) Any certificate or opinion of the Trust may be based, insofar as it relates to legal
matters, upon a certificate or opinion of, or representations by, counsel, unless the Trustee knows
that the certificate or opinion or representations with respect to the matters upon which its
certificate or opinion is based are erroneous. Any such certificate or opinion or any Opinion of
Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of,
or representations by, the Trustee stating that the information with respect to such factual
matters is in the possession of the Trustee, unless such counsel knows that the certificate or
opinion or representations with respect to such matters are erroneous. Any Opinion of Counsel may
be based on the written opinion of other counsel, in which event such Opinion of Counsel shall be
accompanied by a copy of such other counsel’s opinion and shall include a statement to the effect
that such counsel believes that such counsel and the Indenture Trustee may reasonably rely upon the
opinion of such other counsel. Any certificate or opinion of the Trust or of counsel may be based,
insofar as it relates to accounting matters, upon a certificate or opinion of or representations by
an accountant or firm of accountants in the employ of Principal Life, PFG or the Trust, unless the
Trustee knows that the certificate or opinion or representations with respect to the accounting
matters upon which its certificate or opinion is based are erroneous.




          (c) Where any Person is required to make, give or execute two or more applications, requests,
consents, certificates, statements, opinions or other instruments under the Indenture, they may,
but need not, be consolidated and form one instrument.




          (d) Wherever in the Indenture, in connection with any application or certificate or report to
the Indenture Trustee, it is provided that the Trust shall deliver any document as a condition of
the granting of such application, or as evidence of compliance with any term of the Indenture, it
is intended that the truth and accuracy, at the time of the granting of such application or at the
effective date of such certificate or report (as the case may be), of the facts and opinions stated
in such document shall in such case be conditions precedent to the right of the Trust to have such
application granted or to the sufficiency of such certificate or report. The foregoing shall not,
however, be construed to limit the Indenture Trustee’s right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in Section 7.01.




          (e) Every certificate or opinion with respect to compliance with a condition or covenant
provided for in the Indenture (including one furnished pursuant to specific requirements of the
Indenture relating to a particular application or request) shall substantially include:





          (i) a statement that each individual signing such certificate or opinion has
read such covenant or condition and the definitions in the Indenture relating
thereto;



12









 






          (ii) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such certificate or
opinion are based;




          (iii) a statement that, in the opinion of each such individual, he or she has
made such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition has been
complied with; and




          (iv) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.



     SECTION 1.04. Acts of Holders.



          (a) Any request, demand, authorization, direction, notice, consent, waiver or other action
provided by the Indenture to be given or taken by any Holder may be embodied in and evidenced by
one or more instruments of substantially similar tenor signed by such Holder in person or by one or
more agents duly appointed in writing. Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by the Indenture to be given or taken by Holders may,
alternatively, be embodied in and evidenced by the record of Holders of Notes voting in favor
thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of
Notes duly called and held in accordance with the provisions of Article 10, or a
combination of such instruments and any such record. Except as otherwise expressly provided in the
Indenture, such action shall become effective when such instrument or instruments or record or both
are delivered to the Indenture Trustee. Such instrument or instruments and any such record (and
the action embodied therein and evidenced thereby) are sometimes referred to in the Indenture as
the “Act” of the Holders signing such instrument or instruments or so voting at any meeting. Proof
of execution of any such instrument or of writing appointing any such agent, or of the holding by
any Person of a Note, shall be sufficient for any purpose of the Indenture and (subject to
Section 7.01) conclusive in favor of the Indenture Trustee, and the Trust, if made in the
manner provided in this Section 1.04. The record of any meeting of Holders of Notes shall
be proved in the manner provided in Section 10.06. Without limiting the generality of this
Section 1.04, unless otherwise provided in or pursuant to the Indenture, a Clearing System
that is or whose nominee is a Holder of a Global Note may allow its account holders who have
beneficial interests in such Global Note credited to accounts with such Clearing System to direct
such Clearing System in taking such action through such Clearing System’s standing instructions and
customary practices. The Clearing System shall report only one result of its solicitation of
proxies to the Indenture Trustee.




          (b) Subject to Section 7.01, the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by the certificate of a
notary public or other officer authorized by law to take acknowledgments of deeds, certifying that
the individual signing such instrument or writing acknowledged to him or her the execution thereof.
Whenever such execution is by a signer acting in a capacity other than his or her individual
capacity, such certificate or affidavit shall also constitute sufficient proof of his or her
authority. The fact and date of the execution of any such instrument or writing, or the



13









 






authority of the Person executing the same, may be proved in any other manner that the
Indenture Trustee deems sufficient.




          (c) The ownership, principal amount and serial numbers of Notes held by any Person, and the
date of the commencement and the date of the termination of holding the same, shall be proved by
the Register.




          (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the
Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note
issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Indenture Trustee or the Trust in
reliance thereon, whether or not notation of such action is made upon such Note.




          (e) Except as provided in subsection (f) below, if the Trust shall solicit from the Holders of
Notes any Act referred to in Section 1.04(a), the Trust may, at its option, fix in advance
a record date for the determination of Holders entitled to vote or consent in connection with any
such Act, but the Trust shall have no obligation to do so. If such record date is fixed, such Act
may be given after such record date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for the purposes of determining whether Holders of
the requisite proportion of Outstanding Notes have authorized or agreed or consented to such Act,
and for that purpose the Outstanding Notes shall be computed as of such record date; provided, that
no such Act by Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of the Indenture not later than six months after the record
date. Nothing in this subsection (e) shall be construed to render ineffective any action taken by
Holders of the requisite principal amount of Outstanding Notes on the date such action is taken.
Promptly after any record date is set pursuant to this subsection (e), the Trust shall cause notice
of such record date and the proposed action by Holders to be given to the Indenture Trustee in
writing and to each Holder of the Notes in the manner set forth in Section 1.06.




          (f) The Indenture Trustee may set any day as a record date for the purpose of determining the
Holders entitled to join in the giving or making of (i) any notice delivered pursuant to
Section 6.01(d), (ii) any declaration of acceleration referred to in Section 6.02,
(iii) any request to institute proceedings referred to in Section 6.07(b) or (iv) any
direction referred to in Section 6.12. If such a record date is fixed pursuant to this
subsection (f), the relevant action may be taken or given after such record date, but only the
Holders of record at the close of business on such record date shall be deemed to be Holders for
the purposes of determining whether Holders of the requisite proportion of Outstanding Notes have
authorized or agreed or consented to such action, and for that purpose the Outstanding Notes shall
be computed as of such record date; provided, that no such action by Holders on such record date
shall be deemed effective unless it shall become effective pursuant to the provisions of the
Indenture not later than six months after the record date. Nothing in this subsection (f) shall be
construed to prevent the Indenture Trustee from setting a new record date for any action for which
a record date has previously been set pursuant to this subsection (f) (whereupon the record date
previously set shall automatically and with no action by any Person be cancelled and of no effect),
and nothing in this subsection (f) shall be construed to render ineffective any action taken by
Holders of the requisite principal amount of Outstanding Notes on the date such action is taken.
Promptly after



14









 






any record date is set pursuant to this subsection (f), the Indenture Trustee shall cause
notice of such record date and the proposed action by Holders to be given to the Trust in writing
and to each Holder of the Notes in the manner set forth in Section 1.06.




     SECTION 1.05. Notices. Any request, demand, authorization, direction, notice, consent,
waiver or other action required or permitted by the Indenture to be made upon, given or furnished
to, or filed with, the Indenture Trustee, the Registrar, the Transfer Agent, the Paying Agent, the
Calculation Agent, the Trust and the Rating Agencies shall be sufficient for every purpose under
the Indenture (unless otherwise expressly provided in the Indenture) if in writing and sent by fax,
telex, or mailed, first-class mail or overnight courier, in each case postage prepaid, at the
address specified in this Section 1.05 or at any other address previously furnished in
writing by one party to the other.


Such notices shall be addressed



if to the Indenture Trustee, to:



Citibank, N.A.

Citibank Agency & Trust

388 Greenwich Street, 14th Floor

New York, NY 10013

Facsimile: (212) 816-5527

Attention: Jennifer H. McCourt



or if Citibank, N.A. is not acting as Indenture Trustee, then to the Indenture

Trustee specified in Section C the Omnibus Instrument.



if to the Registrar, Transfer Agent, Paying Agent and Calculation Agent, to:



Citibank, N.A.

Citibank Agency & Trust

388 Greenwich Street, 14th Floor

New York, NY 10013

Facsimile: (212) 816-5527

Attention: Jennifer H. McCourt



if to the Trustee, to:



U.S. Bank Trust National Association

100 Wall Street, 16th Floor

New York, New York 10005

Attention: Adam Berman

Facsimile: (212) 509-3384



if to the Trust, to:



Principal Life Income Fundings Trust (followed by the number of the Trust




15









 







Designated in the Omnibus Instrument)

c/o U.S. Bank Trust National Association

100 Wall Street, 16th Floor

New York, NY 10005

Telephone: (212) 361-2458

Facsimile: (212) 509-3384

Attention: Adam Berman



if to the Rating Agencies, to:



Standard & Poor’s Rating Services

55 Water Street

33rd Floor

New York, New York 10041

Facsimile: (212) 438-7188

Attention: Principal Life FA Backed Surveillance



Moody’s Investors Service, Inc.

Life Insurance Group

7 World Trade Center at 250 Greenwich Street, 23rd Floor

New York, New York 10007

Facsimile: (212) 553-4805

Attention: Principal Life Income Fundings Trusts




     SECTION 1.06. Notice to Holders; Waiver.



          (a) Except as otherwise expressly provided in or pursuant to the Indenture, notices to Holders
required under the Notes shall be sufficiently given upon the mailing by overnight courier or
first-class mail (or equivalent), or (if posted to an overseas address) by airmail, postage
prepaid, of such notices to each Holder of the Notes at their registered addresses as recorded in
the Register.




          (b) Where the Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Indenture Trustee, but such filing shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver. In any case, neither the failure to give such notice,
nor any defect in any notice to any particular Holder shall affect the sufficiency of such notice
with respect to other Holders, and any notice which is mailed in the manner provided in the
Indenture shall be conclusively presumed to have been duly given.




          (c) In the case by reason of the suspension of regular mail service or by reason of any other
cause it shall be impracticable to give such notice by mail, then such notification as shall be
made with the approval of the Indenture Trustee shall constitute a sufficient notification for
every purpose under the Indenture.




16









 








     SECTION 1.07. Severability. In case any provision in or obligation under the Indenture or
the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such provision or obligation
in any other jurisdiction, shall not in any way be affected or impaired thereby to the fullest
extent permitted under applicable law.



     SECTION 1.08. Successors and Assigns. All covenants, stipulations, promises and agreements
in the Indenture by the Trust shall bind its successors and assigns, whether so expressed or not.



     SECTION 1.09. Benefits of Indenture. Nothing in the Indenture or in any Note, expressed or
implied, shall give to any Person other than the parties under the Indenture and their successors
and the Holders, any legal or equitable right, remedy or claim under the Indenture.



     SECTION 1.10. Language of Notices. Any request, demand, authorization, direction, notice,
consent, election or waiver required or permitted under the Indenture shall be in the English
language, except that, if the Trust so elects, any published notice may also be in an official
language of the country of publication.



     SECTION 1.11. Governing Law.



          (a) The Indenture and the Notes (unless otherwise specified in the Pricing Supplement) shall
be governed by, and construed in accordance with, the laws of the State of New York without regard
to conflict of law principles, except as required by mandatory provisions of law and except to the
extent that the validity or perfection of the Trust’s ownership of the Funding Agreement and
Guarantee, the perfection of the Indenture Trustee’s security interest therein, or remedies under
the Indenture in respect thereof may be governed by laws of a jurisdiction other than the State of
New York.




          (b) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE TRUST, THE ASSETS OF THE TRUST, THE INDENTURE
TRUSTEE, REGISTRAR, TRANSFER AGENT OR PAYING AGENT OR ANY OTHER AGENT, ARISING OUT OF OR RELATING
TO THE INDENTURE, ANY NOTE OR ANY PORTION OF THE COLLATERAL MAY BE BROUGHT IN A UNITED STATES
FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN NEW YORK CITY, THE BOROUGH OF MANHATTAN, AND BY
EXECUTION AND DELIVERY OF THE INDENTURE EACH OF THE TRUST, THE INDENTURE TRUSTEE, THE REGISTRAR,
THE TRANSFER AGENT, THE PAYING AGENT AND ANY OTHER AGENT (IN SUCH CAPACITIES) ACCEPT (AND WITH
RESPECT TO THE TRUST, IN CONNECTION WITH ITS PROPERTY ACCEPTS), GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURT AND WAIVE ANY DEFENSE OF FORUM NON CONVENIENS
(EXCEPT TO THE EXTENT A UNITED STATES FEDERAL COURT RAISES SUCH ISSUE ON ITS OWN MOTION) AND
IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THE INDENTURE,
ANY NOTE OR ANY PORTION OF THE COLLATERAL.




17









 








     SECTION 1.12. Waiver of Jury Trial. EACH OF THE PARTIES TO THE INDENTURE HEREBY AGREES TO
WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THE INDENTURE, THE NOTES OR ANY DEALINGS AMONG THEM RELATING TO THE SUBJECT MATTER OF THIS
TRANSACTION. The scope of this waiver is intended to encompass any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction including without
limitation contract claims, tort claims, breach of duty claims, and all other common law and
statutory claims. Each party under the Indenture acknowledges that this waiver is a material
inducement to enter into a business relationship, that such party has already relied on the waiver
in entering into the Indenture, and that such party will continue to rely on the waiver in its
related future dealings. Each party under the Indenture further warrants and represents that it
has reviewed this waiver with its legal counsel, and that it knowingly and voluntarily waives its
jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THE INDENTURE OR ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE INDENTURE. In the event of litigation, the Indenture may
be filed as a written consent to a trial by the court.



     SECTION 1.13. Counterparts. The Indenture and any amendments, waivers, consents or
supplements to the Indenture may be executed in any number of counterparts, and by different
parties to the Indenture in separate counterparts, and each of which when so executed and delivered
shall be deemed an original, but all such counterparts together shall constitute but one and the
same instrument. The Indenture shall become effective upon the execution of a counterpart of the
Indenture by each of the parties to the Indenture.



     SECTION 1.14. Third Party Beneficiaries. The Indenture will inure to the benefit of and be
binding upon the parties to the Indenture, and the Trustee and their respective successors and
permitted assigns.



     SECTION 1.15. Conflict with Trust Indenture Act. If any provision of the Indenture limits,
qualifies or conflicts with any duties imposed by any of Sections 310 to 317, inclusive, of the
Trust Indenture Act through operation of Section 318(c) thereof, such imposed duties shall control.



ARTICLE 2

The Notes




     SECTION 2.01. Forms Generally.



          (a) The Notes constitute direct, unconditional, unsubordinated and secured non-recourse
obligations of the Trust and rank equally among themselves. The Notes shall be in substantially
the form set forth in Exhibit A-1, Exhibit A-2 and Exhibit A-3 attached to
these Standard Indenture Terms, as applicable, in each case with such appropriate insertions,
omissions, substitutions and other variations as are required by the Indenture or as may in the
Trust’s judgment be necessary, appropriate or convenient to permit such Notes to be issued and



18









 






sold, or to comply, or facilitate compliance, with applicable laws, and may have such letters,
numbers or other marks of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange on which such Notes may be listed, or
as may, consistently with the Indenture, be determined by the Trustee (based conclusively on the
advice of counsel) as evidenced by its execution thereof. Any portion of the text of any Note may
be set forth on the reverse thereof with an appropriate reference on the face of the Note.




          (b) The terms and provisions contained in the Notes shall constitute, and are hereby expressly
made a part of the Indenture, and, to the extent applicable, the Indenture Trustee, by its
execution and delivery of the Indenture, and the Trust by its execution and delivery of the
Indenture, expressly agree to such terms and provisions and to be bound thereby.




          (c) Except as described in this Section 2.01(c), no Global Note evidencing any of the
Notes and deposited with or on behalf of any Clearing System shall be exchangeable for Definitive
Notes. Subject to the foregoing sentence, if (i) such Clearing System notifies Principal Life that
it is unwilling or unable to continue as Depositary or Principal Life becomes aware that the
Clearing System has ceased to be a clearing agency registered under the Securities Exchange Act and
in any such case Principal Life fails to appoint a successor depositary within sixty (60) calendar
days after receiving the notice from such Clearing System or becoming aware that such Clearing
System is no longer registered under the Exchange Act, (ii) an Event of Default shall have occurred
and is continuing with respect to the Notes and the Notes shall have been accelerated in accordance
with their terms or (iii) the Trust shall have decided in its sole discretion that the Notes should
no longer be evidenced solely by one or more Global Notes, then, pursuant to written instructions
by Principal Life to the Indenture Trustee (in the case of clause (i)), or upon written request of
the Holder (or accountholder of such Clearing System with an interest in the Notes) (in the case of
clause (ii)), or pursuant to written instructions by the Trust to the Indenture Trustee and
Clearing System (in the case of clause (iii)):





	 	(A)	 	with respect to each Global Note evidencing such Notes, the Trust shall
execute, and the Indenture Trustee shall authenticate and deliver, Definitive Notes in
authorized denominations in exchange for the Global Note, in an aggregate principal
amount equal to the Outstanding principal amount of the related Global Note. Upon the
exchange of the Global Note for the Definitive Notes, such Global Note shall be
cancelled by the Registrar. Definitive Notes issued in exchange for a Global Note
pursuant to this Section 2.01(c) shall be registered in the Register in such
names and in such denominations as the Clearing System for such Global Note, pursuant
to the instructions from its direct or indirect participants or otherwise, shall
instruct the Indenture Trustee, serving as custodian, on behalf of the nominee of the
Depositary, of the Global Note. The Indenture Trustee shall immediately provide the
information to the Registrar. Immediately after the authentication of the Definitive
Notes by the Indenture Trustee, the Indenture Trustee shall deliver such Definitive
Notes to the Holders of such Notes;
	 
	 	(B)	 	if Definitive Notes are issued in exchange for any portion of a Global Note
after the close of business at the Office or Agency for such Note where such exchange




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	 	 	 	occurs on (1) any Regular Record Date for such Notes and before the opening of
business at such Office or Agency on the next Interest Payment Date, or (2) any
Special Record Date for such Notes and before the opening of business at such Office
or Agency on the related proposed date for payment of interest or Defaulted
Interest, as the case may be, interest shall not be payable on such Interest Payment
Date or proposed date for payment, as the case may be, in respect of such Definitive
Notes, but shall be payable on such Interest Payment Date or proposed date for
payment, as the case may be, only to the Person to whom interest in respect of such
portion of such Global Note shall be payable in accordance with the provisions of
the Indenture; and
	 
	 	(C)	 	if for any reason Definitive Notes are not issued, authenticated and delivered
to the Holders in accordance with paragraph (A) of this Section 2.01(c), then:






     (1) the Clearing System or its successors may provide to each of its
accountholders a statement of such accountholder’s interest in the Notes
evidenced by each Global Note held by such Clearing System or its
successors, together with a copy of such Global Note; and




     (2) subject to the limitations on individual Holder action contained in
the Notes or the Indenture, each such accountholder or its successors and
assigns (x) shall have a claim, directly against the Trust, for the payment
of any amount due or to become due in respect of such accountholder’s
interest in the Notes evidenced by such Global Note, and shall be empowered
to bring any claim, to the extent of such accountholder’s interest in the
Notes evidenced by such Global Note and to the exclusion of such Clearing
System or its successors, that as a matter of law could be brought by the
Holder of such Global Note and the Person in whose name the Notes are
registered and (y) may, without the consent and to the exclusion of such
Clearing System or its successors, file any claim, take any action or
institute any proceeding, directly against the Trust, to compel the payment
of such amount or enforce any such rights, as fully as though the interest
of such accountholder in the Notes evidenced by such Global Note were
evidenced by a Definitive Note in such accountholder’s actual possession and
as if an amount of Notes equal to such accountholder’s stated interest were
registered in such accountholder’s name and without the need to produce such
Global Note in its original form.




	 	 	 	Notwithstanding anything in this paragraph (C) to the contrary, the Indenture
Trustee shall not be required to recognize any account holder or any of its
successors and assigns referred to in said paragraph as a Holder for any purpose of
the Indenture or the Notes and shall be entitled to treat the Person in whose name
the Global Note is registered as a Holder for all purposes of the Indenture and the
Notes if and until Definitive Notes are issued to and registered in the names of
such accountholders or their successors and assigns.




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The account records of any Clearing System or its successor shall, in the absence of manifest
error, be conclusive evidence of the identity of each accountholder that has any interest in the
Notes evidenced by the Global Note held by such Clearing System or its successor and the amount of
such interest. Definitive Notes shall be issued only in denominations as specified in the relevant
Pricing Supplement.




          (d) Subject to the other provisions of the Indenture, if any Global Note is exchanged for
Definitive Notes, then:





          (i) the Trust, the Indenture Trustee and any Paying Agent will have the right
to treat each Holder of Definitive Notes as the Person exclusively entitled to
receive interest and other payments or property in respect of or in exchange for the
Notes, and otherwise to exercise all the rights and powers with respect to any Note
(subject to the record date provisions of the Indenture and of the Notes); and




          (ii) the obligation of the Trust to make payments of principal, premium, if
any, interest and other amounts with respect to the Notes shall be discharged at the
time payment in the appropriate amount is made in accordance with the Indenture to
each Holder.



     SECTION 2.02. No Limitation on Aggregate Principal Amount of Notes. The aggregate principal
amount of Notes which may be authenticated and delivered under the Indenture is unlimited. Unless
otherwise specified in the applicable Pricing Supplement, the Notes shall be issued in
denominations of $1,000 and any larger amount that is a multiple of $1,000; the authorized
denominations of Notes that have a Specified Currency other than U.S. Dollars will be the
appropriate equivalent in such Specified Currency. The specific terms and conditions of the Notes
shall be set out in a Pricing Supplement, the Omnibus Instrument and, if applicable, a supplemental
indenture entered into pursuant to Section 8.01(e).



     SECTION 2.03. Listing. If specified in the Pricing Supplement, the Notes will be listed on
the securities exchange set forth in such Pricing Supplement.



     SECTION 2.04. Redemption and Repayment.



          (a) Except as otherwise provided in the Pricing Supplement, a supplemental indenture and the
Notes or in Section 6.02, the Trust will redeem the Notes only if Principal Life redeems
the Funding Agreement securing such Notes in an amount equal to the amount of the related Notes to
be redeemed in accordance with the terms of the Indenture and the Notes, and the Trust will not
redeem the Notes if Principal Life does not redeem the Funding Agreement securing such Notes in an
amount equal to the amount of the Notes to be redeemed in accordance with the Indenture and the
Notes. Unless otherwise specified in the relevant Pricing Supplement and a supplemental indenture
or the Notes, the Trust may not redeem the Notes after the date that is thirty (30) calendar days
prior to the Stated Maturity Date.




          (b) If, but only if, specified in the Pricing Supplement and a supplemental indenture or the
Notes, such Notes will be repayable at the option of the Holders thereof in



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accordance with the repayment provisions included in the Pricing Supplement and supplemental
indenture or the Notes.




          (c) In connection with the redemption by the Trust of the Notes under Section 2.04(a),
upon receipt by the Trust of notice of redemption of the Funding Agreement from Principal Life, the
Trust will promptly give written notice of such redemption to the Indenture Trustee and the
Indenture Trustee will give written notice to the Holders in accordance with Section 1.06
not less than thirty (30) calendar days and no more than sixty (60) calendar days prior to the date
set for such redemption. All notices of redemption shall identify the Notes to be redeemed
(including the CUSIP numbers) and shall state:





          (i) the redemption date;




          (ii) the Redemption Price or, if not then ascertainable, the manner of
calculation thereof;




          (iii) that on the redemption date the Redemption Price will become due and
payable on the Notes to be redeemed and that interest thereon will cease to accrue
on and after said date; and




          (iv) the place or places where the Notes to be redeemed are to be surrendered
for payment of the Redemption Price.



          (d) Prior to 10:00 a.m. New York City time on the redemption date, the Trust shall deposit
with the Paying Agent an amount of money sufficient to pay the Redemption Price of and accrued and
unpaid interest on all Notes which are to be redeemed on that date.




          (e) Upon notice of redemption having been given pursuant to Section 2.04(c), the Notes
to be so redeemed shall, on the redemption date, become due and payable at the Redemption Price
therein specified, and from and after such date (unless the Trust shall default in the payment of
the Redemption Price and accrued interest, if any) such Notes shall cease to bear or accrue any
interest. Upon surrender of the Notes for redemption in accordance with said notice, such Notes
shall be paid by the Trust at the Redemption Price, together with any accrued but unpaid interest
to but not including the redemption date.




          (f) The election of the Trust to redeem any Notes shall be evidenced by a Trust Certificate.
In case of any redemption at the election of the Trust, the Trust shall, at least forty-five (45)
calendar days prior to the redemption date fixed by the Trust (unless a shorter notice shall be
satisfactory to the Indenture Trustee), notify the Indenture Trustee of such redemption date, and
of the principal amount of Notes to be redeemed. In the case of any redemption of Notes (a) prior
to the expiration of any restriction on such redemption provided in the terms of such Notes or
elsewhere in the Indenture, or (b) pursuant to an election of the Trust which is subject to a
condition specified in the terms of such Notes or elsewhere in the Indenture, the Trust shall
furnish the Indenture Trustee with a Trust Certificate evidencing compliance with such restriction
or condition.




          (g) If less than all of the Notes are to be redeemed (unless such redemption affects only a
single Note), the particular Notes to be redeemed shall be selected not more than



22









 






sixty (60) calendar days prior to the redemption date by the Indenture Trustee, from the
Outstanding Notes not previously called for redemption, by lot or pro rata, in its reasonable
discretion, in accordance with the customary procedures of the Indenture Trustee; provided that the
unredeemed portion of the principal amount of any Note shall be in an authorized denomination
(which shall not be less than the minimum authorized denomination) for such Note; provided further,
that if at the time of redemption such Notes are registered as Global Notes, the Depositary shall
determine, in accordance with its procedures, the principal amount of such Notes to be redeemed by
each of the Depositary’s participants.




     The Indenture Trustee shall promptly notify the Trust in writing of the Notes selected for
redemption as aforesaid and, in the case of any Notes selected for partial redemption as aforesaid,
the principal amount thereof to be redeemed.



     For all purposes of the Indenture, unless the context otherwise requires, all provisions
relating to the redemption of Notes shall relate, in the case of any Notes redeemed or to be
redeemed only in part, to the portion of the principal amount of such Notes which has been or is to
be redeemed.



          (h) Any Note which is to be redeemed only in part shall be surrendered at a Place of Payment
therefor (with, if the Trust or the Indenture Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Trust and the Indenture Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing), and the Trust shall execute,
and the Indenture Trustee shall authenticate and deliver to the Holder of such Note without service
charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in
aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of
the Note so surrendered.




          (i) The Notes will not be subject to, or entitled to the benefit of, any sinking fund unless
otherwise specified in the Pricing Supplement and a supplemental indenture of the Notes.




     SECTION 2.05. Execution, Authentication and Delivery Generally.



          (a) Upon the execution of any Terms Agreement pursuant to the Distribution Agreement (if the
Relevant Agents agree to purchase the Notes on a principal basis), the acceptance of an offer to
purchase Notes solicited by the Relevant Agents on an agency basis, or the acceptance of a direct
offer of Notes for sale by the Trust, the Trust shall, as soon as practicable but in any event
(unless otherwise agreed by the parties) not later than 11:00 a.m. (New York City time) on the
second Business Day following the date of Principal Life’s acceptance of the offer for the purchase
of Notes:





          (i) confirm by fax to the Indenture Trustee, the Paying Agent and the
Registrar, all such information as the Indenture Trustee, the Paying Agent or the
Registrar may reasonably require to carry out their respective functions under the
Indenture, including, in particular, the settlement and payment procedures that will
apply to the relevant Notes and, if applicable, the account of the Trust to which
payment should be made;



23









 






          (ii) deliver a copy of the Pricing Supplement or duly executed supplemental
indenture in relation to the relevant Notes to the Indenture Trustee, the Paying
Agent and the Registrar; and




          (iii) unless a Global Note is to be used and the Trust shall have provided such
Global Note to the Registrar pursuant to Section 2.05(c), ensure that there
is delivered to the Registrar a stock of Definitive Notes (in unauthenticated form
and with the names of the registered Holders left blank but duly executed on behalf
of the Trust and otherwise complete) in relation to the relevant Notes.



          (b) The Trust will deliver to the Indenture Trustee on the Original Issue Date for the Notes a
duly executed original of the Funding Agreement, Guarantee and Trust Agreement (unless previously
delivered) and all documentation relating to the foregoing for the Notes.




          (c) The Trust may, at its option, and shall, at the request of the Registrar, deliver from
time to time to the Registrar a stock of Global Notes (in unauthenticated form but duly executed on
behalf of the Trust).




          (d) The Registrar shall, having been advised in accordance with Section 2.05(a) on
behalf of the Trust, on which securities exchange, if any, the Notes are to be listed, deliver a
copy of the Pricing Supplement or supplemental indenture in relation to each relevant Notes to such
exchange or the relevant listing agent for such exchange as soon as practicable but in any event no
later than two (2) Business Days prior to the proposed Original Issue Date therefor.




          (e) Having received from the Trust the documents referred to in Section 2.05(a), (b) and
(c) (to the extent applicable) (such documents constituting, for all purposes of the Indenture,
a Trust Order for the authentication and delivery of the applicable Notes), on or before 10:00 a.m.
(New York City time) on the Original Issue Date in relation to the Notes (unless otherwise agreed
by the parties), the Indenture Trustee shall authenticate and deliver the relevant Global Note to
the relevant custodian for DTC and/or any other relevant Clearing System or otherwise in accordance
with such Clearing System’s procedures. The Indenture Trustee shall give instructions to DTC
and/or any other relevant Clearing System to credit Notes represented by a Global Note registered
in the name of a nominee for such Clearing System, to the Indenture Trustee’s distribution account
and to hold each such Note to the order of the Trust pending delivery to the Relevant Agent(s) on a
delivery against payment basis (or on such other basis as shall have been agreed between the Trust
and the Relevant Agent(s) and which the Indenture Trustee has been notified) in accordance with the
normal procedures of DTC or such other Clearing System, as the case may be and, following payment
(unless otherwise agreed), to debit the Notes represented by such Global Note to such securities
account(s) as shall have been notified in writing to the Indenture Trustee by the Trust. The
Indenture Trustee shall on the Original Issue Date in respect of the relevant Notes, and upon
receipt of funds from the Relevant Agent(s), transfer, or cause to be transferred, the proceeds of
issue (net of any applicable commissions, fees or like amounts specified in writing by Principal
Life) to or as directed by



24









 






Principal Life on behalf of the Trust to satisfy the deposit requirement pursuant to the
Funding Agreement (as specified by Principal Life in such direction).




          If no such securities account(s) shall have been specified, or the relevant Notes is not
intended to be cleared through any Clearing System, the Indenture Trustee shall authenticate and
make available at its specified office on the Original Issue Date in respect of the relevant Notes
the relevant Global Note or the relevant Definitive Notes, as the case may be, duly executed and
made available to the Indenture Trustee by the Trust.




          (f) If the Indenture Trustee should pay an amount (an “advance”) to the Trust in the belief
that a payment has been or will be received from the Relevant Agents, and if such payment is not
received by the Indenture Trustee on the date that the Indenture Trustee pays the Trust, the Trust
shall forthwith repay the advance (unless prior to such repayment the payment is received from the
Relevant Agents) and shall pay interest on such amount which shall accrue (after as well as before
judgment) on the basis of a year of 360 days (365 days (366 days in the case of a leap year) in the
case of an advance paid in Sterling) and the actual number of days elapsed from the date of payment
of such advance until the earlier of (i) repayment of the advance or (ii) receipt by the Indenture
Trustee of the payment from the Relevant Agents, and at the rate per annum which is the aggregate
of one percent per annum and the rate determined and certified by the Indenture Trustee and
expressed as a rate per annum as reflecting its cost of funds for the time being in relation to the
unpaid amount.




          (g) The Notes shall be executed on behalf of the Trust by a Responsible Officer of the
Trustee. The signature of any of these officers on the Notes may be manual or facsimile.




          Notes bearing the manual or facsimile signatures of individuals who were at any time
Responsible Officers of the Trustee shall bind the Trust, notwithstanding that any such individuals
have ceased to hold such offices prior to the authentication and delivery of such Notes or did not
hold such offices at the date of such Notes.




          Each Note shall be dated the date of its authentication.




          No Note shall be entitled to any benefit under the Indenture or be valid or obligatory for any
purpose unless there appears on such Note a certificate of authentication substantially in the form
provided for in the Indenture executed by the Indenture Trustee by manual signature of an
authorized officer, and such certificate upon any Note shall be conclusive evidence, and the only
evidence, that such Note has been duly authenticated and delivered under the Indenture.




          The Indenture Trustee’s certificate of authentication shall be in substantially the following
form:




          This is one of the Notes of Principal Life Income Fundings Trust specified on the face of this
Note referred to in the within-mentioned Indenture.




	 	 	 	 	 
	 	CITIBANK, N.A.,

As Indenture Trustee

 	 
	 	By:  	 	 
	 	 	Authorized Signatory 	 
	 	 	 	 



25









 






	 	 	 	 	 



          If Citibank, N.A. is not acting as Indenture Trustee, then the acting Indenture Trustee’s
certificate of authentication shall be in the form specified in Section C of the Omnibus
Instrument.




          Notes bearing the manual signatures of individuals who were at any time authorized officers of
the Indenture Trustee shall bind the Trust, notwithstanding that any such individuals have ceased
to hold such offices prior to the delivery of such Notes or did not hold such offices at the date
of such Notes.




          In authenticating Notes under the Indenture, the Indenture Trustee shall be entitled to
conclusively assume that any Note authenticated by it has been duly executed on behalf of, and is a
legal, valid, binding and enforceable obligation of, the Trust and is entitled to the benefits of
the Indenture, and that the Trust Agreement, the Funding Agreement and the Guarantee have been duly
executed by, and are the legal, valid, binding and enforceable obligations of, the parties thereto.




          (h) The Trust undertakes to notify the Paying Agent, the Registrar and, if different, the
Indenture Trustee, in writing, of any changes in the identity of the agents appointed generally in
respect of the Program.





     SECTION 2.06. Registration. All Notes shall be registered and may be represented either as
Global Notes or Definitive Notes. Unless otherwise specified in the relevant Pricing Supplement,
Global Notes will be registered in the name of a nominee for, and deposited with, a custodian for
DTC. The Registrar shall maintain a register (in the Indenture sometimes referred to as the
“Register”) in which, subject to such reasonable regulations as it may prescribe, the Registrar
shall provide for the registration of the Notes and registration of transfer of the Notes. The
Register shall be in written form in English or in any other form capable of being converted into
such form within a reasonable time. The Indenture Trustee is hereby initially appointed as the
Registrar. In the event that the Indenture Trustee shall not be the Registrar, it shall have the
right to examine the Register at all reasonable times. Subject to the definition of “Outstanding”
in Section 1.01, the Trust, the Indenture Trustee, the Registrar or the Paying Agent or any
other Agent may become the owner or pledgee of Notes and may deal with such Notes with the same
rights of any other Holder of such Notes.



     SECTION 2.07. Transfer.



          (a) Subject to Section 2.01(c) and (d), (A) upon surrender for registration of
transfer of any Note in accordance with its terms, the Trustee, on behalf of the Trust shall
execute, and the Indenture Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Notes denominated as authorized in or pursuant to the
Indenture, of a like aggregate principal amount bearing a number not contemporaneously outstanding
and containing identical terms and provisions and (B) at the option of the Holder,



26









 






Notes may be exchanged, in accordance with their terms, for other Notes containing identical
terms and provisions, in any authorized denominations, and of a like aggregate principal amount,
upon surrender of the Notes to be exchanged at the Office or Agency of the Indenture Trustee.
Whenever any Notes are surrendered for exchange as contemplated by this Section 2.07(a),
the Trust shall execute, and the Indenture Trustee shall authenticate and deliver, the Notes which
the Holder making the exchange is entitled to receive. Definitive Notes shall not be exchanged for
Global Notes. Beneficial interests in Global Notes may be transferred or exchanged only through
the Depositary. No Global Note may be transferred except as a whole by a nominee of the Depositary
to the Depositary or to another nominee of the Depositary, or by the Depositary or another nominee
of the Depositary to a successor of the Depositary or a nominee of a successor to the Depositary.
With respect to any Global Note, the Depositary or its nominee is the Holder of such Global Note
for the purposes of the Indenture. Except as set forth in Section 2.01(c), the beneficial
owners of any Global Note will not be entitled to receive Definitive Notes and shall not be
considered “Holders” under the Indenture.




          (b) All Notes issued upon a registration of transfer or exchange of Notes shall be the valid
obligations of the Trust evidencing the same debt and entitling the Holders thereof to the same
benefits under the Indenture as the Notes surrendered upon such registration of transfer or
exchange.




          (c) No service charge shall be made for any registration of transfer or exchange, of Notes,
but the Indenture Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of transfer or exchange
of Notes (other than certain exchanges not involving any transfer).




          (d) Every Note presented or surrendered for registration of transfer or for exchange shall be
duly endorsed, or be accompanied by a written instrument of transfer in a form satisfactory to the
Trust and the Indenture Trustee duly executed, by the Holder thereof or his attorney duly
authorized in writing.




     SECTION 2.08. Mutilated, Destroyed, Lost and Stolen Notes.



          (a) If (i) any mutilated Note is surrendered to the Indenture Trustee directly or through any
Paying Agent or (ii) in the case of an allegedly destroyed, lost or stolen Note, the Indenture
Trustee receives evidence to its satisfaction of the destruction, loss or theft of the Note and
there is delivered to the Indenture Trustee, the Registrar and the Trust such security or indemnity
as may be required by the Indenture Trustee, the Registrar and the Trust to save the Indenture
Trustee, the Registrar and the Trust harmless, then in either case the Trust shall execute and the
Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of such mutilated,
destroyed, lost or stolen Note, a new Note, of the same maturity, tenor and principal amount as
such mutilated, destroyed, lost or stolen Note, bearing a number not contemporaneously outstanding;
provided, however, that if any such mutilated, destroyed, lost or stolen Note shall have become or
shall be about to become due and payable, instead of issuing a new Note, the Trust may pay such
Note without surrender of such Note, except that any mutilated Note shall be surrendered.




27









 








          (b) Upon the issuance of any new Note under this Section 2.08, the Indenture Trustee
or the Trust may require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other reasonable expenses (including the
fees and expenses of the Indenture Trustee, Registrar or any Paying Agent) in connection therewith.




          (c) Every new Note issued pursuant to this Section 2.08 in lieu of any destroyed, lost
or stolen Note shall constitute a separate obligation of the Trust, whether or not the destroyed,
lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the
benefits of the Indenture equally and proportionately with any and all other Notes duly issued
under the Indenture. The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Notes.




     SECTION 2.09. Payment of Interest; Rights To Interest Preserved.



          (a) The Notes shall bear interest at a rate and on terms stated on the Notes.




          (b) Any interest on any Note which is payable, and is punctually paid or duly provided for, on
any Interest Payment Date, shall be paid to the Person in whose name that Note is registered at the
close of business on the Regular Record Date for such interest payment (except that interest, if
any, on any Note due on the Maturity Date will be paid to the Person to whom the principal of the
Note is paid).




          (c) Any interest on any Note which is payable, but is not punctually paid or duly provided
for, on any Interest Payment Date (in the Indenture called “Defaulted Interest”) shall forthwith
cease to be payable to the Holder on the relevant Regular Record Date by virtue of their having
been such Holder, and such Defaulted Interest shall be paid by the Trust to the Persons in whose
names such Notes (or their respective predecessor Notes) are registered at the close of business on
a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Trust shall notify the Indenture Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Note and the date of the proposed payment.
Thereupon the Indenture Trustee shall fix a date for the payment of such Defaulted Interest which
shall be not more than fifteen (15) days and not less than ten (10) days prior to the date of the
proposed payment and not less than ten (10) days after the receipt by the Indenture Trustee of the
notice of the proposed payment (the “Special Record Date”). The Indenture Trustee shall promptly
notify the Trust of such Special Record Date and, in the name of the Trust shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given to
each Holder in accordance with Section 1.06. The Trust may make payment of any Defaulted
Interest on the Notes in any other lawful manner not inconsistent with the requirements of any
securities exchange, if any, on which such Notes may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the Trust to the Indenture Trustee of the
proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the
Indenture Trustee. Subject to the foregoing provisions of this Section, each Note delivered under
the Indenture upon registration of transfer of or in exchange for or in lieu of any other Note
shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such
other Note.




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     SECTION 2.10. Cancellation. All Notes surrendered for payment, registration of transfer or
exchange shall, if surrendered to any Person other than the Indenture Trustee, be delivered to the
Indenture Trustee and shall be promptly cancelled by it. Principal Life or any Affiliate thereof
shall promptly deliver to the Indenture Trustee for cancellation any Note previously authenticated
and delivered under the Indenture that Principal Life or such Affiliate may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by the Indenture Trustee.
No Notes shall be authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by the Indenture. All cancelled Notes held by the
Indenture Trustee shall be disposed of by the Indenture Trustee in accordance with its customary
procedures, unless the Trust shall otherwise direct by a Trust Order.



     SECTION 2.11. Persons Deemed Owners. Prior to due presentment for registration of transfer
of any Note, the Trust, the Indenture Trustee, the Registrar, the Paying Agent, any other Agent,
and any other agent of the Trust, or the Indenture Trustee may treat the Person in whose name any
Note is registered as the absolute and sole owner of such Note for the purpose of receiving payment
of the principal of, any premium, or interest on or any Additional Amounts with respect to such
Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and, except
as otherwise required by applicable law, none of the Trust, the Indenture Trustee, the Registrar,
the Paying Agent, any other Agent, or any other agent of the Trust or the Indenture Trustee shall
be affected by notice to the contrary.



     SECTION 2.12. Tax Treatment; Tax Returns and Reports.



          (a) The Trust and the Trust Beneficial Owner agree, and by acceptance of a beneficial interest
in a Note, each holder of a beneficial interest in a Note agrees, for U.S. federal, state and local
income and franchise tax purposes, to (i) disregard the Trust and (ii) treat such Note as debt of
Principal Life. The Trust covenants that it shall take no action inconsistent with such treatment
(including, without limitation, under Treasury Regulations Section 301.7701-2 or 301.7701-3 (the
“check-the-box regulation”)). To the extent that it is ultimately determined that the Trust cannot
be disregarded for United States federal, state and local income or franchise tax purposes, and
that the Notes are treated as undivided ownership interests in the Trust, the Trust and the Trust
Beneficial Owner agree, and by acceptance of a beneficial interest in a Note each holder of a
beneficial interest in a Note agrees, to treat (i) the Trust as a “grantor trust” under Subpart E
of Part I of Subchapter J of the Code (or the state or local equivalent), owned by the holders of
beneficial interests in the Notes and the Trust Beneficial Owner and (ii) the Funding Agreement as
debt of Principal Life.




          (b) The Trust Agreement provides that the Trustee shall prepare and file or cause to be
prepared or filed, consistent with the treatment of the Trust as disregarded, all federal, state
and local income tax and information returns and reports required to be filed with respect to the
Trust and the Notes under any applicable federal, state or local tax statute or any rule or
regulation under any of them. The Trust Agreement provides that the Trustee shall keep copies or
cause copies to be kept of any such tax and information returns and reports required to be filed.
The Indenture Trustee agrees to provide to the Trustee such information, upon receipt of written
request from the Trust, as is necessary for the Trustee to fulfill its obligations under this
Section 2.12.




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     SECTION 2.13. No Association. Nothing set forth in the Indenture shall be construed to
constitute the Holders of Notes, from time to time, as members of an association.



     SECTION 2.14. Administrative Procedures. The Indenture Trustee shall comply with the
Procedures (as defined in the Distribution Agreement), as they may be amended from time to time in
accordance with the terms of the Distribution Agreement.



ARTICLE 3

Covenants, Representations and Warranties




     SECTION 3.01. Payment of Principal and any Premium, Interest and Additional Amounts. The
Trust covenants and agrees, for the benefit of the Holders of the Notes, that it will:



          (a) Pay or cause to be paid to the Paying Agent on or before the date on which any payment
becomes due, an amount equal to the amount of principal (and premium, if any) and interest and any
Additional Amount (if applicable) payable in respect of the Notes then becoming due in respect of
the Notes.




          (b) Pay each amount payable to the Paying Agent under Section 3.01(a) by transfer of
immediately available funds denominated in the Specified Currency not later than 10:00 a.m. (at the
Place of Payment) on the date when such amounts are due and payable in respect of the Notes.




          (c) Confirm, before 10:00 a.m. (at the Place of Payment) on the second Business Day before the
due date of each payment by it under Section 3.01(a) to the Paying Agent by confirmed
facsimile, that irrevocable instructions have been given by it, for the transfer of the relevant
funds to the Paying Agent and the name and the account of the bank through which such payment is
being made.



For purposes of this Section 3.01, an installment of principal, premium, if any, or interest and
any other amount payable in respect of the Notes shall be considered paid on the date it is due if
the Trust has deposited, or caused to be deposited, with the Paying Agent by such date money
designated for, and capable of being applied towards, and sufficient to pay such installment.




     SECTION 3.02. Collection Account. The Indenture Trustee shall, on or prior to the initial
Original Issue Date, establish a non-interest bearing account with the Indenture Trustee or such
other depository institution that is rated at least AA- or Aa3 by a nationally recognized
statistical rating organization as may be designated by the Trustee, in the name of the Trust,
which account shall collect payments received under the applicable Funding Agreement and/or related
Guarantee and shall be segregated from other accounts held by the Indenture Trustee or such other
depositary institution.



     SECTION 3.03. Agreements of the Paying Agent. The Paying Agent agrees that:



          (a) The Paying Agent shall be entitled to deal with each amount paid to it under the Indenture
in the same manner as other amounts paid to it as a banker by its customers provided that:




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          (i) the Paying Agent shall not, against the Trust or any Holder of a Note,
exercise any lien, right of set-off or similar claim in respect thereof (except as
otherwise provided or permitted under the Indenture);




          (ii) the Paying Agent shall not be liable to any Person for interest thereon;




          (iii) the Paying Agent need not segregate any money held by it except as
required by law or as otherwise provided under the Indenture; and




          (iv) the Paying Agent shall comply with the provisions of Section 317(b) of the
Trust Indenture Act and agrees that it will, during the continuance of any default
by the Trust (or any other obligor upon the Notes) in the making of any payment in
respect of the Notes, upon the written request of the Indenture Trustee, forthwith
pay to the Indenture Trustee all sums held in trust by such Paying Agent for payment
in respect of the Notes.



          (b) The Paying Agent shall pay or cause to be paid by transfer of immediately available funds
denominated in the Specified Currency to the Holders all moneys received by the Paying Agent for
such purpose from the Trust pursuant to Section 3.01. In the event a Note is issued
between a Regular Record Date or Special Record Date and the related Interest Payment Date,
interest for the period beginning on the original issue date for such Note or the previous Interest
Payment Date, as the case may be, and ending on the subject Interest Payment Date will be paid on
the immediately following Interest Payment Date to the Person who was the registered Holder of such
Note as of the immediately preceding Regular Record Date. With respect to Global Notes, the Paying
Agent shall pay principal, premium, if any, interest and any other amounts due on such Global Notes
in accordance with the Notes and the arrangements established by and between the Paying Agent and
the Depositary. Notwithstanding anything in the Indenture to the contrary, payments of principal
and premium, if any, in respect of Definitive Notes on the Maturity Date shall be made as provided
in or pursuant to the Indenture in immediately available funds against presentation and surrender
of the relevant Definitive Notes at the designated office of the Registrar in The City of New York,
as provided in the Indenture or in the applicable Definitive Note. Payments of interest and other
amounts due and owing, if any, on the Maturity Date of Definitive Notes shall be made to the Person
to whom payment of the principal thereof and premium, if any, thereon shall be made.
Notwithstanding anything in the Indenture to the contrary, interest on Definitive Notes other than
on the Maturity Date shall be paid to the person shown in the applicable Register at the close of
business on the Regular Record Date or Special Record Date, as applicable, as provided in or
pursuant to the Indenture before the due date for payment thereof. Notwithstanding anything in the
Indenture to the contrary, payments of interest and other amounts due and owing on each Definitive
Note other than on the Maturity Date shall be made in the currency in which such payments are due
by check drawn on a bank in the Principal Financial Center of the country of the Specified Currency
and mailed to the Holder (or to the first named of joint holders) of such Definitive Note at its
address appearing in the applicable Register. Notwithstanding the foregoing, the Paying Agent
shall make, or cause to be made, payments of interest and other amounts due and owing, if any, on a
Definitive Note on any Interest Payment Date other than the Maturity Date to each Holder of
$10,000,000 (or, if the Specified Currency is other than U.S. Dollars, the equivalent thereof in



31









 






the particular Specified Currency) or more in aggregate principal amount of Definitive Notes
by wire transfer of immediately available funds if the applicable Holder has delivered appropriate
wire transfer instructions in writing to the Paying Agent not less than fifteen (15) calendar days
prior to the particular Interest Payment Date. Any such wire transfer instructions received by the
Paying Agent shall remain in effect until revoked by the applicable Holder. All moneys paid to the
Paying Agent by the Trust in respect of any Note shall be held by the Paying Agent from the moment
when such moneys are received until the time of actual payment thereof, for the persons entitled
thereto, and shall be applied in accordance with Section 3.03(c) through (g); provided,
that the obligation of the Paying Agent to hold such moneys shall be subject to the provisions of
Section 3.08.




          (c) The Paying Agent acting through its specified office shall make payments of interest and
Additional Amounts (if applicable) or, as the case may be, principal in respect of the Notes in
accordance with the terms thereof and of the Indenture, provided that such Paying Agent shall not
be obligated (but shall be entitled) to make such payments if it is not able to establish that it
has received (whether or not at the due time) the full amount of the relevant payment due to it
under Section 3.01(a). Payment of any Note redemption amount (together with accrued
interest) due in respect of Notes will be made against presentation and surrender of the relevant
Notes at the specified office of the Paying Agent, subject to Section 2.04(h). Payment of
amounts (whether principal, interest or otherwise) due in respect of Notes will be paid by the
Paying Agent to the Holder thereof (or, in the case of joint Holders, the first named) which shall
be the person appearing as Holder in the register kept by the Registrar as at the close of business
(local time in the place of the specified office of the Registrar) on the Regular Record Date.




          (d) If a Paying Agent makes any payment in accordance with paragraph (c), it shall be entitled
to appropriate for its own account out of the funds received by it under Section 3.01(a) an
amount equal to the amount so paid by it.




          (e) If a Paying Agent makes a payment in respect of Notes at a time at which it has not
received the full amount of the relevant payment due to it under Section 3.01(a) and is not
able to reimburse itself out of funds received by it under Section 3.01(a) therefor by
appropriation under this Section 3.03(e), the Trust shall from time to time, on demand, pay to the
Paying Agent for its own account:





          (i) the amount so paid out by such Paying Agent and not so reimbursed to it;
and




          (ii) interest on such amount from the date on which such Paying Agent made such
payment until the date of reimbursement of such amount;




provided that any payment made under clause (i) above shall satisfy pro tanto the
Trust’s obligations under Section 3.01(a).



          (f) Interest shall accrue for the purpose of Section 3.03(e)(ii) (as well after as before
judgment) on the basis of a year of 360 days (365 days (366 days in the case of a leap



32









 






year) in the case of an amount in Sterling) and the actual number of days elapsed and at the
rate per annum which is the aggregate of one percent per annum and the rate per annum specified by
the Paying Agent as reflecting its cost of funds for the time being in relation to the unpaid
amount.




          (g) If at any time and for any reason a Paying Agent makes a partial payment in respect of any
Note surrendered for payment to it, such Paying Agent shall endorse thereon and in the Register a
statement indicating the amount and date of such payment.




     SECTION 3.04. Maintenance of Office or Agency.



          (a) The Trust will maintain in the Place of Payment an Office or Agency where Notes may be
presented or surrendered for payment, where Notes may be surrendered for registration of transfer
or exchange and where notices and demands to or upon the Trust in respect of the Notes and the
Indenture may be served; provided, however, that if the Notes are listed on any stock exchange and
the rules of such stock exchange shall so require, the Trust shall maintain an Office or Agency in
any other required city so long as the Notes are listed on such exchange. The Trust will give
prompt written notice to the Indenture Trustee of the location, and any change in the location, of
such Office or Agency. If at any time the Trust shall fail to maintain any such required Office or
Agency or shall fail to furnish the Indenture Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust Office of the
Indenture Trustee and the Trust hereby appoints the Indenture Trustee as its agent to receive such
respective presentations, surrenders, notices and demands. The Trust shall promptly notify the
Indenture Trustee of the name and address of each Paying Agent (if different than the Indenture
Trustee) appointed by it and will notify the Indenture Trustee of the resignation or termination of
any Paying Agent.




          (b) The Trust may also from time to time designate one or more other Offices or Agencies where
the Notes may be presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such designation or rescission shall in any
manner relieve the Trust of its obligation to maintain the Offices or Agencies for Notes in the
Place of Payment for the foregoing purposes. The Trust shall give prompt written notice to the
Indenture Trustee of any such designation or rescission and of any change in the location of any
such Office or Agency.




          (c) Unless otherwise provided in or pursuant to the Indenture, the Trust hereby appoints the
Indenture Trustee as Paying Agent, Registrar and Transfer Agent.




     SECTION 3.05. Duties of the Agents.



          (a) The Trust shall provide to the Paying Agent sufficient copies of all documents required to
be available for inspection as provided in the Registration Statement or the Pricing Supplement in
respect of the Notes.




          (b) To the extent permitted by applicable law, the Paying Agent shall make available for
inspection during normal business hours at its specified office such documents as may be specified
as so available at the specified office of the Paying Agent in respect of the Notes, or as may be
required by any stock exchange on which the Notes may be listed.




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          (c) Notwithstanding anything to the contrary, the Trust shall be solely responsible for
ensuring that each Note to be issued or other transactions to be effected under the Indenture shall
comply with all applicable laws and regulations of any governmental or other regulatory authority
in connection with any Note and that all necessary consents and approvals of, notifications to and
registrations and filings with, any such authority in connection therewith are effected, obtained
and maintained in full force and effect.




          (d) The Paying Agent shall collect all forms from Holders or, in the case of Notes held in a
Clearing System, from the relevant Clearing System, that are required to exempt payments under the
Notes, the related Guarantee, and/or the related Funding Agreement, from United States federal
income tax withholding. The Paying Agent shall (i) withhold from each payment under the Indenture
or under any Note any and all United States federal or state withholding taxes applicable thereto
as required by law and (ii) file any information reports as it may be required to file under
applicable law.




          (e) Each Agent shall be obligated to perform such duties and only such duties as are set out
in the Indenture and no implied duties or obligations shall be read into the Indenture against such
Agent.




          (f) Each Agent shall be protected and shall incur no liability for or in respect of any action
taken, omitted or suffered in reliance upon any instruction, request or order from the Trust or any
notice, resolution, direction, consent, certificate, affidavit, statement, facsimile, telex or
other paper or document (duly signed or which it believes in good faith to have been duly signed,
where applicable) which it believes in good faith to be genuine and to have been delivered, signed
or sent by the proper party or parties.




          (g) Each Agent and any of its officers, directors, employees or controlling persons may become
the owner of, or acquire any interest in, any Note, with the same rights that it or he would have
if it or he were not appointed under the Indenture, and may engage or be interested in, any
financial or other transaction with the Trust, PFG or Principal Life, or any Affiliate thereof, or
may act as depositary, trustee or agent for any committee or body of Holders, as freely as if it or
he were not appointed under the Indenture.




          (h) Each Agent may consult with legal and other professional advisers and the opinion of the
advisers shall be full and complete protection in respect of action taken, omitted or suffered
under the Indenture in good faith and in accordance with the opinion of the advisers.




          (i) Under no circumstances will the Paying Agent or any other Agent be liable to the Trust, or
any other party to the Indenture for any consequential loss (being loss of business, goodwill,
opportunity or profit), punitive damages or indirect loss even if advised of the possibility of
such loss.




     SECTION 3.06. Duties of the Transfer Agent. If and to the extent specified in the terms and
conditions of the Notes or if otherwise requested by the Trust or Indenture Trustee, the Transfer
Agent shall in compliance with the Notes and the Indenture:



          (a) Receive requests from Holders of Notes for the transfer of Definitive Notes, inform the
Registrar in writing of the receipt of such requests, forward the deposited



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Definitive Note(s) to or to the order of the Registrar and assist in the issuance of a new
Definitive Note and in particular, without limitation, notify the Registrar in writing of (i) the
name and address of the Holder of the Definitive Note, (ii) the serial number and principal amount
of the Definitive Note, (iii) in the case of a transfer of a portion of the Note only, the
principal amount of the Definitive Note to be so transferred and (iv) the name and address of the
transferee to be entered on the Register;




          (b) Make available for collection by each relevant Holder new Definitive Notes;




          (c) Accept surrender of Definitive Notes and assist in effecting final payment of the Notes on
the due date for payment;




          (d) Keep the Registrar informed of all transfers; and




          (e) Carry out such other acts as may reasonably be necessary to give effect to the Notes and
the Indenture.




     SECTION 3.07. Duties of the Registrar.



          (a) The Registrar shall maintain a Register which shall show the aggregate principal amount
and date of issue of the Notes, the names and addresses of the initial Holders thereof and the
dates of all transfers to, and the names and addresses of, all subsequent Holders thereof.




          (b) The Registrar shall by the issue of new Notes, the cancellation of old Notes and the
making of entries in the Register give effect to transfers of Notes in accordance with the
Indenture.




          (c) The Trust may from time to time deliver to the Registrar Notes of which it is the Holder
for cancellation, whereupon the Registrar shall cancel the same and shall make the corresponding
entries in the Register.




          (d) As soon as reasonably practicable but in any event within ninety (90) calendar days after
each date on which Notes fall due for redemption, the Registrar shall notify the Trust of the
serial numbers of any Notes against surrender of which payment has been made and of the serial
numbers of any Notes (and the names and addresses of the Holders thereof) which have not yet been
surrendered for payment.




          (e) The Registrar shall, upon and in accordance with the instructions of the Trust but not
otherwise, arrange for the delivery in accordance with the Indenture of any notice which is to be
given to the Holders of Notes and shall supply a copy thereof to the Indenture Trustee and the
Paying Agent.




          (f) The Trust shall ensure that the Registrar has available to it supplies of such Notes as
shall be necessary in connection with the transfer of Notes and the exchange of Global Notes for
Definitive Notes.





35











 





          (g) The Registrar shall make available, at the request of the Holder of any Note, forms of
proxy in a form and manner which comply with the provisions of the Indenture and shall perform and
comply with the provisions of the Indenture.




          (h) The Trust shall provide to the Registrar:





          (i) specimen Notes in definitive form; and




          (ii) sufficient copies of all documents required to be available for inspection
as provided in the Registration Statement or the Pricing Supplement in respect of
the Notes, as may be required by any securities exchange on which the Notes may be
listed, or as may be required by applicable law.



          (i) The Registrar shall make available for inspection during normal business hours at its
specified office such documents as may be specified as so available at the specified office of such
Registrar, as may be required by any securities exchange on which the Notes may be listed, or as
may be required by applicable law.




          (j) The Registrar shall provide the Paying Agent and/or the Indenture Trustee with all such
information in the Registrar’s possession with respect to the Notes as the Paying Agent or the
Indenture Trustee, as the case may be, may reasonably require in order to perform the obligations
set out in the Indenture.




          (k) The Registrar shall ensure that in no event shall Definitive Notes be exchanged for Global
Notes.




     SECTION 3.08. Unclaimed Monies. Any money deposited with the Indenture Trustee, Registrar or
the Paying Agent for the payment of the principal of, premium, if any, or interest on any Note and
remaining unclaimed for two years after such principal or any such premium or interest had become
due and payable shall, unless otherwise required by mandatory provisions of applicable escheat or
abandoned or unclaimed property law, be paid to Principal Life pursuant to a Trust Request and
pursuant to the applicable Funding Agreement; and the Holder of such Note shall thereafter, as an
unsecured general creditor, look only to Principal Life for payment thereof, and all liability of
the Indenture Trustee, Registrar or Paying Agent with respect to such trust money shall thereupon
cease; provided, however, that the Indenture Trustee, Registrar or the Paying Agent, before being
required to make any such repayment, may cause to be published once, in an Authorized Newspaper in
each Place of Payment or to be mailed to Holders, or both, notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than thirty (30) calendar days
from the date of such publication or mailing, any unclaimed balance of such money then remaining
will be repaid to Principal Life.



     SECTION 3.09. Protection of Collateral.



          (a) The Trust shall, from time to time, execute and deliver all such supplements and
amendments to the Indenture and all such financing statements, continuation




36









 







statements, instruments of further assurance, and other instruments, and take such other
action as may be necessary or advisable to:





          (i) create, perfect or maintain a perfected security interest in, grant, or
make or maintain a valid and effective assignment for collateral purposes of, all or
any portion of the Collateral (including without limitation the Funding Agreement
and the Guarantee included therein);




          (ii) maintain or preserve any Lien of the Indenture, the Funding Agreement or
the Guarantee or carry out more effectively the purposes of the Indenture or
thereof;




          (iii) perfect, publish notice of, or protect the validity of, any security
interest or assignment for collateral purposes made pursuant to the Indenture, the
Funding Agreement or the Guarantee;




          (iv) enforce any portion, or obtain the full benefits, of the Collateral
(including without limitation the Funding Agreement and the Guarantee included
therein); and




          (v) preserve and defend title to the Collateral and the rights of the Indenture
Trustee and of the Holders in the Collateral held for the benefit and security of
the Holders or other instrument against the claims of all Persons.



     The Trust hereby designates the Indenture Trustee as its agent and attorney-in-fact to execute
any financing statement, continuation statement or other instrument required or permitted pursuant
to this Section 3.09; provided, however, that the duty of the Indenture Trustee to execute
any instrument required pursuant to this Section 3.09 shall arise only if any Responsible
Officer of the Indenture Trustee has actual knowledge of any failure of the Trust to comply with
the provisions of this Section 3.09.



          (b) The Trust will pay or cause to be paid all taxes and fees incidental to such filing,
registration and recording, and all expenses incidental to the preparation, execution and
acknowledgment of any instrument of further assurance, and all Federal or state or jurisdiction of
organization of the Trust stamp taxes or other similar taxes, duties and charges arising out of or
in connection with the execution and delivery of such instruments; provided, however, that the
Trust shall not be required to pay or discharge or cause to be paid or discharged any Lien
affecting the Collateral to the extent such Lien is being contested in good faith by appropriate
proceedings. The Trust will at all times preserve, warrant and defend the Indenture Trustee’s
title and right in and to the property included in the Collateral against the claims of all
Persons.




          (c) The Trust will faithfully observe and perform, or cause to be observed and performed, all
its covenants, agreements, conditions and requirements contained in the Funding Agreement in
accordance with the terms thereof and will maintain the validity and effectiveness of the Funding
Agreement and the security interest therein or the assignment for collateral purposes thereof to
the Indenture Trustee. The Trust will take no action, nor permit any action to be taken, which
will release any party to the Funding Agreement from any of its obligations or liabilities
thereunder, or will result in the termination, modification or amendment, or will impair




37









 







the validity, of the Funding Agreement except as expressly provided for in the Indenture and
therein. The Trust will give the Indenture Trustee written notice of any default by any party to
the Funding Agreement promptly after it becomes known to the Trust.




          (d) The Trust will faithfully observe and perform, or cause to be observed and performed, all
its covenants, agreements, conditions and requirements contained in the Guarantee in accordance
with the terms thereof and will maintain the validity and effectiveness of the Guarantee and the
security interest therein or the assignment for collateral purposes thereof to the Indenture
Trustee. The Trust will take no action, nor permit any action to be taken, which will release any
party to the Guarantee from any of its obligations or liabilities thereunder, or will result in the
termination, modification or amendment, or will impair the validity, of the Guarantee except as
expressly provided for in the Indenture and therein. The Trust will give the Indenture Trustee
written notice of any breach by any party to the Guarantee promptly after it becomes known to the
Trust.




          (e) At the written request of the Indenture Trustee and also following the occurrence of an
“Event of Default” under the Funding Agreement or a breach of PFG’s obligations under the
Guarantee, the Trust will, subject to the written direction and control of the Indenture Trustee,
take such action, or at the Indenture Trustee’s written request furnish funds sufficient to enable
the Indenture Trustee to take such action, as the Indenture Trustee may deem necessary or advisable
for enforcing payment when due, subject to applicable notice and grace periods, under or pursuant
to the Indenture, the Funding Agreement or the Guarantee.




     SECTION 3.10. Opinions as to Collateral; Annual Statement as to Compliance.



          (a) On or before the 15th day of March of each calendar year, commencing March 15,
2008, the Trust shall furnish or cause to be furnished to the Indenture Trustee an Opinion of
Counsel stating that, in the opinion of such counsel, either (i) such action has been taken with
respect to the recording, filing, re-recording and re-filing of the Indenture, any indentures
supplemental to the Indenture and any other requisite documents and with respect to the execution
and filing of any financing statements and continuation statements as is necessary to perfect
and/or maintain the perfection of liens, security interests and assignments for collateral purposes
created or effected pursuant to the Indenture with respect to the Funding Agreement and the
Guarantee that is part of any Collateral and reciting the details of such action or (ii) in the
opinion of such counsel no such action is necessary to perfect and/or maintain the perfection of
such lien, security interest and/or assignment for collateral purposes. Such Opinion of Counsel
shall also describe the recording, filing, re-recording and re-filing of the Indenture, any
indentures supplemental to the Indenture and any other requisite documents and the execution and
filing of any financing statements and continuation statements that will, in the opinion of such
counsel, be required to perfect and/or maintain the perfection of the liens, security interests and
assignments for collateral purposes created or effected pursuant to the Indenture with respect to
the Funding Agreement and the Guarantee that is part of any Collateral until the 15th
day of March in the following calendar year.




          (b) On or before the 15th day of March of each calendar year, commencing March 15,
2008, the Trust shall deliver to the Indenture Trustee a Trust Certificate stating, as to each
signer thereof, that in the course of the performance by each signer of such Trust Certificate




38









 







of his or her present duties as a Responsible Officer of the Trustee, such signer would
normally obtain knowledge as to the existence of any condition or event which would constitute a
Default or an Event of Default and that to the best of such signer’s knowledge:





          (i) a review of the fulfillment by the Trust during such year of its
obligations under the Indenture has been made under the supervision of such signer;
and




          (ii) the Trust has fulfilled in all material respects its obligations under the
Indenture throughout such year, or, if there has been a Default or an Event of
Default in the fulfillment of any such obligation, specifying each such Default or
Event of Default known to such signer and the nature and status thereof.



          (c) The Trust, pursuant to Section 314(a) of the Trust Indenture Act, shall:





          (i) file, or cause to be filed, with the Indenture Trustee, within fifteen (15)
days after the Trust or Principal Life is required to file the same with the
Commission and to the extent available to the Trust, copies of the annual reports
and of the information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Trust or Principal Life may be required to file
with the Commission in connection with the Program pursuant to Section 13 or Section
15(d) of the Securities Exchange Act; or, if the Trust or Principal Life is not
required to file information, documents or reports pursuant to either of said
Sections, then it shall file, or cause to be filed, with the Indenture Trustee and
the Commission, in accordance with rules and regulations prescribed from time to
time by the Commission, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of the Securities
Exchange Act in respect of a security listed and registered on a national securities
exchange as may be prescribed from time to time in such rules and regulations;
provided that if, pursuant to any publicly available interpretations of the
Commission, the Trust or Principal Life would not be required to make such filings
in connection with the Program under Section 314(a) of the Trust Indenture Act, then
the Trust or Principal Life shall not be required to make such filings;




          (ii) file, or cause to be filed, with the Indenture Trustee and the Commission,
in accordance with rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports with respect to
compliance by the Trust, with the conditions and covenants of the Indenture as may
be required from time to time by such rules and regulations; and




          (iii) transmit, or cause to be transmitted, within thirty (30) days after the
filing thereof with the Indenture Trustee, in the manner and to the extent provided
in Section 313(c) of the Trust Indenture Act, such summaries of any information,
documents and reports required to be filed by the Trust pursuant to



39









 







paragraphs (i) and (ii) of this Section 3.10(c) as may be required by
rules and regulations prescribed from time to time by the Commission.



          (d) The Trust shall comply with the provisions of Section 314(d) of the Trust Indenture Act.




     SECTION 3.11. Performance of Obligations. The Trust may contract with other Persons for the
performance of the Trust’s obligations under the Indenture (other than the execution and delivery
of Trust Requests, Trust Orders and Trust Certificates) and the performance of such obligations by
such other Persons shall be deemed to be the performance thereof by the Trust, as applicable.



     SECTION 3.12. Existence.



          (a) The Trust will do or cause to be done all things necessary to preserve and keep in full
force and effect its existence, rights (charter and statutory) and franchises as a trust formed
under the jurisdiction set forth in the Omnibus Instrument, as applicable, and, upon the advice of
counsel, will obtain and preserve its qualification to do business in each jurisdiction in which
such qualification is or shall be necessary to protect the validity and enforceability of the
Indenture, the Notes or any portion of the Collateral. The Trust will, promptly after any
amendment or modification of the Trust Agreement, send copies thereof to the Indenture Trustee and
the Rating Agencies.




          (b) The Trust will maintain books and records and bank accounts separate from those of any
other Person and any other trust organized under the Program; at all times hold itself out to the
public as separate and distinct from any Affiliates and each other trust organized under the
Program; and file or cause to be filed its own tax returns.




          (c) The Trust shall maintain its assets and transactions separately from those of any
Affiliates and any other trust organized under the Program, reflect such assets and transactions in
financial statements separate and distinct from those of any Affiliates and any other trust
organized under the Program and evidence such assets and transactions by appropriate entries in
books and records separate and distinct from those of any Affiliates (including any other trust
organized under the Program).




     SECTION 3.13. Reports; Financial Information; Notices of Defaults.



          (a) The Trust shall promptly deliver to the Indenture Trustee copies of all reports,
statements and information received by it pursuant to the Funding Agreement, the Guarantee or
otherwise in respect of the Collateral.




          (b) The Trust shall promptly inform the Indenture Trustee in writing of the occurrence of any
Default or Event of Default which is continuing of which it has actual knowledge. Each notice
given pursuant to this Section 3.13(b) shall be accompanied by a Trust Certificate setting
forth details of the occurrence referred to therein and stating what action, if any, the Trust has
taken or proposes to take with respect thereto.




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          (c) The Trust shall collect all forms (or, if applicable, copies of such forms), if any, from
the Paying Agent or Registrar (or from such other persons as are relevant) that are required to
exempt payments under the Notes, the Guarantee or the Funding Agreement from United States federal
income tax withholding. In addition, the Trust shall execute and file such forms and take such
actions for United States federal income tax purposes as shall be reasonable and necessary to
ensure that payments of interest, principal, premium and Additional Amounts, if applicable, in
respect of the Notes, the Funding Agreement or the Guarantee are not subject to United States
federal withholding or backup withholding tax.




          (d) In accordance with Section 312(a) of the Trust Indenture Act, the Trust shall furnish or
cause to be furnished to the Indenture Trustee:





          (i) semi-annually with respect to Notes not later than the 15th day of March
and the 15th day of September of each year or upon such other dates as
are set forth in or pursuant to a Trust Order or indenture supplemental to the
Indenture a list, in each case in such form as the Indenture Trustee may reasonably
require, of the names and addresses of Holders as of the applicable date, and




          (ii) at such other times as the Indenture Trustee may request in writing,
within thirty (30) days after the receipt by the Trust of any such request, a list
of similar form and content as of a date not more than fifteen (15) days prior to
the time such list is furnished,


provided, however, that so long as the Indenture Trustee is the Registrar no such list shall be
required to be furnished.




          (e) The Indenture Trustee shall comply with the obligations imposed upon it pursuant to
Section 312 of the Trust Indenture Act.




          Every Holder, by receiving and holding Notes, agrees with the Trust and the Indenture Trustee
that none of the Trust, the Indenture Trustee, the Paying Agent or the Registrar shall be held
accountable by reason of the disclosure of any such information as to the names and addresses of
the Holders in accordance with Section 312(c) of the Trust Indenture Act, regardless of the source
from which such information was derived, and that the Indenture Trustee shall not be held
accountable by reason of mailing any material pursuant to a request made under Section 312(b) of
the Trust Indenture Act.




          (f)   (i)   Within sixty (60) days after the 15th day of March of each year commencing
with the first such date following the first issuance of Notes, if required by Section 313(a) of
the Trust Indenture Act, the Indenture Trustee shall transmit, pursuant to Section 313(c) of the
Trust Indenture Act, a brief report dated as of such 15th day of March of such year with
respect to any of the events specified in said Section 313(a) of the Trust Indenture Act which may
have occurred since the later of the immediately preceding 15th day of March and the
date of the Indenture.




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          (ii) The Indenture Trustee shall transmit, pursuant to Section 313(c) of the
Trust Indenture Act, the reports required by Section 313(b) of the Trust Indenture
Act at the time specified therein.




          (iii) Reports pursuant to this Section shall be transmitted in the manner and
to the Persons required by Sections 313(c) and 313(d) of the Trust Indenture Act.



          (g) Within ten (10) days following any distribution made or scheduled to be made on the Notes,
including any Interest Payment Date or the Maturity Date, the Indenture Trustee will deliver to
Principal Life and the Holders a report substantially in the form of Exhibit B attached to
these Standard Indenture Terms.




     SECTION 3.14. Payment of Taxes and Other Claims. The Trust will pay or discharge or cause to
be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Trust or upon the income, profits or property of
the Trust, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a Lien upon the property of the Trust; provided, however, that the Trust shall not be
required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith by appropriate
proceedings. The Trust shall comply with the requirements of all other applicable laws, the
non-compliance with which would, individually or in the aggregate, materially and adversely affect
the condition (financial or otherwise) of the Trust or which would impair in any material respect
the ability of the Trust to perform its obligations under the Notes or the Indenture.



     SECTION 3.15. Negative Covenants. So long as any Notes are Outstanding, the Trust will not
take any of the following actions, except as otherwise permitted under the Indenture:



          (a) sell, transfer, exchange, assign, lease, convey or otherwise dispose of any assets held by
the Trust (owned as of the date of the Trust Agreement or thereafter acquired), including, without
limitation, any portion of the Collateral, except as expressly permitted by the Indenture;




          (b) incur or otherwise become liable, directly or indirectly, for any Indebtedness or
Contingent Obligation except for the Notes issued pursuant to the Indenture and the transactions
contemplated thereby;




          (c) engage in any business or activity other than in connection with, or relating to, (i) the
performance of the Trust Agreement and the execution, delivery and performance of any documents
(other than the Trust Agreement), including the Program Documents, relating to the Notes issued
under the Indenture and the transactions contemplated thereby, and (ii) the issuance of the Notes
pursuant to the Indenture;




          (d)   (i)   permit the validity or effectiveness of the Indenture or any grant of security
interest in or assignment for collateral purposes of the Collateral to be impaired, or permit a
Lien created under the Indenture to be amended, hypothecated, subordinated, terminated or
discharged, or permit any Person to be released from any covenants or obligations under any




42









 







document or agreement assigned to the Indenture Trustee, except as may be expressly permitted
by the Indenture, (ii) create, incur, assume or permit any Lien or other encumbrance (other than
the Lien created by the Indenture) on any of its properties or assets owned or thereafter acquired,
or any interest therein or the proceeds thereof, or (iii) permit a Lien created under the Indenture
not to constitute a valid first priority perfected security interest in the Collateral;




          (e) amend, modify or fail to comply with any material provision of the Trust Agreement except
for any amendment or modification of the Trust Agreement expressly permitted thereunder;




          (f) own any subsidiary or lend or advance any funds to, or make any investment in, any Person,
except for an investment in the Funding Agreement or the investment of any funds held by the
Indenture Trustee, the Paying Agent or the Trustee as provided in the Indenture or the Trust
Agreement;




          (g) directly or indirectly declare or make any distribution or other payment to, or redeem or
otherwise acquire or retire for value the interest of, the Trust Beneficial Owner if any amount
under the Notes is due and unpaid, or directly or indirectly redeem or otherwise acquire or retire
for value any Indebtedness or Contingent Obligation other than the Notes;




          (h) exercise any rights with respect to the Collateral except at the written direction of, or
with the prior written approval of, the Indenture Trustee;




          (i) cause or, to the fullest extent permitted by law, permit the sale or other transfer of all
or a portion of the Trust Beneficial Interest, or cause or, to the fullest extent permitted by law,
permit the creation, incurrence, assumption or existence of any Lien on, all or a portion of any of
the Trust Beneficial Interest;




          (j) become an “investment company”, or come under the “control” of an “investment company,” as
such terms are defined in the Investment Company Act;




          (k) enter into any transaction of merger or consolidation or liquidate or dissolve itself (or,
to the fullest extent permitted by law, suffer any liquidation or dissolution), or acquire by
purchase or otherwise all or substantially all the business or assets of, or any stock or other
evidence of beneficial ownership of, any other Person;




          (l) take any action that would cause it not to be disregarded or treated as a grantor trust
(assuming it were not disregarded) for United States federal income tax purposes;




          (m) have any subsidiaries, employees or agents other than the Trustee and other persons
necessary to conduct its activities and enter into transactions contemplated under the Program
Documents;




          (n) have an interest in any bank account other than (i) those accounts required under the
Program Documents, and (ii) those accounts expressly permitted by the Indenture Trustee; provided
that any such further accounts or the Trust’s interest therein shall be charged or otherwise
secured in favor of the Indenture Trustee;




43









 








          (o) issue Notes under the Indenture unless (i) the Trust has purchased or will simultaneously
purchase the Funding Agreement from Principal Life to secure such Notes, (ii) Principal Life has
affirmed in writing to the Trust that it has made or simultaneously will make changes to its books
and records to reflect the granting of a security interest in, and the making of an assignment for
collateral purposes of, the Funding Agreement by the Trust to the Indenture Trustee, (iii) PFG has
issued the Guarantee to the Trust, which the Trust has granted a security interest and collaterally
assigned to the Indenture Trustee on behalf of the Holders of Notes (and PFG has affirmed in
writing to the Trust that it has made or simultaneously will make changes to its books and records
to reflect such security interest), and (iv) the Trust has taken such other steps as may be
necessary to cause the grant of security interest in, and assignment for collateral purposes of,
the Collateral to the Indenture Trustee to be perfected for purposes of the UCC or effective
against the Trust’s creditors and subsequent purchasers of the Collateral pursuant to insurance or
other applicable law;




          (p) permit any Affiliate, employee or officer of Principal Life or PFG or any agent under the
Distribution Agreement to be a trustee of the Trust;




          (q) commingle the assets of the Trust with assets of any Affiliates (including any other trust
organized under the Program), or guarantee any obligation of any Affiliates (including any other
trust organized under the Program); or




          (r) maintain any joint account with any Person, become a party, whether as co-obligor or
otherwise, to any agreement to which any Person is a party (other than in respect of the Program
Documents), or become liable as a guarantor or otherwise with respect to any Indebtedness or
contractual obligation of any Person.




     SECTION 3.16. Non-Petition. Each of the Indenture Trustee, each Holder of a Note, each Agent
and the Trustee covenants and agrees that, for a period of one year plus one day after payment in
full of all amounts payable under or in respect of the Indenture and the Notes, it will not
institute against, or join any other Person in instituting against, the Trust any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any
federal or state bankruptcy or similar law. The immediately preceding sentence shall survive any
termination of the Indenture.



     Notwithstanding the foregoing, each of the Indenture Trustee and each Agent covenants and
agrees that, it will not institute against, or join any other Person in instituting against, the
Trust any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any federal or state bankruptcy or similar law, as a result of the failure to pay
fees or expenses pursuant to Section 7.10 to any party entitled thereto.



     Moreover, each of the Indenture Trustee, the Paying Agent, the Transfer Agent, the Calculation
Agent and the Registrar covenants and agrees that it will not cause an Event of Default as a result
of the Trust’s failure to pay any fees or expenses pursuant to Section 7.10 to any party
entitled thereto.



     SECTION 3.17. Title to the Collateral. The Trust covenants and agrees that the Trust owns
or, prior to the issuance of the Notes will own, the Funding Agreement, the Guarantee and



44









 







all of the rest of the Collateral, free and clear of any Liens other than the security
interests or assignments for collateral purposes made pursuant to Article 4; and that the Trust is
not and will not become a party to or otherwise be bound by any agreement, other than the
Indenture, which restricts in any manner the rights of any present or future holder of any of the
Collateral with respect thereto.



     The Trust shall notify in writing the Indenture Trustee and any Rating Agencies as promptly as
practicable upon becoming aware of any change in the law of the State of Iowa following the date of
the Indenture with respect to the priority status of the Funding Agreement in a liquidation of, or
other delinquency proceeding against, Principal Life.



     SECTION 3.18. Withholding and Payment of Additional Amounts.



          (a) All payments due in respect of the Notes will be made without withholding or deduction for
or on account of any present or future taxes, duties, levies, assessments or other governmental
charges of whatever nature imposed or levied by or on behalf of any governmental authority, unless
such withholding or deduction is so required by law. Unless otherwise specified in the applicable
Pricing Supplement and the Notes, the Trust will not pay any Additional Amounts to Holders in
respect of any such withholding or deduction and any such withholding or deduction will not give
rise to a Default or an Event of Default or any independent right or obligation to redeem the
Notes. Unless the Funding Agreement specifies that Principal Life will pay Additional Amounts to
the Trust in the event that any amount due with respect to the Funding Agreement is subject to
withholding or deduction for or on account of any present or future taxes, duties, levies,
assessments or other governmental charges of whatever nature imposed or levied by or on behalf of
any governmental authority, the Trust will be deemed for all purposes of the Program Documents to
have received cash in an amount equal to the amount of any such withholding or deduction, and each
Holder will be deemed for all purposes of the Program Documents to have received cash in an amount
equal to the portion of such withholding or deduction that is attributable to such Holder’s
interest in the Notes as equitably determined by the Trust.




          (b) Subject to the final sentence of this Section 3.18(b), and only to the extent
specified in the applicable Pricing Supplement and the Notes, the Trust shall pay to a Holder of
any Note who is not a “United States person” within the meaning of Section 7701(a)(30) of the Code,
Additional Amounts to compensate for any withholding or deduction for or on account of any present
or future taxes, duties, levies, assessments or other governmental charges of whatever nature
imposed or levied on payments in respect of such Note, by or on behalf of any governmental
authority in the United States having the power to tax, so that the net amount received by the
Holder under that Note, after giving effect to such withholding or deduction, will equal the amount
that would have been received under such Note were no such deduction or withholding required;
provided that the Trust shall not, unless otherwise specified in the applicable Pricing Supplement
and the Notes, be required to make any payment of any Additional Amount for or on account of: (i)
any tax, duty, levy, assessment or other governmental charge imposed which would have not been
imposed but for (A) the existence of any present or former connection between the Holder or
beneficial owner (as determined for United States federal income tax purposes) of the Note or the
Funding Agreement (any such Holder or beneficial owner, the “Owner”) and such governmental
authority, including without




45









 







limitation, being or having been a citizen or resident thereof, or being or having been
present therein, incorporated therein, engaged in a trade or business therein or having (or having
had) a permanent establishment or principal office therein, (B) such Owner being or having been a
controlled foreign corporation within the meaning of Section 957(a) of the Code, related within the
meaning of Section 864(d)(4) of the Code to Principal Life or a private foundation or other
tax-exempt organization, (C) such Owner being or having been an actual or constructive owner of ten
percent (10%) or more of the total combined voting power of all the outstanding stock of Principal
Life, (D) such Owner being a bank for United States federal income tax purposes whose receipt of
interest on the Note or Funding Agreement is described in Section 881(c)(3)(A) of the Code or (E)
such Owner being subject to backup withholding as of the date of becoming an Owner; (ii) any tax,
duty, levy, assessment or other governmental charge which would not have been imposed but for the
presentation of the Note or other evidence of beneficial ownership thereof (where presentation is
required) for payment on a date more than thirty (30) days after the date on which such payment
becomes due and payable or the date on which payment is duly provided for whichever occurs later;
except to the extent that the Owner would have been entitled to Additional Amounts had the Note
been presented on the last day of such thirty (30) day period; (iii) any tax, duty, levy,
assessment or other governmental charge which is imposed or withheld by reason of the failure of an
Owner to comply with certification, identification or information reporting requirements concerning
the nationality, residence, identity or connection with the United States of an Owner (including,
without limitation, failure to provide IRS Form W-8BEN or W-8ECI), if compliance is required by
statute, by regulation of the United States Treasury Department, judicial or administrative
interpretation, other law or by an applicable income tax treaty to which the United States is a
party as a condition to exemption from such tax, duty, levy, assessment or other governmental
charge; (iv) any inheritance, gift, estate, personal property, sales, transfer or similar tax,
duty, levy, assessment or similar governmental charge; (v) any tax, duty, levy, assessment or
other governmental charge that is payable otherwise than by withholding from payments in respect of
the Notes; (vi) any tax, duty, levy, assessment or other governmental charge that would not have
been imposed or withheld but for the treatment of payments in respect of the Notes or the Funding
Agreement as contingent interest described in Section 871(h)(4) of the Code; (vii) any tax, duty,
levy, assessment or other governmental charge that would not have been imposed or withheld but for
an election by the Owner the effect of which is to make payment in respect of the Notes subject to
United States federal income tax; (viii) any tax, duty, levy, assessment or other governmental
charge resulting from a European Union Directive; or (ix) any combination of items (i), (ii),
(iii), (iv), (v), (vi), (vii) or (viii). The obligation to pay Additional Amounts under this
Section 3.18 shall not apply unless Principal Life is obligated to pay additional amounts under the
Funding Agreement (1) to compensate for any withholding or deduction for or on account of any
present or future taxes, duties, levies, assessments or other governmental charges of whatever
nature imposed or levied on payments in respect of the Funding Agreement by or on behalf of any
governmental authority in the United States having the power to tax and (2) to reimburse the Trust
for any Additional Amounts due to Holders.




          (c) If the applicable Pricing Supplement and the Notes indicate that the Trust will pay any
Additional Amounts to Holders as described in Section 3.18(b) and any such Additional
Amounts actually become due and payable the Trust shall deliver to the Indenture Trustee, at least
30 days prior to the payment date, a Trust Certificate that indicates the amount of such Additional
Amounts and the dates of the payment of such Additional Amounts. The




46









 







Indenture Trustee may conclusively rely on such Trust Certificate in making the payment of
such Additional Amounts.




          (d) Whenever in the Indenture or in any Note there is mentioned, in any context, the payment
of the principal of or any premium or interest on, or in respect of, any Note or the net proceeds
received on the sale or exchange of any Note, such mention shall be deemed to include mention of
the payment of Additional Amounts if so specified in the applicable Pricing Supplement. Further,
express mention of the payment of Additional Amounts (if applicable) in any provision of the
Indenture or in any Note shall not be construed as excluding Additional Amounts in those provisions
of the Indenture or in such Note where such express mention is not made.




     SECTION 3.19. Additional Representations and Warranties.



          (a) The Trust hereby represents and warrants that:





          (i) to the extent the creation of a security interest in the Funding Agreement
is governed by the UCC, the Indenture will create a valid security interest (as
defined in the UCC) in the Funding Agreement in favor of the Indenture Trustee for
the benefit and security of the Holders, which security interest will be prior to
all other Liens;




          (ii) the Indenture will create a valid security interest (as defined in the
UCC) in the Guarantee in favor of the Indenture Trustee for the benefit and security
of the Holders, which security interest will be prior to all other Liens;




          (iii) the Funding Agreement and the Guarantee will each constitute a “general
intangible” or “instrument” within the meaning of the UCC;




          (iv) subject to the grant of security interest, pledge and collateral
assignment of the Trust’s right, title and interest in the Funding Agreement, the
Trust will be a party to and will be the person entitled to payment under the
Funding Agreement on the dates specified therein free and clear of any Lien, claim
or encumbrance of any Person, other than the Lien created under the Indenture or any
Lien otherwise permitted under the Indenture;




          (v) subject to the grant of security interest, pledge and collateral assignment
of the Trust’s right, title and interest in the Guarantee, the Trust will be the
person entitled to any payment under the Guarantee free and clear of any Lien, claim
or encumbrance of any Person, other than the Lien created under the Indenture or any
Lien otherwise permitted under the Indenture;




          (vi) to the extent the UCC applies, the Trust has caused or will have caused,
within ten (10) days of the issuance of the Notes, the filing of all appropriate
financing statements in the proper filing office in the appropriate jurisdictions
under applicable law in order to perfect the security interest in the Funding
Agreement and the Guarantee granted to the Indenture Trustee for the benefit and
security of the Holders;



47









 






          (vii) other than the security interests granted to the Indenture Trustee for
the benefit and security of the Holders pursuant to the Indenture, the Trust will
not pledge, assign, sell, grant a security interest in, or otherwise convey any
interest in the Funding Agreement or the Guarantee;




          (viii) the Trust will not authorize the filing of and is not aware of any
financing statements against the Trust that include a description of collateral
covering the Funding Agreement or the Guarantee other than any financing statement
relating to the security interests granted to the Indenture Trustee for the benefit
and security of the Holders;




          (ix) the Trust is not aware of any judgment or tax lien filings against the
Trust; and




          (x) none of the instruments that constitute or evidence the Funding Agreement
or Guarantee has any marks or notations indicating that it has been pledged,
assigned or otherwise conveyed to any Person other than the Indenture Trustee for
the benefit and security of the Holders.



          (b) The foregoing representations and warranties will survive the execution and delivery of
the Notes. No party will waive any of the foregoing representations and warranties. The Indenture
Trustee and the Trust will maintain the perfection and priority of the security interest in the
Funding Agreement and the Guarantee.




     SECTION 3.20. Ancillary Documents. The Trust hereby expressly authorizes and directs the
Indenture Trustee to execute and deliver each of the documents, instruments and agreements attached
as Exhibits or otherwise expressly contemplated by the terms of the Indenture with respect to the
Notes from time to time.



ARTICLE 4

Granting of Security Interest and Assignment for Collateral Purposes




     SECTION 4.01. Creation. To secure the full and punctual payment of the Secured Obligations
in accordance with the terms thereof and to secure the performance of the Trust’s obligations under
the Notes and the Indenture, the Trust, with respect to the Funding Agreement and the Guarantee,
hereby assigns and pledges to and with the Indenture Trustee for the ratable benefit of each Holder
and, with respect to all of the Collateral, grants to the Indenture Trustee for the ratable benefit
of each Holder security interests in the Collateral, and all of its rights and privileges with
respect to the Collateral, and all income and profits thereon, and all interest, dividends and
other payments and distributions with respect thereto, and all Proceeds of the foregoing.
Contemporaneously with the issuance of the Notes, the Trust will deliver the Funding Agreement and
the Guarantee to the Indenture Trustee or its agent in pledge under the Indenture and make such
filings, cause Principal Life as the issuer of the Funding Agreement, and PFG as issuer of the
Guarantee, to register and acknowledge the Indenture Trustee or its agent or the Holders as having
the rights of an assignee for collateral purposes of the Funding Agreement and the Guarantee,
respectively, and take such other action as may be necessary to cause the Indenture Trustee for the
ratable benefit of each Holder to have a perfected security



48









 







interest in or be the recipient of a valid assignment for collateral purposes of the Funding
Agreement and the Guarantee, respectively, and the rest of the Collateral that is effective against
the Trust’s creditors and subsequent purchasers thereof.



     SECTION 4.02. Scope.



          (a) The security interest or assignment for collateral purposes granted or made pursuant to
Section 4.01 is granted or made in trust to secure the full and punctual payment of the
Secured Obligations equally and ratably among the Holders, without prejudice, priority or
distinction, except as expressly provided in the Indenture, in the following order of priority:





          first, to the payment of the amounts then due and unpaid upon the Notes for
principal and interest and all other amounts in respect of which or for the benefit
of which such amount has been collected, ratably, without preference or priority of
any kind, according to the aggregate amounts due and payable on the Notes; and




          second, any remaining balance shall be paid to the Trust and such remaining
balance shall be distributed by the Trustee in accordance with the Trust Agreement.



          (b) The Trust does hereby constitute and irrevocably appoint the Indenture Trustee the true
and lawful attorney of the Trust, with full power (in the name of the Trust or otherwise), upon the
occurrence and during the continuance of an Event of Default, to exercise all rights of the Trust
with respect to the Collateral and to ask, require, demand, receive, settle, compromise, compound
and give acquittance for any and all monies and claims for monies due and to become due under or
arising out of any of the Collateral, to endorse any checks or other instruments or orders in
connection therewith and to file any claims or take any action or institute any proceedings that
the Indenture Trustee may deem to be necessary or advisable in the circumstances. The power of
attorney granted pursuant to the Indenture and all authority conferred by the Indenture are granted
and conferred solely to protect the Indenture Trustee’s interest in the Collateral held for the
benefit and security of the Holders and shall not impose any duty upon the Indenture Trustee to
exercise any power. This power of attorney shall be irrevocable as one coupled with an interest
prior to the payment in full of all the Notes.




          (c) The Indenture shall constitute a security agreement and an agreement to assign the
Collateral for collateral purposes under the laws of the State of New York applicable to agreements
made and to be performed therein. Upon the occurrence of any Event of Default with respect to the
Notes, and in addition to any other rights available under the Indenture, the Funding Agreement and
the Guarantee or otherwise available at law or in equity, the Indenture Trustee shall have all
rights and remedies of a secured party or an assignee for collateral purposes on default under the
laws of the State of New York and other applicable law to enforce the assignments and security
interests contained in the Indenture and, in addition, shall have the right, subject to compliance
with any mandatory requirements of applicable law, to sell or apply the Funding Agreement or
Guarantee, exercise its rights under the Guarantee and any other rights and other interests
assigned or pledged by the Indenture in accordance with the terms of the Indenture at public or
private sale. All amounts received under the Indenture shall be applied




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first to all costs and expenses incurred by the Indenture Trustee in connection with such
collection and enforcement and thereafter as provided in the Indenture.




          (d) It is expressly agreed that anything in the Indenture or therein contained to the contrary
notwithstanding, the Trust shall remain liable under the Funding Agreement or the Guarantee to
perform all the obligations of it thereunder, all in accordance with and pursuant to the terms and
provisions thereof, and the Indenture Trustee shall not have any obligations or liabilities with
respect to the Funding Agreement or the Guarantee by reason of or arising out of the Indenture, nor
shall the Indenture Trustee be required or obligated in any manner to perform or fulfill any
obligations of the Trust under or pursuant to the Funding Agreement or the Guarantee or, other than
as provided in the Indenture, to make any payment, to make any inquiry as to the nature or
sufficiency of any payment received by it, or, prior to the occurrence and continuance of an Event
of Default, to present or file any claim, or to take any action to collect or enforce the payment
of any amounts that may have been assigned to it or to which it may be entitled at any time or
times.




          (e) The Trust hereby directs and instructs the Indenture Trustee to enter into a custodial
arrangement with Bankers Trust Company, N.A., a national banking association, to hold the Funding
Agreement and Guarantee in safe custody for the benefit of the Indenture Trustee within the State
of Iowa.




          (f) The Indenture Trustee acknowledges the granting of such security interests and the making
of such assignments for collateral purposes, accepts the terms under the Indenture in accordance
with the provisions of the Indenture and agrees to perform its duties in the Indenture subject to
and in accordance with the benefit of the provisions of the Indenture, to the end that the
interests of the Holders may be adequately and effectively protected.




     SECTION 4.03. Termination of Security Interest. Upon the payment in full of all Secured
Obligations relating to the Notes, the security interest shall terminate and all rights to the
Collateral shall revert to the Trust. Upon termination of the security interest, the Indenture
Trustee will execute and deliver to the Trust such documents as the Trust shall reasonably request
to evidence the termination of such security interest.



ARTICLE 5

Satisfaction and Discharge; Subrogation




     SECTION 5.01. Satisfaction and Discharge of Indenture. The Indenture shall cease to be of
further effect with respect to the Notes (except as to any surviving rights of registration of
transfer or exchange of Notes expressly provided for in the Indenture) and the Indenture Trustee,
on written demand of the Trust, shall execute proper instruments acknowledging satisfaction and
discharge of the Indenture with respect to the Notes, when



          (a) either:





          (i) all Notes theretofore authenticated and delivered (other than Notes which
have been mutilated, destroyed, lost or stolen and which have been replaced or paid
as provided in Section 2.08) have been delivered to the Indenture Trustee
for cancellation; or



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          (ii) all Notes




     (A) have become due and payable,




     (B) will become due and payable at their Stated Maturity Date
within one year, or




     (C) are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving of
notice of redemption by the Indenture Trustee in the name, and at the
expense, of the Trust,




and the Trust, in the case of (A), (B) or (C) above, has deposited or caused to be
deposited with the Indenture Trustee as trust funds in trust for such purpose, an
amount sufficient to pay and discharge the entire indebtedness on the Notes not
theretofore delivered to the Indenture Trustee for cancellation, for principal of,
premium, if any, or any interest on, the Notes to the date of such deposit (in the
case of Notes which have become due and payable) or to the Stated Maturity Date, as
the case may be;



          (b) the Trust has paid or caused to be paid in full all other sums payable under the Indenture
by the Trust with respect to the Secured Obligations; and




          (c) the Trust has delivered to the Indenture Trustee a Trust Certificate and an Opinion of
Counsel each stating that all conditions precedent in the Indenture providing for the satisfaction
and discharge of the Indenture with respect to the Notes have been complied with.




     Notwithstanding the satisfaction and discharge of the Indenture with respect to the Notes, the
obligations of the Indenture Trustee under Section 5.02 shall survive.



     SECTION 5.02. Application of Trust Money. All money deposited with the Indenture Trustee
pursuant to the Indenture shall be held in trust in the Collection Account and applied by it, in
accordance with the provisions of the Notes and the Indenture, to the payment through any Paying
Agent, to the Persons entitled thereto, of the principal, premium, if any, interest and Additional
Amounts, if any, for whose payment such money has been deposited with or received by the Indenture
Trustee.


If no Event of Default with respect to the Notes exists, the following priority of payments shall
apply:





          first, to the payment of the amounts then due and unpaid upon the Notes for
principal and interest and all other amounts in respect of which or for the benefit
of which such amount has been collected, ratably, without preference or priority of
any kind, according to the aggregate principal amounts due and payable on the Notes;
and



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          second, any remaining balance shall be paid to the Trust and such remaining
balance shall be distributed by the Trustee in accordance with the Trust Agreement.



ARTICLE 6

Defaults and Remedies




     SECTION 6.01. Events of Default.



     “Event of Default” means any one of the following events with respect to the Notes (whatever
the reason for such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):



          (a) failure to pay the principal (other than any installment payment), when due and payable,
of any Note and the continuance of such failure for a period of one (1) Business Day;




          (b) failure to pay any interest, premium (if applicable), installment payments (if applicable)
or any other amounts, when due and payable, on any Note and a continuance of such failure for a
period of seven (7) Business Days;




          (c) an “Event of Default” (as defined in the Funding Agreement) by Principal Life under the
Funding Agreement securing the Notes;




          (d) failure to observe or perform in any material respect any one or more of the other
covenants in the Indenture (other than a covenant or default or breach of which is specifically set
forth in Section 6.01(a), (b) and, if applicable (h)) or the Notes, and
continuance of such failure for a period of sixty (60) days after the date on which there shall
have been given written notice by registered or certified mail, return receipt requested,
specifying such failure, thereof to the Trust by the Indenture Trustee or to the Trust and the
Indenture Trustee by Holders of Notes representing at least twenty-five percent (25%) of the
aggregate principal amount of the Outstanding Notes, which written notice shall be delivered by
registered or certified mail, return receipt requested, and shall specify such failure and require
such failure to be remedied and which notice shall state that it is a “Notice of Default” under the
Indenture;




          (e) the Indenture for any reason shall cease to be in full force and effect (other than in
accordance with its terms) or shall be declared null and void, or the Indenture Trustee fails to
have or maintain a validly created and perfected security interest subject to no prior Liens or
security interests in the Collateral and proceeds thereof except as expressly permitted by the
Indenture; or any Person shall successfully claim as finally determined by a court of competent
jurisdiction that any of the Liens granted to the Indenture Trustee with respect to any of the
Collateral are void or that the enforcement thereof or any other recourse by the Indenture Trustee
against any of the Collateral is materially limited because of any preference, fraudulent transfer,
conveyance or similar law;




          (f) either (i) a court having jurisdiction in the premises shall enter a decree or order for
relief in respect of the Trust or the Collateral in an involuntary case under any




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applicable bankruptcy, insolvency or other similar law now or hereafter in effect in the
applicable jurisdiction, which decree or order is not stayed; or any other similar relief shall be
granted under any applicable law; or (ii) an involuntary case shall be commenced against the Trust
or the Collateral under any applicable bankruptcy, insolvency or other similar law of the
applicable jurisdiction; or a decree or order of a court having jurisdiction in the premises for
the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having
similar powers over the Trust or the Collateral, or over all or a substantial part of its property,
shall have been entered; or there shall have occurred the involuntary appointment of an interim
receiver, trustee or other custodian of the Trust or the Collateral for all or a substantial part
of its property; or a court having jurisdiction in the premises shall enter a decree or order
declaring the dissolution of the Trust; or a warrant of attachment, execution or similar process
shall have been issued against any substantial part of the property of the Trust and any such event
described in this clause (ii) shall continue for sixty (60) days unless dismissed, bonded or
discharged;




          (g) either (i) the Trust shall have an order for relief entered with respect to it or shall
commence a voluntary case under any applicable bankruptcy, insolvency or other similar law of the
applicable jurisdiction, or shall consent to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall
consent to the appointment of or taking possession by a receiver, trustee or other custodian for
all or a substantial part of its property; or the Trust shall make any assignment for the benefit
of creditors; or (ii) the Trust shall fail or be unable, or the Trust admits in writing its
inability, to pay its debts as such debts become due; or the trustee of the Trust shall adopt any
resolution or otherwise authorize any action to approve or for the purpose of effecting any of the
actions referred to in this paragraph (g); or




          (h) any other Event of Default provided in (i) the applicable Pricing Supplement and (ii) the
Notes or any supplemental indenture.




     Notwithstanding anything contained herein to the contrary, any event of default or other
breach by PFG under the Guarantee will not be an Event of Default hereunder with respect to the
Notes.



     SECTION 6.02. Acceleration of Maturity Date; Rescission and Annulment. If an Event of
Default specified in any of Sections 6.01(a), (b), (c), (f) or
(g) occurs and is continuing, the principal of and all accrued and unpaid interest and any
other amounts payable on the Notes or if such Notes are non-interest bearing, the amortized face
amount of such Notes or other redemption amount as may be specified in the Pricing Supplement,
shall automatically be and become due and payable immediately, without any declaration or other act
whatsoever on the part of the Trust, the Indenture Trustee or any Holder. If any Event of Default
other than those specified in Sections 6.01(a), (b), (c), (f) or
(g) occurs and is continuing, then in every such case the Indenture Trustee or the Holders
of more than twenty-five percent (25%) in aggregate principal amount of the Outstanding Notes, by a
notice in writing to the Trust (and to the Indenture Trustee if given by the Holders of the Notes),
may (but are not required to) declare the sum of (a) the principal amount of all the Outstanding
Notes and (b) any other amounts, including accrued and unpaid interest, payable to the Holders to
the extent such amounts are permitted by law to be paid, to be due and payable immediately, and
upon any such declaration such amount shall become due and payable on the date the written
declaration is received by the



53









 







Trust; provided, however, that with respect to any Note issued with original issue discount
the amount of principal due and payable for such Note will be the amount determined as set forth in
the Pricing Supplement or, if not so set forth, by multiplying (i) the then outstanding aggregate
principal amount of such Note by (ii) the sum of (A) the original issue price of the Note
(expressed as a percentage of the then outstanding aggregate principal amount of such Note) plus
(B) the original issue discount (expressed as a percentage) amortized from the original issue date
of such Note to the date of declaration of acceleration of maturity of such Note (calculated using
the interest method in accordance with generally accepted accounting principles in effect on the
date of determination).



     At any time after such a declaration of acceleration of maturity of the Notes has been made
pursuant to the second sentence of this Section 6.02 and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as provided in this Article,
the Holders of Notes representing at least sixty-six and two-thirds percent (66-2/3%) of the
aggregate principal amount of the Outstanding Notes, by written notice to the Trust and the
Indenture Trustee, may rescind and annul such declaration and its consequences if



          (a) the Trust has paid or deposited with the Indenture Trustee a sum sufficient to pay:





          (i) all overdue installments of interest and Additional Amounts, if applicable,
on all Notes,




          (ii) the principal and premium, if any, of any Notes which have become due
otherwise than by such declaration of acceleration and interest thereon with respect
thereto at the rate borne by the Notes, and




          (iii) all sums paid or advanced by the Indenture Trustee under the Indenture;
and



          (b) all Events of Default, other than the nonpayment of the principal of or interest on the
Notes which have become due solely as a result of such acceleration, have been cured or waived as
provided in Section 6.13.




     No such rescission shall affect any subsequent Default or Event of Default or impair any right
consequent thereon.



     SECTION 6.03. Collection of Indebtedness and Suits for Enforcement. The Trust covenants that
if:



          (a) default is made in the payment of any installment of interest on any Note when such
interest becomes due and payable (after the expiration of any applicable cure period), or




          (b) default is made in the payment of the principal or premium, if any, of any Note when such
principal or premium, if any, becomes due and payable,




54









 







the Trust will upon demand of the Indenture Trustee (which the Indenture Trustee may make, but is
not required to make) pay to the Indenture Trustee, for the benefit of all the Holders of the
Notes, the whole amount then due and payable on the Notes (together, as applicable, with interest
upon the overdue principal and any premium and (to the extent that payment of such interest is
enforceable under applicable law) upon the overdue installments of interest at the rate borne by
the Notes or, if the Notes are non-interest bearing, the rate for such interest set forth in the
Notes or the Indenture, if applicable) and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Indenture Trustee, its agents and counsel.




     If the Trust fails to pay such amounts it is required to pay the Indenture Trustee pursuant to
the preceding paragraph, then forthwith upon the demand of the Indenture Trustee, in its own name
and as trustee of an express trust, the Indenture Trustee may (but is not required to) institute a
judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding
to judgment or final decree and may enforce the same against the Trust or any other obligor upon
any of the Notes and collect the monies adjudged or decreed to be payable in the manner provided by
law out of the property of the Trust or any other obligor upon the Notes, including the Collateral,
wherever situated.



     If an Event of Default with respect to the Notes occurs and is continuing, the Indenture
Trustee may in its discretion proceed to protect and enforce its rights and the rights of the
Holders of Notes by such appropriate judicial proceedings as the Indenture Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in the Indenture or in aid of the exercise of any power granted in the
Indenture, or to enforce any other proper remedy.



     SECTION 6.04. Indenture Trustee May File Proofs of Claim. In case of the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, composition or
other judicial proceeding relative to the Trust or any other obligor upon the Notes or the property
held in the Trust or of such other obligor or their creditors, the Indenture Trustee (irrespective
of whether the Notes shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Indenture Trustee shall have made any demand on the Trust
for the payment of any overdue principal, premium or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise,



          (a) to file and prove a claim for the whole amount of principal of, and any premium and
interest owing and unpaid in respect of, the Notes and to file such other papers or documents as
may be necessary or advisable in order to have the claims of the Indenture Trustee (including any
claim for the reasonable compensation, expenses, disbursements and advances of the Indenture
Trustee, its agents and counsel) and of the Holders allowed in such proceeding; and




          (b) to collect and receive any moneys or other property payable or deliverable on any such
claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator,
sequestrator or other similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Indenture Trustee and, in the event that the Indenture Trustee
shall consent, to make such payments directly to the Holders, and to pay to the Indenture Trustee
any amount due to it for the reasonable compensation, expenses,




55









 







disbursements and advances of the Indenture Trustee, its agents and counsel, and any other
amounts due to the Indenture Trustee under Section 7.10.




     Nothing contained in the Indenture shall be deemed to authorize the Indenture Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization,
arrangement, adjustment, or composition affecting any of the Notes or the rights of any Holder
thereof, or to authorize the Indenture Trustee to vote in respect of the claim of any Holder in any
such proceeding.



     SECTION 6.05. Indenture Trustee May Enforce Claims Without Possession of Notes. All rights
of action and claims under the Indenture or any of the Notes may be prosecuted and enforced by the
Indenture Trustee without the possession of any of the Notes or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Indenture Trustee in
accordance with the terms of the Indenture shall be brought in its own name as trustee of an
express trust, and any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, its agents
and counsel, be for the ratable benefit of the Holders of Notes in respect of which such judgment
has been recovered.



     SECTION 6.06. Application of Money Collected. Notwithstanding anything in the Indenture to
the contrary, any money collected by the Indenture Trustee following an Event of Default and during
the continuance thereof pursuant to Article 6 or otherwise under the Indenture or, any
supplements to the Indenture, and any moneys that may then be held or thereafter received by the
Indenture Trustee as security with respect to the Notes shall be held in the Collection Account and
be applied in the following order, at the date or dates fixed by the Indenture Trustee and, in case
of the distribution on account of principal or interest, upon presentation of the Notes, or both,
and the notation thereon of the payment if only partially paid and upon surrender thereof if fully
paid:




          first, to the payment of the reasonable and customary expenses and counsel fees
incurred by the Indenture Trustee and any other amounts due and unpaid to the
Indenture Trustee by the Trust, in an aggregate amount of no more than $250,000 for
all notes issued under the Program, to the extent not paid pursuant to the
applicable Expense and Indemnity Agreement;




          second, to the payment of the amounts then due and unpaid upon the Notes for
principal and interest and all other amounts in respect of which, or for the benefit
of which, such amount has been collected, ratably, without preference or priority of
any kind, according to the aggregate principal amounts due and payable on the Notes;
and




          third, any remaining balance shall be paid to the Trust and such remaining
balance shall be distributed by the Trustee in accordance with the Trust Agreement.



     Except as expressly set forth in the Indenture, none of the Indenture Trustee, Paying Agent,
Registrar or any other Agent or any of their successors, employees, officers, directors,



56









 




affiliates or agents shall have any claim or rights of any nature in or to the Collateral,
whether as a result of set-off, banker’s lien or otherwise, and the Indenture Trustee hereby
waives, and the Paying Agent and Registrar appointed under the Indenture shall be deemed to have
waived, by its acceptance of the duties under the Indenture, on behalf of itself and each such
other Person, any such claim or rights in or to the Collateral.




     SECTION 6.07. Limitation on Suits. Except as otherwise provided in Section 6.08, no
Holder shall have any right to institute any proceedings, judicial or otherwise, with respect to
the Indenture or any agreement or instrument included in the Collateral for the Notes or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:



          (a) such Holder has previously given written notice to the Indenture Trustee of a continuing
Event of Default with respect to the Notes;




          (b) the Holder or Holders of Notes representing not less than twenty-five percent (25%) of the
aggregate principal amount of the Outstanding Notes shall have made written request to the
Indenture Trustee to institute proceedings in respect of such Event of Default in its own name as
Indenture Trustee under the Indenture;




          (c) such Holder or Holders have offered to the Indenture Trustee reasonable indemnity or
security satisfactory to it against the costs, expenses and liabilities to be incurred in
compliance with such request;




          (d) the Indenture Trustee for sixty (60) days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and




          (e) no direction inconsistent with such written request has been given to the Indenture
Trustee during such sixty (60) day period by the Holder or Holders of Notes representing at least
66 2/3% in aggregate principal amount of the Outstanding Notes;



it being understood and intended that no one or more Holders of Notes shall have any right in any
manner whatever by virtue of, or by availing of, any provision of the Indenture to affect, disturb
or prejudice the rights of any other Holder of any Note or to obtain or to seek to obtain priority
or preference over any other Holder of any Note or to enforce any right under the Indenture, except
in the manner provided in the Indenture and for the equal and ratable benefit of all the Holders of
the Notes.




     SECTION 6.08. Unconditional Rights of Holders to Receive Payments. Notwithstanding any other
provision in the Indenture, each Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of, any interest on, and premium, if any, on
such Note on the respective Stated Maturity Date or redemption date thereof and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired without the consent
of such Holder.



     SECTION 6.09. Restoration of Rights and Remedies. If the Indenture Trustee or any Holder has
instituted any proceeding to enforce any right or remedy under the Indenture and such proceeding
has been discontinued or abandoned for any reason, or has been determined adversely to the
Indenture Trustee or to such Holder, then and in every such case the Trust, the



57









 







Indenture Trustee and each such Holder shall, subject to any determination in such proceeding,
be restored severally and respectively to their former positions under the Indenture, and
thereafter all rights and remedies of the Indenture Trustee and each such Holder shall continue as
though no such proceeding had been instituted.



     SECTION 6.10. Rights and Remedies Cumulative. Except as otherwise provided with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes in Section 2.08,
no right or remedy in the Indenture conferred upon or reserved to the Indenture Trustee or to each
and every Holder is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to every other right
and remedy given under the Indenture or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy under the Indenture, or otherwise, shall not
prevent the concurrent assertion or employment of any other appropriate right or remedy.



     SECTION 6.11. Delay or Omission Not Waiver. No delay or omission of the Indenture Trustee or
of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such right or remedy accruing upon any Event of
Default or an acquiescence therein. Every right and remedy given by this Article or by law to the
Indenture Trustee or to any Holder may be exercised from time to time, and as often as may be
deemed expedient, by the Indenture Trustee or by such Holder, as the case may be.



     SECTION 6.12. Control by Holders. Holders, representing a majority of the aggregate
principal amount of the Outstanding Notes, who provide the Indenture Trustee with indemnification
satisfactory to the Indenture Trustee, shall have the right to direct the time, method and place of
conducting any proceedings for exercising any remedy available to the Indenture Trustee or
exercising any trust or power conferred on the Indenture Trustee with respect to the Notes,
including with respect to the Collateral; provided, however, that (a) such direction shall not be
in conflict with any rule of law or with the Indenture and (b) the Indenture Trustee may take any
other action deemed proper by the Indenture Trustee that is not inconsistent with such direction.



     SECTION 6.13. Waiver of Past Defaults. Notwithstanding anything in the Indenture to the
contrary, only Holders representing a majority of the aggregate principal amount of the Outstanding
Notes may on behalf of the Holders of all the Notes waive any past Default with respect thereto and
its consequences, except a Default:



          (a) in the payment of any principal of, any interest on, or premium, if any, on any Note, or




          (b) in respect of a covenant or provision of the Indenture that cannot be modified or amended
without the consent of the Holder of each Outstanding Note.



Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of the Indenture with respect to




58









 







the Notes; but no such waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.




     SECTION 6.14. Undertaking for Costs. All parties to the Indenture agree, and each Holder, by
acceptance of a Note, shall be deemed to have agreed that, in any suit for the enforcement of any
right or remedy under the Indenture, or in any suit against the Indenture Trustee for any action
taken, suffered or omitted by it as Indenture Trustee, any court may in its discretion require the
filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees,
against any party litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this Section shall not apply
to any suit instituted by the Indenture Trustee or any Agent, to any suit instituted by any Holder,
or group of Holders, holding in the aggregate Notes representing more than ten percent (10%) of the
aggregate principal amount of the Outstanding Notes, or to any suit instituted by any Holder for
the enforcement of the payment of any installment of interest on any Note on or after the Stated
Maturity Date thereof expressed in such Note or for the enforcement of the payment of any principal
of such Note at the Stated Maturity Date therefor.



     SECTION 6.15. Waiver of Stay or Extension Laws. The Trust covenants that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of,
any law wherever enacted, now or at any time hereafter in force, providing for any appraisement,
valuation, stay, extension or redemption, which may affect the covenants in, or the performance of,
the Indenture; and the Trust hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of any power granted in the
Indenture to the Indenture Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.



ARTICLE 7

The Indenture Trustee and Other Agents




     SECTION 7.01. Duties of Indenture Trustee.



          (a) If an Event of Default has occurred and is continuing, the Indenture Trustee shall
exercise such of the rights and powers vested in it by the Indenture, and use the same degree of
care and skill in their exercise, as a prudent person would exercise or use under the circumstances
in the conduct of his or her own affairs.




          (b) Except during the continuance of an Event of Default, the duties and liabilities of the
Indenture Trustee are to perform only those duties that are specifically set forth in the Indenture
and no others, and no implied covenants or obligations of the Indenture Trustee shall be read into
the Indenture.




          (c) No provision of the Indenture shall be construed to relieve the Indenture Trustee or any
Agent from liability for its own negligent action, its own negligent failure to act, or its own bad
faith or willful misconduct, except that:





          (i) this subsection does not limit the effect of subsection (b) of this
Section 7.01;



59









 






          (ii) each of the Indenture Trustee and each Agent may in good faith
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to it and
conforming to the requirements of the Indenture unless a Responsible Officer of the
Indenture Trustee or such Agent, respectively, has actual knowledge that such
statements or opinions are false; provided that the Indenture Trustee or Agent, as
the case may be, must examine such certificates and opinions to determine whether
they conform to the requirements of the Indenture;




          (iii) each of the Indenture Trustee and each Agent shall not be liable for any
error of judgment made in good faith by a Responsible Officer, unless it is proved
that the Indenture Trustee or Agent, as the case may be, was negligent in
ascertaining the pertinent facts;




          (iv) the Indenture Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with the direction of Holders
representing a majority of the aggregate principal amount of the Outstanding Notes
or pursuant to Section 6.07 for actions or omissions relating to the time,
method and place of conducting any proceeding for any remedy available to the
Indenture Trustee, or exercising any trust or power conferred upon the Indenture
Trustee, under the Indenture with respect to the Notes; and




          (v) no provision of the Indenture shall require the Indenture Trustee or any
Agent to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties under the Indenture, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.



          (d) Whether or not therein expressly so provided, every provision of the Indenture relating to
the conduct or affecting the liability of or affording protection to the Indenture Trustee shall be
subject to the provisions of this Section 7.01.




          (e) The Indenture Trustee shall promptly upon its receipt thereof deliver to each Rating
Agency copies of each of the following:





          (i) any notice of any Event of Default by any party under the Funding Agreement
delivered by the Trust to the Indenture Trustee pursuant to paragraph (b) of
Section 3.13;




          (ii) any amendment or modification of the Trust Agreement delivered by the
Trust to the Indenture Trustee pursuant to paragraph (a) of Section 3.12;




          (iii) any notice of any Default or Event of Default, together with any relevant
Trust Certificate relating thereto, delivered by the Trust to the Indenture Trustee
pursuant to paragraph (b) of Section 3.13;



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          (iv) any supplemental indenture referred to in Section 8.01 or
8.02;




          (v) any other information reasonably requested by any Rating Agency;




          (vi) any notice of change in the identity of the Trust;




          (vii) any notice of change in the identity of the Indenture Trustee;




          (viii) any notice of adverse change in the priority status of the Funding
Agreement as a matter of the laws of the State of Iowa; and




          (ix) any notice of redemption delivered to the Indenture Trustee under
Section 2.04.



          (f) The Indenture Trustee shall, on behalf of the Trust, and to the extent that the relevant
information shall be reasonably available to it, submit such reports or information as may be
required from time to time in relation to the issue of the Notes by applicable law, regulations and
guidelines by governmental regulatory authorities as may be subsequently requested by the Trust and
agreed to in writing between the Trust and the Indenture Trustee.




     SECTION 7.02. No Liability to Invest. None of the Agents shall be under any liability for
interest on, or have any responsibility to invest, any monies received by it pursuant to any of the
provisions of the Indenture or the Notes.



     SECTION 7.03. Performance Upon Default. None of the Agents shall have any duty or
responsibility in case of any default by the Trust in the performance of its obligations
(including, without limiting the generality of the foregoing, any duty or responsibility to
accelerate all or any of the Notes or to initiate or to attempt to initiate any proceedings at law
or otherwise or to make any demand for the payment thereof upon the Trust).



     SECTION 7.04. No Assumption by Paying Agent, Transfer Agent, Calculation Agent or Registrar.
In acting under the Indenture and in connection with the Notes, the Paying Agent, the Transfer
Agent, the Calculation Agent and the Registrar shall act solely as agents of the Trust and will not
thereby assume any obligations towards, or relationship of agency or trust for, any of the Holders.



     SECTION 7.05. Notice of Default. Within ninety (90) days after a Responsible Officer of the
Indenture Trustee becomes aware of the occurrence of any Default or Event of Default which is
continuing, the Indenture Trustee shall transmit to the Trustee, PFG and Principal Life and all
Holders of Notes notice of each such Default or Event of Default known to the Indenture Trustee,
unless such Default or Event of Default shall have been cured or waived; provided, however, that,
except in the case of a Default of the kind described in Section 6.01(a), (b),
(c), (f) or (g) the Indenture Trustee shall be protected in withholding
such notice if and so long as the board of directors, the executive committee or a trust committee
of directors and/or



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Responsible Officers of the Indenture Trustee in good faith determine that the withholding of
such notice is in the interests of the Holders.



     SECTION 7.06. Rights of Indenture Trustee. Subject to the provisions of Section
7.01(c):



          (a) The Indenture Trustee may conclusively rely on any document believed by it in good faith
to be genuine and to have been signed or presented by the proper Person. The Indenture Trustee
need not investigate any fact or matter stated in the document.




          (b) Before the Indenture Trustee acts or refrains from acting, including in connection with
the issuance of the Notes pursuant to Section 2.02, it may require a Trust Certificate or
an Opinion of Counsel (or may consult with financial or other advisors or consultants appointed
with due care). The Indenture Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on any Trust Order, Trust Request, Trust Certificate, Opinion of Counsel
or advice from financial or other advisors or consultants appointed with due care.




          (c) The Indenture Trustee may act through agents or attorneys and shall not be responsible for
monitoring or supervising the actions of, or for the misconduct or negligence of, any agent or
attorney appointed with due care.




          (d) The Indenture Trustee shall not be liable for any action it takes or omits to take in good
faith that it believes to be authorized or within its rights or powers.




          (e) (i) The Indenture Trustee may employ or retain such counsel, accountants, appraisers,
agents or other experts or advisers as it may reasonably require for the purpose of determining and
discharging its rights and duties under the Indenture and shall not be responsible for misconduct
on the part of any such person appointed with due care.





          (ii) The Indenture Trustee may conclusively act and rely and shall be protected
in acting and relying in good faith on the opinion or advice of or information
obtained from any counsel, accountant, appraiser, agents or other expert or adviser,
whether retained or employed by the Trust or by the Indenture Trustee, in relation
to any matter arising in the administration of the trusts of the Indenture.



          (f) The Indenture Trustee may consult with counsel of its selection and the advice of such
counsel or any opinion of counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it under the Indenture in good faith and in
reliance thereon.




          (g) The Indenture Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by the Indenture at the request or direction of any of the Holders pursuant to the
Indenture, unless such Holders shall have offered to the Indenture Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction.




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          (h) The Indenture Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other
paper or document, but the Indenture Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the Indenture Trustee shall
determine to make such further inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Trust, personally or by agent or attorney, with any reasonable costs
related thereto to be paid by Principal Life pursuant to the applicable Expense and Indemnity
Agreement, and shall incur no liability or additional liability of any kind by reason of such
inquiry or investigation.




          (i) The Indenture Trustee shall not be deemed to have notice of any Default or Event of
Default unless a Responsible Officer of the Indenture Trustee has actual knowledge thereof or
unless written notice of any event which is in fact such a default is received by a Responsible
Officer of the Indenture Trustee at the Corporate Trust Office of the Indenture Trustee, and such
notice references the Notes and the Indenture and states that a Default or Event of Default has
occurred.




          (j) Permissive powers granted to the Indenture Trustee under the Indenture shall not be
construed to be mandatory duties on its part.




          (k) The rights and protections afforded to the Indenture Trustee pursuant to this Article
7 shall also be afforded to the Paying Agent, Calculation Agent, Registrar or Transfer Agent,
or any successor or agent thereof.




          (l) The Indenture Trustee shall have no liability for the actions or omissions of the Paying
Agent, Registrar, Calculation Agent or Transfer Agent, provided that such action or omission is not
caused by the Indenture Trustee’s own negligence, bad faith or willful misconduct.




          (m) The Indenture Trustee may execute any of the trusts or powers under the Indenture or
perform any duties under the Indenture either directly or by or through delegates, agents,
attorneys, custodians, or nominees, and the Indenture Trustee shall not be responsible for any
misconduct or negligence on the part, or the supervision, of any agent, attorney, custodian, or
nominee appointed with due care under the Indenture except as otherwise agreed in writing with the
Trust.




          (n) The Indenture Trustee may request that the Trust deliver an officer’s certificate setting
forth the names of individuals and/or titles of officers authorized at such time to take specified
actions pursuant to the Indenture, which officer’s certificate may be signed by any person
authorized to sign an officer’s certificate, including any person specified as so authorized in any
such certificate previously delivered and not superseded.




     SECTION 7.07. Not Responsible for Recitals or Issuance of Notes. The recitals contained in
the Indenture and in the Notes, except the certificates of authentication on the Notes, shall be
taken as the statements of the Trust and neither the Indenture Trustee nor any Agent assumes any
responsibility for their correctness. Neither the Indenture Trustee nor any



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Agent makes any representations with respect to any Collateral or as to the validity,
enforceability or sufficiency of the Indenture or of the Notes or of any security interest created
under the Indenture. Neither the Indenture Trustee nor any Agent shall be accountable for the use
or application by the Trust of the Notes or the proceeds thereof or any money paid to the Trust or
upon Trust Order pursuant to the provisions of the Indenture.



     SECTION 7.08. Indenture Trustee May Hold Notes. The Indenture Trustee, in its individual or
any other capacity, may become the owner or pledgee of Notes and, subject to Section 7.11
and Section 311(a) of the Trust Indenture Act and Rule 3a-7 of the Investment Company Act, may
otherwise deal with the Trust with the same rights it would have if it were not Indenture Trustee.



     SECTION 7.09. Money Held in Trust. Money held by the Indenture Trustee in trust under the
Indenture need not be segregated from other funds except to the extent required by the Indenture or
by law. The Indenture Trustee shall be under no liability for interest on any money received by it
under the Indenture and shall not invest such money, unless otherwise agreed to in writing and
permitted by law.



     SECTION 7.10. Compensation and Reimbursement. The Indenture Trustee and the Agents will be
entitled to payment of fees, reimbursement for, and indemnification with respect to, costs and
expenses for services rendered under the Indenture to the extent provided in the applicable Expense
and Indemnity Agreement and, with respect to only the Indenture Trustee, Section 6.06.
Except as provided in Section 6.06 with respect to the Indenture Trustee, none of the
Indenture Trustee, Paying Agent, Registrar or Transfer Agent shall be entitled to seek any payment
from the Trust with respect to its services under the Indenture.



     SECTION 7.11. Eligibility. The Trust agrees, for the benefit of the Holders, that there
shall at all times be an Indenture Trustee under the Indenture which shall be a corporation or
national banking association organized and doing business under the laws of the United States, any
state thereof or the District of Columbia, authorized under such law to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000 subject to supervision or
examination by federal or state authority and having a credit rating of BBB- or better by Standard
& Poor’s Ratings Service, a Division of the McGraw-Hill Companies or a credit rating of Baa3 or
better by Moody’s Investors Service, Inc. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of said supervising or examining authority,
then for the purposes of this Section 7.11, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth in its most recent
report of condition as published. If at any time the Indenture Trustee shall cease to be eligible
in accordance with the provisions of this Section, it shall resign immediately in the manner and
with the effect specified in this Article.



     Notwithstanding any provision of the Indenture to the contrary, the Indenture Trustee also
must meet the requirements set forth in Section 310 of the Trust Indenture Act, as applicable. In
addition, the Indenture Trustee, each successor Indenture Trustee and each Person appointed to act
as co-trustee pursuant to Section 7.15 must be a “United States person” within the meaning
of Section 7701(a)(30) of the Code.



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     SECTION 7.12. Resignation and Removal; Appointment of Successor.



          (a) No resignation or removal of the Indenture Trustee and no appointment of a successor
Indenture Trustee pursuant to this Section shall become effective until the acceptance of
appointment by the successor Indenture Trustee under Section 7.13.




          (b) The Indenture Trustee may resign at any time by giving not less than sixty (60) days’
prior written notice thereof to the Trust and the Holders of the Notes. If an instrument of
acceptance by a successor Indenture Trustee shall not have been delivered to the Indenture Trustee
within thirty (30) days after the giving of such notice of resignation, the resigning Indenture
Trustee may petition any court of competent jurisdiction at the expense of the Trust for the
appointment of a successor Indenture Trustee and any and all amounts then due and owing to the
retiring Indenture Trustee shall be paid in full.




          (c) The Indenture Trustee may be removed at any time by an Act of Holders of Notes
representing a majority of the aggregate principal amount of the Outstanding Notes, delivered to
the Indenture Trustee and to the Trust. If an instrument of acceptance by a successor Indenture
Trustee shall not have been delivered to the Indenture Trustee within thirty (30) days after the
giving of such notice of removal, the Indenture Trustee being removed may petition, at the expense
of the Trust, any court of competent jurisdiction for the appointment of a successor Indenture
Trustee with respect to the Notes.




          (d) If at any time (i) the Indenture Trustee shall cease to be eligible under Section
7.11 and shall fail to resign after written request by the Trust or any Holder (who has been a
bona fide Holder of a Note for at least six months), (ii) shall become incapable of acting or shall
be adjudged as bankrupt or insolvent, or a receiver or liquidator of the Indenture Trustee or of
its property shall be appointed, or any public officer shall take charge or control of the
Indenture Trustee or of its property or affairs for the purpose of rehabilitation, conservation or
liquidation or (iii) the Indenture Trustee shall fail to comply with the obligations imposed upon
it under Section 310(b) of the Trust Indenture Act with respect to the Notes after written request
therefor by the Trust or any Holder who has been a bona fide Holder of a Note for at least six
months, then, (x) the Trust (except during the existence of an Event of Default) by a Trust Order
may remove the Indenture Trustee, or (y) subject to Section 6.14, any Holder who has been a
bona fide Holder for at least six months may, on behalf of himself, herself or itself and all
others similarly situated, petition any court of competent jurisdiction for the removal of the
Indenture Trustee and the appointment of a successor Indenture Trustee.




          (e) If the Indenture Trustee shall resign, be removed or become incapable of acting, or if a
vacancy shall occur in the office of the Indenture Trustee for any reason, the Trust, by a Trust
Order, shall promptly appoint a successor Indenture Trustee and shall comply with the applicable
requirements of Section 7.13. If, within one year after such resignation, removal or
incapability or the occurrence of such vacancy, a successor Indenture Trustee shall be appointed by
Act of Holders of Notes representing a majority of the aggregate principal amount of the
Outstanding Notes delivered to the Trust and the retiring Indenture Trustee, the successor Trustee
so appointed shall, upon its acceptance of such appointment in accordance with the applicable
requirements of Section 7.13, become the successor Indenture Trustee and supersede the
successor Indenture Trustee appointed by the Trust. If no successor Indenture Trustee shall




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have been so appointed by the Trust or Holders and shall have accepted appointment in the
manner provided in the Indenture, any Holder who has been a Holder for at least six months may
(subject to Section 6.14), on behalf of himself, herself or itself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a successor Indenture
Trustee.




          (f) The Trust shall give notice of each resignation and each removal of the Indenture Trustee
and each appointment of a successor Indenture Trustee by mailing written notice of such event by
first-class mail, postage prepaid, to the Holders of the Notes, if any, as their names and
addresses appear in the Register. Each notice shall include the name of the successor Indenture
Trustee and the address of its Corporate Trust Office.




          (g) Any successor Indenture Trustee shall satisfy all applicable requirements under the
Indenture.




     SECTION 7.13. Acceptance of Appointment by Successor.



          (a) Every successor Indenture Trustee appointed under the Indenture shall execute, acknowledge
and deliver to the Trust and the retiring Indenture Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Indenture Trustee shall
become effective and such successor Indenture Trustee, without any further act, deed or conveyance,
shall become vested with all the rights, powers, trusts and duties of the retiring Indenture
Trustee. Notwithstanding the foregoing, on request of the Trust or the successor Indenture
Trustee, such retiring Indenture Trustee shall, upon payment of all amounts owed to it, execute and
deliver an instrument transferring to such successor Indenture Trustee all the rights, powers and
trusts of the retiring Indenture Trustee, and shall duly assign, transfer and deliver to such
successor Indenture Trustee all property and money held by such retiring Indenture Trustee under
the Indenture.




          (b) Upon request of any such successor Indenture Trustee, the Trust shall execute any and all
instruments for more fully and certainly vesting in and confirming to such successor Indenture
Trustee all such rights, powers and trusts referred to in this Section, as the case may be.




          (c) No successor Indenture Trustee shall accept its appointment unless at the time of such
acceptance such successor Indenture Trustee shall be qualified and eligible under this Article.




     SECTION 7.14. Merger, Conversion, Consolidation or Succession to Business of Indenture
Trustee. Any corporation or national banking association into which the Indenture Trustee may be
merged or converted or with which it may be consolidated, or any corporation or national banking
association resulting from any merger, conversion or consolidation to which the Indenture Trustee
shall be a party, or any corporation or national banking association succeeding to all or
substantially all of the corporate trust business of the Indenture Trustee, shall be the successor
of the Indenture Trustee under the Indenture, without the execution or filing of any paper or any
further act on the part of any of the parties to the Indenture; provided, however, that such
corporation or national banking association shall be otherwise qualified and eligible under this
Article. In case any Notes have been authenticated, but not delivered, by the



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Indenture Trustee then in office, any successor by merger, conversion or consolidation to such
authenticating Indenture Trustee may adopt such authentication and deliver the Notes so
authenticated with the same effect as if such successor Indenture Trustee had authenticated such
Notes.



     SECTION 7.15. Co-trustees.



          (a) At any time or times, for the purpose of meeting the legal or regulatory requirements of
any jurisdiction in which any portion of any Collateral may at the time be located, the Trust and
the Indenture Trustee shall have power to appoint, and, upon the written request of the Holders of
Notes representing a majority of the aggregate principal amount of the Outstanding Notes, the Trust
shall for such purpose join with the Indenture Trustee in the execution, delivery and performance
of all instruments and agreements necessary or proper to appoint one or more Persons approved by
the Indenture Trustee to act as co-trustee, jointly with the Indenture Trustee, of all or any part
of the Collateral, with such powers as may be provided in the instrument of appointment, and to
vest in such Person or Persons in the capacity aforesaid, any property, title, right or power
deemed necessary or desirable, subject to the other provisions of this Section. If the Trust does
not join in such appointment within fifteen (15) days after the receipt by it of a request so to
do, or in case an Event of Default has occurred and is continuing, the Indenture Trustee alone
shall have power to make such appointment.




          (b) Should any written instrument from the Trust be required by any co-trustee so appointed
for more fully confirming to such co-trustee such property, title, right or power, any and all such
instruments shall, on request, be executed, acknowledged and delivered by the Trust.




          (c) Every co-trustee shall, to the extent permitted by law, but to such extent only, be
appointed subject to the following terms:





          (i) the Notes shall be authenticated and delivered and all rights, powers,
duties and obligations under the Indenture in respect of the custody of securities,
cash and other personal property held by, or required to be deposited or pledged
with, the Indenture Trustee under the Indenture, shall be exercised solely by the
Indenture Trustee;




          (ii) the rights, powers, duties and obligations conferred by the Indenture or
imposed upon the Indenture Trustee shall be conferred or imposed upon and exercised
or performed by the Indenture Trustee or by the Indenture Trustee and such
co-trustee jointly, as shall be provided in the instrument appointing such
co-trustee, except to the extent that, under any law of any jurisdiction in which
any particular act is to be performed, the Indenture Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers, duties and
obligations shall be exercised and performed by such co-trustee;




          (iii) the Indenture Trustee at any time, by an instrument in writing executed
by it, with the concurrence of the Trust evidenced by a Trust



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Request, may accept the resignation of or remove any co-trustee appointed under
this Section, and, in case an Event of Default has occurred and is continuing, the
Indenture Trustee shall have power to accept the resignation of, or remove, any such
co-trustee without the concurrence of the Trust. Upon the written request of the
Indenture Trustee, the Trust shall join with the Indenture Trustee in the execution,
delivery and performance of all instruments and agreements necessary or proper to
effectuate such resignation or removal. A successor to any co-trustee so resigned
or removed may be appointed in the manner provided in this Section;




          (iv) no co-trustee under the Indenture shall be personally liable by reason of
any act or omission of the Indenture Trustee or any other such trustee under the
Indenture and the Indenture Trustee shall not be personally liable by reason of any
act or omission of any co-trustee under the Indenture; and




          (v) any Act of Holders delivered to the Indenture Trustee shall be deemed to
have been delivered to each such co-trustee.



     SECTION 7.16. Appointment and Duties of the Calculation Agent.



          (a) Unless the Paying Agent advises the Trust that it is unable to act as Calculation Agent,
the Trust appoints the Paying Agent at its specified office as Calculation Agent in relation to the
Notes in respect of which it is named as such in the relevant Pricing Supplement for the purposes
specified in the Indenture and all matters incidental thereto.




          (b) The Paying Agent accepts its appointment as Calculation Agent in relation to the Notes in
respect of which it is named as such in the relevant Pricing Supplement and shall perform all
matters expressly to be performed by it in, and otherwise comply with, the terms and conditions of
the Notes and the provisions of the Indenture and, in connection therewith, shall take all such
action as may be incidental thereto. The Paying Agent acknowledges and agrees that it shall be
named in the relevant Pricing Supplement as Calculation Agent in respect of the Notes unless the
Relevant Agents (or one of the Relevant Agents) through whom the Notes are issued has agreed with
the Trust to act as Calculation Agent (in which case such Relevant Agent or Agents shall be named
as Calculation Agent in the related Pricing Supplement). If the Calculation Agent is incapable or
unwilling to perform its duties under the Indenture, the Indenture Trustee will appoint the Paying
Agent or another leading commercial bank to serve as Calculation Agent. Any resignation by or
termination of a Calculation Agent shall not be effective until a successor Calculation Agent has
been appointed.




          (c) The Calculation Agent shall:





          (i) obtain such quotes and rates and/or make such determinations, calculations
and adjustments as may be required under the Notes and provide notice of any
applicable interest rate calculations or determinations or periods with respect to
the Notes to the Holders of the Notes upon their request and to the Indenture
Trustee, Paying Agent, the Trust, Principal Life and PFG, and if the Notes are
listed on a stock exchange, and the rules of such exchange so require, such exchange
as soon as possible after the Calculation Agent’s



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determination or calculation of such interest rates or interest rate periods,
but in no event later than the fourth (4th) Banking Day thereafter or,
earlier in the case of notification to a stock exchange, if the rules of such
exchange so require; and




          (ii) maintain a record of all quotations obtained by it and of all amounts,
rates and other items determined or calculated by it and make such record available
for inspection at all reasonable times by the Trust, the Indenture Trustee,
Principal Life, PFG and the Paying Agent.



          (d) The Calculation Agent shall have no liability to the Holders of Notes in respect of any
determination, calculation, quote or rate made or provided by the Calculation Agent.




     SECTION 7.17. Changes in Agents.



          (a) Any Agent may resign its appointment under the Indenture upon the expiration of not less
than thirty (30) days’ notice to that effect to the Trust (with a copy to the Indenture Trustee);
provided, however, that any such notice which would otherwise expire within thirty (30) days before
or after the Maturity Date or any interest or other payment date of the Notes shall be deemed to
expire on the thirtieth (30th) day following the Maturity Date or, as the case may be,
such interest or other payment date.




          (b) The Trust may revoke its appointment of any Agent under the Indenture by giving not less
than thirty (30) days’ notice to the applicable Agent and the Indenture Trustee to that effect.




          (c) The appointment of any Agent under the Indenture shall terminate forthwith if any of the
following events or circumstances shall occur or arise, namely, such Agent becomes incapable of
acting; such Agent is adjudged bankrupt or insolvent; such Agent files a voluntary petition in
bankruptcy or makes an assignment for the benefit of its creditors or consents to the appointment
of a receiver, administrator or other similar official of all or any substantial part of its
property or admits in writing its inability to pay or meet its debts as they mature or suspends
payment thereof; a resolution is passed or an order is made for the winding-up or dissolution of
such Agent; a receiver, administrator or other similar official of such Agent or of all or any
substantial part of its property is appointed; an order of any court is entered approving any
petition filed by or against such Agent under the provisions of any applicable bankruptcy or
insolvency law; or any public officer takes charge or control of such Agent or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation.




          (d) The Trust may (and shall where necessary to comply with the terms and conditions of the
Notes) appoint substitute or additional agents in relation to the Notes and shall forthwith notify
the other parties to the Indenture, whereupon the parties to the Indenture and such substitute or
additional agents shall thereafter have the same rights and obligations among them as would have
been the case had they then entered into an agreement in the form mutatis mutandis of the
Indenture.




          (e) If any Agent gives notice of its resignation in accordance with this Section 7.17,
the provisions of paragraph (d) of Section 7.17 apply and by the tenth (10th)
day before the




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expiration of such notice a successor to such Agent in relation to such Notes has not been
appointed by the Trust, such Agent may itself, following such consultation with the Trust as may be
practicable in the circumstances, appoint as its successor any reputable and experienced bank or
financial institution (which will ensure compliance with the terms and conditions of the Notes) and
give notice of such appointment in accordance with the terms and conditions of the Notes, whereupon
the parties to the Indenture and such successor agent shall thereafter have the same rights and
obligations among them as would have been the case had they then entered into an agreement in the
form mutatis mutandis of the Indenture.




          (f) Upon any resignation or revocation becoming effective under this Section, the relevant
Agent shall:





          (i) be released and discharged from its obligations under the Indenture;




          (ii) repay, in accordance with the applicable Expense and Indemnity Agreement,
to Principal Life such part of any fee paid to it as may be agreed between the
relevant Agent and Principal Life;




          (iii) in the case of the Paying Agent, deliver to the Trust and to the
successor Paying Agent a copy, certified as true and up-to-date by an officer of the
Paying Agent, of the records maintained by it in accordance with Section
3.04;




          (iv) in the case of the Registrar, deliver to the Trust and to the successor
Registrar a copy, certified as true and up-to-date by an officer of such Registrar,
of each of the Registers and other records maintained by it in accordance with
Section 2.06;




          (v) in the case of a Calculation Agent, deliver to the Trust and to the
successor Calculation Agent a copy, certified as true and up-to-date by an officer
of such Calculation Agent of the records maintained by it in accordance with
Section 7.16; and




          (vi) upon payment to it by Principal Life of all amounts owed to it, forthwith
transfer all moneys and papers (including any unissued Global Notes or Definitive
Notes) held by it under the Indenture to its successor in that capacity and, upon
appropriate notice, provide reasonable assistance to such successor for the
discharge by it of its duties and responsibilities under the Indenture.



          (g) Any corporation into which any Agent may be merged or converted, any corporation with
which any Agent may be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which any Agent shall be a party or any corporation succeeding to all or
substantially all the corporate agency business of such Agent, shall, to the extent permitted by
applicable law, be the successor to such Agent under the Indenture and in relation to the Notes
without any further formality, whereupon the parties to the Indenture and such successor agent
shall thereafter have the same rights and obligations among them as would have been the case had
they then entered into an agreement in the form mutatis mutandis of the




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Indenture. Notice of any such merger, conversion, consolidation or asset transfer shall
forthwith be given by such successor to the Trust and the other parties to the Indenture.




          (h) If any Agent decides to change its specified office (which may only be effected within the
same city) it shall give notice to the Trust (with a copy to the Indenture Trustee) of the address
of the new specified office stating the date on which such change is to take effect, which date
shall be not less than thirty (30) days after the date of such notice. The relevant Agent shall at
its own expense not less than fourteen (14) days prior to the date on which such change is to take
effect (unless the appointment of the relevant Agent is to terminate pursuant to any of the
foregoing provisions of this Section on or prior to the date of such change) publish or cause to be
published notice thereof.



Upon the execution of the Indenture and thereafter forthwith upon any change of the same, the Trust
shall deliver to the Indenture Trustee (with a copy to the Paying Agent) a list of the Authorized
Signatories of the Trust together with certified specimen signatures of the same.




     SECTION 7.18. Limitation of Trustee Liability. It is expressly understood and agreed by the
parties that (a) the Indenture is executed and delivered by U.S. Bank Trust National Association,
not individually or personally, but solely as trustee of the Trust, in the exercise of the powers
and authority conferred and vested in it, pursuant to the Trust Agreement, (b) each of the
representations, undertakings and agreements in the Indenture made on the part of the Trust is made
and intended not as personal representations, undertakings and agreements by U.S. Bank Trust
National Association, but is made and intended for the purpose of binding only the Trust, (c)
nothing contained in the Indenture shall be construed as creating any liability on the part of U.S.
Bank Trust National Association, individually or personally, to perform any covenant either
expressed or implied contained in the Indenture, all such liability, if any, being expressly waived
by the parties to the Indenture and by any person claiming by, through or under the parties to the
Indenture, and (d) under no circumstances shall U.S. Bank Trust National Association, be personally
liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or
failure of any obligation, representation, warranty or covenant made or undertaken by the Trust
under the Indenture or any other related documents.



ARTICLE 8

Supplemental Indentures




     SECTION 8.01. Supplemental Indentures Without Consent of Holders. Without notice to, or the
consent of, any Holder, the Trust and the Indenture Trustee, at any time and from time to time, may
enter into one or more indentures supplemental to the Indenture, in form satisfactory to the
Indenture Trustee, for the purpose of:



          (a) curing any ambiguity or correcting or supplementing any provision contained in the
Indenture, in the Notes or in any supplemental indenture which may be defective or inconsistent
with any other provision contained in the Indenture, the Notes, the Funding Agreement or any other
Program Documents, which shall not materially adversely affect the interests of any Holder of the
Notes;




71









 








          (b) evidencing and providing for the acceptance of appointment under the Indenture of a
successor Indenture Trustee and to add or to change any of the provisions of the Indenture as shall
be necessary to provide for or facilitate the administration of the Trust or of the Notes under the
Indenture by more than one trustee;




          (c) adding to the covenants of the Trust or the Indenture Trustee for the benefit of the
Holders of the Notes or to surrender any right or power conferred in the Indenture on the Trust;




          (d) adding any additional Events of Default;




          (e) to provide for the issuance of and establish the form and terms and conditions of Notes as
provided in Section 2.02; or




          (f) to establish the form of any certifications required to be furnished pursuant to the terms
of the Indenture or of the Notes.




     Notwithstanding any other provision, the Trust will not enter into any supplemental indenture
with the Indenture Trustee or permit the Indenture to be amended or modified if such supplemental
indenture, amendment or modification would cause the Trust not to be disregarded or treated as a
grantor trust (assuming the Trust were not disregarded) for United States federal income tax
purposes.



     The Indenture Trustee shall be entitled to receive and rely on an Opinion of Counsel as to
whether any such supplemental indenture complies with the requirements of Section 8.01(a),
if applicable, and any such opinion shall be conclusive on the Holders.



     SECTION 8.02. Supplemental Indenture With Consent of Holders.



          (a) With the consent of the Holders of Notes representing a majority in aggregate principal
amount of all Outstanding Notes affected by such supplemental indenture, by Act of said Holders
delivered to the Trust and the Indenture Trustee, the Trust and the Indenture Trustee may enter one
or more indentures supplemental to the Indenture for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, the Indenture or of modifying in
any manner the rights of the Holders of the Notes under the Indenture; provided, however, that no
such supplemental indenture shall, without the consent of the Holder of each Note affected thereby:





          (i) change the Stated Maturity Date of the principal of, or the time of payment
of interest on, any Note;




          (ii) reduce the principal amount of, or the interest on, any Note;




          (iii) change any Place of Payment where, or the coin or currency in which the
principal of, or interest on, any Note is payable;




          (iv) impair or affect the right of any Holder to institute suit for the
enforcement of any payment on or with respect to the Notes;



72









 






          (v) reduce the percentage of the aggregate principal amount of the Outstanding
Notes, the consent of the Holders of which is required for any such supplemental
indenture, or the consent of the Holders of which is required for any waiver of
compliance with provisions of the Indenture or defaults thereunder and their
consequences provided for in the Indenture;




          (vi) modify any of the provisions of this Section or similar provisions, except
to increase any percentage specified in the Indenture or to provide that additional
provisions of the Indenture cannot be modified or waived without the consent of the
Holder of each Outstanding Note affected thereby;




          (vii) modify or alter the provisions of the definition of the term
“Outstanding”;




          (viii) modify or affect in any manner adverse to the interest of any Holder the
terms and conditions of the obligations of the Trust regarding the due and punctual
payment of the principal of or interest on, or any other amounts due with respect
to, the Notes; or




          (ix) permit the creation of any Lien ranking prior to or on a parity with the
Lien of the Indenture with respect to any part of any Collateral or terminate the
Lien of the Indenture on any property held for the benefit and security of Holders
at any time subject to the Indenture or deprive any Holder of the security afforded
by the Lien of the Indenture.



          (b) The Indenture Trustee may in its discretion determine whether or not any Notes would be
affected by any supplemental indenture (and may receive and conclusively rely upon an Opinion of
Counsel in doing so) and any such determination shall be conclusive upon all the Holders, whether
theretofore or thereafter authenticated and delivered under the Indenture. The Indenture Trustee
shall not be liable for any such determination made in good faith. It shall not be necessary for
any Act of Holders under this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance thereof. Promptly
after the execution by the Trust and the Indenture Trustee of any supplemental indenture pursuant
to this Section, the Indenture Trustee shall mail to the Holders of the Notes a notice setting
forth in general terms the substance of such supplemental indenture. Any failure of the Trust to
mail such notice, or any defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.




          (c) Notwithstanding any other provision, the Trust will not enter into any supplemental
indenture with the Indenture Trustee or permit the Indenture to be amended or modified if such
supplemental indenture, amendment or modification would cause the Trust not to be disregarded or
treated as a grantor trust (assuming it were not disregarded) for United States federal income tax
purposes.




     SECTION 8.03. Execution of Supplemental Indentures. In executing, or accepting the
additional trusts created by, any supplemental indenture permitted by this Article or the
modifications thereby of the trusts created by the Indenture, the Indenture Trustee shall be



73









 







entitled to receive, and (subject to Section 7.01) shall be fully protected in relying
upon, an Opinion of Counsel or officer’s certificate stating that the execution of such
supplemental indenture is authorized or permitted by the Indenture. The Indenture Trustee may, but
shall not be obligated to, enter into any such supplemental indenture that affects the Indenture
Trustee’s own rights, duties, indemnities or immunities under the Indenture or otherwise.



     SECTION 8.04. Effect of Supplemental Indenture. Upon the execution of any supplemental
indenture under this Article, the Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of the Indenture for all purposes; and every Holder of a
Note which has theretofore been or thereafter authenticated and delivered under the Indenture shall
be bound thereby. Further, the Trust shall be bound by any such supplemental indenture.



     SECTION 8.05. Reference in Notes to Supplemental Indentures. Notes authenticated and
delivered after the execution of any supplemental indenture pursuant to this Article may, and if
required by the Indenture Trustee shall, bear a notation in form approved by the Indenture Trustee
as to any matter provided for in such supplemental indenture. If the Trust shall so determine, new
Notes so modified as to conform, in the opinion of the Indenture Trustee and the Trust, to any such
supplemental indenture may be prepared and executed by the Trust and authenticated by the Indenture
Trustee and delivered by the Indenture Trustee in exchange for Outstanding Notes.



     SECTION 8.06. Conformity with Trust Indenture Act. Every supplemental indenture executed
pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in
effect.



ARTICLE 9

Non-Recourse Provisions




     SECTION 9.01. Nonrecourse Enforcement. Notwithstanding anything to the contrary contained in
the Indenture or any Notes, none of Principal Life, its officers, directors, Affiliates, employees
or agents, PFG, its officers, directors, Affiliates, employees or agents, or the Trust or any of
the Trustee, the Trust Beneficial Owner, the Agents or any of their respective officers, directors,
Affiliates, employees or agents (the “Nonrecourse Parties”) will be personally liable for the
payment of any principal, interest or any other sums at any time owing under the terms of the
Notes. If any Event of Default shall occur with respect to the Notes, the right of the Holders of
the Notes and the Indenture Trustee on behalf of such Holders in connection with a claim on such
Notes shall be limited solely to a proceeding against the Collateral. Neither such Holders nor the
Indenture Trustee on behalf of such Holders will have the right to proceed against the Nonrecourse
Parties or the assets held in any other trust organized under the Program or otherwise, to enforce
the Notes (except that to the extent they exercise their rights, if any, to (i) seize the Funding
Agreement, they may enforce the Funding Agreement against Principal Life, its successors or assigns
or (ii) collect under the Guarantee, they may enforce their rights under the Guarantee against PFG,
its successors or assigns) or for any deficiency judgment remaining after foreclosure of any
property included in the Collateral.



74









 





     It is expressly understood and agreed that nothing contained in this Section 9.01
shall in any manner or way constitute or be deemed a release of the debt or other obligations
evidenced by the Notes or otherwise affect or impair the enforceability against the Trust of the
liens, assignments, rights and security interests created by the Indenture, the Collateral or any
other instrument or agreement evidencing, securing or relating to the indebtedness or the
obligations evidenced by the Notes. Nothing in this Section 9.01 shall preclude the
Holders from foreclosing upon any property included in the Collateral.



     Holders may not seek to enforce rights against the Trust (a) by commencing any recovery or
enforcement proceedings against the Trust, (b) by applying to wind up the Trust, (c) otherwise than
through the Indenture Trustee in its exercise of powers to petition a court to appoint a receiver
or administrator to the Trust or for the Collateral, (d) by making any statutory demand upon the
Trust under applicable corporation law, or (e) in any other manner except as may be provided in the
Indenture or in the Notes.



ARTICLE 10

Meetings of Holders of Notes




     SECTION 10.01. Purposes for Which Meetings May be Called. A meeting of Holders of Notes may
be called at any time and from time to time pursuant to this Article to make, give or take any
request, demand, authorization, direction, notice, consent, waiver or other action provided by the
Indenture to be made, given or taken by the Holders of Notes.



     SECTION 10.02. Call, Notice and Place of Meetings. (a) Unless otherwise provided in the
Notes, the Indenture Trustee may at any time call a meeting of Holders of the Notes for any purpose
specified in Section 10.01, to be held at such time and at such place in The City of New
York or such other place as the Indenture Trustee shall determine. Notice of every meeting of
Holders, setting forth the time and the place of such meeting and in general terms the action
proposed to be taken at such meeting, shall be given, in the manner provided in Section
1.06, not less than twenty-one (21) nor more than 180 days prior to the date fixed for the
meeting.



          (b) In case at any time the Trust or the Holders of at least ten percent (10%) in principal
amount of the Outstanding Notes shall have requested the Indenture Trustee to call a meeting of
Holders for any purpose specified in Section 10.01, by written request setting forth in
reasonable detail the action proposed to be taken at the meeting, and the Indenture Trustee shall
not have made the first publication or mailing of the notice of such meeting within twenty-one (21)
days after receipt of such request or shall not thereafter proceed to cause the meeting to be held
as provided in the Indenture, then the Trust or the Holders of Notes in the amount above specified,
as the case may be, may determine the time and the place in The City of New York and may call such
meeting for such purposes by giving notice thereof as provided in paragraph (a) of this Section.




     SECTION 10.03. Persons Entitled to Vote at Meetings. To be entitled to vote at any meeting
of Holders, a Person shall be (a) a Holder of one or more Outstanding Notes; or (b) a Person
appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding
Notes by such Holder or Holders. The only Persons who shall be entitled to be present or to speak
at any meeting of Holders shall be the Persons entitled to vote at such




75












 




meeting and their counsel, any representatives of the Indenture Trustee and its counsel and any
representatives of the Trust and its counsel.




     SECTION 10.04. Quorum; Action. The Persons entitled to vote a majority in principal amount
of the Outstanding Notes shall constitute a quorum for a meeting of Holders; provided, however,
that if any action is to be taken at such meeting with respect to a consent or waiver which the
Indenture expressly provides may be given by the Holders of a majority in principal amount of the
Outstanding Notes, the Persons entitled to vote a majority in principal amount of the Outstanding
Notes shall constitute a quorum. In the absence of a quorum within thirty (30) minutes after the
time appointed for any such meeting, the meeting shall, if convened at the request of Holders, be
dissolved. In any other case the meeting may be adjourned for a period of not less than ten (10)
days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the
absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned
for a period of not less than ten (10) days as determined by the chairman of the meeting prior to
the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting
shall be given as provided in Section 10.02(a), except that such notice need be given only
once not less than five (5) days prior to the date on which the meeting is scheduled to be
reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the
percentage, as provided above, of the principal amount of the Outstanding Notes which shall
constitute a quorum.



     Except as limited by Section 8.02(a) and Section 6.02, any resolution
presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as
aforesaid may be adopted only by the affirmative vote of the Holders of a majority in principal
amount of the Outstanding Notes; provided, however, that, except as limited by Section
8.02(a) and Section 6.02, any resolution with respect to any consent or waiver which
the Indenture expressly provides may be given by the Holders of a majority in principal amount of
the Outstanding Notes may be adopted at a meeting or an adjourned meeting duly convened and at
which a quorum is present as aforesaid only by the affirmative vote of the Holders of a majority in
principal amount of the Outstanding Notes; and provided, further, that, except as limited by
Section 8.02(a) and Section 6.02, any resolution with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action which the Indenture
expressly provides may be made, given or taken by the Holders of a specified percentage, which is
less than a majority in principal amount of the Outstanding Notes may be adopted at a meeting or an
adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative
vote of the Holders of such specified percentage in principal amount of the Outstanding Notes.



     Notwithstanding the preceding two paragraphs, any request, demand, authorization, direction,
notice, consent, waiver or other action of Holders under the Indenture or the Notes may be embodied
in and evidenced by one or more instruments of substantially similar tenor signed by such Holders
in person or by an agent duly appointed in writing; and, except as otherwise expressly provided in
the Indenture, such action shall become effective when such instrument or instruments are delivered
to the Indenture Trustee and, when it is expressly required, to the Trust. The percentage of
principal amount of the Outstanding Notes held by the Holders delivering such instruments which is
required to approve any such action shall be the same as the percentage required for approval at a
duly convened meeting of Holders.



76









 





     Any resolution passed or decision taken at any meeting of Holders duly held or by duly
executed instrument in accordance with this Section shall be binding on all Holders of the Notes,
whether or not such Holders were present or represented at the meeting.



     SECTION 10.05. Determination of Voting Rights; Conduct and Adjournment of Meetings.



          (a) Notwithstanding any other provisions of the Indenture, the Indenture Trustee may make such
reasonable regulations as it may deem advisable for any meeting of Holders in regard to proof of
the holding of Notes and of the appointment of proxies and in regard to the appointment and duties
of inspectors of votes, the submission and examination of proxies, certificates and other evidence
of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem
appropriate. Except as otherwise permitted or required by any such regulations, the holding of
Notes shall be proved in the manner specified in Section 1.04 and the appointment of any
proxy shall be proved in the manner specified in Section 1.04. Such regulations may
provide that written instruments appointing proxies, regular on their face, may be presumed valid
and genuine without the proof specified in Section 1.04 or other proof.




          (b) The Indenture Trustee shall, by an instrument in writing, appoint a temporary chairman of
the meeting, unless the meeting shall have been called by the Trust or by Holders as provided in
Section 10.02(b), in which case the Trust or the Holders calling the meeting, as the case
may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in
principal amount of the Outstanding Notes represented at the meeting.




          (c) At any meeting, each Holder or proxy shall be entitled to one vote for each $1,000 of
principal amount of Notes held or represented by him, her or it; provided, however, that no vote
shall be cast or counted at any meeting in respect of any Note challenged as not Outstanding and
ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have
no right to vote, except as a Holder or proxy.




          (d) Notwithstanding any other provision in the Indenture to the contrary, any meeting of
Holders duly called pursuant to Section 10.02 at which a quorum is present may be adjourned
from time to time by Persons entitled to vote a majority in principal amount of the Outstanding
Notes represented at the meeting; and the meeting may be held as so adjourned without further
notice.




     SECTION 10.06. Counting Votes and Recording Action of Meetings. The vote upon any resolution
submitted to any meeting of Holders shall be by written ballots on which shall be subscribed the
signatures of the Holders or of their representatives by proxy and the principal amounts and serial
numbers of the Outstanding Notes held or represented by them. The permanent chairman of the
meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or
against any resolution and who shall make and file with the secretary of the meeting their verified
written reports in triplicate of all votes cast at the meeting. A record, at least in triplicate,
of the proceedings of each meeting of Holders shall be



77









 




prepared by the secretary of the meeting and there shall be attached to said record the
original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting
and showing that said notice was given as provided in Section 10.02 and, if applicable,
Section 10.04. Each copy shall be signed and verified by the affidavits of the permanent
chairman and secretary of the meeting and one such copy shall be delivered to the Trust, and
another to the Indenture Trustee to be preserved by the Indenture Trustee, the latter to have
attached thereto the ballots voted at the meeting. Any record so signed and verified shall be
conclusive evidence of the matters therein stated.




ARTICLE 11

Notes in Foreign Currencies




     SECTION 11.01. Notes in Foreign Currencies. In the absence of any provision to the contrary
in the form of Notes, whenever the Indenture provides for (a) any action by, or the determination
of any of the rights of, the Holders of Notes if not all of the Notes are denominated in the same
currency, or (b) any distribution to the Holders of Notes of any amount in respect of any Note
denominated in a currency other than U.S. Dollars, then all foreign denominated Notes shall be
treated for any such action, determination of rights or distribution as that amount of U.S. Dollars
that could be obtained for such amount on such reasonable basis of exchange and as of the Regular
Record Date with respect to such Notes for such action, determination of rights or distribution
(or, if there shall be no applicable Regular Record Date, such other date reasonably proximate to
the date of such action, determination of rights or distribution) as the Trust may specify in a
written notice to the Indenture Trustee or, in the absence of such written notice, as the Indenture
Trustee may determine.




78









 








EXHIBIT A-1




Form of Global Note for the Principal® Life CoreNotes Program®



THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE (HEREINAFTER DEFINED) AND IS
REGISTERED IN THE NAME OF A DEPOSITARY (AS DEFINED IN THE INDENTURE) OR A NOMINEE OF A DEPOSITARY.
THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO
TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE
OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.



UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A
NEW YORK CORPORATION (“DTC”), TO THE TRUST (HEREINAFTER DEFINED) OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND UNLESS ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.






	 	 	 	 	 
	Registered No.:
	 	CUSIP No.:
	 	Principal Amount: U.S. $











PRINCIPAL
LIFE INCOME FUNDINGS TRUST •




PRINCIPAL® LIFE CORENOTES®




	 
	Original Issue Date:

	Issue Price:

	Stated Maturity Date:

	Settlement Date:

	Securities
Exchange Listing: o Yes o No. If yes,

	 indicate name(s) of Securities Exchange(s): __________________________________.

	Depositary:

	Authorized Denominations:

	Collateral held in the Trust: Principal Life
Insurance Company Funding Agreement No. •, the
related Principal Financial Group, Inc. Guarantee
which fully and unconditionally guarantees the
payment obligations of Principal Life Insurance
Company under the Funding Agreement, all proceeds
of the Funding Agreement and the related
Guarantee and all rights and books and records
pertaining to the foregoing.

	Interest Rate or Formula:

	Fixed Rate Note: o Yes o No. If yes,

	Interest Rate:

	Interest Payment Frequency:

	Interest Payment Dates:

	Day Count Convention:

	Additional/Other Terms:

	Discount Note: o Yes o No. If yes,

	Total Amount of Discount:

	Initial Accrual Period of Discount:

	Interest Payment Dates:

	Additional/Other Terms:

	Redemption Provisions: o Yes o No. If yes,

	Initial Redemption Date:

	Additional/Other Terms:

	Repayment Provisions: o Yes o No. If yes,

	Repayment Date(s):

	Repayment Price:

	Additional/Other Terms:







A-1-1









 






	 
	Floating Rate Note: o Yes o No. If yes,

	Regular Floating Rate Notes o

	Floating Rate/ Fixed Rate Notes: o

	Interest Rate:

	Interest Rate Basis(es):

	LIBOR o

	o LIBOR Reuters Page:

	LIBOR Currency:

	CMT Rate o

	Designated Reuters Page:

	If FEDCMT

	o Weekly Average

	o Monthly Average

	Designated CMT Maturity Index:

	CD Rate o

	Commercial Paper Rate o

	Constant Maturity Swap Rate o

	Federal Funds Open Rate o

	Federal Funds Rate o

	Prime Rate o

	Treasury Rate o

	Index Maturity:

	Spread and/or Spread Multiplier:

	Initial Interest Rate, if any:

	Initial Interest Reset Date:

	Interest Reset Dates:

	Interest Determination Date(s):

	Interest Payment Dates:

	Maximum Interest Rate, if any:

	Minimum Interest Rate, if any:

	Fixed Rate Commencement Date, if any:

	Floating Rate Commencement Date, if any:

	Fixed Interest Rate, if any:

	Day Count Convention:

	Additional/Other Terms:

	Regular Record Date(s):

	Sinking Fund:

	Calculation Agent:

	Additional/Other Terms:

	Survivor’s Option: o Yes o No.

	If yes, the attached Survivor’s Option Rider is
incorporated into this Note.

	Trust Put Limitation:







     The Principal Life Income Fundings Trust designated above (the “Trust”), for value received,
hereby promises to pay to Cede & Co., or its registered assigns, the Principal Amount specified
above on the Stated Maturity Date specified above and, if so specified above, to pay interest
thereon from the Original Issue Date specified above or from the most recent Interest Payment Date
specified above to which interest has been paid or duly provided for at the rate per annum
determined in accordance with the provisions on the reverse hereof and as specified above, until
the principal hereof is paid or made available for payment. Payments of principal, premium, if
any, and interest hereon will be made in the lawful currency of the United States of America (“U.S.
Dollars” or “United States dollars”). The “Principal Amount” of this Note at any time means (1) if
this Note is a Discount Note (as hereinafter defined), the Amortized Face



A-1-2









 




Amount (as hereinafter defined) at such time (as defined in Section 3(c) on the
reverse hereof) and (2) in all other cases, the Principal Amount hereof. Capitalized terms not
otherwise defined herein shall have their meanings set forth in the Indenture, dated as of the date
of the Pricing Supplement (the “Indenture”), between Citibank, N.A., as the indenture trustee (the
“Indenture Trustee”), and the Trust, or on the face hereof.




     This Note will mature on the Stated Maturity Date, unless its principal (or any installment of
its principal) becomes due and payable prior to the Stated Maturity Date, whether, as applicable,
by the declaration of acceleration of maturity, notice of redemption by the Trust or otherwise (the
Stated Maturity Date or any date prior to the Stated Maturity Date on which this Note becomes due
and payable, as the case may be, is referred to as the “Maturity Date”).



     A “Discount Note” is any Note that has an Issue Price that is less than 100% of the Principal
Amount thereof by a percentage that is equal to or greater than 0.25% multiplied by the product of
the principal amount of the Notes and the number of full years to the Stated Maturity Date.



     Unless otherwise specified above, the interest payable on each Interest Payment Date or the
Maturity Date will be the amount of interest accrued from and including the Original Issue Date or
from and including the last Interest Payment Date to which interest has been paid or duly provided
for, as the case may be, to, but excluding, such Interest Payment Date or the Maturity Date, as the
case may be.



     Unless otherwise specified above, the interest payable on any Interest Payment Date will be
paid to the Holder on the Regular Record Date for such Interest Payment Date, which Regular Record
Date shall be the fifteenth (15th) calendar day, whether or not a Business Day,
immediately preceding the related Interest Payment Date; provided that, notwithstanding any
provision of the Indenture to the contrary, interest payable on any Maturity Date shall be payable
to the Person to whom principal shall be payable; and provided, further, that unless otherwise
specified above, in the case of a Note initially issued between a Regular Record Date and the
Interest Payment Date relating to such Regular Record Date, interest for the period beginning on
the Original Issue Date and ending on such Interest Payment Date shall be paid on the Interest
Payment Date following the next succeeding Regular Record Date to the Holder on such next
succeeding Regular Record Date.



     Payments of principal of, and premium, if any, and interest and other amounts due and owing,
if any, will be made through the Indenture Trustee to the account of DTC or its nominee and will be
made in accordance with depositary arrangements with DTC.



     Unless otherwise specified on the face hereof, the Holder hereof will not be obligated to pay
any administrative costs imposed by banks in making payments in immediately available funds by the
Trust. Unless otherwise specified on the face hereof, any tax assessment or governmental charge
imposed upon payments hereunder, including, without limitation, any withholding tax, will be borne
by the Holder hereof.



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     REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS NOTE SET FORTH ON THE REVERSE
HEREOF. SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT
THIS PLACE.



     Unless the certificate of authentication hereon shall have been executed by the Indenture
Trustee pursuant to the Indenture, this Note shall not be entitled to any benefit under such
Indenture or be valid or obligatory for any purpose.



     IN WITNESS WHEREOF, the Trust has caused this instrument to be duly executed, by manual or
facsimile signature.



	 	 	 	 	 
	 	 	THE PRINCIPAL LIFE INCOME FUNDINGS TRUST

        SPECIFIED ON THE FACE OF THIS NOTE
	 
	 	 	 	 
	Dated: Original Issue Date	 	By: U.S. Bank Trust National Association, not in its
individual capacity but solely as Trustee.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Authorized Officer






CERTIFICATE OF AUTHENTICATION




     This is one of the Notes of the Principal Life Income Fundings Trust specified on the face of
this Note referred to in the within-mentioned Indenture.



	 	 	 	 	 
	 	 	CITIBANK, N.A.
	 	 	As Indenture Trustee
	 
	 	 	 	 
	Dated: Original Issue Date
	 	 	 	 
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Authorized Signatory






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[REVERSE FORM OF NOTE]



Section 1. General. This Note is one of a duly authorized issue of Notes of the Trust.
The Notes are issued pursuant to the Indenture.



Section 2. Currency. This Note is denominated in, and payments of principal, premium, if
any, and/or interest, if any, will be made in U.S. Dollars.



Section 3. Determination of Interest Rate and Certain Other Terms.





	 	(a)	 	Fixed Rate Notes. If this Note is specified on the face hereof as a
“Fixed Rate Note”:






(i) This Note will bear interest at the rate per annum specified on the face hereof.
Interest on this Note will be computed on the basis of a 360-day year of twelve 30-day
months.




(ii) Unless otherwise specified on the face hereof, the Interest Payment Dates for this
Note will be as follows:



	 	 	 
	Interest Payment Frequency	 	Interest Payment Dates
	Monthly

	 	Fifteenth day of each calendar month, beginning
in the first calendar month following the month
this Note was issued.
	 
	 	 
	Quarterly

	 	Fifteenth day of every third calendar month,
beginning in the third calendar month following
the month this Note was issued.
	 
	 	 
	Semi-annual

	 	Fifteenth day of every sixth calendar month,
beginning in the sixth calendar month following
the month this Note was issued.
	 
	 	 
	Annual

	 	Fifteenth day of every twelfth calendar month,
beginning in the twelfth calendar month
following the month this Note was issued.







(iii) If any Interest Payment Date or the Maturity Date of this Note falls on a day
that is not a Business Day, the Trust will make the required payment of principal,
premium, if any, and/or interest or other amounts on the next succeeding Business Day,
and no additional interest will accrue in respect of the payment made on that next
succeeding Business Day.




	 	(b)	 	Floating Rate Notes. If this Note is specified on the face hereof as a
“Floating Rate Note”:




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(i) Interest Rate Basis. Interest on this Note will be determined by reference
to the applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include the CD Rate, the CMT Rate, the Commercial Paper Rate, the Constant
Maturity Swap Rate, the Federal Funds Open Rate, the Federal Funds Rate, LIBOR, the
Prime Rate or the Treasury Rate (each as defined below).




(ii) Effective Rate. The rate derived from the applicable Interest Rate Basis
or Interest Rate Bases will be determined in accordance with the related provisions
below. The interest rate in effect on each day will be based on: (1) if that day is an
Interest Reset Date, the rate determined as of the Interest Determination Date
immediately preceding that Interest Reset Date; or (2) if that day is not an Interest
Reset Date, the rate determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.




(iii) Spread; Spread Multiplier; Index Maturity. The “Spread” is the number of
basis points (one one-hundredth of a percentage point) specified on the face hereof to
be added to or subtracted from the related Interest Rate Basis or Interest Rate Bases
applicable to this Note. The “Spread Multiplier” is the percentage specified on the
face hereof of the related Interest Rate Basis or Interest Rate Bases applicable to
this Note by which the Interest Rate Basis or Interest Rate Bases will be multiplied to
determine the applicable interest rate. The “Index Maturity” is the period to maturity
of the instrument or obligation with respect to which the related Interest Rate Basis
or Interest Rate Bases will be calculated.




(iv) Regular Floating Rate Note. Unless this Note is specified on the face
hereof as a Floating Rate/Fixed Rate Note, this Note (a “Regular Floating Rate Note”)
will bear interest at the rate determined by reference to the applicable Interest Rate
Basis or Interest Rate Bases: (1) plus or minus the applicable Spread, if any; and/or
(2) multiplied by the applicable Spread Multiplier, if any. Commencing on the first
Interest Reset Date, the rate at which interest on this Regular Floating Rate Note is
payable will be reset as of each Interest Reset Date; provided, however, that the
interest rate in effect for the period, if any, from the Original Issue Date to the
first Interest Reset Date will be the Initial Interest Rate.




(v) Floating Rate/Fixed Rate Notes. If this Note is specified on the face
hereof as a “Floating Rate/Fixed Rate Note”, this Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Interest Rate Bases:
(1) plus or minus the applicable Spread, if any; and/or (2) multiplied by the
applicable Spread Multiplier, if any. Commencing on the first Interest Reset Date, the
rate at which this Floating Rate/Fixed Rate Note is payable will be reset as of each
Interest Reset Date; provided, however, that: (A) the interest rate in effect for the
period, if any, from the Original Issue Date to the first Interest Reset Date will be
the Initial Interest Rate specified on the face hereof; and (B) the interest rate in
effect commencing on the Fixed Rate Commencement Date will be the Fixed Interest Rate,
if specified on the face hereof, or, if not so specified, the interest rate in effect
on the day immediately preceding the Fixed Rate Commencement Date.



A-1-6









 






(vi) Interest Reset Dates. The period between Interest Reset Dates will be the
“Interest Reset Period.” Unless otherwise specified on the face hereof, the Interest
Reset Dates will be, in the case of this Floating Rate Note if by its terms it resets:
(1) daily—each business day; (2) weekly—the Wednesday of each week, with the exception
of any weekly reset Floating Rate Note as to which the Treasury Rate is an applicable
Interest Rate Basis, which will reset the Tuesday of each week; (3) monthly—the
fifteenth day of each calendar month; (4) quarterly—the fifteenth day of March, June,
September and December of each year; (5) semi-annually—the fifteenth day of the two
months of each year specified on the face hereof; and (6) annually—the fifteenth day of
the month of each year specified on the face hereof; provided, however, that, with
respect to a Floating Rate/Fixed Rate Note, the rate of interest thereon will not reset
after the particular Fixed Rate Commencement Date. If any Interest Reset Date for this
Floating Rate Note would otherwise be a day that is not a Business Day, the particular
Interest Reset Date will be postponed to the next succeeding Business Day, except that
in the case of a Floating Rate Note as to which LIBOR is an applicable Interest Rate
Basis and that Business Day falls in the next succeeding calendar month, the particular
Interest Reset Date will be the immediately preceding Business Day.




(vii) Interest Determination Dates. The interest rate applicable to a Floating
Rate Note for an Interest Reset Period commencing on the related Interest Reset Date
will be determined by reference to the applicable Interest Rate Basis as of the
particular “Interest Determination Date”, which will be: (1) with respect to the
Federal Funds Open Rate—the related Interest Reset Date; (2) with respect to the
Federal Funds Rate and the Prime Rate—the Business Day immediately preceding the
related Interest Reset Date; (3) with respect to the CD Rate, the Commercial Paper Rate
and the CMT Rate—the second Business Day preceding the related Interest Reset Date;
(4) with respect to the Constant Maturity Swap Rate—the second U.S. Government
Securities business day preceding the related Interest Reset Date, provided, however,
that if after attempting to determine the Constant Maturity Swap Rate, such rate is not
determinable for a particular Interest Determination Date, then such Interest
Determination Date shall be the first U.S. Government Securities business day preceding
the original interest determination date for which the Constant Maturity Swap Rate can
be determined; (5) with respect to LIBOR—the second London Banking Day (as defined
below) preceding the related Interest Reset Date; and (6) with respect to the Treasury
Rate—the day of the week in which the related Interest Reset Date falls on which day
Treasury Bills (as defined below) are normally auctioned (i.e., Treasury Bills are
normally sold at auction on Monday of each week, unless that day is a legal holiday, in
which case the auction is normally held on the following Tuesday, except that the
auction may be held on the preceding Friday); provided, however, that if an auction is
held on the Friday of the week preceding the related Interest Reset Date, the Interest
Determination Date will be the preceding Friday. The Interest Determination Date
pertaining to a Floating Rate Note, the interest rate of which is determined with
reference to two or more Interest Rate Bases, will be the latest Business Day which is
at least two Business Days before the related Interest Reset Date for the applicable
Floating Rate Note on which each Interest Reset Basis is determinable. “London Banking
Day” means a day on which



A-1-7









 






commercial banks are open for business (including dealings in the LIBOR Currency) in
London.




(viii) Calculation Dates. The interest rate applicable to each Interest Reset
Period will be determined by the Calculation Agent on or prior to the Calculation Date
(as defined below), except with respect to LIBOR, which will be determined on the
particular Interest Determination Date. Upon request of the Holder of a Floating Rate
Note, the Calculation Agent will disclose the interest rate then in effect and, if
determined, the interest rate that will become effective as a result of a determination
made for the next succeeding Interest Reset Date with respect to such Floating Rate
Note. The “Calculation Date”, if applicable, pertaining to any Interest Determination
Date will be the earlier of: (1) the tenth calendar day after the particular Interest
Determination Date or, if such day is not a Business Day, the next succeeding Business
Day; or (2) the Business Day immediately preceding the applicable Interest Payment Date
or the Maturity Date, as the case may be.




(ix) Maximum or Minimum Interest Rate. If specified on the face hereof, this
Note may have either or both of a Maximum Interest Rate or a Minimum Interest Rate. If
a Maximum Interest Rate is so designated, the interest rate for a Floating Rate Note
cannot ever exceed such Maximum Interest Rate and in the event that the interest rate
on any Interest Reset Date would exceed such Maximum Interest Rate (as if no Maximum
Interest Rate were in effect) then the interest rate on such Interest Reset Date shall
be the Maximum Interest Rate. If a Minimum Interest Rate is so designated, the
interest rate for a Floating Rate Note cannot ever be less than such Minimum Interest
Rate and in the event that the interest rate on any Interest Reset Date would be less
than such Minimum Interest Rate (as if no Minimum Interest Rate were in effect) then
the interest rate on such Interest Reset Date shall be the Minimum Interest Rate.
Notwithstanding anything to the contrary contained herein, the interest rate on a
Floating Rate Note shall not exceed the maximum interest rate permitted by applicable
law.




(x) Interest Payments. Unless otherwise specified on the face hereof, the
Interest Payment Dates will be, in the case of a Floating Rate Note which resets: (1)
daily, weekly or monthly—the fifteenth day of each calendar month or on the fifteenth
day of March, June, September and December of each year, as specified on the face
hereof; (2) quarterly—the fifteenth day of March, June, September and December of each
year; (3) semi-annually—the fifteenth day of the two months of each year specified on
the face hereof; and (4) annually—the fifteenth day of the month of each year as
specified on the face hereof. In addition, the Maturity Date will also be an Interest
Payment Date. If any Interest Payment Date other than the Maturity Date for this
Floating Rate Note would otherwise be a day that is not a Business Day, such Interest
Payment Date will be postponed to the next succeeding Business Day, except that in the
case of a Floating Rate Note as to which LIBOR is an applicable Interest Rate Basis and
that Business Day falls in the next succeeding calendar month, the particular Interest
Payment Date will be the immediately preceding Business Day. If the Maturity Date of a
Floating Rate Note falls on a day that is not a Business Day, the Trust will make the
required payment of principal, premium, if



A-1-8









 






any, and interest or other amounts on the next succeeding Business Day, and no
additional interest will accrue in respect of the payment made on that next succeeding
Business Day.




(xi) Rounding. Unless otherwise specified on the face hereof, all percentages
resulting from any calculation on this Floating Rate Note will be rounded to the
nearest one hundred-thousandth of a percentage point, with five one-millionths of a
percentage point rounded upwards. All dollar amounts used in or resulting from any
calculation on this Floating Rate Note will be rounded to the nearest cent.




(xii) Interest Factor. With respect to this Floating Rate Note, accrued
interest is calculated by multiplying the principal amount of such Note by an accrued
interest factor. The accrued interest factor is computed by adding the interest factor
calculated for each day in the particular Interest Reset Period. The interest factor
for each day will be computed by dividing the interest rate applicable to such day by
360, in the case of a Floating Rate Note as to which the CD Rate, the Commercial Paper
Rate, the Federal Funds Open Rate, the Federal Funds Rate, LIBOR or the Prime Rate is
an applicable Interest Rate Basis, or by the actual number of days in the year, in the
case of a Floating Rate Note as to which the CMT Rate or the Treasury Rate is an
applicable Interest Rate Basis. In the case of a series of Notes that bear interest at
floating rates as to which the Constant Maturity Swap Rate is the Interest Rate Basis,
the interest factor for each day will be computed by dividing the number of days in the
interest period by 360 (the number of days to be calculated on the base is of a year of
360 days with twelve 30-day months (unless (i) the last day of the interest period is
the 31st day of a month but the first day of the interest period is a day
other than the 30th or 31st day of a month, in which case the
month that includes that last day shall not be considered to be shortened to a 30-day
month, or (ii) the last day of the interest period is the last day of the month of
February, in which case the month of February shall not be considered to be lengthened
to a 30-day month)). The interest factor for a Floating Rate Note as to which the
interest rate is calculated with reference to two or more Interest Rate Bases will be
calculated in each period in the same manner as if only the applicable Interest Rate
Basis specified above applied.




(xiii) Determination of Interest Rate Basis. The Calculation Agent shall
determine the rate derived from each Interest Rate Basis in accordance with the
following provisions.




(A) CD Rate Notes. If the Interest Rate Basis is the CD Rate, this Note
shall be deemed a “CD Rate Note.” Unless otherwise specified on the face hereof,
“CD Rate” means: (1) the rate on the particular Interest Determination Date for
negotiable United States dollar certificates of deposit having the Index Maturity
specified on the face hereof as published in H.15(519) (as defined below) under the
caption “CDs (secondary market)”; or (2) if the rate referred to in clause (1) is
not so published by 3:00 P.M., New York City time, on the related Calculation Date,
the rate on the particular Interest Determination Date for negotiable United States
dollar certificates of deposit of the particular Index Maturity as published in



A-1-9









 






H.15 Daily Update (as defined below), or other recognized electronic source used for
the purpose of displaying the applicable rate, under the caption “CDs (secondary
market)”; or (3) if the rate referred to in clause (2) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date calculated by the Calculation Agent as the
arithmetic mean of the secondary market offered rates as of 10:00 A.M., New York
City time, on that Interest Determination Date, of three leading non-bank dealers in
negotiable United States dollar certificates of deposit in The City of New York
(which may include the purchasing agent or its affiliates) selected by the
Calculation Agent for negotiable United States dollar certificates of deposit of
major United States money market banks for negotiable United States certificates of
deposit with a remaining maturity closest to the particular Index Maturity in an
amount that is representative for a single transaction in that market at that time;
or (4) if the dealers so selected by the Calculation Agent are not quoting as
mentioned in clause (3), the CD Rate in effect on the particular Interest
Determination Date. “H.15(519)” means the weekly statistical release designated as
H.15(519), or any successor publication, published by the Board of Governors of the
Federal Reserve System. “H.15 Daily Update” means the daily update of H.15(519),
available through the world-wide-web site of the Board of Governors of the Federal
Reserve System at http://www.federalreserve.gov/releases/H15/ update, or any
successor site or publication.




(B) CMT Rate Notes. If the Interest Rate Basis is the CMT Rate, this Note
shall be deemed a “CMT Rate Note.” Unless otherwise specified on the face hereof,
“CMT Rate” means:




	 	(1)	 	if Reuters Page FRBCMT is specified on the face
hereof:






	 	i.	 	the percentage equal to the yield for
United States Treasury securities at “constant maturity” having the
Index Maturity specified on the face hereof as published in
H.15(519) under the caption “Treasury Constant Maturities”, as the
yield is displayed on Reuters Service (or any successor service) on
page FRBCMT (or any other page as may replace the specified page on
that service) (“Reuters Page FRBCMT”), for the particular Interest
Determination Date; or
	 
	 	ii.	 	if the rate referred to in clause (i)
does not so appear on Reuters Page FRBCMT, the percentage equal to
the yield for United States Treasury securities at “constant
maturity” having the particular Index Maturity and for the
particular Interest Determination Date as published in H.15(519)
under the caption “Treasury Constant Maturities”; or
	 
	 	iii.	 	if the rate referred to in clause (ii)
does not so appear in H.15(519), the rate on the particular Interest
Determination Date for the period of the particular Index Maturity
as may then be




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	 	 	 	published by either the Federal Reserve System Board of Governors or the
United States Department of the Treasury that the Calculation Agent
determines to be comparable to the rate which would otherwise have
been published in H.15(519); or
	 
	 	iv.	 	if the rate referred to in clause (iii)
is not so published, the rate on the particular Interest
Determination Date calculated by the Calculation Agent as a yield to
maturity based on the arithmetic mean of the secondary market bid
prices at approximately 3:30 P.M., New York City time, on that
Interest Determination Date of three leading primary United States
government securities dealers in The City of New York (which may
include the purchasing agent or its affiliates) (each, a “Reference
Dealer”) selected by the Calculation Agent from five Reference
Dealers selected by the Calculation Agent and eliminating the
highest quotation, or, in the event of equality, one of the highest,
and the lowest quotation or, in the event of equality, one of the
lowest, for United States Treasury securities with an original
maturity equal to the particular Index Maturity, a remaining term to
maturity no more than one year shorter than that Index Maturity and
in a principal amount that is representative for a single
transaction in the securities in that market at that time; or
	 
	 	v.	 	if fewer than five but more than two of
the prices referred to in clause (iv) are provided as requested, the
rate on the particular Interest Determination Date calculated by the
Calculation Agent based on the arithmetic mean of the bid prices
obtained and neither the highest nor the lowest of the quotations
shall be eliminated; or
	 
	 	vi.	 	if fewer than three prices referred to in
clause (iv) are provided as requested, the rate on the particular
Interest Determination Date calculated by the Calculation Agent as a
yield to maturity based on the arithmetic mean of the secondary
market bid prices as of approximately 3:30 P.M., New York City time,
on that Interest Determination Date of three Reference Dealers
selected by the Calculation Agent from five Reference Dealers
selected by the Calculation Agent and eliminating the highest
quotation or, in the event of equality, one of the highest and the
lowest quotation or, in the event of equality, one of the lowest,
for United States Treasury securities with an original maturity
greater than the particular Index Maturity, a remaining term to
maturity closest to that Index Maturity and in a principal amount
that is representative for a single transaction in the securities in
that market at that time; or




A-1-11









 






	 	vii.	 	if fewer than five but more than two
prices referred to in clause (vi) are provided as requested, the
rate on the particular Interest Determination Date calculated by the
Calculation Agent based on the arithmetic mean of the bid prices
obtained and neither the highest nor the lowest of the quotations
will be eliminated; or
	 
	 	viii.	 	if fewer than three prices referred to
in clause (vi) are provided as requested, the CMT Rate in effect on
the particular Interest Determination Date; or






	 	(2)	 	if Reuters Page FEDCMT is specified on the face
hereof:






	 	i.	 	the percentage equal to the one-week or
one-month, as specified on the face hereof, average yield for United
States Treasury securities at “constant maturity” having the Index
Maturity specified on the face hereof as published in H.15(519)
opposite the caption “Treasury Constant Maturities”, as the yield is
displayed on Reuters Service (or any successor service) (on page
FEDCMT or any other page as may replace the specified page on that
service) (“Reuters Page FEDCMT”), for the week or month, as
applicable, ended immediately preceding the week or month, as
applicable, in which the particular Interest Determination Date
falls; or
	 
	 	ii.	 	if the rate referred to in clause (i)
does not so appear on Reuters Page FEDCMT, the percentage equal to
the one-week or one-month, as specified on the face hereof, average
yield for United States Treasury securities at “constant maturity”
having the particular Index Maturity and for the week or month, as
applicable, preceding the particular Interest Determination Date as
published in H.15(519) opposite the caption “Treasury Constant
Maturities”; or
	 
	 	iii.	 	if the rate referred to in clause (ii)
does not so appear in H.15(519), the one-week or one-month, as
specified on the face hereof, average yield for United States
Treasury securities at “constant maturity” having the particular
Index Maturity as otherwise announced by the Federal Reserve Bank of
New York for the week or month, as applicable, ended immediately
preceding the week or month, as applicable, in which the particular
Interest Determination Date falls; or
	 
	 	iv.	 	if the rate referred to in clause (iii)
is not so published, the rate on the particular Interest
Determination Date calculated by the Calculation Agent as a yield to
maturity based on the arithmetic mean of the secondary market bid
prices at approximately 3:30 P.M., New York City time, on that
Interest Determination Date of




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	 	 	 	three Reference Dealers selected by the
Calculation Agent from five Reference Dealers selected by the
Calculation Agent and eliminating the highest quotation, or, in the
event of equality, one of the highest, and the lowest quotation or,
in the event of equality, one of the lowest, for United States
Treasury securities with an original maturity equal to the
particular Index Maturity, a remaining term to maturity no more than
one year shorter than that Index Maturity and in a principal amount
that is representative for a single transaction in the securities in
that market at that time; or
	 
	 	v.	 	if fewer than five but more than two of
the prices referred to in clause (iv) are provided as requested, the
rate on the particular Interest Determination Date calculated by the
Calculation Agent based on the arithmetic mean of the bid prices
obtained and neither the highest nor the lowest of the quotations
shall be eliminated; or
	 
	 	vi.	 	if fewer than three prices referred to in
clause (iv) are provided as requested, the rate on the particular
Interest Determination Date calculated by the Calculation Agent as a
yield to maturity based on the arithmetic mean of the secondary
market bid prices as of approximately 3:30 P.M., New York City time,
on that Interest Determination Date of three Reference Dealers
selected by the Calculation Agent from five Reference Dealers
selected by the Calculation Agent and eliminating the highest
quotation or, in the event of equality, one of the highest and the
lowest quotation or, in the event of equality, one of the lowest,
for United States Treasury securities with an original maturity
greater than the particular Index Maturity, a remaining term to
maturity closest to that Index Maturity and in a principal amount
that is representative for a single transaction in the securities in
that market at the time; or
	 
	 	vii.	 	if fewer than five but more than two
prices referred to in clause (vi) are provided as requested, the
rate on the particular Interest Determination Date calculated by the
Calculation Agent based on the arithmetic mean of the bid prices
obtained and neither the highest nor the lowest of the quotations
will be eliminated; or
	 
	 	viii.	 	if fewer than three prices referred to
in clause (vi) are provided as requested, the CMT Rate in effect on
that Interest Determination Date.






	 	If two United States Treasury securities with an original maturity greater
than the Index Maturity specified on the face hereof have remaining terms to
maturity equally close to the particular Index Maturity, the quotes for




A-1-13









 






	 	 	 	the United States Treasury security with the shorter original remaining term
to maturity will be used.






(C) Commercial Paper Rate Notes. If the Interest Rate Basis is the
Commercial Paper Rate, this Note shall be deemed a “Commercial Paper Rate Note.”
Unless otherwise specified on the face hereof, “Commercial Paper Rate” means: (1)
the Money Market Yield (as defined below) on the particular Interest Determination
Date of the rate for commercial paper having the Index Maturity specified on the
face hereof as published in H.15(519) under the caption “Commercial
Paper—Nonfinancial”; or (2) if the rate referred to in clause (1) is not so
published by 3:00 P.M., New York City time, on the related Calculation Date, the
Money Market Yield of the rate on the particular Interest Determination Date for
commercial paper having the particular Index Maturity as published in H.15 Daily
Update, or such other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption “Commercial Paper—Nonfinancial”;
or (3) if the rate referred to in clause (2) is not so published by 3:00 P.M., New
York City time, on the related Calculation Date, the rate on the particular Interest
Determination Date calculated by the Calculation Agent as the Money Market Yield of
the arithmetic mean of the offered rates at approximately 11:00 A.M., New York City
time, on that Interest Determination Date of three leading dealers of United States
dollar commercial paper in The City of New York (which may include the purchasing
agent or its affiliates) selected by the Calculation Agent for commercial paper
having the particular Index Maturity placed for industrial issuers whose bond rating
is “Aa”, or the equivalent, from a nationally recognized statistical rating
organization; or (4) if the dealers so selected by the Calculation Agent are not
quoting as mentioned in clause (3), the Commercial Paper Rate in effect on the
particular Interest Determination Date. “Money Market Yield” means a yield
(expressed as a percentage) calculated in accordance with the following formula:







	Money Market Yield = D x 360 x 100




	—




	360 — (D x M)






where “D” refers to the applicable per annum rate for commercial paper quoted on a
bank discount basis and expressed as a decimal, and “M” refers to the actual number
of days in the applicable Interest Reset Period.




(D) Constant Maturity Swap Rate Notes. If the Interest Rate Basis is the
Constant Maturity Swap Rate, this Note shall be deemed a “Constant Maturity Swap
Rate Note.” Unless otherwise specified on the face hereof, “Constant Maturity Swap
Rate” means: (1) the rate for U.S. dollar swaps with the designated maturity
specified in the applicable pricing supplement, expressed as a percentage, which
appears on the Reuters Screen (or any successor service) TGM42276 Page as of 11:00
A.M., New York City time, on the particular Interest Determination Date; or (2) if
the rate referred to in clause (1) does not appear on the Reuters Screen (or any
successor service) TGM42276 Page by 2:00 P.M., New York City time, on such Interest
Determination Date, a percentage



A-1-14









 






determined on the basis of the mid-market semiannual swap rate quotations provided
by the reference banks (as defined below) as of approximately 11:00 A.M., New York
City time, on such Interest Determination Date, and, for this purpose, the
semi-annual swap rate means the mean of the bid and offered rates for the
semi-annual fixed leg, calculated on a 30/360 day count basis, of a
fixed-for-floating U.S. dollar interest rate swap transaction with a term equal to
the designated maturity specified in the applicable pricing supplement commencing on
the Interest Reset Date and in a representative amount (as defined below) with an
acknowledged dealer of good credit in the swap market, where the floating leg,
calculated on an actual/360 day count basis, is equivalent to USD-LIBOR-BBA with a
designated maturity specified in the applicable pricing supplement. The Calculation
Agent will request the principal New York City office of each of the reference banks
to provide a quotation of its rate. If at least three quotations are provided, the
rate for that Interest Determination Date will be the arithmetic mean of the
quotations, eliminating the highest quotation (or, in the event of equality, one of
the highest) and the lowest quotation (or, in the event of equality, one of the
lowest); or (3) if at least three quotations are not received by the Calculation
Agent as mentioned in clause (2), the Constant Maturity Swap Rate in effect on the
particular Interest Determination Date. “U.S. Government Securities business day”
means any day except for Saturday, Sunday, or a day on which The Bond Market
Association recommends that the fixed income departments of its members be closed
for the entire day for purposes of trading in U.S. government securities.
“Representative amount” means an amount that is representative for a single
transaction in the relevant market at the relevant time. “Reference banks” mean
five leading swap dealers in the New York City interbank market, selected by the
Calculation Agent, after consultation with us.




(E) Federal Funds Open Rate Notes. If the Interest Rate Basis is the
Federal Funds Open Rate, this Note shall be deemed a “Federal Funds Open Rate Note.”
Unless otherwise specified on the face hereof, “Federal Funds Open Rate” means the
rate set forth on Reuters Service (or any successor service) on page 5 (or any other
page as may replace the specified page on that service) for an Interest
Determination Date underneath the caption “FEDERAL FUNDS” in the row titled “OPEN”.
If the rate is not available for an Interest Determination Date, the rate for that
Interest Determination Date shall be the Federal Funds Rate as determined below.




(F) Federal Funds Rate Notes. If the Interest Rate Basis is the Federal
Funds Rate, this Note shall be deemed a “Federal Funds Rate Note.” Unless otherwise
specified on the face hereof, “Federal Funds Rate” means: (1) the rate as of the
particular Interest Determination Date for United States dollar federal funds as
published in H.15(519) under the caption “Federal Funds (Effective)” and displayed
on Reuters Service (or any successor service) on page FEDFUNDS1 (or any other page
as may replace the specified page on that service) (“Reuters Page FEDFUNDS1”); or
(2) if the rate referred to in clause (1) does not so appear on Reuters Page
FEDFUNDS1 or is not so published by 5:00 P.M., New York City time, on the related
Calculation Date, the rate on the particular Interest



A-1-15









 






Determination Date for United States dollar federal funds as published in H.15 Daily
Update, or such other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption “Federal Funds (Effective)”; or
(3) if such rate does not appear on Reuters Page FEDFUNDS1 or is not so published
by 5:00 P.M., New York City time, on the related Calculation Date, the rate will be
the rate for the first preceding day for which such rate is set forth in H.15(519)
under the caption “Federal Funds (Effective)”, as such rate is displayed on the
Reuters Page FEDFUNDS1.




(G) LIBOR Notes. If the Interest Rate Basis is LIBOR, this Note shall be
deemed a “LIBOR Note.” Unless otherwise specified on the face hereof, “LIBOR”
means: (1) whether “LIBOR Reuters” is or is not specified on the face hereof as the
method for calculating LIBOR, the rate for deposits in the LIBOR Currency (as
defined below) having the Index Maturity specified on the face hereof, commencing on
the related Interest Reset Date, that appears on the LIBOR Page (as defined below)
as of 11:00 A.M., London time, on the particular Interest Determination Date; or (2)
if no rate appears on the particular Interest Determination Date on the LIBOR Page
as specified in clause (1), the rate calculated by the Calculation Agent as the
arithmetic mean of at least two offered quotations obtained by the Calculation Agent
after requesting the principal London offices of each of four major reference banks
(which may include affiliates of the Agents), in the London interbank market
selected by the Calculation Agent to provide the Calculation Agent with its offered
quotation for deposits in the LIBOR Currency for the period of the particular Index
Maturity, commencing on the related Interest Reset Date, to prime banks in the
London interbank market at approximately 11:00 A.M., London time, on that Interest
Determination Date and in a principal amount that is representative for a single
transaction in the LIBOR Currency in that market at that time; or (3) if fewer than
two offered quotations referred to in clause (2) are provided as requested, the rate
calculated by the Calculation Agent as the arithmetic mean of the rates quoted at
approximately 11:00 A.M., in the applicable Principal Financial Center, on the
particular Interest Determination Date by three major banks (which may include
affiliates of the Agents), in that principal financial center selected by the
Calculation Agent for loans in the LIBOR Currency to leading European banks, having
the particular Index Maturity and in a principal amount that is representative for a
single transaction in the LIBOR Currency in that market at that time; or (4) if the
banks so selected by the Calculation Agent are not quoting as mentioned in clause
(3), LIBOR in effect on the particular Interest Determination Date. “LIBOR
Currency” means the currency specified on the face hereof as to which LIBOR shall be
calculated or, if no currency is specified on the face hereof, United States
dollars. “LIBOR Page” means the display on Reuters Service (or any successor
service) on the page specified on the face hereof (or any other page as may replace
that page on that service) for the purpose of displaying the London interbank rates
of major banks for the LIBOR Currency.




(H) Prime Rate Notes. If the Interest Rate Basis is the Prime Rate, this
Note shall be deemed a “Prime Rate Note.” Unless otherwise specified on the face
hereof,



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“Prime Rate” means: (1) the rate on the particular Interest Determination Date as
published in H.15(519) under the caption “Bank Prime Loan”; or (2) if the rate
referred to in clause (1) is not so published by 3:00 P.M., New York City time, on
the related Calculation Date, the rate on the particular Interest Determination Date
as published in H.15 Daily Update, or such other recognized electronic source used
for the purpose of displaying the applicable rate, under the caption “Bank Prime
Loan”, or (3) if the rate referred to in clause (2) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date calculated by the Calculation Agent as the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen US PRIME 1 Page (as defined below) as the applicable
bank’s prime rate or base lending rate as of 11:00 A.M., New York City time, on that
Interest Determination Date; or (4) if fewer than four rates referred to in clause
(3) are so published by 3:00 p.m., New York City time, on the related Calculation
Date, the rate calculated by the Calculation Agent as the particular Interest
Determination Date calculated by the Calculation Agent as the arithmetic mean of the
prime rates or base lending rates quoted on the basis of the actual number of days
in the year divided by a 360-day year as of the close of business on that Interest
Determination Date by three major banks (which may include affiliates of the
purchasing agent) in The City of New York selected by the Calculation Agent; or (5)
if the banks so selected by the Calculation Agent are not quoting as mentioned in
clause (4), the Prime Rate in effect on the particular Interest Determination Date.
“Reuters Screen US PRIME 1 Page” means the display on the Reuter Monitor Money Rates
Service (or any successor service) on the “US PRIME 1” page (or any other page as
may replace that page on that service) for the purpose of displaying prime rates or
base lending rates of major United States banks.




(I) Treasury Rate Notes. If the Interest Rate Basis is the Treasury Rate,
this Note shall be deemed a “Treasury Rate Note.” Unless otherwise specified on the
face hereof, “Treasury Rate” means: (1) the rate from the auction held on the
Interest Determination Date (the “Auction”) of direct obligations of the United
States (“Treasury Bills”) having the Index Maturity specified on the face hereof
under the caption “INVESTMENT RATE” on the display on Reuters Service (or any
successor service) on page USAUCTION 10 (or any other page as may replace that page
on that service) (“Reuters USAUCTION 10”) or page USAUCTION 11 (or any other page as
may replace that page on that service) (“Reuters USAUCTION 11”); or (2) if the rate
referred to in clause (1) is not so published by 3:00 P.M., New York City time, on
the related Calculation Date, the Bond Equivalent Yield (as defined below) of the
rate for the applicable Treasury Bills as published in H.15 Daily Update, or another
recognized electronic source used for the purpose of displaying the applicable rate,
under the caption “U.S. Government Securities/Treasury Bills/Auction High”; or (3)
if the rate referred to in clause (2) is not so published by 3:00 P.M., New York
City time, on the related Calculation Date, the Bond Equivalent Yield of the auction
rate of the applicable Treasury Bills as announced by the United States Department
of the Treasury; or (4) if the rate referred to in clause (3) is not so announced by
the United States



A-1-17









 






Department of the Treasury, or if the Auction is not held, the Bond Equivalent Yield
of the rate on the particular Interest Determination Date of the applicable Treasury
Bills as published in H.15(519) under the caption “U.S. Government
Securities/Treasury Bills/Secondary Market”; or (5) if the rate referred to in
clause (4) is not so published by 3:00 P.M., New York City time, on the related
Calculation Date, the rate on the particular Interest Determination Date of the
applicable Treasury Bills as published in H.15 Daily Update, or another recognized
electronic source used for the purpose of displaying the applicable rate, under the
caption “U.S. Government Securities/Treasury Bills/Secondary Market”; or (6) if the
rate referred to in clause (5) is not so published by 3:00 P.M., New York City time,
on the related Calculation Date, the rate on the particular Interest Determination
Date calculated by the Calculation Agent as the Bond Equivalent Yield of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30 P.M.,
New York City time, on that Interest Determination Date, of three primary United
States government securities dealers (which may include the purchasing agent or its
affiliates) selected by the Calculation Agent, for the issue of Treasury Bills with
a remaining maturity closest to the Index Maturity specified on the face hereof; or
(7) if the dealers so selected by the Calculation Agent are not quoting as mentioned
in clause (6), the Treasury Rate in effect on the particular Interest Determination
Date. “Bond Equivalent Yield” means a yield (expressed as a percentage) calculated
in accordance with the following formula:







	Bond Equivalent Yield = D x N            x 100
—




	360 — (D x M)




where “D” refers to the applicable per annum rate for Treasury Bills quoted on a bank discount
basis and expressed as a decimal, “N” refers to 365 or 366, as the case may be, and “M” refers to
the actual number of days in the applicable Interest Reset Period.





	 	(c)	 	Discount Notes. If this Note is specified on the face hereof as a
“Discount Note”:






(i) Principal and Interest. This Note will bear interest in the same manner as
set forth in Section 3(a) above, and payments of principal and interest shall be made
as set forth on the face hereof. Discount Notes may not bear any interest currently or
may bear interest at a rate that is below market rates at the time of issuance. The
difference between the Issue Price of a Discount Note and par is referred to as the
“Discount”.




(ii) Redemption; Repayment; Acceleration. In the event a Discount Note is
redeemed, repaid or accelerated, the amount payable to the Holder of such Discount Note
will be equal to the sum of: (A) the Issue Price (increased by any accruals of
Discount); and (B) any unpaid interest accrued on such Discount Note to the Maturity
Date (“Amortized Face Amount”). Unless otherwise specified on the face hereof, for
purposes of determining the amount of Discount that has accrued as of any date on which
a redemption, repayment or acceleration of maturity occurs for a Discount Note, a
Discount will be accrued using a constant yield method. The



A-1-18









 






constant yield will be calculated using a 30-day month, 360-day year convention, a
compounding period that, except for the Initial Period (as defined below), corresponds
to the shortest period between Interest Payment Dates for the applicable Discount Note
(with ratable accruals within a compounding period), a coupon rate equal to the initial
coupon rate applicable to the applicable Discount Note and an assumption that the
maturity of such Discount Note will not be accelerated. If the period from the date of
issue to the first Interest Payment Date for a Discount Note (the “Initial Period”) is
shorter than the compounding period for such Discount Note, a proportionate amount of
the yield for an entire compounding period will be accrued. If the Initial Period is
longer than the compounding period, then the period will be divided into a regular
compounding period and a short period with the short period being treated as provided
above.


Section 4. Redemption. If no redemption right is set forth on the face hereof, this Note
may not be redeemed prior to the Stated Maturity Date, except as set forth in the Indenture or in
Section 10 hereof. In the case of a Note that is not a Discount Note, if a redemption right is set
forth on the face of this Note, the Trust shall elect to redeem this Note on the Interest Payment
Date after the Initial Redemption Date set forth on the face hereof on which the Funding Agreement
is to be redeemed in whole or in part by Principal Life Insurance Company (“Principal Life”) (each,
a “Redemption Date”), in which case this Note must be redeemed on such Redemption Date in whole or
in part, as applicable, prior to the Stated Maturity Date, in increments of $1,000 at the
applicable Redemption Price (as defined below), together with unpaid interest, if any, accrued
thereon to, but excluding, the applicable Redemption Date. “Redemption Price” shall mean the
unpaid Principal Amount of this Note to be redeemed. The unpaid Principal Amount of this Note to
be redeemed shall be determined by multiplying (1) the Outstanding Principal Amount of this Note by
(2) the quotient derived by dividing (A) the outstanding principal amount of the Funding Agreement
to be redeemed by Principal Life by (B) the outstanding principal amount of the Funding Agreement.
Notice must be given not more than sixty (60) nor less than thirty (30) calendar days prior to the
proposed Redemption Date. In the event of redemption of this Note in part only, a new Note for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon the surrender
hereof. If less than all of this Note is redeemed, the Indenture Trustee will select by lot or, in
its discretion, on a pro rata basis, the amount of the interest of each direct participant in the
Trust to be redeemed.



Section 5. Sinking Funds. Unless specified on the face hereof, this Note will not be
subject to, or entitled to the benefit of, any sinking fund.



Section 6. Repayment. If no repayment right is set forth on the face hereof, this Note
may not be repaid at the option of the Holder hereof prior to the Stated Maturity Date. If a
repayment right is granted on the face of this Note, this Note may be subject to repayment at the
option of the Holder on any Interest Payment Date on and after the date, if any, indicated on the
face hereof (each, a “Repayment Date”). On any Repayment Date, unless otherwise specified on the
face hereof, this Note shall be repayable in whole or in part in increments of $1,000 at the option
of the Holder hereof at a repayment price equal to 100% of the Principal Amount to be repaid,
together with interest thereon payable to the Repayment Date. For this Note to be repaid in whole
or in part at the option of the Holder hereof, this Note must be received by the Indenture Trustee,
with the form entitled “Option to Elect Repayment”, below, duly completed by the




A-1-19









 







Indenture Trustee. Exercise of such repayment option by the Holder hereof shall be irrevocable.
In the event of a repayment of this Note in part only, a new Note for the portion hereof not repaid
shall be issued in the name of the Holder hereof upon the surrender hereof.



Section 7. Modifications and Waivers. The Indenture contains provisions permitting the
Trust and the Indenture Trustee (1) at any time and from time to time without notice to, or the
consent of, the Holders of any Notes issued under the Indenture to enter into one or more
supplemental indentures for certain enumerated purposes and (2) with the consent of the Holders of
a majority in aggregate principal amount of the Outstanding Notes affected thereby, to enter into
one or more supplemental indentures for the purpose of adding any provisions to, or changing in any
manner or eliminating any of the provisions of, the Indenture or of modifying in any manner the
rights of Holders of Notes under the Indenture; provided, that, with respect to certain enumerated
provisions, no such supplemental indenture shall be entered into without the consent of the Holder
of each Note affected thereby. Any such consent or waiver by the Holder of this Note shall be
conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note
issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or
not notation of such consent or waiver is made upon this Note or such other Notes.



Section 8. Obligations Unconditional. No reference herein to the Indenture and no
provisions of this Note or of the Indenture shall impair the right of each Holder of any Note,
which is absolute and unconditional, to receive payment of the principal of, and any interest on,
and premium, if any, on, such Note on the respective Stated Maturity Date or redemption date
thereof and to institute suit for the enforcement of any such payment, and such rights shall not be
impaired without the consent of such Holder.



Section 9. Events of Default. If an Event of Default with respect to this Note shall
occur and be continuing, the principal of, and all other amounts payable on, the Notes may be
declared due and payable, or may be automatically accelerated, as the case may be, in the manner
and with the effect provided in the Indenture. In the event that this Note is a Discount Note, the
amount of principal of this Note that becomes due and payable upon such acceleration shall be equal
to the amount calculated as set forth in Section 3(c) hereof.



Section 10. Withholding; No Additional Amounts; Tax Event and Redemption. All amounts due
on this Note will be made without any applicable withholding or deduction for or on account of any
present or future taxes, duties, levies, assessments or other governmental charges of whatever
nature imposed or levied by or on behalf of any governmental authority, unless such withholding or
deduction is required by law. Unless otherwise specified on the face hereof, the Trust will not
pay any additional amounts to the Holder of this Note in respect of such withholding or deduction,
any such withholding or deduction will not give rise to an event of default or any independent
right or obligation to redeem this Note and the Holder will be deemed for all purposes to have
received cash in an amount equal to the portion of such withholding or deduction that is
attributable to such Holder’s interest in this Note as equitably determined by the Trust.




     If (1) a Tax Event (defined below) as to the Funding Agreement occurs and (2) Principal Life
redeems the Funding Agreement in whole or in part, the Trust will redeem the Notes, subject to the
terms and conditions of Section 2.04 of the Standard Indenture Terms, at the Tax



A-1-20









 




Event Redemption Price (defined below) together with unpaid interest accrued thereon to the
applicable redemption date. “Tax Event” means that Principal Life shall have received an opinion
of independent legal counsel stating in effect that as a result of (a) any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations thereunder) of the
United States or any political subdivision or taxing authority thereof or therein or (b) any
amendment to, or change in, an interpretation or application of any such laws or regulations by any
governmental authority in the United States, which amendment or change is enacted, promulgated,
issued or announced on or after the effective date of the Funding Agreement, there is more than an
insubstantial risk that (i) the Trust is, or will be within ninety (90) days of the date thereof,
subject to U.S. federal income tax with respect to interest accrued or received on the Funding
Agreement or (ii) the Trust is, or will be within ninety (90) days of the date thereof, subject to
more than a de minimis amount of taxes, duties or other governmental charges. “Tax Event
Redemption Price” means an amount equal to the unpaid principal amount of this Note to be redeemed,
which shall be determined by multiplying (1) the Outstanding Principal Amount of this Note by (2)
the quotient derived by dividing (A) the outstanding principal amount to be redeemed by Principal
Life of the Funding Agreement by (B) the outstanding principal amount of the Funding Agreement.



Section 11. Listing. Unless otherwise specified on the face hereof, this Note will not be
listed on any securities exchange.



Section 12. Collateral. The Collateral for this Note includes the Funding Agreement and
the Guarantee specified on the face hereof.



Section 13. No Recourse Against Certain Persons. No recourse shall be had for the payment
of any principal, interest or any other sums at any time owing under the terms of this Note, or for
any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture
or any indenture supplemental thereto, against the Nonrecourse Parties, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such personal liability being, by the acceptance hereof and as part of the
consideration for issue hereof, expressly waived and released.



Section 14. Miscellaneous.




     (a) This Note is issuable only as a registered Note without coupons in denominations of
$1,000 and any integral multiple in excess thereof unless otherwise specified on the face of this
Note.



     (b) Prior to due presentment for registration of transfer of this Note, the Trust, the
Indenture Trustee, the Registrar, the Paying Agent, any Agent, and any other agent of the Trust or
the Indenture Trustee may treat the Person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment as herein provided and for all other purposes, whether
or not this Note shall be overdue, and none of the Trust, the Indenture Trustee, the Registrar, the
Paying Agent, any Agent, or any other agent of the Trust or the Indenture Trustee shall be affected
by notice to the contrary.



A-1-21









 





     (c) The Notes are being issued by means of a book-entry-only system with no physical
distribution of certificates to be made except as provided in the Indenture. The book-entry system
maintained by DTC will evidence ownership of the Notes, with transfers of ownership effected on the
records of DTC and its participants pursuant to rules and procedures established by DTC and its
participants. The Trust and the Indenture Trustee will recognize Cede & Co., as nominee of DTC, as
the registered owner of the Notes, as the Holder of the Notes for all purposes, including payment
of principal, premium (if any) and interest, notices and voting. Transfer of principal, premium
(if any) and interest to participants of DTC will be the responsibility of DTC, and transfer of
principal, premium (if any) and interest to beneficial holders of the Notes by participants of DTC
will be the responsibility of such participants and other nominees of such beneficial holders. So
long as the book-entry system is in effect, the selection of any Notes to be redeemed or repaid
will be determined by DTC pursuant to rules and procedures established by DTC and its participants.
Neither the Trust nor the Indenture Trustee shall be responsible or liable for such transfers or
payments or for maintaining, supervising or reviewing the records maintained by DTC, its
participants or persons acting through such participants.



     (d) This Note or portion hereof may not be exchanged for Definitive Notes, except in the
limited circumstances provided for in the Indenture. The transfer or exchange of Definitive Notes
shall be subject to the terms of the Indenture. No service charge will be made for any
registration of transfer or exchange, but the Trust may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.


Section 15. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.




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OPTION TO ELECT REPAYMENT




     The undersigned hereby irrevocably request(s) and instruct(s) the Trust to repay this Note (or
portion hereof specified below) pursuant to its terms at a price equal to the Principal Amount
hereof together with interest to the repayment date, to the undersigned, at:



      




      




(Please print or typewrite name and address of the undersigned).




     For this Note to be repaid, the Indenture Trustee (or the Paying Agent on behalf of the
Indenture Trustee) must receive at its Corporate Trust Office, or at such other place or places of
which the Trust shall from time to time notify the Holder of this Note, not more than sixty (60)
nor less than thirty (30) days prior to a Repayment Date, if any, shown on the face of this Note,
this Note with this “Option to Elect Repayment” form duly completed.



     If less than the entire Principal Amount of this Note is to be repaid, specify the portion
hereof (which shall be in increments of $1,000) which the Holder elects to have repaid and specify
the denomination or denominations (which shall be $___or an integral multiple of $1,000 in
excess of $___) of the Notes to be issued to the Holder for the portion of this Note not being
repaid (in the absence of any such specification, one such Note will be issued for the portion not
being repaid).



	 	 	 	 	 	 	 
	$
	 	 	 	 	 	 
	 

	 	 
	 	 
	 
	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	DATE:	 	 	 	NOTICE: The signature on this Option to Elect Repayment must correspond with
the name as written upon the face of this Note in every particular, without
alteration or enlargement or any change whatever.
	 	 	 	 
	(Principal Amount to be
repaid,
if amount to be repaid is less than
the Principal Amount of this Note
(Principal Amount remaining must be
an authorized denomination)	 	Fill in for registration of Notes
if to be issued otherwise than
to the registered Holder:
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	$

	 	 	 	Address:	 	 
	
 
	 	 	 	 
	 	 	 	 	 
	 	 	 	 	(Please print name and
address including zip code)






	 	 	 	 
	SOCIAL SECURITY OR OTHER TAXPAYER ID NUMBER:
	 	 
	 

	 	 





A-1-23









 






SURVIVOR’S OPTION RIDER




     (a) Unless this Note, on its face, has been declared due and payable prior to the Maturity
Date by reason of any Event of Default under the Indenture, or has been previously redeemed or
otherwise repaid, the authorized Representative (as defined below) of a deceased Beneficial Owner
(as defined below) of this Note shall have the option to elect repayment by the Trust in whole or
in part prior to the Maturity Date following the death of the Beneficial Owner (a “Survivor’s
Option”). The Survivor’s Option may not be exercised unless the deceased Beneficial Owner
purchased the Notes either within ninety (90) days of their issuance or acquired the Notes at least
six (6) months before the date of death of such deceased Beneficial Owner. “Beneficial Owner” as
used in this Survivor’s Option Rider means, with respect to this Note, the person who has the
right, immediately prior to such person’s death, to receive the proceeds from the disposition of
this Note, as well as the right to receive payments on this Note.



     (b) Upon (1) the valid exercise of the Survivor’s Option and the proper tender of this Note
by or on behalf of a person that has authority to act on behalf of the deceased Beneficial Owner of
this Note under the laws of the appropriate jurisdiction (including, without limitation, the
personal representative or executor of the deceased Beneficial Owner or the surviving joint owner
of the deceased Beneficial Owner) (the “Representative”) and (2) the tender and acceptance of that
portion of the Funding Agreement equal to the amount of the portion of this Note to be redeemed,
the Trust shall repay this Note (or portion thereof) at a price equal to 100% of the unpaid
Principal Amount of the deceased Beneficial Owner’s beneficial interest in this Note plus accrued
and unpaid interest to, but excluding, the date of such repayment. However, the Trust shall not be
obligated to repay:




(i) beneficial ownership interests in Notes exceeding the greater of $2,000,000 or 2%
(or such other amounts, as specified in the Pricing Supplement) in aggregate principal
amount for all notes then outstanding under the Principal® Life
CoreNotes® Program and the Secured Medium-Term Notes Retail Program as of
the end of the most recent calendar year (the “Annual Put Limitation”);




(ii) on behalf of an individual deceased Beneficial Owner, any beneficial ownership
interest in all notes issued under the Principal® Life CoreNotes®
Program and the Secured Medium-Term Notes Retail Program that exceeds $250,000
(or such other amounts, as specified in the Pricing Supplement) in any calendar year
(the “Individual Put Limitation”); or




(iii) beneficial ownership interests in Notes exceeding the amount specified on the
face hereof and in the Pricing Supplement (the “Trust Put
Limitation”), as of the later of the end of the most recent
calendar year or the issuance date of the Notes.



     (c) The Trust shall not make principal repayments pursuant to exercise of the Survivor’s
Option in amounts that are less than $1,000, and, in the event that the limitations described in
the preceding sentence would result in the partial repayment of this Note, the Principal Amount
remaining Outstanding after repayment must be at least $1,000 (the minimum authorized denomination
of the Notes).



     (d) An otherwise valid election to exercise the Survivor’s Option may not be withdrawn.



A-1-24









 





     (e) Election to exercise the Survivor’s Option will be accepted in the order that elections
are received by the Trustee, except for any Notes (or portion thereof) the acceptance of which
would contravene (1) the Annual Put Limitation, (2) the Individual Put Limitation or (3) the Trust
Put Limitation. Any Note (or portion thereof) accepted for repayment pursuant to exercise of the
Survivor’s Option shall be repaid on the first Interest Payment Date that occurs 20 or more
calendar days after the date of such acceptance. If, as of the end of any calendar year, the
aggregate principal amount of all notes (or portions thereof) issued under the Principal®
Life CoreNotes® Program and the Secured Medium-Term Notes Retail Program
that have been tendered pursuant to the valid exercise of the Survivor’s Option during such
year has exceeded the Annual Put Limitation or the Individual Put Limitation, for such year, any
exercise(s) of the Survivor’s Option with respect to Notes (or portions thereof) not accepted
during such calendar year, because such acceptance would have contravened any such limitation,
shall be deemed to be tendered on the first day of the following calendar year in the order all
such Notes (or portions thereof) were originally tendered. If, as of the end of any calendar year,
the aggregate principal amount of all Notes (or portions thereof) that have been
tendered pursuant to the valid exercise of the Survivor’s Option during such year has exceeded the
Trust Put Limitation, for such year, any exercise(s) of the Survivor’s Option with respect to Notes
(or portions thereof) not accepted during such calendar year, because such acceptance would have
contravened any such limitation, shall be deemed to be tendered on the first day of the following
calendar year in the order all such Notes (or portions thereof) were originally tendered. In the
event that this Note (or any portion hereof) tendered for repayment pursuant to valid exercise of
the Survivor’s Option is not accepted or is to be delayed, the Trustee shall deliver a notice by
first-class mail to the Depositary that states the reason such Note (or portion thereof) has not
been accepted for payment or is to be delayed.



     (f) In order to obtain repayment through exercise of the Survivor’s Option with respect to
this Note (or portion hereof), the Representative must provide the following items to the broker or
other entity through which the beneficial interest in this Note is held by the deceased Beneficial
Owner: (1) a written instruction to such broker or other entity in the form of Annex A attached
hereto to notify the Depositary of the Representative’s desire to obtain repayment through the
exercise of the Survivor’s Option; (2) appropriate evidence satisfactory to the Trustee that (i)
the deceased Beneficial Owner purchased the Notes either within ninety (90) days of their issuance
or acquired the Notes at least six (6) months before the date of death of such deceased Beneficial
Owner, (ii) the death of such Beneficial Owner has occurred, and the date of such death, and (iii)
the Representative has authority to act on behalf of the deceased Beneficial Owner; (3) if the
interest in this Note is held by a nominee of the deceased Beneficial Owner, a certificate
satisfactory to the Trustee from such nominee attesting to the deceased’s beneficial ownership of
this Note; (4) a written request for repayment signed by the Representative, with the signature
guaranteed by a member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States; (5) if applicable, a properly executed assignment or
endorsement; (6) tax waivers and such other instruments or documents that the Trustee reasonably
requires in order to establish the validity of the beneficial ownership of this Note and the
claimant’s entitlement to payment; and (7) any additional information the Trustee reasonably
requires to evidence satisfaction of any conditions to the exercise of such Survivor’s Option or to
document beneficial ownership or authority to make the election and to cause the repayment of this
Note. Such broker or other entity shall then deliver



A-1-25









 




each of these items to the direct participant of the Depositary, such direct participant being
the entity that holds the beneficial interest in this Note on behalf of the deceased Beneficial
Owner, together with evidence satisfactory to the Indenture Trustee from the broker or other entity
stating that it represents the deceased Beneficial Owner. Such direct participant shall then
deliver such items to the Indenture Trustee. The Indenture Trustee will then deliver these items to
the Trustee and will provide the Trustee with any additional information (after receipt from such
direct participant) the Trustee may request in connection with such exercise. Such direct
participant shall be responsible for disbursing any payments it receives from the Depositary
pursuant to exercise of the Survivor’s Option to the appropriate Representative. All questions,
other than with respect to the right to limit the aggregate Principal Amount of Notes as to which
exercises of the Survivor’s Option shall be accepted in any one calendar year or as to the Notes,
regarding the eligibility or validity of any exercise of the Survivor’s Option will be determined
by the Trustee, in its sole discretion, which determination shall be final and binding on all
parties.




     (g) The death of a person holding a beneficial interest in this Note as a joint tenant or
tenant by the entirety with another person, or as a tenant in common with the deceased owner’s
spouse, will be deemed the death of the Beneficial Owner of this Note, and the entire Principal
Amount of this Note so held shall be subject to repayment by the Trust upon request in accordance
with the terms and provisions hereof. However, the death of a person holding a beneficial interest
in this Note as tenant in common with a person other than such deceased owner’s spouse will be
deemed the death of a Beneficial Owner only with respect to such deceased person’s ownership
interest in this Note.



     (h) The death of a person who was a lifetime beneficiary of a trust holding a beneficial
interest in this Note will be treated as the death of the Beneficial Owner of this Note to the
extent of that person’s interest in the trust. The death of a person who was a tenant by the
entirety or joint tenant in a tenancy which is the beneficiary of a trust holding a beneficial
interest in this Note will be treated as the death of the Beneficial Owner of this Note. The death
of an individual who was a tenant in common in a tenancy which is the beneficiary of a trust
holding a beneficial interest in this Note will be treated as the death of the Beneficial Owner of
this Note only with respect to the deceased person’s beneficial interest in this Note, unless a
husband and wife are the tenants in common, in which case the death of either will be treated as
the death of the owner of this Note.



     (i) The death of a person who, during his or her lifetime, was entitled to substantially all
of the beneficial ownership interests in this Note will be deemed the death of the Beneficial Owner
of this Note for purposes of the Survivor’s Option, regardless of whether that Beneficial Owner was
the registered holder of this Note, if such beneficial ownership interest can be established to the
satisfaction of the Trustee. A beneficial ownership interest will be deemed to exist in typical
cases of nominee ownership, such as ownership under the Uniform Transfers of Gifts to Minors Act,
community property or other joint ownership arrangements between a husband and wife and lifetime
custodial and trust arrangements.



A-1-26









 





ANNEX A




REPAYMENT ELECTION FORM




Principal Life Insurance Company




Principal® Life CoreNotes®




Cusip Number                     



To: [Name of Issuing Trust] (the “TRUST”)



The undersigned financial institution (the “FINANCIAL INSTITUTION’’) represents the following:





	 	•	 	The Financial Institution has received a request for repayment from the executor or
other authorized representative (the “AUTHORIZED REPRESENTATIVE’’) of the deceased
beneficial owner listed below (the “DECEASED BENEFICIAL OWNER’’) of
Principal® Life CoreNotes® (CUSIP No. ___) (the
“NOTES’’).
	 
	 	•	 	At the time of his or her death, the Deceased Beneficial Owner owned Notes in the
principal amount listed below.
	 
	 	•	 	The Deceased Beneficial Owner purchased the Notes either within ninety (90) days of
their issuance or acquired the Notes at least six (6) months before the date of death
of such Deceased Beneficial Owner.
	 
	 	•	 	The Financial Institution currently holds such notes as a direct or indirect
participant in The Depository Trust Company (the “DEPOSITARY’’).
	 
	 	•	 	The Financial Institution agrees to the following terms:
	 
	 	•	 	The Financial Institution shall follow the instructions (the “INSTRUCTIONS’’)
accompanying this Repayment Election Form (this “FORM’’).
	 
	 	•	 	The Financial Institution shall make all records specified in the Instructions
supporting the above representations available to U.S. Bank Trust National Association
(the “TRUSTEE’’) or the [Name of Issuing Trust] (the “TRUST’’) for inspection and
review within five business days of the Trustee’s or the Trust’s request.







 




			
	 	 	“Principal®” is a registered service mark of Principal Financial Services, Inc. and is used under license.
	 
	 	 	“CoreNotes®” is a registered service mark of Merrill Lynch & Co.




A-1-27









 











	 	•	 	If the Financial Institution, the Trustee or the Trust, in any such party’s
reasonable discretion, deems any of the records specified in the Instructions
supporting the above representations unsatisfactory to substantiate a claim for
repayment, the Financial Institution shall not be obligated to submit this Form, and
the Trustee or Trust may deny repayment. If the Financial Institution cannot
substantiate a claim for repayment, it shall notify the Trustee immediately.
	 
	 	•	 	Repayment elections may not be withdrawn.
	 
	 	•	 	The Financial Institution agrees to indemnify and hold harmless the Trustee and the
Trust against and from any and all claims, liabilities, costs, losses, expenses, suits
and damages resulting from the Financial Institution’s above representations and
request for repayment on behalf of the Authorized Representative.
	 
	 	•	 	The Notes will be repaid on the first Interest Payment Date to occur at least 20
calendar days after the date of acceptance of the notes for repayment, unless such date
is not a business day, in which case the date of repayment shall be the next succeeding
business day.
	 
	 	•	 	Subject to the Trust’s rights to limit the aggregate principal amount of Notes as to
which exercises of the Survivor’s Option shall be accepted in any one calendar year,
all questions as to the eligibility or validity of any exercise of the Survivor’s
Option will be determined by the Trustee, in its sole discretion, which determination
shall be final and binding on all parties.




A-1-28









 











REPAYMENT ELECTION FORM




	 
	 

	(1)

	 
	Name of Deceased Beneficial Owner
	(2)

	 
	Date of Death
	(3)


	 
	Name of Authorized Representative Requesting Repayment
	 
	(4)

	 
	Name of Financial Institution Requesting Repayment
	 
	(5)

	 
	Signature of Authorized Representative of Financial Institution Requesting Repayment
	 
	(6)

	 
	Principal Amount of Requested Repayment
	 
	(7)

	 
	Date of Election






	 	 	 	 	 	 	 	 	 
	(8)

	 	Financial Institution
	 	 	(9	)	 	Wire instructions for payment:
	 

	 	Representative Name:
	 	 	 	 	 	Bank Name:
	 

	 	Phone Number:
	 	 	 	 	 	ABA Number:
	 

	 	Fax Number:
	 	 	 	 	 	Account Name:
	 

	 	Mailing Address (no P.O. Boxes):
	 	 	 	 	 	Account Number:
	 

	 	 	 	 	 	 	 	Reference (optional):






TO BE COMPLETED BY THE TRUSTEE:




(A) Election Number*:




(B) Delivery and Payment Date:




(C) Principal Amount:




(D) Accrued Interest:




(E) Date of Receipt of Form by the Trustee:




(F) Date of Acknowledgment by the Trustee:






 




			
	*	 	To be assigned by the Trustee upon receipt of this Form. An acknowledgement, in the form of a copy of
this document with the assigned Election Number, will be returned to the party and location designated in
item (8) above.




A-1-29









 










INSTRUCTIONS FOR COMPLETING REPAYMENT ELECTION FORM AND EXERCISING

REPAYMENT OPTION




     Capitalized terms used and not defined herein have the meanings defined in the accompanying
Repayment Election Form.




	1.	 	Collect and retain for a period of at least three years (1) satisfactory evidence of the
authority of the Authorized Representative, (2) satisfactory evidence of death of the Deceased
Beneficial Owner, (3) satisfactory evidence that the Deceased Beneficial Owner beneficially
owned, at the time of his or her death, the notes being submitted for repayment, (4)
satisfactory evidence that the notes being submitted for repayment either were purchased
within ninety (90) days of their issuance or were acquired by the Deceased Beneficial Owner at
least six (6) months before the date of the death of such Deceased Beneficial Owner, and (5)
any necessary tax waivers. For purposes of determining whether the notes will be deemed
beneficially owned by an individual at any given time, the following rules shall apply:






	 	•	 	If a note (or a portion thereof) is beneficially owned by tenants by the entirety or
joint tenants, the note (or relevant portion thereof) will be regarded as beneficially
owned by a single owner. Accordingly, the death of a tenant by the entirety or joint
tenant will be deemed the death of the beneficial owner and the entire principal amount so
owned will become eligible for repayment.
	 
	 	•	 	The death of a person beneficially owning a note (or a portion thereof) by tenancy in
common will be deemed the death of the beneficial owner only with respect to the deceased
owner’s interest in the note (or relevant portion thereof) so owned, unless a husband and
wife are the tenants in common, in which case the death of either will be deemed the death
of the beneficial owner and the entire principal amount so owned will be eligible for
repayment.
	 
	 	•	 	A note (or a portion thereof) beneficially owned by a trust will be regarded as
beneficially owned by each beneficiary of the trust to the extent of that beneficiary’s
interest in the trust (however, a trust’s beneficiaries collectively cannot be beneficial
owners of more notes than are owned by the trust). The death of a beneficiary of a trust
will be deemed the death of the beneficial owner of the notes (or relevant portion thereof)
beneficially owned by the trust to the extent of that beneficiary’s interest in the trust.
The death of an individual who was a tenant by the entirety or joint tenant in a tenancy
which is the beneficiary of a trust will be deemed the death of the beneficiary of the
trust. The death of an individual who was a tenant in common in a tenancy which is the
beneficiary of a trust will be deemed the death of the beneficiary of the trust only with
respect to the deceased holder’s beneficial interest in the note, unless a husband and wife
are the tenants in common, in which case the death of either will be deemed the death of
the beneficiary of the trust.
	 
	 	•	 	The death of a person who, during his or her lifetime, was entitled to substantially all
of the beneficial interest in a note (or a portion thereof) will be deemed the death of the




A-1-30









 






	 	 	 	beneficial owner of that note (or relevant portion thereof), regardless of the registration of
ownership, if such beneficial interest can be established to the satisfaction of the
Trustee. Such beneficial interest will exist in many cases of street name or nominee
ownership, custodial arrangements, ownership by a trustee, ownership under the Uniform
Transfers of Gifts to Minors Act and community property or other joint ownership
arrangements between spouses. Beneficial interest will be evidenced by such factors as the
power to sell or otherwise dispose of a note, the right to receive the proceeds of sale or
disposition and the right to receive interest and principal payments on a note.






	2.	 	Indicate the name of the Deceased Beneficial Owner on line (1).
	 
	3.	 	Indicate the date of death of the Deceased Beneficial Owner on line (2).
	 
	4.	 	Indicate the name of the Authorized Representative requesting repayment on line (3).
	 
	5.	 	Indicate the name of the Financial Institution requesting repayment on line (4).
	 
	6.	 	Affix the authorized signature of the Financial Institution’s representative on line (5).
THE SIGNATURE MUST BE MEDALLION SIGNATURE GUARANTEED.
	 
	7.	 	Indicate the principal amount of notes to be repaid on line (6).
	 
	8.	 	Indicate the date this Form was completed on line (7).
	 
	9.	 	Indicate the name, mailing address (no P.O. boxes, please), telephone number and
facsimile-transmission number of the party to whom the acknowledgment of this election may be
sent in item (8).
	 
	10.	 	Indicate the wire instruction for payment on line (9).
	 
	11.	 	Leave lines (A), (B), (C), (D), (E) and (F) blank.
	 
	12.	 	Mail or otherwise deliver an original copy of the completed Form to:





Citibank, N.A.

Citibank Agency & Trust

388 Greenwich Street, 14th Floor

New York, New York 10013





	13.	 	FACSIMILE TRANSMISSIONS OF THE REPAYMENT ELECTION FORM WILL NOT BE ACCEPTED.
	 
	14.	 	If the acknowledgement of the Trustee’s receipt of this Form, including the assigned Election
Number, is not received within ten days of the date such information is sent to Citibank,
N.A., contact the Trustee at 100 Wall Street, 16th Floor, New York, New York
10005, attention: Corporate Trust Administration, telephone number:
(212) 361-2458.




A-1-31









 






	15.	 	For assistance with this Form or any questions relating thereto, please contact U.S. Bank
Trust National Association at 100 Wall Street, 16th Floor, New York, New York
10005, attention: Corporate Trust Administration, telephone number: (212) 361-2458.




A-1-32









 











EXHIBIT A-2




Form of Global Note for the Secured Medium-Term Notes Program



THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE (HEREINAFTER DEFINED) AND IS
REGISTERED IN THE NAME OF A DEPOSITARY (AS DEFINED IN THE INDENTURE) OR A NOMINEE OF A DEPOSITARY.
THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO
TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE
OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.



UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A
NEW YORK CORPORATION (“DTC”), TO THE TRUST (HEREINAFTER DEFINED) OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND UNLESS ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.




	 	 	 	 	 
	Registered No.:
	 	CUSIP No.:
	 	Principal Amount: U.S. $






PRINCIPAL
LIFE INCOME FUNDINGS TRUST •




SECURED MEDIUM-TERM NOTES




	 
	Original Issue Date:

	Issue Price:

	Stated Maturity Date:

	Settlement Date:

	Securities
Exchange Listing: o Yes o No. If yes,

	 indicate name(s) of Securities
Exchange(s): __________________________________.

	Depositary:

	Authorized Denominations:

	Collateral held in the Trust: Principal Life
Insurance Company Funding Agreement No. •, the
related Principal Financial Group, Inc. Guarantee
which fully and unconditionally guarantees the
payment obligations of Principal Life Insurance
Company under the Funding Agreement, all proceeds
of the Funding Agreement and the related
Guarantee and all rights and books and records
pertaining to the foregoing.

	Additional Amounts to be Paid: o Yes o No

	Interest Rate or Formula:

	Fixed Rate Note: o Yes o No. If yes,

	Interest Rate:

	Interest Payment Frequency:

	Interest Payment Dates:

	Day Count Convention:

	Additional/Other Terms:

	Amortizing Note: o Yes o No. If yes,

	Amortization schedule or formula:

	Additional/Other Terms:

	Discount Note: o Yes o No. If yes,

	Total Amount of Discount:

	Initial Accrual Period of Discount:

	Interest Payment Dates:

	Additional/Other Terms:

	Redemption Provisions: o Yes o No. If yes,

	Initial Redemption Date:

	Initial Redemption Percentage:

	Annual
Redemption Percentage Reduction, if any:

	Additional/Other Terms:

	Repayment Provisions: o Yes o No. If yes,

	Repayment Date(s):

	Repayment Price:

	Additional/Other Terms:







A-2-1









 






	 
	Floating Rate Note: o Yes o No. If yes,

	Regular Floating Rate Notes o

	Inverse Floating Rate Notes o

	Floating Rate/ Fixed Rate Notes: o

	Interest Rate:

	Interest Rate Basis(es):

	LIBOR o


	
o LIBOR Reuters Page:

	LIBOR Currency:

	EURIBOR o

	CMT Rate o

	Designated Reuters Page:

	If FEDCMT

	o Weekly Average

	o Monthly Average

	Designated CMT Maturity Index:

	CD Rate o

	Commercial Paper Rate o

	Constant Maturity Swap Rate o

	Eleventh District Cost of Funds Rate o

	Federal Funds Open Rate o

	Federal Funds Rate o

	Prime Rate o

	Treasury Rate o

	Index Maturity:

	Spread and/or Spread Multiplier:

	Initial Interest Rate, if any:

	Initial Interest Reset Date:

	Interest Reset Dates:

	Interest Determination Date(s):

	Interest Payment Dates:

	Maximum Interest Rate, if any:

	Minimum Interest Rate, if any:

	Fixed Rate Commencement Date, if any:

	Floating Rate Commencement Date, if any:

	Fixed Interest Rate, if any:

	Day Count Convention:

	Additional/Other Terms:

	Regular Record Date(s):

	Sinking Fund:

	Specified Currency:

	Exchange Rate Agent:

	Calculation Agent:

	Additional/Other Terms:







     The Principal Life Income Fundings Trust designated above (the “Trust”), for value received,
hereby promises to pay to Cede & Co., or its registered assigns, the Principal Amount specified
above on the Stated Maturity Date specified above and, if so specified above, to pay interest
thereon from the Original Issue Date specified above or from the most recent Interest Payment Date
specified above to which interest has been paid or duly provided for at the rate per annum
determined in accordance with the provisions on the reverse hereof and as specified above, until
the principal hereof is paid or made available for payment. Unless otherwise specified above,
payments of principal, premium, if any, and interest hereon will be made in the lawful currency of
the United States of America (“U.S. Dollars” or “United States dollars”). If the Specified
Currency specified above is other than U.S. Dollars, the Holder (as defined in the



A-2-2









 




Indenture) shall receive such payments in such Foreign Currency (as hereinafter defined). The
“Principal Amount” of this Note at any time means (1) if this Note is a Discount Note (as
hereinafter defined), the Amortized Face Amount (as hereinafter defined) at such time (as defined
in Section 3(c) on the reverse hereof) and (2) in all other cases, the Principal Amount
hereof. Capitalized terms not otherwise defined herein shall have their meanings set forth in the
Indenture, dated as of the date of the Pricing Supplement (the “Indenture”), between Citibank,
N.A., as the indenture trustee (the “Indenture Trustee”), and the Trust, or on the face hereof.




     This Note will mature on the Stated Maturity Date, unless its principal (or any installment of
its principal) becomes due and payable prior to the Stated Maturity Date, whether, as applicable,
by the declaration of acceleration of maturity, notice of redemption by the Trust or otherwise (the
Stated Maturity Date or any date prior to the Stated Maturity Date on which this Note becomes due
and payable, as the case may be, is referred to as the “Maturity Date”).



     A “Discount Note” is any Note that has an Issue Price that is less than 100% of the Principal
Amount thereof by a percentage that is equal to or greater than 0.25% multiplied by the product of
the principal amount of the Notes and the number of full years to the Stated Maturity Date.



     Unless otherwise specified above, the interest payable on each Interest Payment Date or the
Maturity Date will be the amount of interest accrued from and including the Original Issue Date or
from and including the last Interest Payment Date to which interest has been paid or duly provided
for, as the case may be, to, but excluding, such Interest Payment Date or the Maturity Date, as the
case may be.



     Unless otherwise specified above, the interest payable on any Interest Payment Date will be
paid to the Holder on the Regular Record Date for such Interest Payment Date, which Regular Record
Date shall be the fifteenth (15th) calendar day, whether or not a Business Day,
immediately preceding the related Interest Payment Date; provided that, notwithstanding any
provision of the Indenture to the contrary, interest payable on any Maturity Date shall be payable
to the Person to whom principal shall be payable; and provided, further, that unless otherwise
specified above, in the case of a Note initially issued between a Regular Record Date and the
Interest Payment Date relating to such Regular Record Date, interest for the period beginning on
the Original Issue Date and ending on such Interest Payment Date shall be paid on the Interest
Payment Date following the next succeeding Regular Record Date to the Holder on such next
succeeding Regular Record Date.



     Payments of principal of, and premium, if any, and interest and other amounts due and owing,
if any, will be made through the Indenture Trustee to the account of DTC or its nominee and will be
made in accordance with depositary arrangements with DTC.



     Unless otherwise specified on the face hereof, the Holder hereof will not be obligated to pay
any administrative costs imposed by banks in making payments in immediately available funds by the
Trust. Unless otherwise specified on the face hereof, any tax assessment or governmental charge
imposed upon payments hereunder, including, without limitation, any withholding tax, will be borne
by the Holder hereof.



A-2-3









 





     REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS NOTE SET FORTH ON THE REVERSE
HEREOF. SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT
THIS PLACE.



     Unless the certificate of authentication hereon shall have been executed by the Indenture
Trustee pursuant to the Indenture, this Note shall not be entitled to any benefit under such
Indenture or be valid or obligatory for any purpose.



A-2-4









 





     IN WITNESS WHEREOF, the Trust has caused this instrument to be duly executed, by manual or
facsimile signature.



	 	 	 	 	 
	 	 	THE PRINCIPAL LIFE
INCOME FUNDINGS TRUST
       SPECIFIED ON THE FACE OF THIS NOTE
	 
	 	 	 	 
	Dated: Original Issue Date	 	By: U.S. Bank Trust National Association, not in its individual
capacity but solely as Trustee.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	Authorized Officer






CERTIFICATE OF AUTHENTICATION




     This is one of the Notes of the Principal Life Income Fundings Trust specified on the face of
this Note referred to in the within-mentioned Indenture.



	 	 	 	 	 
	 	CITIBANK, N.A.

As Indenture Trustee





	 
	
Dated: Original Issue Date

 
	 	By:  	 	 
	 	 	Authorized Signatory 	 
	 	 	 	 



A-2-5









 






	 	 	 	 	 



[REVERSE FORM OF NOTE]



Section 1. General. This Note is one of a duly authorized issue of Notes of the Trust.
The Notes are issued pursuant to the Indenture.



Section 2. Currency.





     (a) Unless specified otherwise on the face hereof, this Note is denominated in, and payments
of principal, premium, if any, and/or interest, if any, will be made in U.S. Dollars. If specified
as the Specified Currency, this Note may be denominated in, and payments of principal, premium, if
any, and/or interest, if any, may be made in a single currency other than U.S. Dollars (a “Foreign
Currency”). If this Note is denominated in a Foreign Currency, the Holder of this Note is required
to pay for this Note in the Specified Currency.



     (b) Unless specified otherwise on the face hereof, if this Note is denominated in a Foreign
Currency, the Trust is obligated to make payments of principal of, and premium, if any, and
interest, if any, on, this Note in the Specified Currency. Any amounts so payable by the Trust in
the Specified Currency will be converted by the Exchange Rate Agent into U.S. Dollars for payment
to the Holder hereof unless otherwise specified on the face of this Note or the Holder elects, in
the manner described below, to receive these amounts in the Specified Currency. If this Note is
denominated in a Foreign Currency, any U.S. Dollar amount to be received by the Holder hereof will
be based on the highest bid quotation in The City of New York received by the Exchange Rate Agent
at approximately 11:00 A.M., New York City time, on the second Business Day preceding the
applicable payment date from three recognized foreign exchange dealers (one of whom may be the
Exchange Rate Agent) selected by the Exchange Rate Agent and approved by the Trust for the purchase
by the quoting dealer of the Specified Currency for U.S. Dollars for settlement on that payment
date in the aggregate amount of the Specified Currency payable to all Holders of the Notes
scheduled to receive U.S. Dollar payments and at which the applicable dealer commits to execute a
contract. All currency exchange costs will be borne by the Holders of the Notes by deductions from
any payments. If three bid quotations are not available, payments will be made in the Specified
Currency. If this Note is denominated in a Foreign Currency, the Holder of this Note may elect to
receive all or a specified portion of any payment of principal, premium, if any, and/or interest,
if any, in the Specified Currency by submitting a written request to the Indenture Trustee at its
Corporate Trust Office in The City of New York on or prior to the applicable Regular Record Date or
at least 15 calendar days prior to the Maturity Date, as the case may be. This written request may
be mailed or hand delivered or sent by cable, telex or other form of facsimile transmission. This
election will remain in effect until revoked by written notice delivered to the Indenture Trustee
on or prior to a Regular Record Date or at least 15 calendar days prior to the Maturity Date, as
the case may be. The Holder of a Note denominated in a Foreign Currency to be held in the name of
a broker or nominee should contact their broker or nominee to determine whether and how an election
to receive payments in the Specified Currency may be made. Unless specified otherwise on the face
hereof, if the Specified Currency is other than U.S. Dollars, a beneficial owner of a Note
represented by a global security which elects to receive payments of principal, premium, if any,
and/or interest, if any, in the Specified Currency must notify the participant through which it
owns its interest on or prior to the applicable Regular Record Date or at least 15



A-2-6









 




calendar days prior to the Maturity Date, as the case may be, of its election. The applicable
participant must notify DTC of its election on or prior to the third Business Day after the
applicable Regular Record Date or at least 12 calendar days prior to the Maturity Date, as the case
may be, and DTC will notify the Indenture Trustee of that election on or prior to the fifth
Business Day after the applicable Regular Record Date or at least ten calendar days prior the
Maturity Date, as the case may be. If complete instructions are received by the participant from
the applicable beneficial owner and forwarded by the participant to DTC, and by DTC to the
Indenture Trustee, on or prior to such dates, then the applicable beneficial owner will receive
payments in the Specified Currency.




     (c) The Trust will indemnify the Holder hereof against any loss incurred as a result of any
judgment or order being given or made for any amount due under this Note and that judgment or order
requiring payment in a currency (the “Judgment Currency”) other than the Specified Currency, and as
a result of any variation between: (i) the rate of exchange at which the Specified Currency amount
is converted into the Judgment Currency for the purpose of that judgment or order; and (ii) the
rate of exchange at which the Holder, on the date of payment of that judgment or order, is able to
purchase the Specified Currency with the amount of the Judgment Currency actually received.



     (d) Unless otherwise specified on the face hereof, if payment hereon is required to be made
in a Foreign Currency and such currency is unavailable due to the imposition of exchange controls
or other circumstances beyond the Trust’s control, then the Trust will be entitled to make payments
with respect hereto in U.S. Dollars on the basis of the Market Exchange Rate (as hereinafter
defined), computed by the Exchange Rate Agent, on the second Business Day prior to the particular
payment or, if the Market Exchange Rate is not then available, on the basis of the most recently
available Market Exchange Rate.



     (e) The “Market Exchange Rate” for the Foreign Currency shall mean the noon dollar buying
rate in The City of New York for cable transfers for the Foreign Currency as certified for customs
purposes (or, if not so certified, as otherwise determined) by the Federal Reserve Bank of New
York.



     (f) All determinations made by the Exchange Rate Agent shall be at its sole discretion and
shall, in the absence of manifest error, be conclusive for all purposes and binding on the Holder
hereof.



     (g) All costs of exchange in respect of this Note, if denominated in a Foreign Currency, will
be borne by the Holder hereof.


Section 3. Determination of Interest Rate and Certain Other Terms.





	 	(a)	 	Fixed Rate Notes. If this Note is specified on the face hereof as a
“Fixed Rate Note”:






(i) This Note will bear interest at the rate per annum specified on the face hereof.
Interest on this Note will be computed on the basis of a 360-day year of twelve 30-day
months.



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(ii) Unless otherwise specified on the face hereof, the Interest Payment Dates for this
Note will be as follows:



	 	 	 
	Interest Payment Frequency	 	Interest Payment Dates
	Monthly

	 	Fifteenth day of each calendar month, beginning
in the first calendar month following the month
this Note was issued.
	 
	 	 
	Quarterly

	 	Fifteenth day of every third calendar month,
beginning in the third calendar month following
the month this Note was issued.
	 
	 	 
	Semi-annual

	 	Fifteenth day of every sixth calendar month,
beginning in the sixth calendar month following
the month this Note was issued.
	 
	 	 
	Annual

	 	Fifteenth day of every twelfth calendar month,
beginning in the twelfth calendar month
following the month this Note was issued.







(iii) If any Interest Payment Date or the Maturity Date of this Note falls on a day
that is not a Business Day, the Trust will make the required payment of principal,
premium, if any, and/or interest or other amounts on the next succeeding Business Day,
and no additional interest will accrue in respect of the payment made on that next
succeeding Business Day.




	 	(b)	 	Floating Rate Notes. If this Note is specified on the face hereof as a
“Floating Rate Note”:






(i) Interest Rate Basis. Interest on this Note will be determined by reference
to the applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include the CD Rate, the CMT Rate, the Commercial Paper Rate, the Constant
Maturity Swap Rate; the Eleventh District Cost of Funds Rate, the Federal Funds Open
Rate, the Federal Funds Rate, LIBOR, EURIBOR, the Prime Rate or the Treasury Rate (each
as defined below).




(ii) Effective Rate. The rate derived from the applicable Interest Rate Basis
or Interest Rate Bases will be determined in accordance with the related provisions
below. The interest rate in effect on each day will be based on: (1) if that day is an
Interest Reset Date, the rate determined as of the Interest Determination Date
immediately preceding that Interest Reset Date; or (2) if that day is not an Interest
Reset Date, the rate determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.




(iii) Spread; Spread Multiplier; Index Maturity. The “Spread” is the number of
basis points (one one-hundredth of a percentage point) specified on the face hereof



A-2-8









 






to be added to or subtracted from the related Interest Rate Basis or Interest Rate
Bases applicable to this Note. The “Spread Multiplier” is the percentage specified on
the face hereof of the related Interest Rate Basis or Interest Rate Bases applicable to
this Note by which the Interest Rate Basis or Interest Rate Bases will be multiplied to
determine the applicable interest rate. The “Index Maturity” is the period to maturity
of the instrument or obligation with respect to which the related Interest Rate Basis
or Interest Rate Bases will be calculated.




(iv) Regular Floating Rate Note. Unless this Note is specified on the face
hereof as a Floating Rate/Fixed Rate Note or an Inverse Floating Rate Note, this Note
(a “Regular Floating Rate Note”) will bear interest at the rate determined by reference
to the applicable Interest Rate Basis or Interest Rate Bases: (1) plus or minus the
applicable Spread, if any; and/or (2) multiplied by the applicable Spread Multiplier,
if any. Commencing on the first Interest Reset Date, the rate at which interest on
this Regular Floating Rate Note is payable will be reset as of each Interest Reset
Date; provided, however, that the interest rate in effect for the period, if any, from
the Original Issue Date to the first Interest Reset Date will be the Initial Interest
Rate.




(v) Floating Rate/Fixed Rate Notes. If this Note is specified on the face
hereof as a “Floating Rate/Fixed Rate Note”, this Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Interest Rate Bases:
(1) plus or minus the applicable Spread, if any; and/or (2) multiplied by the
applicable Spread Multiplier, if any. Commencing on the first Interest Reset Date, the
rate at which this Floating Rate/Fixed Rate Note is payable will be reset as of each
Interest Reset Date; provided, however, that: (A) the interest rate in effect for the
period, if any, from the Original Issue Date to the first Interest Reset Date will be
the Initial Interest Rate specified on the face hereof; and (B) the interest rate in
effect commencing on the Fixed Rate Commencement Date will be the Fixed Interest Rate,
if specified on the face hereof, or, if not so specified, the interest rate in effect
on the day immediately preceding the Fixed Rate Commencement Date.




(vi) Inverse Floating Rate Notes. If this Note is specified on the face hereof
as an “Inverse Floating Rate Note”, this Note will bear interest at the Fixed Interest
Rate minus the rate determined by reference to the applicable Interest Rate Basis or
Interest Rate Bases: (1) plus or minus the applicable Spread, if any; and/or (2)
multiplied by the applicable Spread Multiplier, if any; provided, however, that
interest on this Inverse Floating Rate Note will not be less than zero. Commencing on
the first Interest Reset Date, the rate at which interest on this Inverse Floating Rate
Note is payable will be reset as of each Interest Reset Date; provided, however, that
the interest rate in effect for the period, if any, from the Original Issue Date to the
first Interest Reset Date will be the Initial Interest Rate.




(vii) Interest Reset Dates. The period between Interest Reset Dates will be the
“Interest Reset Period.” Unless otherwise specified on the face hereof, the Interest
Reset Dates will be, in the case of this Floating Rate Note if by its terms it resets:
(1) daily—each business day; (2) weekly—the Wednesday of each week, with the



A-2-9









 






exception of any weekly reset Floating Rate Note as to which the Treasury Rate is an
applicable Interest Rate Basis, which will reset the Tuesday of each week; (3)
monthly—the fifteenth day of each calendar month, with the exception of any monthly
reset Floating Rate Note as to which the Eleventh District Cost of Funds Rate is an
applicable Interest Rate Basis, which will reset on the first calendar day of the
month; (4) quarterly—the fifteenth day of March, June, September and December of each
year; (5) semi-annually—the fifteenth day of the two months of each year specified on
the face hereof; and (6) annually—the fifteenth day of the month of each year specified
on the face hereof; provided, however, that, with respect to a Floating Rate/Fixed Rate
Note, the rate of interest thereon will not reset after the particular Fixed Rate
Commencement Date. If any Interest Reset Date for this Floating Rate Note would
otherwise be a day that is not a Business Day, the particular Interest Reset Date will
be postponed to the next succeeding Business Day, except that in the case of a Floating
Rate Note as to which LIBOR is an applicable Interest Rate Basis and that Business Day
falls in the next succeeding calendar month, the particular Interest Reset Date will be
the immediately preceding Business Day.




(viii) Interest Determination Dates. The interest rate applicable to a Floating
Rate Note for an Interest Reset Period commencing on the related Interest Reset Date
will be determined by reference to the applicable Interest Rate Basis as of the
particular “Interest Determination Date”, which will be: (1) with respect to the
Federal Funds Open Rate—the related Interest Reset Date; (2) with respect to the
Federal Funds Rate and the Prime Rate—the Business Day immediately preceding the
related Interest Reset Date; (3) with respect to the CD Rate, the Commercial Paper Rate
and the CMT Rate—the second Business Day preceding the related Interest Reset Date;
(4) with respect to the Constant Maturity Swap Rate—the second U.S. Government
Securities business day preceding the related Interest Reset Date, provided, however,
that if after attempting to determine the Constant Maturity Swap Rate, such rate is not
determinable for a particular Interest Determination Date, then such Interest
Determination Date shall be the first U.S. Government Securities business day preceding
the original interest determination date for which the Constant Maturity Swap Rate can
be determined; (5) with respect to the Eleventh District Cost of Funds Rate—the last
working day of the month immediately preceding the related Interest Reset Date on which
the Federal Home Loan Bank of San Francisco publishes the Eleventh District Index (as
defined below); (6) with respect to LIBOR and EURIBOR—the second London Banking Day (as
defined below) preceding the related Interest Reset Date; and (7) with respect to the
Treasury Rate—the day of the week in which the related Interest Reset Date falls on
which day Treasury Bills (as defined below) are normally auctioned (i.e., Treasury
Bills are normally sold at auction on Monday of each week, unless that day is a legal
holiday, in which case the auction is normally held on the following Tuesday, except
that the auction may be held on the preceding Friday); provided, however, that if an
auction is held on the Friday of the week preceding the related Interest Reset Date,
the Interest Determination Date will be the preceding Friday. The Interest
Determination Date pertaining to a Floating Rate Note, the interest rate of which is
determined with reference to two or more Interest Rate Bases, will be the latest
Business Day which



A-2-10









 






is at least two Business Days before the related Interest Reset Date for the applicable
Floating Rate Note on which each Interest Reset Basis is determinable. “London Banking
Day” means a day on which commercial banks are open for business (including dealings in
the LIBOR Currency) in London.




(ix) Calculation Dates. The interest rate applicable to each Interest Reset
Period will be determined by the Calculation Agent on or prior to the Calculation Date
(as defined below), except with respect to LIBOR, EURIBOR and the Eleventh District
Cost of Funds Rate, which will be determined on the particular Interest Determination
Date. Upon request of the Holder of a Floating Rate Note, the Calculation Agent will
disclose the interest rate then in effect and, if determined, the interest rate that
will become effective as a result of a determination made for the next succeeding
Interest Reset Date with respect to such Floating Rate Note. The “Calculation Date”, if
applicable, pertaining to any Interest Determination Date will be the earlier of: (1)
the tenth calendar day after the particular Interest Determination Date or, if such day
is not a Business Day, the next succeeding Business Day; or (2) the Business Day
immediately preceding the applicable Interest Payment Date or the Maturity Date, as the
case may be.




(x) Maximum or Minimum Interest Rate. If specified on the face hereof, this
Note may have either or both of a Maximum Interest Rate or a Minimum Interest Rate. If
a Maximum Interest Rate is so designated, the interest rate for a Floating Rate Note
cannot ever exceed such Maximum Interest Rate and in the event that the interest rate
on any Interest Reset Date would exceed such Maximum Interest Rate (as if no Maximum
Interest Rate were in effect) then the interest rate on such Interest Reset Date shall
be the Maximum Interest Rate. If a Minimum Interest Rate is so designated, the
interest rate for a Floating Rate Note cannot ever be less than such Minimum Interest
Rate and in the event that the interest rate on any Interest Reset Date would be less
than such Minimum Interest Rate (as if no Minimum Interest Rate were in effect) then
the interest rate on such Interest Reset Date shall be the Minimum Interest Rate.
Notwithstanding anything to the contrary contained herein, the interest rate on a
Floating Rate Note shall not exceed the maximum interest rate permitted by applicable
law.




(xi) Interest Payments. Unless otherwise specified on the face hereof, the
Interest Payment Dates will be, in the case of a Floating Rate Note which resets: (1)
daily, weekly or monthly—the fifteenth day of each calendar month or on the fifteenth
day of March, June, September and December of each year, as specified on the face
hereof; (2) quarterly—the fifteenth day of March, June, September and December of each
year; (3) semi-annually—the fifteenth day of the two months of each year specified on
the face hereof; and (4) annually—the fifteenth day of the month of each year as
specified on the face hereof. In addition, the Maturity Date will also be an Interest
Payment Date. If any Interest Payment Date other than the Maturity Date for this
Floating Rate Note would otherwise be a day that is not a Business Day, such Interest
Payment Date will be postponed to the next succeeding Business Day, except that in the
case of a Floating Rate Note as to which LIBOR is an applicable Interest Rate Basis and
that Business Day falls in the next succeeding calendar



A-2-11









 






month, the particular Interest Payment Date will be the immediately preceding Business
Day. If the Maturity Date of a Floating Rate Note falls on a day that is not a Business
Day, the Trust will make the required payment of principal, premium, if any, and
interest or other amounts on the next succeeding Business Day, and no additional
interest will accrue in respect of the payment made on that next succeeding Business
Day.




(xii) Rounding. Unless otherwise specified on the face hereof, all percentages
resulting from any calculation on this Floating Rate Note will be rounded to the
nearest one hundred-thousandth of a percentage point, with five one-millionths of a
percentage point rounded upwards. All dollar amounts used in or resulting from any
calculation on this Floating Rate Note will be rounded, in the case of U.S. Dollars, to
the nearest cent or, in the case of a Foreign Currency, to the nearest unit (with
one-half cent or unit being rounded upwards).




(xiii) Interest Factor. With respect to this Floating Rate Note, accrued
interest is calculated by multiplying the principal amount of such Note by an accrued
interest factor. The accrued interest factor is computed by adding the interest factor
calculated for each day in the particular Interest Reset Period. The interest factor
for each day will be computed by dividing the interest rate applicable to such day by
360, in the case of a Floating Rate Note as to which the CD Rate, the Commercial Paper
Rate, the Eleventh District Cost of Funds Rate, the Federal Funds Open Rate, the
Federal Funds Rate, LIBOR, EURIBOR or the Prime Rate is an applicable Interest Rate
Basis, or by the actual number of days in the year, in the case of a Floating Rate Note
as to which the CMT Rate or the Treasury Rate is an applicable Interest Rate Basis. In
the case of a series of Notes that bear interest at floating rates as to which the
Constant Maturity Swap Rate is the Interest Rate Basis, the interest factor for each
day will be computed by dividing the number of days in the interest period by 360 (the
number of days to be calculated on the base is of a year of 360 days with twelve 30-day
months (unless (i) the last day of the interest period is the 31st day of a
month but the first day of the interest period is a day other than the 30th
or 31st day of a month, in which case the month that includes that last day
shall not be considered to be shortened to a 30-day month, or (ii) the last day of the
interest period is the last day of the month of February, in which case the month of
February shall not be considered to be lengthened to a 30-day month)). The interest
factor for a Floating Rate Note as to which the interest rate is calculated with
reference to two or more Interest Rate Bases will be calculated in each period in the
same manner as if only the applicable Interest Rate Basis specified above applied.




(xiv) Determination of Interest Rate Basis. The Calculation Agent shall
determine the rate derived from each Interest Rate Basis in accordance with the
following provisions.




(A) CD Rate Notes. If the Interest Rate Basis is the CD Rate, this Note
shall be deemed a “CD Rate Note.” Unless otherwise specified on the face hereof,
“CD Rate” means: (1) the rate on the particular Interest Determination Date for
negotiable United States dollar certificates of deposit having the Index Maturity



A-2-12









 






specified on the face hereof as published in H.15(519) (as defined below) under the
caption “CDs (secondary market)”; or (2) if the rate referred to in clause (1) is
not so published by 3:00 P.M., New York City time, on the related Calculation Date,
the rate on the particular Interest Determination Date for negotiable United States
dollar certificates of deposit of the particular Index Maturity as published in H.15
Daily Update (as defined below), or other recognized electronic source used for the
purpose of displaying the applicable rate, under the caption “CDs (secondary
market)”; or (3) if the rate referred to in clause (2) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date calculated by the Calculation Agent as the
arithmetic mean of the secondary market offered rates as of 10:00 A.M., New York
City time, on that Interest Determination Date, of three leading non-bank dealers in
negotiable United States dollar certificates of deposit in The City of New York
(which may include the purchasing agent or its affiliates) selected by the
Calculation Agent for negotiable United States dollar certificates of deposit of
major United States money market banks for negotiable United States certificates of
deposit with a remaining maturity closest to the particular Index Maturity in an
amount that is representative for a single transaction in that market at that time;
or (4) if the dealers so selected by the Calculation Agent are not quoting as
mentioned in clause (3), the CD Rate in effect on the particular Interest
Determination Date. “H.15(519)” means the weekly statistical release designated as
H.15(519), or any successor publication, published by the Board of Governors of the
Federal Reserve System. “H.15 Daily Update” means the daily update of H.15(519),
available through the world-wide-web site of the Board of Governors of the Federal
Reserve System at http://www.federalreserve.gov/releases/H15/ update, or any
successor site or publication.




(B) CMT Rate Notes. If the Interest Rate Basis is the CMT Rate, this Note
shall be deemed a “CMT Rate Note.” Unless otherwise specified on the face hereof,
“CMT Rate” means:




	 	(1)	 	if Reuters Page FRBCMT is specified on the face
hereof:






	 	i.	 	the percentage equal to the yield for
United States Treasury securities at “constant maturity” having the
Index Maturity specified on the face hereof as published in
H.15(519) under the caption “Treasury Constant Maturities”, as the
yield is displayed on Reuters Service (or any successor service) on
page FRBCMT (or any other page as may replace the specified page on
that service) (“Reuters Page FRBCMT”), for the particular Interest
Determination Date; or
	 
	 	ii.	 	if the rate referred to in clause (i)
does not so appear on Reuters Page FRBCMT, the percentage equal to
the yield for United States Treasury securities at “constant
maturity” having the particular Index Maturity and for the
particular Interest




A-2-13









 






	 	 	 	Determination Date as published in H.15(519) under the caption “Treasury
Constant Maturities”; or
	 
	 	iii.	 	if the rate referred to in clause (ii)
does not so appear in H.15(519), the rate on the particular Interest
Determination Date for the period of the particular Index Maturity
as may then be published by either the Federal Reserve System Board
of Governors or the United States Department of the Treasury that
the Calculation Agent determines to be comparable to the rate which
would otherwise have been published in H.15(519); or
	 
	 	iv.	 	if the rate referred to in clause (iii) is not so published, the rate on the particular Interest
Determination Date calculated by the Calculation Agent as a yield to maturity based on the
arithmetic mean of the secondary market bid prices at approximately 3:30 P.M., New York City
time, on that Interest Determination Date of three leading primary United States government
securities dealers in The City of New York (which may include the purchasing agent or its
affiliates) (each, a “Reference Dealer”) selected by the Calculation Agent from five Reference
Dealers selected by the Calculation Agent and eliminating the highest quotation, or, in the event
of equality, one of the highest, and the lowest quotation or, in the event of equality, one of
the lowest, for United States Treasury securities with an original maturity equal to the
particular Index Maturity, a remaining term to maturity no more than one year shorter than that
Index Maturity and in a principal amount that is representative for a single transaction in the
securities in that market at that time; or
	 
	 	v.	 	if fewer than five but more than two of the prices referred to in clause (iv) are provided as
requested, the rate on the particular Interest Determination Date calculated by the Calculation
Agent based on the arithmetic mean of the bid prices obtained and neither the highest nor the
lowest of the quotations shall be eliminated; or
	 
	 	vi.	 	if fewer than three prices referred to in clause (iv) are provided as requested, the rate on the
particular Interest Determination Date calculated by the Calculation Agent as a yield to maturity
based on the arithmetic mean of the secondary market bid prices as of approximately 3:30 P.M.,
New York City time, on that Interest Determination Date of three Reference Dealers selected by
the Calculation Agent from five Reference Dealers selected by the Calculation Agent and
eliminating the highest quotation or, in the event of equality, one of the highest and the lowest
quotation or, in the event of equality, one of the lowest, for United States Treasury securities
with an original maturity greater than the




A-2-14









 






	 	 	 	particular Index Maturity, a remaining term to
maturity closest to that Index Maturity and in a principal amount that is representative for a
single transaction in the securities in that market at that time; or
	 
	 	vii.	 	if fewer than five but more than two prices referred to in clause (vi) are provided as requested,
the rate on the particular Interest Determination Date calculated by the Calculation Agent based
on the arithmetic mean of the bid prices obtained and neither the highest nor the lowest of the
quotations will be eliminated; or
	 
	 	viii.	 	if fewer than three prices referred to in clause (vi) are provided as requested, the CMT Rate in
effect on the particular Interest Determination Date; or






	 	(2)	 	if Reuters Page FEDCMT is specified on the face hereof:






	 	i.	 	the percentage equal to the one-week or one-month, as specified on the face hereof, average yield
for United States Treasury securities at “constant maturity” having the Index Maturity specified
on the face hereof as published in H.15(519) opposite the caption “Treasury Constant Maturities”,
as the yield is displayed on Reuters Service (or any successor service) (on page FEDCMT or any
other page as may replace the specified page on that service) (“Reuters Page FEDCMT”), for the
week or month, as applicable, ended immediately preceding the week or month, as applicable, in
which the particular Interest Determination Date falls; or
	 
	 	ii.	 	if the rate referred to in clause (i) does not so appear on Reuters Page FEDCMT, the percentage
equal to the one-week or one-month, as specified on the face hereof, average yield for United
States Treasury securities at “constant maturity” having the particular Index Maturity and for
the week or month, as applicable, preceding the particular Interest Determination Date as
published in H.15(519) opposite the caption “Treasury Constant Maturities”; or
	 
	 	iii.	 	if the rate referred to in clause (ii) does not so appear in H.15(519), the one-week or
one-month, as specified on the face hereof, average yield for United States Treasury securities
at “constant maturity” having the particular Index Maturity as otherwise announced by the Federal
Reserve Bank of New York for the week or month, as applicable, ended immediately preceding the
week or month, as applicable, in which the particular Interest Determination Date falls; or






A-2-15











 






	 	iv.	 	if the rate referred to in clause (iii)
is not so published, the rate on the particular Interest
Determination Date calculated by the Calculation Agent as a yield to
maturity based on the arithmetic mean of the secondary market bid
prices at approximately 3:30 P.M., New York City time, on that
Interest Determination Date of three Reference Dealers selected by
the Calculation Agent from five Reference Dealers selected by the
Calculation Agent and eliminating the highest quotation, or, in the
event of equality, one of the highest, and the lowest quotation or,
in the event of equality, one of the lowest, for United States
Treasury securities with an original maturity equal to the
particular Index Maturity, a remaining term to maturity no more than
one year shorter than that Index Maturity and in a principal amount
that is representative for a single transaction in the securities in
that market at that time; or
	 
	 	v.	 	if fewer than five but more than two of
the prices referred to in clause (iv) are provided as requested, the
rate on the particular Interest Determination Date calculated by the
Calculation Agent based on the arithmetic mean of the bid prices
obtained and neither the highest nor the lowest of the quotations
shall be eliminated; or
	 
	 	vi.	 	if fewer than three prices referred to in
clause (iv) are provided as requested, the rate on the particular
Interest Determination Date calculated by the Calculation Agent as a
yield to maturity based on the arithmetic mean of the secondary
market bid prices as of approximately 3:30 P.M., New York City time,
on that Interest Determination Date of three Reference Dealers
selected by the Calculation Agent from five Reference Dealers
selected by the Calculation Agent and eliminating the highest
quotation or, in the event of equality, one of the highest and the
lowest quotation or, in the event of equality, one of the lowest,
for United States Treasury securities with an original maturity
greater than the particular Index Maturity, a remaining term to
maturity closest to that Index Maturity and in a principal amount
that is representative for a single transaction in the securities in
that market at the time; or
	 
	 	vii.	 	if fewer than five but more than two
prices referred to in clause (vi) are provided as requested, the
rate on the particular Interest Determination Date calculated by the
Calculation Agent based on the arithmetic mean of the bid prices
obtained and neither the highest nor the lowest of the quotations
will be eliminated; or




A-2-16









 






	 	viii.	 	if fewer than three prices referred to
in clause (vi) are provided as requested, the CMT Rate in effect on
that Interest Determination Date.






	 	 	 	If two United States Treasury securities with an original maturity greater
than the Index Maturity specified on the face hereof have remaining terms to
maturity equally close to the particular Index Maturity, the quotes for the
United States Treasury security with the shorter original remaining term to
maturity will be used.






(C) Commercial Paper Rate Notes. If the Interest Rate Basis is the
Commercial Paper Rate, this Note shall be deemed a “Commercial Paper Rate Note.”
Unless otherwise specified on the face hereof, “Commercial Paper Rate” means: (1)
the Money Market Yield (as defined below) on the particular Interest Determination
Date of the rate for commercial paper having the Index Maturity specified on the
face hereof as published in H.15(519) under the caption “Commercial
Paper—Nonfinancial”; or (2) if the rate referred to in clause (1) is not so
published by 3:00 P.M., New York City time, on the related Calculation Date, the
Money Market Yield of the rate on the particular Interest Determination Date for
commercial paper having the particular Index Maturity as published in H.15 Daily
Update, or such other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption “Commercial Paper—Nonfinancial”;
or (3) if the rate referred to in clause (2) is not so published by 3:00 P.M., New
York City time, on the related Calculation Date, the rate on the particular Interest
Determination Date calculated by the Calculation Agent as the Money Market Yield of
the arithmetic mean of the offered rates at approximately 11:00 A.M., New York City
time, on that Interest Determination Date of three leading dealers of United States
dollar commercial paper in The City of New York (which may include the purchasing
agent or its affiliates) selected by the Calculation Agent for commercial paper
having the particular Index Maturity placed for industrial issuers whose bond rating
is “Aa”, or the equivalent, from a nationally recognized statistical rating
organization; or (4) if the dealers so selected by the Calculation Agent are not
quoting as mentioned in clause (3), the Commercial Paper Rate in effect on the
particular Interest Determination Date. “Money Market Yield” means a yield
(expressed as a percentage) calculated in accordance with the following formula:









where “D” refers to the applicable per annum rate for commercial paper quoted on a
bank discount basis and expressed as a decimal, and “M” refers to the actual number
of days in the applicable Interest Reset Period.




(D) Constant Maturity Swap Rate Notes. If the Interest Rate Basis is the
Constant Maturity Swap Rate, this Note shall be deemed a “Constant Maturity Swap
Rate Note.” Unless otherwise specified on the face hereof, “Constant



A-2-17









 







Maturity Swap Rate” means: (1) the rate for U.S. dollar swaps with the designated
maturity specified on the face hereof, expressed as a percentage, which appears on
the Reuters Screen (or any successor service) TGM42276 Page as of 11:00 A.M., New
York City time, on the particular Interest Determination Date; or (2) if the rate
referred to in clause (1) does not appear on the Reuters Screen (or any successor
service) TGM42276 Page by 2:00 P.M., New York City time, on such Interest
Determination Date, a percentage determined on the basis of the mid-market
semiannual swap rate quotations provided by the reference banks (as defined below)
as of approximately 11:00 A.M., New York City time, on such Interest Determination
Date, and, for this purpose, the semi-annual swap rate means the mean of the bid and
offered rates for the semi-annual fixed leg, calculated on a 30/360 day count basis,
of a fixed-for-floating U.S. dollar interest rate swap transaction with a term equal
to the designated maturity specified on the face hereof commencing on the Interest
Reset Date and in a representative amount (as defined below) with an acknowledged
dealer of good credit in the swap market, where the floating leg, calculated on an
actual/360 day count basis, is equivalent to USD-LIBOR-BBA with a designated
maturity specified on the face hereof. The Calculation Agent will request the
principal New York City office of each of the reference banks to provide a quotation
of its rate. If at least three quotations are provided, the rate for that Interest
Determination Date will be the arithmetic mean of the quotations, eliminating the
highest quotation (or, in the event of equality, one of the highest) and the lowest
quotation (or, in the event of equality, one of the lowest); or (3) if at least
three quotations are not received by the Calculation Agent as mentioned in clause
(2), the Constant Maturity Swap Rate in effect on the particular Interest
Determination Date. “U.S. Government Securities business day” means any day except
for Saturday, Sunday, or a day on which The Bond Market Association recommends that
the fixed income departments of its members be closed for the entire day for
purposes of trading in U.S. government securities. “Representative amount” means an
amount that is representative for a single transaction in the relevant market at the
relevant time. “Reference banks” mean five leading swap dealers in the New York
City interbank market, selected by the Calculation Agent, after consultation with
us.




(E) Eleventh District Cost of Funds Rate Notes. If the Interest Rate Basis
is the Eleventh District Cost of Funds Rate, this Note shall be deemed an “Eleventh
District Cost of Funds Rate Note.” Unless otherwise specified on the face hereof,
“Eleventh District Cost of Funds Rate” means: (1) the rate equal to the monthly
weighted average cost of funds for the calendar month immediately preceding the
month in which the particular Interest Determination Date falls as set forth under
the caption “11th District” on the display on Reuters Service (or any successor
service) on Page COFI/ARMS (or any other page as may replace the specified page on
that service) (“Reuters Page COFI/ARMS”) as of 11:00 A.M., San Francisco time, on
that Interest Determination Date; or (2) if the rate referred to in clause (1) does
not so appear on Reuters Page COFI/ARMS, the monthly weighted average cost of funds
paid by member institutions of the Eleventh Federal Home Loan Bank District that was
most recently announced (the “Eleventh District Index”) by the Federal Home Loan
Bank of San Francisco as



A-2-18









 







the cost of funds for the calendar month immediately preceding that Interest
Determination Date; or (3) if the Federal Home Loan Bank of San Francisco fails to
announce the Eleventh District Index on or prior to the particular Interest
Determination Date for the calendar month immediately preceding that Interest
Determination Date, the Eleventh District Cost of Funds Rate in effect on the
particular Interest Determination Date.




(F) EURIBOR Notes. If the Interest Rate Basis is EURIBOR, this Note shall
be deemed a “EURIBOR Note.” Unless otherwise specified on the face hereof,
“EURIBOR” means: (1) with respect to any Interest Determination Date relating to
this EURIBOR Note (a “EURIBOR Interest Determination Date”), the rate for deposits
in euros as sponsored, calculated and published jointly by the European Banking
Federation and ACI — The Financial Market Association, or any company established by
the joint sponsors for purposes of compiling and publishing those rates, having the
Index Maturity specified on the face hereof, commencing on the applicable Interest
Reset Date, as the rate appears on Reuters Service (or any successor service), on
page EURIBOR 01 (or any other page as may replace that specified page on the
service) (“Reuters Page EURIBOR 01”) as of 11:00 A.M., Brussels time, on the
applicable EURIBOR Interest Determination Date; or (2) if such rate does not appear
on Reuters Page EURIBOR 01, or is not so published by 11:00 A.M., Brussels time, on
the applicable EURIBOR Interest Determination Date, such rate will be calculated by
the Calculation Agent and will be the arithmetic mean of at least two quotations
obtained by the Calculation Agent after requesting the principal Euro-zone (as
defined below) offices of four major banks in the Euro-zone interbank market to
provide the Calculation Agent with its offered quotation for deposits in euros for
the period of the Index Maturity specified on the face hereof, commencing on the
applicable Interest Reset Date, to prime banks in the Euro-zone interbank market at
approximately 11:00 A.M., Brussels time, on the applicable EURIBOR Interest
Determination Date and in a principal amount not less than the equivalent of $1
million in euros that is representative for a single transaction in euro in the
market at that time; or (3) if fewer than two such quotations are so provided, the
rate on the applicable EURIBOR Interest Determination Date will be calculated by the
Calculation Agent and will be the arithmetic mean of the rates quoted at
approximately 11:00 A.M., Brussels time, on such EURIBOR Interest Determination Date
by four major banks in the Euro-zone for loans in euro to leading European banks,
having the Index Maturity specified on the face hereof, commencing on the applicable
Interest Reset Date and in a principal amount not less than the equivalent of $1
million in euros that is representative for a single transaction in euros in the
market at that time; or (4) if the banks so selected by the Calculation Agent are
not quoting as mentioned above, EURIBOR will be EURIBOR in effect on the applicable
EURIBOR Interest Determination Date. “Euro-zone” means the region comprised of
member states of the European Union that have adopted the single currency in
accordance with the treaty establishing the European Community, as amended by the
treaty on European Union.



A-2-19









 






(G) Federal Funds Open Rate Notes. If the Interest Rate Basis is the
Federal Funds Open Rate, this Note shall be deemed a “Federal Funds Open Rate Note.”
Unless otherwise specified on the face hereof, “Federal Funds Open Rate” means the
rate set forth on Reuters on page 5 (or any other page as may replace the specified
page on that service) for an Interest Determination Date underneath the caption
“FEDERAL FUNDS” in the row titled “OPEN”. If the rate is not available for an
Interest Determination Date, the rate for that Interest Determination Date shall be
the Federal Funds Rate as determined below.




(H) Federal Funds Rate Notes. If the Interest Rate Basis is the Federal
Funds Rate, this Note shall be deemed a “Federal Funds Rate Note.” Unless otherwise
specified on the face hereof, “Federal Funds Rate” means: (1) the rate as of the
particular Interest Determination Date for United States dollar federal funds as
published in H.15(519) under the caption “Federal Funds (Effective)” and displayed
on Reuters on page FEDFUNDS1 (or any other page as may replace the specified page on
that service) (“Reuters Page FEDFUNDS1”); or (2) if the rate referred to in clause
(1) does not so appear on Reuters Page FEDFUNDS1 or is not so published by 5:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date for United States dollar federal funds as
published in H.15 Daily Update, or such other recognized electronic source used for
the purpose of displaying the applicable rate, under the caption “Federal Funds
(Effective)”; or (3) if such rate does not appear on Reuters Page FEDFUNDS1 or is
not so published by 5:00 P.M., New York City time, on the related Calculation Date,
the rate will be the rate for the first preceding day for which such rate is set
forth in H.15(519) under the caption “Federal Funds (Effective)”, as such rate is
displayed on the Reuters Page FEDFUNDS1.




(I) LIBOR Notes. If the Interest Rate Basis is LIBOR, this Note shall be
deemed a “LIBOR Note.” Unless otherwise specified on the face hereof, “LIBOR”
means: (1) whether “LIBOR Reuters” is or is not specified on the face hereof as the
method for calculating LIBOR, the rate for deposits in the LIBOR Currency (as
defined below) having the Index Maturity specified on the face hereof, commencing on
the related Interest Reset Date, that appears on the LIBOR Page (as defined below)
as of 11:00 A.M., London time, on the particular Interest Determination Date; or (2)
if no rate appears on the particular Interest Determination Date on the LIBOR Page
as specified in clause (1), the rate calculated by the Calculation Agent as the
arithmetic mean of at least two offered quotations obtained by the Calculation Agent
after requesting the principal London offices of each of four major reference banks
(which may include affiliates of the Agents), in the London interbank market
selected by the Calculation Agent to provide the Calculation Agent with its offered
quotation for deposits in the LIBOR Currency for the period of the particular Index
Maturity, commencing on the related Interest Reset Date, to prime banks in the
London interbank market at approximately 11:00 A.M., London time, on that Interest
Determination Date and in a principal amount that is representative for a single
transaction in the LIBOR Currency in that market at that time; or (3) if fewer than



A-2-20









 







two offered quotations referred to in clause (2) are provided as requested, the rate
calculated by the Calculation Agent as the arithmetic mean of the rates quoted at
approximately 11:00 A.M., in the applicable Principal Financial Center, on the
particular Interest Determination Date by three major banks (which may include
affiliates of the Agents), in that principal financial center selected by the
Calculation Agent for loans in the LIBOR Currency to leading European banks, having
the particular Index Maturity and in a principal amount that is representative for a
single transaction in the LIBOR Currency in that market at that time; or (4) if the
banks so selected by the Calculation Agent are not quoting as mentioned in clause
(3), LIBOR in effect on the particular Interest Determination Date. “LIBOR
Currency” means the currency specified on the face hereof as to which LIBOR shall be
calculated or, if no currency is specified on the face hereof, United States
dollars. “LIBOR Page” means the display on Reuters Service (or any successor
service) on the page specified on the face hereof (or any other page as may replace
that page on that service) for the purpose of displaying the London interbank rates
of major banks for the LIBOR Currency.




(J) Prime Rate Notes. If the Interest Rate Basis is the Prime Rate, this
Note shall be deemed a “Prime Rate Note.” Unless otherwise specified on the face
hereof, “Prime Rate” means: (1) the rate on the particular Interest Determination
Date as published in H.15(519) under the caption “Bank Prime Loan”; or (2) if the
rate referred to in clause (1) is not so published by 3:00 P.M., New York City time,
on the related Calculation Date, the rate on the particular Interest Determination
Date as published in H.15 Daily Update, or such other recognized electronic source
used for the purpose of displaying the applicable rate, under the caption “Bank
Prime Loan”, or (3) if the rate referred to in clause (2) is not so published by
3:00 P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date calculated by the Calculation Agent as the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen US PRIME 1 Page (as defined below) as the applicable
bank’s prime rate or base lending rate as of 11:00 A.M., New York City time, on that
Interest Determination Date; or (4) if fewer than four rates referred to in clause
(3) are so published by 3:00 p.m., New York City time, on the related Calculation
Date, the rate calculated by the Calculation Agent as the particular Interest
Determination Date calculated by the Calculation Agent as the arithmetic mean of the
prime rates or base lending rates quoted on the basis of the actual number of days
in the year divided by a 360-day year as of the close of business on that Interest
Determination Date by three major banks (which may include affiliates of the
purchasing agent) in The City of New York selected by the Calculation Agent; or (5)
if the banks so selected by the Calculation Agent are not quoting as mentioned in
clause (4), the Prime Rate in effect on the particular Interest Determination Date.
“Reuters Screen US PRIME 1 Page” means the display on the Reuters Monitor Money
Rates Service (or any successor service) on the “US PRIME 1” page (or any other page
as may replace that page on that service) for the purpose of displaying prime rates
or base lending rates of major United States banks.



A-2-21









 






(K) Treasury Rate Notes. If the Interest Rate Basis is the Treasury Rate,
this Note shall be deemed a “Treasury Rate Note.” Unless otherwise specified on the
face hereof, “Treasury Rate” means: (1) the rate from the auction held on the
Interest Determination Date (the “Auction”) of direct obligations of the United
States (“Treasury Bills”) having the Index Maturity specified on the face hereof
under the caption “INVESTMENT RATE” on the display on Reuters Service (or any
successor service) on page USAUCTION 10 (or any other page as may replace that page
on that service) (“Reuters USAUCTION 10”) or page USAUCTION 11 (or any other page as
may replace that page on that service) (“Reuters USAUCTION 11”); or (2) if the rate
referred to in clause (1) is not so published by 3:00 P.M., New York City time, on
the related Calculation Date, the Bond Equivalent Yield (as defined below) of the
rate for the applicable Treasury Bills as published in H.15 Daily Update, or another
recognized electronic source used for the purpose of displaying the applicable rate,
under the caption “U.S. Government Securities/Treasury Bills/Auction High”; or (3)
if the rate referred to in clause (2) is not so published by 3:00 P.M., New York
City time, on the related Calculation Date, the Bond Equivalent Yield of the auction
rate of the applicable Treasury Bills as announced by the United States Department
of the Treasury; or (4) if the rate referred to in clause (3) is not so announced by
the United States Department of the Treasury, or if the Auction is not held, the
Bond Equivalent Yield of the rate on the particular Interest Determination Date of
the applicable Treasury Bills as published in H.15(519) under the caption “U.S.
Government Securities/Treasury Bills/Secondary Market”; or (5) if the rate referred
to in clause (4) is not so published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on the particular Interest Determination Date of
the applicable Treasury Bills as published in H.15 Daily Update, or another
recognized electronic source used for the purpose of displaying the applicable rate,
under the caption “U.S. Government Securities/Treasury Bills/Secondary Market”; or
(6) if the rate referred to in clause (5) is not so published by 3:00 P.M., New York
City time, on the related Calculation Date, the rate on the particular Interest
Determination Date calculated by the Calculation Agent as the Bond Equivalent Yield
of the arithmetic mean of the secondary market bid rates, as of approximately 3:30
P.M., New York City time, on that Interest Determination Date, of three primary
United States government securities dealers (which may include the purchasing agent
or its affiliates) selected by the Calculation Agent, for the issue of Treasury
Bills with a remaining maturity closest to the Index Maturity specified on the face
hereof; or (7) if the dealers so selected by the Calculation Agent are not quoting
as mentioned in clause (6), the Treasury Rate in effect on the particular Interest
Determination Date. “Bond Equivalent Yield” means a yield (expressed as a
percentage) calculated in accordance with the following formula:









where “D” refers to the applicable per annum rate for Treasury Bills quoted on a
bank discount basis and expressed as a decimal, “N” refers to 365 or 366, as the



A-2-22









 







case may be, and “M” refers to the actual number of days in the applicable Interest
Reset Period.



     (c) Discount Notes. If this Note is specified on the face hereof as a
“Discount Note”:




(i) Principal and Interest. This Note will bear interest in the same manner as
set forth in Section 3(a) above, and payments of principal and interest shall be made
as set forth on the face hereof. Discount Notes may not bear any interest currently or
may bear interest at a rate that is below market rates at the time of issuance. The
difference between the Issue Price of a Discount Note and par is referred to as the
“Discount”.




(ii) Redemption; Repayment; Acceleration. In the event a Discount Note is
redeemed, repaid or accelerated, the amount payable to the Holder of such Discount Note
will be equal to the sum of: (A) the Issue Price (increased by any accruals of
Discount) and, in the event of any redemption of such Discount Note, if applicable,
multiplied by the Initial Redemption Percentage (as adjusted by the Annual Redemption
Percentage Reduction, if applicable); and (B) any unpaid interest accrued on such
Discount Note to the Maturity Date (“Amortized Face Amount”). Unless otherwise
specified on the face hereof, for purposes of determining the amount of Discount that
has accrued as of any date on which a redemption, repayment or acceleration of maturity
occurs for a Discount Note, a Discount will be accrued using a constant yield method.
The constant yield will be calculated using a 30-day month, 360-day year convention, a
compounding period that, except for the Initial Period (as defined below), corresponds
to the shortest period between Interest Payment Dates for the applicable Discount Note
(with ratable accruals within a compounding period), a coupon rate equal to the initial
coupon rate applicable to the applicable Discount Note and an assumption that the
maturity of such Discount Note will not be accelerated. If the period from the date of
issue to the first Interest Payment Date for a Discount Note (the “Initial Period”) is
shorter than the compounding period for such Discount Note, a proportionate amount of
the yield for an entire compounding period will be accrued. If the Initial Period is
longer than the compounding period, then the period will be divided into a regular
compounding period and a short period with the short period being treated as provided
above.



     (d) Amortizing Notes. If this Note is specified on the face hereof as an “Amortizing
Note”, this Note will bear interest in the same manner as set forth in Section 3(a) above, and
payments on principal, premium, if any, and interest will be made as set forth on the face hereof
and/or in accordance with Schedule I attached hereto. The Trust will make payments combining
principal, premium (if any) and interest, if applicable, on the dates and in the amounts set forth
in the table appearing in Schedule I, attached to this Note or in accordance with the
formula specified on the face hereof. Payments made hereon will be applied first to interest due
and payable hereon and then to the reduction of the unpaid principal amount hereof.


Section 4. Redemption. If no redemption right is set forth on the face hereof, this Note
may not be redeemed prior to the Stated Maturity Date, except as set forth in the Indenture or in
Section 10 hereof. In the case of a Note that is not a Discount Note, if a redemption right is set
forth on





A-2-23









 







the face of this Note, the Trust shall elect to redeem this Note on the Interest Payment Date after
the Initial Redemption Date set forth on the face hereof on which the Funding Agreement is to be
redeemed in whole or in part by Principal Life Insurance Company (“Principal Life”) (each, a
“Redemption Date”), in which case this Note must be redeemed on such Redemption Date in whole or in
part, as applicable, prior to the Stated Maturity Date, in increments of $1,000 at the applicable
Redemption Price (as defined below), together with unpaid interest, if any, accrued thereon to,
but excluding, the applicable Redemption Date. “Redemption Price” shall mean an amount equal to
the Initial Redemption Percentage (as adjusted by the Annual Redemption Percentage Reduction, if
applicable) multiplied by the unpaid Principal Amount of this Note to be redeemed. The unpaid
Principal Amount of this Note to be redeemed shall be determined by multiplying (1) the Outstanding
Principal Amount of this Note by (2) the quotient derived by dividing (A) the outstanding principal
amount of the Funding Agreement to be redeemed by Principal Life by (B) the outstanding principal
amount of the Funding Agreement. The Initial Redemption Percentage, if any, applicable to this
Note shall decline at each anniversary of the Initial Redemption Date by an amount equal to the
applicable Annual Redemption Percentage Reduction, if any, until the Redemption Price is equal to
100% of the unpaid amount thereof to be redeemed. Notice must be given not more than sixty (60)
nor less than thirty (30) calendar days prior to the proposed Redemption Date. In the event of
redemption of this Note in part only, a new Note for the unredeemed portion hereof shall be issued
in the name of the Holder hereof upon the surrender hereof. If less than all of this Note is
redeemed, the Indenture Trustee will select by lot or, in its discretion, on a pro rata basis, the
amount of the interest of each direct participant in the Trust to be redeemed.



Section 5. Sinking Funds and Amortizing Notes. Unless specified on the face hereof, this
Note will not be subject to, or entitled to the benefit of, any sinking fund. If this Note is an
Amortizing Note, this Note may pay an amount in respect of both interest and principal amortized
over the life of this Note.



Section 6. Repayment. If no repayment right is set forth on the face hereof, this Note
may not be repaid at the option of the Holder hereof prior to the Stated Maturity Date. If a
repayment right is granted on the face of this Note, this Note may be subject to repayment at the
option of the Holder on any Interest Payment Date on and after the date, if any, indicated on the
face hereof (each, a “Repayment Date”). On any Repayment Date, unless otherwise specified on the
face hereof, this Note shall be repayable in whole or in part in increments of $1,000 at the option
of the Holder hereof at a repayment price equal to 100% of the Principal Amount to be repaid,
together with interest thereon payable to the Repayment Date. For this Note to be repaid in whole
or in part at the option of the Holder hereof, this Note must be received by the Indenture Trustee,
with the form entitled “Option to Elect Repayment”, below, duly completed by the Indenture Trustee.
Exercise of such repayment option by the Holder hereof shall be irrevocable. In the event of a
repayment of this Note in part only, a new Note for the portion hereof not repaid shall be issued
in the name of the Holder hereof upon the surrender hereof.



Section 7. Modifications and Waivers. The Indenture contains provisions permitting the
Trust and the Indenture Trustee (1) at any time and from time to time without notice to, or the
consent of, the Holders of any Notes issued under the Indenture to enter into one or more
supplemental indentures for certain enumerated purposes and (2) with the consent of the Holders of
a majority in aggregate principal amount of the Outstanding Notes affected thereby, to enter into
one or





A-2-24









 







more supplemental indentures for the purpose of adding any provisions to, or changing in any manner
or eliminating any of the provisions of, the Indenture or of modifying in any manner the rights of
Holders of Notes under the Indenture; provided, that, with respect to certain enumerated
provisions, no such supplemental indenture shall be entered into without the consent of the Holder
of each Note affected thereby. Any such consent or waiver by the Holder of this Note shall be
conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note
issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or
not notation of such consent or waiver is made upon this Note or such other Notes.



Section 8. Obligations Unconditional. No reference herein to the Indenture and no
provisions of this Note or of the Indenture shall impair the right of each Holder of any Note,
which is absolute and unconditional, to receive payment of the principal of, and any interest on,
and premium, if any, on, such Note on the respective Stated Maturity Date or redemption date
thereof and to institute suit for the enforcement of any such payment, and such rights shall not be
impaired without the consent of such Holder.



Section 9. Events of Default. If an Event of Default with respect to this Note shall
occur and be continuing, the principal of, and all other amounts payable on, the Notes may be
declared due and payable, or may be automatically accelerated, as the case may be, in the manner
and with the effect provided in the Indenture. In the event that this Note is a Discount Note, the
amount of principal of this Note that becomes due and payable upon such acceleration shall be equal
to the amount calculated as set forth in Section 3(c) hereof.



Section 10. Withholding; No Additional Amounts; Tax Event and Redemption. All amounts due
on this Note will be made without any applicable withholding or deduction for or on account of any
present or future taxes, duties, levies, assessments or other governmental charges of whatever
nature imposed or levied by or on behalf of any governmental authority, unless such withholding or
deduction is required by law. Unless otherwise specified on the face hereof, the Trust will not
pay any additional amounts to the Holder of this Note in respect of such withholding or deduction,
any such withholding or deduction will not give rise to an event of default or any independent
right or obligation to redeem this Note and the Holder will be deemed for all purposes to have
received cash in an amount equal to the portion of such withholding or deduction that is
attributable to such Holder’s interest in this Note as equitably determined by the Trust.




     If (1) a Tax Event (defined below) as to the Funding Agreement occurs and (2) Principal Life
redeems the Funding Agreement in whole or in part, the Trust will redeem the Notes, subject to the
terms and conditions of Section 2.04 of the Standard Indenture Terms, at the Tax Event
Redemption Price (defined below) together with unpaid interest accrued thereon to the applicable
redemption date. “Tax Event” means that Principal Life shall have received an opinion of
independent legal counsel stating in effect that as a result of (a) any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations thereunder) of the
United States or any political subdivision or taxing authority thereof or therein or (b) any
amendment to, or change in, an interpretation or application of any such laws or regulations by any
governmental authority in the United States, which amendment or change is enacted, promulgated,
issued or announced on or after the effective date of the Funding Agreement, there is more than an
insubstantial risk that (i) the Trust is, or will be within ninety



A-2-25









 




(90) days of the date thereof, subject to U.S. federal income tax with respect to interest
accrued or received on the Funding Agreement or (ii) the Trust is, or will be within ninety (90)
days of the date thereof, subject to more than a de minimis amount of taxes, duties or other
governmental charges. “Tax Event Redemption Price” means an amount equal to the unpaid principal
amount of this Note to be redeemed, which shall be determined by multiplying (1) the Outstanding
Principal Amount of this Note by (2) the quotient derived by dividing (A) the outstanding principal
amount to be redeemed by Principal Life of the Funding Agreement by (B) the outstanding principal
amount of the Funding Agreement.



Section 11. Listing. Unless otherwise specified on the face hereof, this Note will not be
listed on any securities exchange.



Section 12. Collateral. The Collateral for this Note includes the Funding Agreement and
the Guarantee specified on the face hereof.



Section 13. No Recourse Against Certain Persons. No recourse shall be had for the payment
of any principal, interest or any other sums at any time owing under the terms of this Note, or for
any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture
or any indenture supplemental thereto, against the Nonrecourse Parties, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such personal liability being, by the acceptance hereof and as part of the
consideration for issue hereof, expressly waived and released.



Section 14. Miscellaneous.




     (a) This Note is issuable only as a registered Note without coupons in denominations of
$1,000 and any integral multiple in excess thereof unless otherwise specified on the face of this
Note.



     (b) Prior to due presentment for registration of transfer of this Note, the Trust, the
Indenture Trustee, the Registrar, the Paying Agent, any Agent, and any other agent of the Trust or
the Indenture Trustee may treat the Person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment as herein provided and for all other purposes, whether
or not this Note shall be overdue, and none of the Trust, the Indenture Trustee, the Registrar, the
Paying Agent, any Agent, or any other agent of the Trust or the Indenture Trustee shall be affected
by notice to the contrary.



     (c) The Notes are being issued by means of a book-entry-only system with no physical
distribution of certificates to be made except as provided in the Indenture. The book-entry system
maintained by DTC will evidence ownership of the Notes, with transfers of ownership effected on the
records of DTC and its participants pursuant to rules and procedures established by DTC and its
participants. The Trust and the Indenture Trustee will recognize Cede & Co., as nominee of DTC, as
the registered owner of the Notes, as the Holder of the Notes for all purposes, including payment
of principal, premium (if any) and interest, notices and voting. Transfer of principal, premium
(if any) and interest to participants of DTC will be the responsibility of DTC, and transfer of
principal, premium (if any) and interest to beneficial holders of the Notes by participants of DTC
will be the responsibility of such participants and



A-2-26









 







other nominees of such beneficial holders. So long as the book-entry system is in effect, the
selection of any Notes to be redeemed or repaid will be determined by DTC pursuant to rules and
procedures established by DTC and its participants. Neither the Trust nor the Indenture Trustee
shall be responsible or liable for such transfers or payments or for maintaining, supervising or
reviewing the records maintained by DTC, its participants or persons acting through such
participants.



     (d) This Note or portion hereof may not be exchanged for Definitive Notes, except in the
limited circumstances provided for in the Indenture. The transfer or exchange of Definitive Notes
shall be subject to the terms of the Indenture. No service charge will be made for any
registration of transfer or exchange, but the Trust may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.


Section 15. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.




A-2-27









 








OPTION TO ELECT REPAYMENT




     The undersigned hereby irrevocably request(s) and instruct(s) the Trust to repay this Note (or
portion hereof specified below) pursuant to its terms at a price equal to the Principal Amount
hereof together with interest to the repayment date, to the undersigned, at:



 





 





  (Please print or typewrite name and address of the undersigned).




     For this Note to be repaid, the Indenture Trustee (or the Paying Agent on behalf of the
Indenture Trustee) must receive at its Corporate Trust Office, or at such other place or places of
which the Trust shall from time to time notify the Holder of this Note, not more than sixty (60)
nor less than thirty (30) days prior to a Repayment Date, if any, shown on the face of this Note,
this Note with this “Option to Elect Repayment” form duly completed.



     If less than the entire Principal Amount of this Note is to be repaid, specify the portion
hereof (which shall be in increments of $1,000) which the Holder elects to have repaid and specify
the denomination or denominations (which shall be $                or an integral multiple of $1,000 in
excess of $               ) of the Notes to be issued to the Holder for the portion of this Note not being
repaid (in the absence of any such specification, one such Note will be issued for the portion not
being repaid).



	 	 	 
	 

	 	 
	$         
                   
                   
              

	 	 

	 
	 	 
	DATE:        
                   
                   
     

	 	NOTICE: The signature on this Option to Elect Repayment must correspond with
the name as written upon the face of this Note in every particular, without
alteration or enlargement or any change whatever.
	 
	 	 
	Principal Amount to be repaid, if amount to be repaid is
less than the Principal Amount of this Note (Principal
Amount remaining must be an authorized denomination)

	 	Fill in for registration of Notes
if to be issued otherwise than
to the registered Holder:
	 
	 	 
	 

	 	Name:              
                   
                   
             
	$        
                   
                   
              

	 	Address:             
                   
                   
          
	 
	 	 
	 

	 	             
                  
                  
           
	 

	 	(Please print name and

address including zip code)






     SOCIAL SECURITY OR OTHER TAXPAYER
ID NUMBER:                  
                
                  
         



A-2-28










 





SCHEDULE I




Amortization Table or Formula





A-2-29









 








EXHIBIT A-3




Form of Global Note for the Secured Medium-Term Notes Retail Program



THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE (HEREINAFTER DEFINED) AND IS
REGISTERED IN THE NAME OF A DEPOSITARY (AS DEFINED IN THE INDENTURE) OR A NOMINEE OF A DEPOSITARY.
THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO
TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE
OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE
DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.



UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A
NEW YORK CORPORATION (“DTC”), TO THE TRUST (HEREINAFTER DEFINED) OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND UNLESS ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.




	 	 	 	 	 
	Registered No.:

	 	CUSIP No.:
	 	Principal Amount: U.S. $






PRINCIPAL
LIFE INCOME FUNDINGS TRUST •




SECURED MEDIUM-TERM RETAIL NOTES




	 
	Original Issue Date:


	Issue Price:


	Stated Maturity Date:


	Settlement Date:


	Securities Exchange Listing: [ ] Yes [ ] No. If yes,


	indicate name(s) of Securities
Exchange(s):
__________________________________________.


	Depositary:


	Authorized Denominations:


	Collateral held in the Trust: Principal Life
Insurance Company Funding Agreement No. •, the
related Principal Financial Group, Inc. Guarantee
which fully
and unconditionally guarantees the
payment obligations of Principal Life Insurance
Company under the Funding Agreement, all proceeds
of the Funding Agreement and the related
Guarantee and all rights and books and records
pertaining to the foregoing.


	 
	Interest Rate or Formula:


	Fixed Rate Note: [ ] Yes [ ] No. If yes,


	Interest Rate:


	Interest Payment Frequency:


	Interest Payment Dates:


	Day Count Convention:


	Additional/Other Terms:


	Discount Note: [ ] Yes [ ] No. If yes,


	Total Amount of Discount:


	Initial Accrual Period of Discount:


	Interest Payment Dates:


	Additional/Other Terms:


	Redemption Provisions: [ ] Yes [ ] No. If yes,


	Initial Redemption Date:


	Additional/Other Terms:


	Repayment Provisions: [ ] Yes [ ] No. If yes,


	Repayment Date(s):


	Repayment Price:


	Additional/Other Terms:


	 








A-3-1









 






	 
	Floating Rate Note: [ ] Yes [ ] No. If yes,
	     Regular Floating Rate Notes [ ]
	     Floating Rate/ Fixed Rate Notes: [ ]
	     Interest Rate:
	     Interest Rate Basis(es):
	     LIBOR [ ]
	              
      [ ] LIBOR Reuters Page:
	              
      LIBOR Currency:
	     CMT Rate [ ]

                    
Designated Reuters Page:
	                    If
FEDCMT

                    [ ] Weekly Average

                    [ ] Monthly Average

               Designated CMT Maturity Index:

     CD Rate [ ]

     Commercial Paper Rate [ ]

     Constant Maturity Swap Rate [ ]
	     Federal Funds Open Rate [ ]
	     Federal Funds Rate [ ]
	     Prime Rate [ ]
	     Treasury Rate [ ]
	     Index Maturity:
	     Spread and/or Spread Multiplier:
	     Initial Interest Rate, if any:
	     Initial Interest Reset Date:
	     Interest Reset Dates:
	     Interest Determination Date(s):
	     Interest Payment Dates:
	     Maximum Interest Rate, if any:
	     Minimum Interest Rate, if any:
	     Fixed Rate Commencement Date, if any:
	     Floating Rate Commencement Date, if any:
	     Fixed Interest Rate, if any:
	     Day Count Convention:
	     Additional/Other Terms:
	Regular Record Date(s):
	Sinking Fund:
	Calculation Agent:
	Additional/Other Terms:
	Survivor’s Option: [ ] Yes [ ] No.
	     If yes, the attached Survivor’s Option Rider is

     incorporated into this Note.
	Trust Put Limitation:






     The Principal Life Income Fundings Trust designated above (the “Trust”), for value received,
hereby promises to pay to Cede & Co., or its registered assigns, the Principal Amount specified
above on the Stated Maturity Date specified above and, if so specified above, to pay interest
thereon from the Original Issue Date specified above or from the most recent Interest Payment Date
specified above to which interest has been paid or duly provided for at the rate per annum
determined in accordance with the provisions on the reverse hereof and as specified above, until
the principal hereof is paid or made available for payment. Payments of principal, premium, if
any, and interest hereon will be made in the lawful currency of the United States of America (“U.S.
Dollars” or “United States dollars”). The “Principal Amount” of this Note at any time means (1) if
this Note is a Discount Note (as hereinafter defined), the Amortized Face



A-3-2









 







Amount (as hereinafter defined) at such time (as defined in Section 3(c) on the
reverse hereof) and (2) in all other cases, the Principal Amount hereof. Capitalized terms not
otherwise defined herein shall have their meanings set forth in the Indenture, dated as of the date
of the Pricing Supplement (the “Indenture”), between Citibank, N.A., as the indenture trustee (the
“Indenture Trustee”), and the Trust, or on the face hereof.



     This Note will mature on the Stated Maturity Date, unless its principal (or any installment of
its principal) becomes due and payable prior to the Stated Maturity Date, whether, as applicable,
by the declaration of acceleration of maturity, notice of redemption by the Trust or otherwise (the
Stated Maturity Date or any date prior to the Stated Maturity Date on which this Note becomes due
and payable, as the case may be, is referred to as the “Maturity Date”).



     A “Discount Note” is any Note that has an Issue Price that is less than 100% of the Principal
Amount thereof by a percentage that is equal to or greater than 0.25% multiplied by the product of
the principal amount of the Notes and the number of full years to the Stated Maturity Date.



     Unless otherwise specified above, the interest payable on each Interest Payment Date or the
Maturity Date will be the amount of interest accrued from and including the Original Issue Date or
from and including the last Interest Payment Date to which interest has been paid or duly provided
for, as the case may be, to, but excluding, such Interest Payment Date or the Maturity Date, as the
case may be.



     Unless otherwise specified above, the interest payable on any Interest Payment Date will be
paid to the Holder on the Regular Record Date for such Interest Payment Date, which Regular Record
Date shall be the fifteenth (15th) calendar day, whether or not a Business Day,
immediately preceding the related Interest Payment Date; provided that, notwithstanding any
provision of the Indenture to the contrary, interest payable on any Maturity Date shall be payable
to the Person to whom principal shall be payable; and provided, further, that unless otherwise
specified above, in the case of a Note initially issued between a Regular Record Date and the
Interest Payment Date relating to such Regular Record Date, interest for the period beginning on
the Original Issue Date and ending on such Interest Payment Date shall be paid on the Interest
Payment Date following the next succeeding Regular Record Date to the Holder on such next
succeeding Regular Record Date.



     Payments of principal of, and premium, if any, and interest and other amounts due and owing,
if any, will be made through the Indenture Trustee to the account of DTC or its nominee and will be
made in accordance with depositary arrangements with DTC.



     Unless otherwise specified on the face hereof, the Holder hereof will not be obligated to pay
any administrative costs imposed by banks in making payments in immediately available funds by the
Trust. Unless otherwise specified on the face hereof, any tax assessment or governmental charge
imposed upon payments hereunder, including, without limitation, any withholding tax, will be borne
by the Holder hereof.



A-3-3









 





     REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS NOTE SET FORTH ON THE REVERSE
HEREOF. SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT
THIS PLACE.



     Unless the certificate of authentication hereon shall have been executed by the Indenture
Trustee pursuant to the Indenture, this Note shall not be entitled to any benefit under such
Indenture or be valid or obligatory for any purpose.



     IN WITNESS WHEREOF, the Trust has caused this instrument to be duly executed, by manual or
facsimile signature.



	 	 	 	 	 	 	 
	 	 	THE PRINCIPAL LIFE INCOME FUNDINGS TRUST

          SPECIFIED ON THE FACE OF THIS NOTE	 	 
	 
	 	 	 	 	 	 
	Dated: Original Issue Date	 	By: U.S. Bank Trust National Association, not in its

individual capacity but solely as Trustee.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	  

  Authorized
Officer
	 	 






CERTIFICATE OF AUTHENTICATION




     This is one of the Notes of the Principal Life Income Fundings Trust specified on the face of
this Note referred to in the within-mentioned Indenture.



CITIBANK, N.A.

As Indenture Trustee




Dated: Original Issue Date




	 	 	 	 	 	 	 
	 

	 	By:
	 	  

  Authorized
Signatory
	 	 






A-3-4









 





[REVERSE FORM OF NOTE]



Section 1. General. This Note is one of a duly authorized issue of Notes of the Trust.
The Notes are issued pursuant to the Indenture.



Section 2. Currency. This Note is denominated in, and payments of principal, premium, if
any, and/or interest, if any, will be made in U.S. Dollars.



Section 3. Determination of Interest Rate and Certain Other Terms.





	 	(a)	 	Fixed Rate Notes. If this Note is specified on the face hereof as a
“Fixed Rate Note”:






(i) This Note will bear interest at the rate per annum specified on the face hereof.
Interest on this Note will be computed on the basis of a 360-day year of twelve 30-day
months.




(ii) Unless otherwise specified on the face hereof, the Interest Payment Dates for this
Note will be as follows:



	 	 	 
	Interest Payment Frequency	 	Interest Payment Dates
	Monthly
	 	Fifteenth day of each calendar month, beginning
in the first calendar month following the month
this Note was issued.
	 	 	 
	Quarterly
	 	Fifteenth day of every third calendar month,
beginning in the third calendar month following
the month this Note was issued.
	 	 	 
	Semi-annual
	 	Fifteenth day of every sixth calendar month,
beginning in the sixth calendar month following
the month this Note was issued.
	 	 	 
	Annual
	 	Fifteenth day of every twelfth calendar month,
beginning in the twelfth calendar month
following the month this Note was issued.







(iii) If any Interest Payment Date or the Maturity Date of this Note falls on a day
that is not a Business Day, the Trust will make the required payment of principal,
premium, if any, and/or interest or other amounts on the next succeeding Business Day,
and no additional interest will accrue in respect of the payment made on that next
succeeding Business Day.




	 	(b)	 	Floating Rate Notes. If this Note is specified on the face hereof as a
“Floating Rate Note”:





A-3-5









 






(i) Interest Rate Basis. Interest on this Note will be determined by reference
to the applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include the CD Rate, the CMT Rate, the Commercial Paper Rate, the Constant
Maturity Swap Rate, the Federal Funds Open Rate, the Federal Funds Rate, LIBOR, the
Prime Rate or the Treasury Rate (each as defined below).




(ii) Effective Rate. The rate derived from the applicable Interest Rate Basis
or Interest Rate Bases will be determined in accordance with the related provisions
below. The interest rate in effect on each day will be based on: (1) if that day is an
Interest Reset Date, the rate determined as of the Interest Determination Date
immediately preceding that Interest Reset Date; or (2) if that day is not an Interest
Reset Date, the rate determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.




(iii) Spread; Spread Multiplier; Index Maturity. The “Spread” is the number of
basis points (one one-hundredth of a percentage point) specified on the face hereof to
be added to or subtracted from the related Interest Rate Basis or Interest Rate Bases
applicable to this Note. The “Spread Multiplier” is the percentage specified on the
face hereof of the related Interest Rate Basis or Interest Rate Bases applicable to
this Note by which the Interest Rate Basis or Interest Rate Bases will be multiplied to
determine the applicable interest rate. The “Index Maturity” is the period to maturity
of the instrument or obligation with respect to which the related Interest Rate Basis
or Interest Rate Bases will be calculated.




(iv) Regular Floating Rate Note. Unless this Note is specified on the face
hereof as a Floating Rate/Fixed Rate Note, this Note (a “Regular Floating Rate Note”)
will bear interest at the rate determined by reference to the applicable Interest Rate
Basis or Interest Rate Bases: (1) plus or minus the applicable Spread, if any; and/or
(2) multiplied by the applicable Spread Multiplier, if any. Commencing on the first
Interest Reset Date, the rate at which interest on this Regular Floating Rate Note is
payable will be reset as of each Interest Reset Date; provided, however, that the
interest rate in effect for the period, if any, from the Original Issue Date to the
first Interest Reset Date will be the Initial Interest Rate.




(v) Floating Rate/Fixed Rate Notes. If this Note is specified on the face
hereof as a “Floating Rate/Fixed Rate Note”, this Note will bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Interest Rate Bases:
(1) plus or minus the applicable Spread, if any; and/or (2) multiplied by the
applicable Spread Multiplier, if any. Commencing on the first Interest Reset Date, the
rate at which this Floating Rate/Fixed Rate Note is payable will be reset as of each
Interest Reset Date; provided, however, that: (A) the interest rate in effect for the
period, if any, from the Original Issue Date to the first Interest Reset Date will be
the Initial Interest Rate specified on the face hereof; and (B) the interest rate in
effect commencing on the Fixed Rate Commencement Date will be the Fixed Interest Rate,
if specified on the face hereof, or, if not so specified, the interest rate in effect
on the day immediately preceding the Fixed Rate Commencement Date.



A-3-6









 






(vi) Interest Reset Dates. The period between Interest Reset Dates will be the
“Interest Reset Period.” Unless otherwise specified on the face hereof, the Interest
Reset Dates will be, in the case of this Floating Rate Note if by its terms it resets:
(1) daily—each business day; (2) weekly—the Wednesday of each week, with the exception
of any weekly reset Floating Rate Note as to which the Treasury Rate is an applicable
Interest Rate Basis, which will reset the Tuesday of each week; (3) monthly—the
fifteenth day of each calendar month; (4) quarterly—the fifteenth day of March, June,
September and December of each year; (5) semi-annually—the fifteenth day of the two
months of each year specified on the face hereof; and (6) annually—the fifteenth day of
the month of each year specified on the face hereof; provided, however, that, with
respect to a Floating Rate/Fixed Rate Note, the rate of interest thereon will not reset
after the particular Fixed Rate Commencement Date. If any Interest Reset Date for this
Floating Rate Note would otherwise be a day that is not a Business Day, the particular
Interest Reset Date will be postponed to the next succeeding Business Day, except that
in the case of a Floating Rate Note as to which LIBOR is an applicable Interest Rate
Basis and that Business Day falls in the next succeeding calendar month, the particular
Interest Reset Date will be the immediately preceding Business Day.




(vii) Interest Determination Dates. The interest rate applicable to a Floating
Rate Note for an Interest Reset Period commencing on the related Interest Reset Date
will be determined by reference to the applicable Interest Rate Basis as of the
particular “Interest Determination Date”, which will be: (1) with respect to the
Federal Funds Open Rate—the related Interest Reset Date; (2) with respect to the
Federal Funds Rate and the Prime Rate—the Business Day immediately preceding the
related Interest Reset Date; (3) with respect to the CD Rate, the Commercial Paper Rate
and the CMT Rate—the second Business Day preceding the related Interest Reset Date;
(4) with respect to the Constant Maturity Swap Rate—the second U.S. Government
Securities business day preceding the related Interest Reset Date, provided, however,
that if after attempting to determine the Constant Maturity Swap Rate, such rate is not
determinable for a particular Interest Determination Date, then such Interest
Determination Date shall be the first U.S. Government Securities business day preceding
the original interest determination date for which the Constant Maturity Swap Rate can
be determined; (5) with respect to LIBOR—the second London Banking Day (as defined
below) preceding the related Interest Reset Date; and (6) with respect to the Treasury
Rate—the day of the week in which the related Interest Reset Date falls on which day
Treasury Bills (as defined below) are normally auctioned (i.e., Treasury Bills are
normally sold at auction on Monday of each week, unless that day is a legal holiday, in
which case the auction is normally held on the following Tuesday, except that the
auction may be held on the preceding Friday); provided, however, that if an auction is
held on the Friday of the week preceding the related Interest Reset Date, the Interest
Determination Date will be the preceding Friday. The Interest Determination Date
pertaining to a Floating Rate Note, the interest rate of which is determined with
reference to two or more Interest Rate Bases, will be the latest Business Day which is
at least two Business Days before the related Interest Reset Date for the applicable
Floating Rate Note on which each Interest Reset Basis is determinable. “London Banking
Day” means a day on which



A-3-7









 







commercial banks are open for business (including dealings in the LIBOR Currency) in
London.




(viii) Calculation Dates. The interest rate applicable to each Interest Reset
Period will be determined by the Calculation Agent on or prior to the Calculation Date
(as defined below), except with respect to LIBOR, which will be determined on the
particular Interest Determination Date. Upon request of the Holder of a Floating Rate
Note, the Calculation Agent will disclose the interest rate then in effect and, if
determined, the interest rate that will become effective as a result of a determination
made for the next succeeding Interest Reset Date with respect to such Floating Rate
Note. The “Calculation Date”, if applicable, pertaining to any Interest Determination
Date will be the earlier of: (1) the tenth calendar day after the particular Interest
Determination Date or, if such day is not a Business Day, the next succeeding Business
Day; or (2) the Business Day immediately preceding the applicable Interest Payment Date
or the Maturity Date, as the case may be.




(ix) Maximum or Minimum Interest Rate. If specified on the face hereof, this
Note may have either or both of a Maximum Interest Rate or a Minimum Interest Rate. If
a Maximum Interest Rate is so designated, the interest rate for a Floating Rate Note
cannot ever exceed such Maximum Interest Rate and in the event that the interest rate
on any Interest Reset Date would exceed such Maximum Interest Rate (as if no Maximum
Interest Rate were in effect) then the interest rate on such Interest Reset Date shall
be the Maximum Interest Rate. If a Minimum Interest Rate is so designated, the
interest rate for a Floating Rate Note cannot ever be less than such Minimum Interest
Rate and in the event that the interest rate on any Interest Reset Date would be less
than such Minimum Interest Rate (as if no Minimum Interest Rate were in effect) then
the interest rate on such Interest Reset Date shall be the Minimum Interest Rate.
Notwithstanding anything to the contrary contained herein, the interest rate on a
Floating Rate Note shall not exceed the maximum interest rate permitted by applicable
law.




(x) Interest Payments. Unless otherwise specified on the face hereof, the
Interest Payment Dates will be, in the case of a Floating Rate Note which resets: (1)
daily, weekly or monthly—the fifteenth day of each calendar month or on the fifteenth
day of March, June, September and December of each year, as specified on the face
hereof; (2) quarterly—the fifteenth day of March, June, September and December of each
year; (3) semi-annually—the fifteenth day of the two months of each year specified on
the face hereof; and (4) annually—the fifteenth day of the month of each year as
specified on the face hereof. In addition, the Maturity Date will also be an Interest
Payment Date. If any Interest Payment Date other than the Maturity Date for this
Floating Rate Note would otherwise be a day that is not a Business Day, such Interest
Payment Date will be postponed to the next succeeding Business Day, except that in the
case of a Floating Rate Note as to which LIBOR is an applicable Interest Rate Basis and
that Business Day falls in the next succeeding calendar month, the particular Interest
Payment Date will be the immediately preceding Business Day. If the Maturity Date of a
Floating Rate Note falls on a day that is not a Business Day, the Trust will make the
required payment of principal, premium, if



A-3-8









 







any, and interest or other amounts on the next succeeding Business Day, and no
additional interest will accrue in respect of the payment made on that next succeeding
Business Day.




(xi) Rounding. Unless otherwise specified on the face hereof, all percentages
resulting from any calculation on this Floating Rate Note will be rounded to the
nearest one hundred-thousandth of a percentage point, with five one-millionths of a
percentage point rounded upwards. All dollar amounts used in or resulting from any
calculation on this Floating Rate Note will be rounded to the nearest cent.




(xii) Interest Factor. With respect to this Floating Rate Note, accrued
interest is calculated by multiplying the principal amount of such Note by an accrued
interest factor. The accrued interest factor is computed by adding the interest factor
calculated for each day in the particular Interest Reset Period. The interest factor
for each day will be computed by dividing the interest rate applicable to such day by
360, in the case of a Floating Rate Note as to which the CD Rate, the Commercial Paper
Rate, the Federal Funds Open Rate, the Federal Funds Rate, LIBOR or the Prime Rate is
an applicable Interest Rate Basis, or by the actual number of days in the year, in the
case of a Floating Rate Note as to which the CMT Rate or the Treasury Rate is an
applicable Interest Rate Basis. In the case of a series of Notes that bear interest at
floating rates as to which the Constant Maturity Swap Rate is the Interest Rate Basis,
the interest factor for each day will be computed by dividing the number of days in the
interest period by 360 (the number of days to be calculated on the base is of a year of
360 days with twelve 30-day months (unless (i) the last day of the interest period is
the 31st day of a month but the first day of the interest period is a day
other than the 30th or 31st day of a month, in which case the
month that includes that last day shall not be considered to be shortened to a 30-day
month, or (ii) the last day of the interest period is the last day of the month of
February, in which case the month of February shall not be considered to be lengthened
to a 30-day month)). The interest factor for a Floating Rate Note as to which the
interest rate is calculated with reference to two or more Interest Rate Bases will be
calculated in each period in the same manner as if only the applicable Interest Rate
Basis specified above applied.




(xiii) Determination of Interest Rate Basis. The Calculation Agent shall
determine the rate derived from each Interest Rate Basis in accordance with the
following provisions.




(A) CD Rate Notes. If the Interest Rate Basis is the CD Rate, this Note
shall be deemed a “CD Rate Note.” Unless otherwise specified on the face hereof,
“CD Rate” means: (1) the rate on the particular Interest Determination Date for
negotiable United States dollar certificates of deposit having the Index Maturity
specified on the face hereof as published in H.15(519) (as defined below) under the
caption “CDs (secondary market)”; or (2) if the rate referred to in clause (1) is
not so published by 3:00 P.M., New York City time, on the related Calculation Date,
the rate on the particular Interest Determination Date for negotiable United States
dollar certificates of deposit of the particular Index Maturity as published in



A-3-9









 







H.15 Daily Update (as defined below), or other recognized electronic source used for
the purpose of displaying the applicable rate, under the caption “CDs (secondary
market)”; or (3) if the rate referred to in clause (2) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date calculated by the Calculation Agent as the
arithmetic mean of the secondary market offered rates as of 10:00 A.M., New York
City time, on that Interest Determination Date, of three leading non-bank dealers in
negotiable United States dollar certificates of deposit in The City of New York
(which may include the purchasing agent or its affiliates) selected by the
Calculation Agent for negotiable United States dollar certificates of deposit of
major United States money market banks for negotiable United States certificates of
deposit with a remaining maturity closest to the particular Index Maturity in an
amount that is representative for a single transaction in that market at that time;
or (4) if the dealers so selected by the Calculation Agent are not quoting as
mentioned in clause (3), the CD Rate in effect on the particular Interest
Determination Date. “H.15(519)” means the weekly statistical release designated as
H.15(519), or any successor publication, published by the Board of Governors of the
Federal Reserve System. “H.15 Daily Update” means the daily update of H.15(519),
available through the world-wide-web site of the Board of Governors of the Federal
Reserve System at http://www.federalreserve.gov/releases/H15/ update, or any
successor site or publication.




(B) CMT Rate Notes. If the Interest Rate Basis is the CMT Rate, this Note
shall be deemed a “CMT Rate Note.” Unless otherwise specified on the face hereof,
“CMT Rate” means:




(1) if Reuters Page FRBCMT is specified on the face
hereof:




	 	i.	 	the percentage equal to the yield for
United States Treasury securities at “constant maturity” having the
Index Maturity specified on the face hereof as published in
H.15(519) under the caption “Treasury Constant Maturities”, as the
yield is displayed on Reuters Service (or any successor service) on
page FRBCMT (or any other page as may replace the specified page on
that service) (“Reuters Page FRBCMT”), for the particular Interest
Determination Date; or
	 
	 	ii.	 	if the rate referred to in clause (i)
does not so appear on Reuters Page FRBCMT, the percentage equal to
the yield for United States Treasury securities at “constant
maturity” having the particular Index Maturity and for the
particular Interest Determination Date as published in H.15(519)
under the caption “Treasury Constant Maturities”; or
	 
	 	iii.	 	if the rate referred to in clause (ii)
does not so appear in H.15(519), the rate on the particular Interest
Determination Date for the period of the particular Index Maturity
as may then be




A-3-10









 






	 	 	 	published by either the Federal Reserve System Board of Governors or
the United States Department of the Treasury that the Calculation
Agent determines to be comparable to the rate which would otherwise
have been published in H.15(519); or
	 
	 	iv.	 	if the rate referred to in clause (iii)
is not so published, the rate on the particular Interest
Determination Date calculated by the Calculation Agent as a yield to
maturity based on the arithmetic mean of the secondary market bid
prices at approximately 3:30 P.M., New York City time, on that
Interest Determination Date of three leading primary United States
government securities dealers in The City of New York (which may
include the purchasing agent or its affiliates) (each, a “Reference
Dealer”) selected by the Calculation Agent from five Reference
Dealers selected by the Calculation Agent and eliminating the
highest quotation, or, in the event of equality, one of the highest,
and the lowest quotation or, in the event of equality, one of the
lowest, for United States Treasury securities with an original
maturity equal to the particular Index Maturity, a remaining term to
maturity no more than one year shorter than that Index Maturity and
in a principal amount that is representative for a single
transaction in the securities in that market at that time; or
	 
	 	v.	 	if fewer than five but more than two of
the prices referred to in clause (iv) are provided as requested, the
rate on the particular Interest Determination Date calculated by the
Calculation Agent based on the arithmetic mean of the bid prices
obtained and neither the highest nor the lowest of the quotations
shall be eliminated; or
	 
	 	vi.	 	if fewer than three prices referred to in
clause (iv) are provided as requested, the rate on the particular
Interest Determination Date calculated by the Calculation Agent as a
yield to maturity based on the arithmetic mean of the secondary
market bid prices as of approximately 3:30 P.M., New York City time,
on that Interest Determination Date of three Reference Dealers
selected by the Calculation Agent from five Reference Dealers
selected by the Calculation Agent and eliminating the highest
quotation or, in the event of equality, one of the highest and the
lowest quotation or, in the event of equality, one of the lowest,
for United States Treasury securities with an original maturity
greater than the particular Index Maturity, a remaining term to
maturity closest to that Index Maturity and in a principal amount
that is representative for a single transaction in the securities in
that market at that time; or




A-3-11









 






	 	vii.	 	if fewer than five but more than two
prices referred to in clause (vi) are provided as requested, the
rate on the particular Interest Determination Date calculated by the
Calculation Agent based on the arithmetic mean of the bid prices
obtained and neither the highest nor the lowest of the quotations
will be eliminated; or
	 
	 	viii.	 	if fewer than three prices referred to
in clause (vi) are provided as requested, the CMT Rate in effect on
the particular Interest Determination Date; or






(2) if Reuters Page FEDCMT is specified on the face
hereof:




	 	i.	 	the percentage equal to the one-week or
one-month, as specified on the face hereof, average yield for United
States Treasury securities at “constant maturity” having the Index
Maturity specified on the face hereof as published in H.15(519)
opposite the caption “Treasury Constant Maturities”, as the yield is
displayed on Reuters Service (or any successor service) (on page
FEDCMT or any other page as may replace the specified page on that
service) (“Reuters Page FEDCMT”), for the week or month, as
applicable, ended immediately preceding the week or month, as
applicable, in which the particular Interest Determination Date
falls; or
	 
	 	ii.	 	if the rate referred to in clause (i)
does not so appear on Reuters Page FEDCMT, the percentage equal to
the one-week or one-month, as specified on the face hereof, average
yield for United States Treasury securities at “constant maturity”
having the particular Index Maturity and for the week or month, as
applicable, preceding the particular Interest Determination Date as
published in H.15(519) opposite the caption “Treasury Constant
Maturities”; or
	 
	 	iii.	 	if the rate referred to in clause (ii)
does not so appear in H.15(519), the one-week or one-month, as
specified on the face hereof, average yield for United States
Treasury securities at “constant maturity” having the particular
Index Maturity as otherwise announced by the Federal Reserve Bank of
New York for the week or month, as applicable, ended immediately
preceding the week or month, as applicable, in which the particular
Interest Determination Date falls; or
	 
	 	iv.	 	if the rate referred to in clause (iii)
is not so published, the rate on the particular Interest
Determination Date calculated by the Calculation Agent as a yield to
maturity based on the arithmetic mean of the secondary market bid
prices at approximately 3:30 P.M., New York City time, on that
Interest Determination Date of




A-3-12









 






	 	 	 	three Reference Dealers selected by the Calculation Agent from five
Reference Dealers selected by the Calculation Agent and eliminating
the highest quotation, or, in the event of equality, one of the
highest, and the lowest quotation or, in the event of equality, one
of the lowest, for United States Treasury securities with an
original maturity equal to the particular Index Maturity, a
remaining term to maturity no more than one year shorter than that
Index Maturity and in a principal amount that is representative for
a single transaction in the securities in that market at that time;
or
	 
	 	v.	 	if fewer than five but more than two of
the prices referred to in clause (iv) are provided as requested, the
rate on the particular Interest Determination Date calculated by the
Calculation Agent based on the arithmetic mean of the bid prices
obtained and neither the highest nor the lowest of the quotations
shall be eliminated; or
	 
	 	vi.	 	if fewer than three prices referred to in
clause (iv) are provided as requested, the rate on the particular
Interest Determination Date calculated by the Calculation Agent as a
yield to maturity based on the arithmetic mean of the secondary
market bid prices as of approximately 3:30 P.M., New York City time,
on that Interest Determination Date of three Reference Dealers
selected by the Calculation Agent from five Reference Dealers
selected by the Calculation Agent and eliminating the highest
quotation or, in the event of equality, one of the highest and the
lowest quotation or, in the event of equality, one of the lowest,
for United States Treasury securities with an original maturity
greater than the particular Index Maturity, a remaining term to
maturity closest to that Index Maturity and in a principal amount
that is representative for a single transaction in the securities in
that market at the time; or
	 
	 	vii.	 	if fewer than five but more than two
prices referred to in clause (vi) are provided as requested, the
rate on the particular Interest Determination Date calculated by the
Calculation Agent based on the arithmetic mean of the bid prices
obtained and neither the highest nor the lowest of the quotations
will be eliminated; or
	 
	 	viii.	 	if fewer than three prices referred to
in clause (vi) are provided as requested, the CMT Rate in effect on
that Interest Determination Date.






If two United States Treasury securities with an original maturity greater
than the Index Maturity specified on the face hereof have remaining terms to
maturity equally close to the particular Index Maturity, the quotes for



A-3-13









 







the United States Treasury security with the shorter original remaining term
to maturity will be used.




(C) Commercial Paper Rate Notes. If the Interest Rate Basis is the
Commercial Paper Rate, this Note shall be deemed a “Commercial Paper Rate Note.”
Unless otherwise specified on the face hereof, “Commercial Paper Rate” means: (1)
the Money Market Yield (as defined below) on the particular Interest Determination
Date of the rate for commercial paper having the Index Maturity specified on the
face hereof as published in H.15(519) under the caption “Commercial
Paper—Nonfinancial”; or (2) if the rate referred to in clause (1) is not so
published by 3:00 P.M., New York City time, on the related Calculation Date, the
Money Market Yield of the rate on the particular Interest Determination Date for
commercial paper having the particular Index Maturity as published in H.15 Daily
Update, or such other recognized electronic source used for the purpose of
displaying the applicable rate, under the caption “Commercial Paper—Nonfinancial”;
or (3) if the rate referred to in clause (2) is not so published by 3:00 P.M., New
York City time, on the related Calculation Date, the rate on the particular Interest
Determination Date calculated by the Calculation Agent as the Money Market Yield of
the arithmetic mean of the offered rates at approximately 11:00 A.M., New York City
time, on that Interest Determination Date of three leading dealers of United States
dollar commercial paper in The City of New York (which may include the purchasing
agent or its affiliates) selected by the Calculation Agent for commercial paper
having the particular Index Maturity placed for industrial issuers whose bond rating
is “Aa”, or the equivalent, from a nationally recognized statistical rating
organization; or (4) if the dealers so selected by the Calculation Agent are not
quoting as mentioned in clause (3), the Commercial Paper Rate in effect on the
particular Interest Determination Date. “Money Market Yield” means a yield
(expressed as a percentage) calculated in accordance with the following formula:









where “D” refers to the applicable per annum rate for commercial paper quoted on a
bank discount basis and expressed as a decimal, and “M” refers to the actual number
of days in the applicable Interest Reset Period.




(D) Constant Maturity Swap Rate Notes. If the Interest Rate Basis is the
Constant Maturity Swap Rate, this Note shall be deemed a “Constant Maturity Swap
Rate Note.” Unless otherwise specified on the face hereof, “Constant Maturity Swap
Rate” means: (1) the rate for U.S. dollar swaps with the designated maturity
specified on the face hereof, expressed as a percentage, which appears on the
Reuters Screen (or any successor service) TGM42276 Page as of 11:00 A.M., New York
City time, on the particular Interest Determination Date; or (2) if the rate
referred to in clause (1) does not appear on the Reuters Screen (or any successor
service) TGM42276 Page by 2:00 P.M., New York City time, on such Interest
Determination Date, a percentage determined on the basis of the



A-3-14









 







mid-market semiannual swap rate quotations provided by the reference banks (as
defined below) as of approximately 11:00 A.M., New York City time, on such Interest
Determination Date, and, for this purpose, the semi-annual swap rate means the mean
of the bid and offered rates for the semi-annual fixed leg, calculated on a 30/360
day count basis, of a fixed-for-floating U.S. dollar interest rate swap transaction
with a term equal to the designated maturity specified on the face hereof commencing
on the Interest Reset Date and in a representative amount (as defined below) with an
acknowledged dealer of good credit in the swap market, where the floating leg,
calculated on an actual/360 day count basis, is equivalent to USD-LIBOR-BBA with a
designated maturity specified on the face hereof. The Calculation Agent will request
the principal New York City office of each of the reference banks to provide a
quotation of its rate. If at least three quotations are provided, the rate for that
Interest Determination Date will be the arithmetic mean of the quotations,
eliminating the highest quotation (or, in the event of equality, one of the highest)
and the lowest quotation (or, in the event of equality, one of the lowest); or (3)
if at least three quotations are not received by the Calculation Agent as mentioned
in clause (2), the Constant Maturity Swap Rate in effect on the particular Interest
Determination Date. “U.S. Government Securities business day” means any day except
for Saturday, Sunday, or a day on which The Bond Market Association recommends that
the fixed income departments of its members be closed for the entire day for
purposes of trading in U.S. government securities. “Representative amount” means an
amount that is representative for a single transaction in the relevant market at the
relevant time. “Reference banks” mean five leading swap dealers in the New York
City interbank market, selected by the Calculation Agent, after consultation with
us.




(E) Federal Funds Open Rate Notes. If the Interest Rate Basis is the
Federal Funds Open Rate, this Note shall be deemed a “Federal Funds Open Rate Note.”
Unless otherwise specified on the face hereof, “Federal Funds Open Rate” means the
rate set forth on Reuters Service (or any successor service) on page 5 (or any other
page as may replace the specified page on that service) for an Interest
Determination Date underneath the caption “FEDERAL FUNDS” in the row titled “OPEN”.
If the rate is not available for an Interest Determination Date, the rate for that
Interest Determination Date shall be the Federal Funds Rate as determined below.




(F) Federal Funds Rate Notes. If the Interest Rate Basis is the Federal
Funds Rate, this Note shall be deemed a “Federal Funds Rate Note.” Unless otherwise
specified on the face hereof, “Federal Funds Rate” means: (1) the rate as of the
particular Interest Determination Date for United States dollar federal funds as
published in H.15(519) under the caption “Federal Funds (Effective)” and displayed
on Reuters on page FEDFUNDS1 (or any other page as may replace the specified page on
that service) (“Reuters Page FEDFUNDS1”); or (2) if the rate referred to in clause
(1) does not so appear on Reuters Page FEDFUNDS1 or is not so published by 5:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date for United States dollar federal funds as
published in H.15 Daily Update, or such other recognized



A-3-15









 







electronic source used for the purpose of displaying the applicable rate, under the
caption “Federal Funds (Effective)”; or (3) if such rate does not appear on Reuters
Page FEDFUNDS1 or is not so published by 5:00 P.M., New York City time, on the
related Calculation Date, the rate will be the rate for the first preceding day for
which such rate is set forth in H.15(519) under the caption “Federal Funds
(Effective)”, as such rate is displayed on the Reuters Page FEDFUNDS1.




(G) LIBOR Notes. If the Interest Rate Basis is LIBOR, this Note shall be
deemed a “LIBOR Note.” Unless otherwise specified on the face hereof, “LIBOR”
means: (1) whether “LIBOR Reuters” is or is not specified on the face hereof as the
method for calculating LIBOR, the rate for deposits in the LIBOR Currency (as
defined below) having the Index Maturity specified on the face hereof, commencing on
the related Interest Reset Date, that appears on the LIBOR Page (as defined below)
as of 11:00 A.M., London time, on the particular Interest Determination Date; or (2)
if no rate appears on the particular Interest Determination Date on the LIBOR Page
as specified in clause (1), the rate calculated by the Calculation Agent as the
arithmetic mean of at least two offered quotations obtained by the Calculation Agent
after requesting the principal London offices of each of four major reference banks
(which may include affiliates of the Agents), in the London interbank market
selected by the Calculation Agent to provide the Calculation Agent with its offered
quotation for deposits in the LIBOR Currency for the period of the particular Index
Maturity, commencing on the related Interest Reset Date, to prime banks in the
London interbank market at approximately 11:00 A.M., London time, on that Interest
Determination Date and in a principal amount that is representative for a single
transaction in the LIBOR Currency in that market at that time; or (3) if fewer than
two offered quotations referred to in clause (2) are provided as requested, the rate
calculated by the Calculation Agent as the arithmetic mean of the rates quoted at
approximately 11:00 A.M., in the applicable Principal Financial Center, on the
particular Interest Determination Date by three major banks (which may include
affiliates of the Agents), in that principal financial center selected by the
Calculation Agent for loans in the LIBOR Currency to leading European banks, having
the particular Index Maturity and in a principal amount that is representative for a
single transaction in the LIBOR Currency in that market at that time; or (4) if the
banks so selected by the Calculation Agent are not quoting as mentioned in clause
(3), LIBOR in effect on the particular Interest Determination Date. “LIBOR
Currency” means the currency specified on the face hereof as to which LIBOR shall be
calculated or, if no currency is specified on the face hereof, United States
dollars. “LIBOR Page” means the display on Reuters Service (or any successor
service) on the page specified on the face hereof (or any other page as may replace
that page on that service) for the purpose of displaying the London interbank rates
of major banks for the LIBOR Currency.




(H) Prime Rate Notes. If the Interest Rate Basis is the Prime Rate,
this Note shall be deemed a “Prime Rate Note.” Unless otherwise specified on the
face hereof, “Prime Rate” means: (1) the rate on the particular Interest
Determination



A-3-16









 







Date as published in H.15(519) under the caption “Bank Prime Loan”; or (2) if the
rate referred to in clause (1) is not so published by 3:00 P.M., New York City time,
on the related Calculation Date, the rate on the particular Interest Determination
Date as published in H.15 Daily Update, or such other recognized electronic source
used for the purpose of displaying the applicable rate, under the caption “Bank
Prime Loan”, or (3) if the rate referred to in clause (2) is not so published by
3:00 P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date calculated by the Calculation Agent as the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen US PRIME 1 Page (as defined below) as the applicable
bank’s prime rate or base lending rate as of 11:00 A.M., New York City time, on that
Interest Determination Date; or (4) if fewer than four rates referred to in clause
(3) are so published by 3:00 p.m., New York City time, on the related Calculation
Date, the rate calculated by the Calculation Agent as the particular Interest
Determination Date calculated by the Calculation Agent as the arithmetic mean of the
prime rates or base lending rates quoted on the basis of the actual number of days
in the year divided by a 360-day year as of the close of business on that Interest
Determination Date by three major banks (which may include affiliates of the
purchasing agent) in The City of New York selected by the Calculation Agent; or (5)
if the banks so selected by the Calculation Agent are not quoting as mentioned in
clause (4), the Prime Rate in effect on the particular Interest Determination Date.
“Reuters Screen US PRIME 1 Page” means the display on the Reuter Monitor Money Rates
Service (or any successor service) on the “US PRIME 1” page (or any other page as
may replace that page on that service) for the purpose of displaying prime rates or
base lending rates of major United States banks.




(H) Treasury Rate Notes. If the Interest Rate Basis is the Treasury Rate,
this Note shall be deemed a “Treasury Rate Note.” Unless otherwise specified on the
face hereof, “Treasury Rate” means: (1) the rate from the auction held on the
Interest Determination Date (the “Auction”) of direct obligations of the United
States (“Treasury Bills”) having the Index Maturity specified on the face hereof
under the caption “INVESTMENT RATE” on the display on Reuters Service (or any
successor service) on page USAUCTION 10 (or any other page as may replace that page
on that service) (“Reuters USAUCTION 10”) or page USAUCTION 11 (or any other page as
may replace that page on that service) (“Reuters USAUCTION 11”); or (2) if the rate
referred to in clause (1) is not so published by 3:00 P.M., New York City time, on
the related Calculation Date, the Bond Equivalent Yield (as defined below) of the
rate for the applicable Treasury Bills as published in H.15 Daily Update, or another
recognized electronic source used for the purpose of displaying the applicable rate,
under the caption “U.S. Government Securities/Treasury Bills/Auction High”; or (3)
if the rate referred to in clause (2) is not so published by 3:00 P.M., New York
City time, on the related Calculation Date, the Bond Equivalent Yield of the auction
rate of the applicable Treasury Bills as announced by the United States Department
of the Treasury; or (4) if the rate referred to in clause (3) is not so announced by
the United States Department of the Treasury, or if the Auction is not held, the
Bond Equivalent



A-3-17









 







Yield of the rate on the particular Interest Determination Date of the applicable
Treasury Bills as published in H.15(519) under the caption “U.S. Government
Securities/Treasury Bills/Secondary Market”; or (5) if the rate referred to in
clause (4) is not so published by 3:00 P.M., New York City time, on the related
Calculation Date, the rate on the particular Interest Determination Date of the
applicable Treasury Bills as published in H.15 Daily Update, or another recognized
electronic source used for the purpose of displaying the applicable rate, under the
caption “U.S. Government Securities/Treasury Bills/Secondary Market”; or (6) if the
rate referred to in clause (5) is not so published by 3:00 P.M., New York City time,
on the related Calculation Date, the rate on the particular Interest Determination
Date calculated by the Calculation Agent as the Bond Equivalent Yield of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30 P.M.,
New York City time, on that Interest Determination Date, of three primary United
States government securities dealers (which may include the purchasing agent or its
affiliates) selected by the Calculation Agent, for the issue of Treasury Bills with
a remaining maturity closest to the Index Maturity specified on the face hereof; or
(7) if the dealers so selected by the Calculation Agent are not quoting as mentioned
in clause (6), the Treasury Rate in effect on the particular Interest Determination
Date. “Bond Equivalent Yield” means a yield (expressed as a percentage) calculated
in accordance with the following formula:







where “D” refers to the applicable per annum rate for Treasury Bills quoted on a bank discount
basis and expressed as a decimal, “N” refers to 365 or 366, as the case may be, and “M” refers to
the actual number of days in the applicable Interest Reset Period.





(c) Discount Notes. If this Note is specified on the face hereof as a
“Discount Note”:




(i) Principal and Interest. This Note will bear interest in the same manner as
set forth in Section 3(a) above, and payments of principal and interest shall be made
as set forth on the face hereof. Discount Notes may not bear any interest currently or
may bear interest at a rate that is below market rates at the time of issuance. The
difference between the Issue Price of a Discount Note and par is referred to as the
“Discount”.




(ii) Redemption; Repayment; Acceleration. In the event a Discount Note is
redeemed, repaid or accelerated, the amount payable to the Holder of such Discount Note
will be equal to the sum of: (A) the Issue Price (increased by any accruals of
Discount); and (B) any unpaid interest accrued on such Discount Note to the Maturity
Date (“Amortized Face Amount”). Unless otherwise specified on the face hereof, for
purposes of determining the amount of Discount that has accrued as of any date on which
a redemption, repayment or acceleration of maturity occurs for a Discount Note, a
Discount will be accrued using a constant yield method. The constant yield will be
calculated using a 30-day month, 360-day year convention, a



A-3-18









 







compounding period that, except for the Initial Period (as defined below), corresponds
to the shortest period between Interest Payment Dates for the applicable Discount Note
(with ratable accruals within a compounding period), a coupon rate equal to the initial
coupon rate applicable to the applicable Discount Note and an assumption that the
maturity of such Discount Note will not be accelerated. If the period from the date of
issue to the first Interest Payment Date for a Discount Note (the “Initial Period”) is
shorter than the compounding period for such Discount Note, a proportionate amount of
the yield for an entire compounding period will be accrued. If the Initial Period is
longer than the compounding period, then the period will be divided into a regular
compounding period and a short period with the short period being treated as provided
above.


Section 4. Redemption. If no redemption right is set forth on the face hereof, this Note
may not be redeemed prior to the Stated Maturity Date, except as set forth in the Indenture or in
Section 10 hereof. In the case of a Note that is not a Discount Note, if a redemption right is set
forth on the face of this Note, the Trust shall elect to redeem this Note on the Interest Payment
Date after the Initial Redemption Date set forth on the face hereof on which the Funding Agreement
is to be redeemed in whole or in part by Principal Life Insurance Company (“Principal Life”) (each,
a “Redemption Date”), in which case this Note must be redeemed on such Redemption Date in whole or
in part, as applicable, prior to the Stated Maturity Date, in increments of $1,000 at the
applicable Redemption Price (as defined below), together with unpaid interest, if any, accrued
thereon to, but excluding, the applicable Redemption Date. “Redemption Price” shall mean the
unpaid Principal Amount of this Note to be redeemed. The unpaid Principal Amount of this Note to
be redeemed shall be determined by multiplying (1) the Outstanding Principal Amount of this Note by
(2) the quotient derived by dividing (A) the outstanding principal amount of the Funding Agreement
to be redeemed by Principal Life by (B) the outstanding principal amount of the Funding Agreement.
Notice must be given not more than sixty (60) nor less than thirty (30) calendar days prior to the
proposed Redemption Date. In the event of redemption of this Note in part only, a new Note for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon the surrender
hereof. If less than all of this Note is redeemed, the Indenture Trustee will select by lot or, in
its discretion, on a pro rata basis, the amount of the interest of each direct participant in the
Trust to be redeemed.



Section 5. Sinking Funds. Unless specified on the face hereof, this Note will not be
subject to, or entitled to the benefit of, any sinking fund.



Section 6. Repayment. If no repayment right is set forth on the face hereof, this Note
may not be repaid at the option of the Holder hereof prior to the Stated Maturity Date. If a
repayment right is granted on the face of this Note, this Note may be subject to repayment at the
option of the Holder on any Interest Payment Date on and after the date, if any, indicated on the
face hereof (each, a “Repayment Date”). On any Repayment Date, unless otherwise specified on the
face hereof, this Note shall be repayable in whole or in part in increments of $1,000 at the option
of the Holder hereof at a repayment price equal to 100% of the Principal Amount to be repaid,
together with interest thereon payable to the Repayment Date. For this Note to be repaid in whole
or in part at the option of the Holder hereof, this Note must be received by the Indenture Trustee,
with the form entitled “Option to Elect Repayment”, below, duly completed by the Indenture Trustee.
Exercise of such repayment option by the Holder hereof shall be irrevocable.




A-3-19









 







In the event of a repayment of this Note in part only, a new Note for the portion hereof not repaid
shall be issued in the name of the Holder hereof upon the surrender hereof.



Section 7. Modifications and Waivers. The Indenture contains provisions permitting the
Trust and the Indenture Trustee (1) at any time and from time to time without notice to, or the
consent of, the Holders of any Notes issued under the Indenture to enter into one or more
supplemental indentures for certain enumerated purposes and (2) with the consent of the Holders of
a majority in aggregate principal amount of the Outstanding Notes affected thereby, to enter into
one or more supplemental indentures for the purpose of adding any provisions to, or changing in any
manner or eliminating any of the provisions of, the Indenture or of modifying in any manner the
rights of Holders of Notes under the Indenture; provided, that, with respect to certain enumerated
provisions, no such supplemental indenture shall be entered into without the consent of the Holder
of each Note affected thereby. Any such consent or waiver by the Holder of this Note shall be
conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note
issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or
not notation of such consent or waiver is made upon this Note or such other Notes.



Section 8. Obligations Unconditional. No reference herein to the Indenture and no
provisions of this Note or of the Indenture shall impair the right of each Holder of any Note,
which is absolute and unconditional, to receive payment of the principal of, and any interest on,
and premium, if any, on, such Note on the respective Stated Maturity Date or redemption date
thereof and to institute suit for the enforcement of any such payment, and such rights shall not be
impaired without the consent of such Holder.



Section 9. Events of Default. If an Event of Default with respect to this Note shall
occur and be continuing, the principal of, and all other amounts payable on, the Notes may be
declared due and payable, or may be automatically accelerated, as the case may be, in the manner
and with the effect provided in the Indenture. In the event that this Note is a Discount Note, the
amount of principal of this Note that becomes due and payable upon such acceleration shall be equal
to the amount calculated as set forth in Section 3(c) hereof.



Section 10. Withholding; No Additional Amounts; Tax Event and Redemption. All amounts due
on this Note will be made without any applicable withholding or deduction for or on account of any
present or future taxes, duties, levies, assessments or other governmental charges of whatever
nature imposed or levied by or on behalf of any governmental authority, unless such withholding or
deduction is required by law. Unless otherwise specified on the face hereof, the Trust will not
pay any additional amounts to the Holder of this Note in respect of such withholding or deduction,
any such withholding or deduction will not give rise to an event of default or any independent
right or obligation to redeem this Note and the Holder will be deemed for all purposes to have
received cash in an amount equal to the portion of such withholding or deduction that is
attributable to such Holder’s interest in this Note as equitably determined by the Trust.




     If (1) a Tax Event (defined below) as to the Funding Agreement occurs and (2) Principal Life
redeems the Funding Agreement in whole or in part, the Trust will redeem the Notes, subject to the
terms and conditions of Section 2.04 of the Standard Indenture Terms, at the Tax Event
Redemption Price (defined below) together with unpaid interest accrued thereon to the



A-3-20









 







applicable redemption date. “Tax Event” means that Principal Life shall have received an
opinion of independent legal counsel stating in effect that as a result of (a) any amendment to, or
change (including any announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or therein or (b) any
amendment to, or change in, an interpretation or application of any such laws or regulations by any
governmental authority in the United States, which amendment or change is enacted, promulgated,
issued or announced on or after the effective date of the Funding Agreement, there is more than an
insubstantial risk that (i) the Trust is, or will be within ninety (90) days of the date thereof,
subject to U.S. federal income tax with respect to interest accrued or received on the Funding
Agreement or (ii) the Trust is, or will be within ninety (90) days of the date thereof, subject to
more than a de minimis amount of taxes, duties or other governmental charges. “Tax Event
Redemption Price” means an amount equal to the unpaid principal amount of this Note to be redeemed,
which shall be determined by multiplying (1) the Outstanding Principal Amount of this Note by (2)
the quotient derived by dividing (A) the outstanding principal amount to be redeemed by Principal
Life of the Funding Agreement by (B) the outstanding principal amount of the Funding Agreement.


Section 11. Listing. Unless otherwise specified on the face hereof, this Note will not be
listed on any securities exchange.



Section 12. Collateral. The Collateral for this Note includes the Funding Agreement and
the Guarantee specified on the face hereof.



Section 13. No Recourse Against Certain Persons. No recourse shall be had for the payment
of any principal, interest or any other sums at any time owing under the terms of this Note, or for
any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture
or any indenture supplemental thereto, against the Nonrecourse Parties, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise, all such personal liability being, by the acceptance hereof and as part of the
consideration for issue hereof, expressly waived and released.



Section 14. Miscellaneous.




     (a) This Note is issuable only as a registered Note without coupons in denominations of
$1,000 and any integral multiple in excess thereof unless otherwise specified on the face of this
Note.



     (b) Prior to due presentment for registration of transfer of this Note, the Trust, the
Indenture Trustee, the Registrar, the Paying Agent, any Agent, and any other agent of the Trust or
the Indenture Trustee may treat the Person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment as herein provided and for all other purposes, whether
or not this Note shall be overdue, and none of the Trust, the Indenture Trustee, the Registrar, the
Paying Agent, any Agent, or any other agent of the Trust or the Indenture Trustee shall be affected
by notice to the contrary.



     (c) The Notes are being issued by means of a book-entry-only system with no physical
distribution of certificates to be made except as provided in the Indenture. The book-entry



A-3-21









 







system maintained by DTC will evidence ownership of the Notes, with transfers of ownership
effected on the records of DTC and its participants pursuant to rules and procedures established by
DTC and its participants. The Trust and the Indenture Trustee will recognize Cede & Co., as
nominee of DTC, as the registered owner of the Notes, as the Holder of the Notes for all purposes,
including payment of principal, premium (if any) and interest, notices and voting. Transfer of
principal, premium (if any) and interest to participants of DTC will be the responsibility of DTC,
and transfer of principal, premium (if any) and interest to beneficial holders of the Notes by
participants of DTC will be the responsibility of such participants and other nominees of such
beneficial holders. So long as the book-entry system is in effect, the selection of any Notes to
be redeemed or repaid will be determined by DTC pursuant to rules and procedures established by DTC
and its participants. Neither the Trust nor the Indenture Trustee shall be responsible or liable
for such transfers or payments or for maintaining, supervising or reviewing the records maintained
by DTC, its participants or persons acting through such participants.



     (d) This Note or portion hereof may not be exchanged for Definitive Notes, except in the
limited circumstances provided for in the Indenture. The transfer or exchange of Definitive Notes
shall be subject to the terms of the Indenture. No service charge will be made for any
registration of transfer or exchange, but the Trust may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.


Section 15. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.




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OPTION TO ELECT REPAYMENT




     The undersigned hereby irrevocably request(s) and instruct(s) the Trust to repay this Note (or
portion hereof specified below) pursuant to its terms at a price equal to the Principal Amount
hereof together with interest to the repayment date, to the undersigned, at:



 





 





(Please print or typewrite name and address of the undersigned).




     For this Note to be repaid, the Indenture Trustee (or the Paying Agent on behalf of the
Indenture Trustee) must receive at its Corporate Trust Office, or at such other place or places of
which the Trust shall from time to time notify the Holder of this Note, not more than sixty (60)
nor less than thirty (30) days prior to a Repayment Date, if any, shown on the face of this Note,
this Note with this “Option to Elect Repayment” form duly completed.



     If less than the entire Principal Amount of this Note is to be repaid, specify the portion
hereof (which shall be in increments of $1,000) which the Holder elects to have repaid and specify
the denomination or denominations (which shall be $                or an integral multiple of $1,000 in
excess of $               ) of the Notes to be issued to the Holder for the portion of this Note not being
repaid (in the absence of any such specification, one such Note will be issued for the portion not
being repaid).



	 	 	 
	$         
                   
                   
              

	 	 
 

	 
	 	 
	         
      
                   
                   
         
	 	 
	DATE:        
                   
                   
      

	 	NOTICE: The signature on this Option to Elect Repayment must correspond with
the name as written upon the face of this Note in every particular, without
alteration or enlargement or any change whatever.
	 
	 	 
	Principal Amount to be repaid, if amount to be repaid is
less than the Principal Amount of this Note (Principal
Amount remaining must be an authorized denomination)

	 	Fill in for registration of Notes
if to be issued otherwise than
to the registered Holder:
	 

	 	Name:              
                   
                   
             
	$         
                   
                   
              

	 	Address:             
                   
                   
          
	 

	 	              
                   
                   
        

(Please print name and

address including zip code)





SOCIAL SECURITY OR OTHER TAXPAYER ID NUMBER:                                                             




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SURVIVOR’S OPTION RIDER




     (a) Unless this Note, on its face, has been declared due and payable prior to the Maturity
Date by reason of any Event of Default under the Indenture, or has been previously redeemed or
otherwise repaid, the authorized Representative (as defined below) of a deceased Beneficial Owner
(as defined below) of this Note shall have the option to elect repayment by the Trust in whole or
in part prior to the Maturity Date following the death of the Beneficial Owner (a “Survivor’s
Option”). The Survivor’s Option may not be exercised unless the deceased Beneficial Owner
purchased the Notes either within ninety (90) days of their issuance or acquired the Notes at least
six (6) months before the date of death of such deceased Beneficial Owner. “Beneficial Owner” as
used in this Survivor’s Option Rider means, with respect to this Note, the person who has the
right, immediately prior to such person’s death, to receive the proceeds from the disposition of
this Note, as well as the right to receive payments on this Note.



     (b) Upon (1) the valid exercise of the Survivor’s Option and the proper tender of this Note
by or on behalf of a person that has authority to act on behalf of the deceased Beneficial Owner of
this Note under the laws of the appropriate jurisdiction (including, without limitation, the
personal representative or executor of the deceased Beneficial Owner or the surviving joint owner
of the deceased Beneficial Owner) (the “Representative”) and (2) the tender and acceptance of that
portion of the Funding Agreement equal to the amount of the portion of this Note to be redeemed,
the Trust shall repay this Note (or portion thereof) at a price equal to 100% of the unpaid
Principal Amount of the deceased Beneficial Owner’s beneficial interest in this Note plus accrued
and unpaid interest to, but excluding, the date of such repayment. However, the Trust shall not be
obligated to repay:




(i) beneficial ownership interests in Notes exceeding the greater of $2,000,000 or 2%
(or such other amounts, as specified in the Pricing Supplement) in aggregate principal
amount for all notes then outstanding under the Principal®  Life
CoreNotes® Program and the Secured Medium-Term Notes Retail Program as of
the end of the most recent calendar year (the “Annual Put Limitation”);




(ii) on behalf of an individual deceased Beneficial Owner, any beneficial ownership
interest in all notes issued under the Principal® Life CoreNotes®
Program and the Secured Medium-Term Notes Retail Program that exceeds $250,000
(or such other amounts, as specified in the Pricing Supplement) in any calendar year
(the “Individual Put Limitation”); or




(iii) beneficial ownership interests in Notes exceeding the amount specified on the
face hereof and in the Pricing Supplement (the “Trust Put Limitation”), as of the later of the end of the most recent
calendar year or the issuance date of the notes.



     (c) The Trust shall not make principal repayments pursuant to exercise of the Survivor’s
Option in amounts that are less than $1,000, and, in the event that the limitations described in
the preceding sentence would result in the partial repayment of this Note, the Principal Amount
remaining Outstanding after repayment must be at least $1,000 (the minimum authorized denomination
of the Notes).



     (d) An otherwise valid election to exercise the Survivor’s Option may not be withdrawn.



A-3-24









 





     (e) Election to exercise the Survivor’s Option will be accepted in the order that elections
are received by the Trustee, except for any Notes (or portion thereof) the acceptance of which
would contravene (1) the Annual Put Limitation, (2) the Individual Put Limitation or (3) the Trust
Put Limitation. Any Note (or portion thereof) accepted for repayment pursuant to exercise of the
Survivor’s Option shall be repaid on the first Interest Payment Date that occurs 20 or more
calendar days after the date of such acceptance. If, as of the end of any calendar year, the
aggregate principal amount of all notes (or portions thereof) issued under the Principal®
Life CoreNotes® Program and the Secured Medium-Term Notes Retail Program
that have been tendered pursuant to the valid exercise of the Survivor’s Option during such
year has exceeded the Annual Put Limitation or the Individual Put Limitation, for such year, any
exercise(s) of the Survivor’s Option with respect to Notes (or portions thereof) not accepted
during such calendar year, because such acceptance would have contravened any such limitation,
shall be deemed to be tendered on the first day of the following calendar year in the order all
such Notes (or portions thereof) were originally tendered. If, as of the end of any calendar year,
the aggregate principal amount of all Notes (or portions thereof) that have been
tendered pursuant to the valid exercise of the Survivor’s Option during such year has exceeded the
Trust Put Limitation, for such year, any exercise(s) of the Survivor’s Option with respect to Notes
(or portions thereof) not accepted during such calendar year, because such acceptance would have
contravened any such limitation, shall be deemed to be tendered on the first day of the following
calendar year in the order all such Notes (or portions thereof) were originally tendered. In the
event that this Note (or any portion hereof) tendered for repayment pursuant to valid exercise of
the Survivor’s Option is not accepted or is to be delayed, the Trustee shall deliver a notice by
first-class mail to the Depositary that states the reason such Note (or portion thereof) has not
been accepted for payment or is to be delayed.



     (f) In order to obtain repayment through exercise of the Survivor’s Option with respect to
this Note (or portion hereof), the Representative must provide the following items to the broker or
other entity through which the beneficial interest in this Note is held by the deceased Beneficial
Owner: (1) a written instruction to such broker or other entity in the form of Annex A attached
hereto to notify the Depositary of the Representative’s desire to obtain repayment through the
exercise of the Survivor’s Option; (2) appropriate evidence satisfactory to the Trustee that (i)
the deceased Beneficial Owner purchased the Notes either within ninety (90) days of their issuance
or acquired the Notes at least six (6) months before the date of death of such deceased Beneficial
Owner, (ii) the death of such Beneficial Owner has occurred, and the date of such death, and (iii)
the Representative has authority to act on behalf of the deceased Beneficial Owner; (3) if the
interest in this Note is held by a nominee of the deceased Beneficial Owner, a certificate
satisfactory to the Trustee from such nominee attesting to the deceased’s beneficial ownership of
this Note; (4) a written request for repayment signed by the Representative, with the signature
guaranteed by a member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States; (5) if applicable, a properly executed assignment or
endorsement; (6) tax waivers and such other instruments or documents that the Trustee reasonably
requires in order to establish the validity of the beneficial ownership of this Note and the
claimant’s entitlement to payment; and (7) any additional information the Trustee reasonably
requires to evidence satisfaction of any conditions to the exercise of such Survivor’s Option or to
document beneficial ownership or authority to make the election and to cause the repayment of this
Note. Such broker or other entity shall then deliver



A-3-25









 







each of these items to the direct participant of the Depositary, such direct participant being
the entity that holds the beneficial interest in this Note on behalf of the deceased Beneficial
Owner, together with evidence satisfactory to the Indenture Trustee from the broker or other entity
stating that it represents the deceased Beneficial Owner. Such direct participant shall then
deliver such items to the Indenture Trustee. The Indenture Trustee will then deliver these items to
the Trustee and will provide the Trustee with any additional information (after receipt from such
direct participant) the Trustee may request in connection with such exercise. Such direct
participant shall be responsible for disbursing any payments it receives from the Depositary
pursuant to exercise of the Survivor’s Option to the appropriate Representative. All questions,
other than with respect to the right to limit the aggregate Principal Amount of Notes as to which
exercises of the Survivor’s Option shall be accepted in any one calendar year or as to the Notes,
regarding the eligibility or validity of any exercise of the Survivor’s Option will be determined
by the Trustee, in its sole discretion, which determination shall be final and binding on all
parties.



     (g) The death of a person holding a beneficial interest in this Note as a joint tenant or
tenant by the entirety with another person, or as a tenant in common with the deceased owner’s
spouse, will be deemed the death of the Beneficial Owner of this Note, and the entire Principal
Amount of this Note so held shall be subject to repayment by the Trust upon request in accordance
with the terms and provisions hereof. However, the death of a person holding a beneficial interest
in this Note as tenant in common with a person other than such deceased owner’s spouse will be
deemed the death of a Beneficial Owner only with respect to such deceased person’s ownership
interest in this Note.



     (h) The death of a person who was a lifetime beneficiary of a trust holding a beneficial
interest in this Note will be treated as the death of the Beneficial Owner of this Note to the
extent of that person’s interest in the trust. The death of a person who was a tenant by the
entirety or joint tenant in a tenancy which is the beneficiary of a trust holding a beneficial
interest in this Note will be treated as the death of the Beneficial Owner of this Note. The death
of an individual who was a tenant in common in a tenancy which is the beneficiary of a trust
holding a beneficial interest in this Note will be treated as the death of the Beneficial Owner of
this Note only with respect to the deceased person’s beneficial interest in this Note, unless a
husband and wife are the tenants in common, in which case the death of either will be treated as
the death of the owner of this Note.



     (i) The death of a person who, during his or her lifetime, was entitled to substantially all
of the beneficial ownership interests in this Note will be deemed the death of the Beneficial Owner
of this Note for purposes of the Survivor’s Option, regardless of whether that Beneficial Owner was
the registered holder of this Note, if such beneficial ownership interest can be established to the
satisfaction of the Trustee. A beneficial ownership interest will be deemed to exist in typical
cases of nominee ownership, such as ownership under the Uniform Transfers of Gifts to Minors Act,
community property or other joint ownership arrangements between a husband and wife and lifetime
custodial and trust arrangements.



A-3-26









 





     ANNEX A



REPAYMENT ELECTION FORM




Principal Life Insurance Company




Secured Medium-Term Notes Retail Program




Cusip Number                     




To: [Name of Issuing Trust] (the “TRUST”)



The undersigned financial institution (the “FINANCIAL INSTITUTION’’) represents the following:





	 	•	 	The Financial Institution has received a request for repayment from the executor or
other authorized representative (the “AUTHORIZED REPRESENTATIVE’’) of the deceased
beneficial owner listed below (the “DECEASED BENEFICIAL OWNER’’) of Secured Medium-Term
Retail Notes (CUSIP No.                     ) (the “NOTES’’).
	 
	 	•	 	At the time of his or her death, the Deceased Beneficial Owner owned Notes in the
principal amount listed below.
	 
	 	•	 	The Deceased Beneficial Owner purchased the Notes either within ninety (90) days of
their issuance or acquired the Notes at least six (6) months before the date of death
of such Deceased Beneficial Owner.
	 
	 	•	 	The Financial Institution currently holds such notes as a direct or indirect
participant in The Depository Trust Company (the “DEPOSITARY’’).
	 
	 	•	 	The Financial Institution agrees to the following terms:
	 
	 	•	 	The Financial Institution shall follow the instructions (the “INSTRUCTIONS’’)
accompanying this Repayment Election Form (this “FORM’’).
	 
	 	•	 	The Financial Institution shall make all records specified in the Instructions
supporting the above representations available to U.S. Bank Trust National Association
(the “TRUSTEE’’) or the [Name of Issuing Trust] (the “TRUST’’) for inspection and
review within five business days of the Trustee’s or the Trust’s request.
	 
	 	•	 	If the Financial Institution, the Trustee or the Trust, in any such party’s
reasonable discretion, deems any of the records specified in the Instructions
supporting the above representations unsatisfactory to substantiate a claim for
repayment, the Financial Institution shall not be obligated to submit this Form, and
the Trustee or Trust may deny repayment. If the Financial Institution cannot
substantiate a claim for repayment, it shall notify the Trustee immediately.




A-3-27









 






	 	•	 	Repayment elections may not be withdrawn.
	 
	 	•	 	The Financial Institution agrees to indemnify and hold harmless the Trustee and the
Trust against and from any and all claims, liabilities, costs, losses, expenses, suits
and damages resulting from the Financial Institution’s above representations and
request for repayment on behalf of the Authorized Representative.
	 
	 	•	 	The Notes will be repaid on the first Interest Payment Date to occur at least 20
calendar days after the date of acceptance of the notes for repayment, unless such date
is not a business day, in which case the date of repayment shall be the next succeeding
business day.
	 
	 	•	 	Subject to the Trust’s rights to limit the aggregate principal amount of Notes as to
which exercises of the Survivor’s Option shall be accepted in any one calendar year,
all questions as to the eligibility or validity of any exercise of the Survivor’s
Option will be determined by the Trustee, in its sole discretion, which determination
shall be final and binding on all parties.





A-3-28









 





REPAYMENT ELECTION FORM




	 	 	 
	(1)
	 	 
	 
	 

	 	Name of Deceased Beneficial Owner
	 
	 	 
	(2)
	 	 
	 
	 

	 	Date of Death
	 
	 	 
	(3)
	 	 
	 
	 

	 	Name of Authorized Representative Requesting Repayment
	 
	 	 
	(4)
	 	 
	 
	 

	 	Name of Financial Institution Requesting Repayment
	 
	 	 
	(5)
	 	 
	 
	 

	 	Signature of Authorized Representative of Financial Institution Requesting Repayment
	 
	 	 
	(6)
	 	 
	 
	 

	 	Principal Amount of Requested Repayment
	 
	 	 
	(7)
	 	 
	 
	 

	 	Date of Election






	 	 	 	 	 	 	 	 	 
	(8)

	 	Financial Institution
	 	 	(9	)	 	Wire instructions for payment:
	 

	 	Representative Name:
	 	 	 	 	 	Bank Name:
	 

	 	Phone Number:
	 	 	 	 	 	ABA Number:
	 

	 	Fax Number:
	 	 	 	 	 	Account Name:
	 

	 	Mailing Address (no P.O. Boxes):
	 	 	 	 	 	Account Number:
	 

	 	 	 	 	 	 	 	Reference (optional):






           





TO BE COMPLETED BY THE TRUSTEE:





	(A)	 	Election Number*:
	 
	(B)	 	Delivery and Payment Date:
	 
	(C)	 	Principal Amount:
	 
	(D)	 	Accrued Interest:
	 
	(E)	 	Date of Receipt of Form by the Trustee:
	 
	(F)	 	Date of Acknowledgment by the Trustee:







 




			
	*	 	To be assigned by the Trustee upon receipt of this Form. An acknowledgement, in the form of a copy of
this document with the assigned Election Number, will be returned to the party and location designated in
item (8) above.




A-3-29









 










INSTRUCTIONS
FOR COMPLETING REPAYMENT ELECTION FORM AND EXERCISING

REPAYMENT OPTION





               Capitalized terms used and not defined herein have the meanings defined in the accompanying
Repayment Election Form.




	1.	 	Collect and retain for a period of at least three years (1) satisfactory evidence of the
authority of the Authorized Representative, (2) satisfactory evidence of death of the Deceased
Beneficial Owner, (3) satisfactory evidence that the Deceased Beneficial Owner beneficially
owned, at the time of his or her death, the notes being submitted for repayment, (4)
satisfactory evidence that the notes being submitted for repayment either were purchased
within ninety (90) days of their issuance or were acquired by the Deceased Beneficial Owner at
least six (6) months before the date of the death of such Deceased Beneficial Owner, and (5)
any necessary tax waivers. For purposes of determining whether the notes will be deemed
beneficially owned by an individual at any given time, the following rules shall apply:






	 	•	 	If a note (or a portion thereof) is beneficially owned by tenants by the entirety or
joint tenants, the note (or relevant portion thereof) will be regarded as beneficially
owned by a single owner. Accordingly, the death of a tenant by the entirety or joint
tenant will be deemed the death of the beneficial owner and the entire principal amount so
owned will become eligible for repayment.
	 
	 	•	 	The death of a person beneficially owning a note (or a portion thereof) by tenancy in
common will be deemed the death of the beneficial owner only with respect to the deceased
owner’s interest in the note (or relevant portion thereof) so owned, unless a husband and
wife are the tenants in common, in which case the death of either will be deemed the death
of the beneficial owner and the entire principal amount so owned will be eligible for
repayment.
	 
	 	•	 	A note (or a portion thereof) beneficially owned by a trust will be regarded as
beneficially owned by each beneficiary of the trust to the extent of that beneficiary’s
interest in the trust (however, a trust’s beneficiaries collectively cannot be beneficial
owners of more notes than are owned by the trust). The death of a beneficiary of a trust
will be deemed the death of the beneficial owner of the notes (or relevant portion thereof)
beneficially owned by the trust to the extent of that beneficiary’s interest in the trust.
The death of an individual who was a tenant by the entirety or joint tenant in a tenancy
which is the beneficiary of a trust will be deemed the death of the beneficiary of the
trust. The death of an individual who was a tenant in common in a tenancy which is the
beneficiary of a trust will be deemed the death of the beneficiary of the trust only with
respect to the deceased holder’s beneficial interest in the note, unless a husband and wife
are the tenants in common, in which case the death of either will be deemed the death of
the beneficiary of the trust.
	 
	 	•	 	The death of a person who, during his or her lifetime, was entitled to substantially all
of the beneficial interest in a note (or a portion thereof) will be deemed the death of the




A-3-30









 






	 	 	 	beneficial owner of that note (or relevant portion thereof), regardless of the registration
of ownership, if such beneficial interest can be established to the satisfaction of the
Trustee. Such beneficial interest will exist in many cases of street name or nominee
ownership, custodial arrangements, ownership by a trustee, ownership under the Uniform
Transfers of Gifts to Minors Act and community property or other joint ownership
arrangements between spouses. Beneficial interest will be evidenced by such factors as the
power to sell or otherwise dispose of a note, the right to receive the proceeds of sale or
disposition and the right to receive interest and principal payments on a note.






	2.	 	Indicate the name of the Deceased Beneficial Owner on line (1).
	 
	3.	 	Indicate the date of death of the Deceased Beneficial Owner on line (2).
	 
	4.	 	Indicate the name of the Authorized Representative requesting repayment on line (3).
	 
	5.	 	Indicate the name of the Financial Institution requesting repayment on line (4).
	 
	6.	 	Affix the authorized signature of the Financial Institution’s representative on line (5).
THE SIGNATURE MUST BE MEDALLION SIGNATURE GUARANTEED.
	 
	7.	 	Indicate the principal amount of notes to be repaid on line (6).
	 
	8.	 	Indicate the date this Form was completed on line (7).
	 
	9.	 	Indicate the name, mailing address (no P.O. boxes, please), telephone number and
facsimile-transmission number of the party to whom the acknowledgment of this election may be
sent in item (8).
	 
	10.	 	Indicate the wire instruction for payment on line (9).
	 
	11.	 	Leave lines (A), (B), (C), (D), (E) and (F) blank.
	 
	12.	 	Mail or otherwise deliver an original copy of the completed Form to:





Citibank, N.A.

Citibank Agency & Trust

388 Greenwich Street, 14th Floor

New York, New York 10013





	13.	 	FACSIMILE TRANSMISSIONS OF THE REPAYMENT ELECTION FORM WILL NOT BE ACCEPTED.
	 
	14.	 	If the acknowledgement of the Trustee’s receipt of this Form, including the assigned Election
Number, is not received within ten days of the date such information is sent to Citibank,
N.A., contact the Trustee at 100 Wall Street, 16th Floor, New York, New York
10005, attention: Corporate Trust Administration, telephone number:

(212) 361-2458.




A-3-31









 






	15.	 	For assistance with this Form or any questions relating thereto, please contact U.S. Bank
Trust National Association at 100 Wall Street, 16th Floor, New York, New York
10005, attention: Corporate Trust Administration, telephone number: (212) 361-2458.





A-3-32









 





EXHIBIT B




Indenture Trustee Report

for

Principal Life Income Fundings Trust • (the “Trust”)




Payment Date

•, 200•

CUSIP Number •





	(i)	 	the amount received by the Indenture Trustee as of the last statement in respect of the
principal, interest and premium, if any, on Funding Agreement No. • (the “Funding Agreement”)
issued by Principal Life Insurance Company (“Principal Life”) or the Guarantee issued by
Principal Financial Group, Inc. which fully and unconditionally guarantees the payment
obligations of Principal Life under the Funding Agreement.






Interest: •

Principal: •

Premium, if any: •




	(ii)	 	the amounts of compensation received by the Indenture Trustee, during the period relating to
such Payment Date.






Paid by the Trust: •

Paid by Principal Life: •




	(iii)	 	the amount of payment on such Payment Date to holders allocable to principal of and premium,
if any, and interest on the notes of the Trust and the amount of aggregate unpaid interest
accrued on such notes as of such Payment Date.






Interest: •

Principal: •

Unpaid Interest Accrued: •




	(iv)	 	the aggregate stated principal amount of the Funding Agreement, the current interest rate or
rates thereon at the close of business on such Payment Date, and the current rating assigned
to the Funding Agreement.






Principal Amount: •

Interest Rate: •

Ratings: •

          Moody’s Investor Service: •

          Standard & Poors’ Rating Service: •



B-1









 






	(v)	 	the aggregate principal balance of the notes at the close of business on such Payment Date
and the current rating assigned to the notes.






Initial Principal Amount: •

Reduction: •

Principal Amount on the Payment Date: •

Ratings: •

          Moody’s Investor Service: •

          Standard & Poors’ Rating Service: •




B-2