Document:

MORTGAGEIT HOLDINGS, INC.
                        AMENDED LONG-TERM INCENTIVE PLAN

                                    ARTICLE I
                            ESTABLISHMENT OF THE PLAN

MortgageIT Holdings, Inc. (the "Company") hereby establishes the MortgageIT
Holdings, Inc. Amended Long-Term Incentive (the "Plan") upon the terms and
conditions hereinafter stated. The Purpose of the Plan is to promote the
long-term success of the Company and the creation of shareholder value by (a)
encouraging officers, employees, directors and individuals performing services
for the Company or its subsidiaries as consultants or independent contractors to
focus on critical long-range objectives, (b) encouraging the attraction and
retention of officers, employees, directors, consultants and independent
contractors with exceptional qualifications, and (c) linking officers,
employees, directors, consultants and independent contractors directly to
shareholder interests through ownership of the Company. The Plan seeks to
achieve this purpose by providing for Awards in the form of options to purchase
shares of the Company, restricted stock or stock appreciation rights.

                                   ARTICLE II
                                   DEFINITIONS

2.01   "Award" means any stock option, restricted stock award or stock
appreciation right granted to a Participant under the Plan.

2.02   "Board" means the Board of Directors of the Company.

2.03   "Code" means the Internal Revenue Code of 1986, as amended.

2.04   "Common Stock" means shares of the common stock, $0.01 par value per
share, of the Company.

2.05   "Disability" means any physical or mental impairment which qualifies an
Employee for disability benefits under any applicable long-term disability plan
maintained by the Company or, if no such plan applies, which would qualify such
Employee for disability benefits under the Federal Social Security System.

2.06   "Effective Date" means the date upon which the Board approves this Plan.

2.07   "Employee" means any person who is employed by the Company or a
subsidiary thereof, and whose wages are reported on a Form W-2. The Company
classification as to who is an Employee shall be determinative for purposes of
an individual's eligibility under the Plan.

2.08   "Exchange Act" means the Securities Exchange Act of 1934, as amended.

2.09   "Fair Market Value" of a share of the Company's Common Stock for all
purposes under the Plan on a particular date shall be the most recent valuation
adopted by the Board in good faith of the fair market value of each share of the
Company's Common Stock; provided that, as long as the Common Stock is registered
under Section 12 or Section 15 of the Exchange Act, the Fair Market Value of the
Company's Common Stock shall be the mean between the high and low sales price
per share of Common Stock on such date, or in case no such sale takes place on
such date, the last date on which a sale occurred, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on a national securities exchange or
included for quotation on the Nasdaq market, or if the Common Stock is not
listed or admitted for trading or included for quotation, in the
over-the-counter market, as reported by the NASD Automatic Quotation System or,
if such system is no longer in use, the principal other automated quotations
system that may then be in use or, if the Common Stock is not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Common Stock, or such other
method of valuation as may be selected by the Board in good faith.

If the relevant date is not a trading day, the determination shall be made as of
the next preceding trading day. As used herein, the term "trading day" means a
day on which public trading of securities occurs and as reported in the
principal consolidated reporting system referred to above, or if the Common
Stock is not listed or admitted to trading on a national securities exchange or
included for quotation on the Nasdaq National Market, any business day.

2.10   "Grantee" refers to any Participant in the Plan who receives an Award.

2.11   "Incentive Stock Option" means any Award granted under this Plan which
the Board intends (at the time it is granted) to be an incentive stock option
within the meaning of Section 422 of the Code. All Incentive Stock Options
issued under this Plan are intended to comply with the requirements of Section
422 of the Code, and the regulations thereunder, and all provisions hereunder
shall be read, interpreted and applied with that purpose in mind.

2.12   "Non-Qualified Stock Option" means any Award granted under this Plan
which is a stock option but is not an Incentive Stock Option.

2.13   "Officer" means any Employee of the Company or any of its subsidiaries
who is designated by the Board as a corporate officer.

2.14   "Option" means an award of an Incentive Stock Option or a Non-Qualified
Stock Option granted under Section 7.01 hereof.

2.15   "Participant" means any Employee, Officer, director, consultant or
independent contractor who is designated by the Board pursuant to Article VI to
participate in the Plan.

2.16   "Restricted Stock Award" means an Award granted under Section 7.02
hereof.

2.17   "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Company or its subsidiaries, as that term is defined by the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or if no such plan
is maintained by the Company, a termination of employment anytime following
attainment of age 65.

2.18   "Sale Event" means the consummation of (i) a dissolution or liquidation
of the Company, (ii) the sale of all or substantially all of the assets of the
Company to an unrelated person or entity, (iii) a merger, reorganization or
consolidation in which the holders of the Company's outstanding voting power
immediately prior to such transaction do not own a majority of the outstanding
voting power of the surviving or resulting entity immediately upon completion of
such transaction, or (iv) any other transaction in which the owners of the
Company's outstanding voting power prior to such transaction do not own at least
a majority of the outstanding voting power of the relevant entity after the
transaction, in each case, regardless of the form thereof.

2.19   "Securities Act" means the Securities Act of 1933, as amended.

2.20   "Stock Appreciation Right" or "SAR" means an Award granted under Section
7.03 hereof.

2.21   "Stock Award Agreement" means the written agreement pursuant to Article
VI hereof that sets forth the terms, conditions, restrictions and privileges for
an Award and that incorporates the terms of the Plan.

                                   ARTICLE III
                  ADMINISTRATION OF THE PLAN AND MISCELLANEOUS

3.01   PLAN ADMINISTRATION. The Plan shall be administered by the Compensation
Committee (the "Committee"). The Committee shall be responsible to the Board for
the overall administration and operation of the Plan, although the Committee
may, in its discretion, delegate to one or more officers responsibility for the
day-to-day operation of the Plan. The Board shall make all determinations with

respect to participation in the Plan by Employees, Officers, directors,
consultants or independent contractors of the Company or any of its
subsidiaries, and with respect to the extent of that participation. The
interpretation and construction of any provision of the Plan by the Board or the
Committee shall be final. No member of the Board shall be liable for any action
or determination made by him or her in good faith

3.02   REVOCATION FOR MISCONDUCT. Any Award, or portion thereof, under this
Plan, whether or not vested, made to a Participant who is discharged from the
employ of the Company or any of its subsidiaries (or whose personal services
contract is terminated in the case of a consultant or independent contractor)
shall automatically terminate, be rescinded and be revoked.

3.03   LIMITATION ON LIABILITY. No Board or Committee member shall be liable for
any action or determination made in good faith with respect to the Plan. To the
maximum extent allowed by law and the Company's Articles of Incorporation and
Bylaws, the Board and the Committee shall be indemnified by the Company in
respect of all their activities under the Plan.

3.04   COMPLIANCE WITH LAW AND REGULATIONS. All Awards granted hereunder shall
be subject to all applicable federal and state laws, rules and regulations and
to such approvals by any government or regulatory agency as may be required. The
Company shall not be required to issue or deliver any certificates for shares of
Common Stock prior to the completion of any registration or qualification of, or
obtaining of consents or approvals with respect to, such shares under any
Federal or state law or any rule or regulation of any government body, which the
Company shall, in its sole discretion, determine to be necessary or advisable.

3.05   RESTRICTIONS ON TRANSFER. The Company shall place a legend upon any
certificate representing shares acquired pursuant to an Award granted hereunder
noting that the transfer of such may be restricted as permitted by applicable
laws and regulations.

3.06   MARKET STAND-OFF. In connection with any underwritten public offering by
the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act, Participants shall not directly or
indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, or
grant any option or other contract for the purchase of, purchase any option or
other contract for the sale of, or otherwise dispose of or transfer, or agree to
engage in any of the foregoing transactions with respect to, any Common Stock
received pursuant to the Plan without the prior written consent of the Company.
Such restriction (the "Market Stand-Off") shall be in effect for a period of
time following the date of the final prospectus for the offering as may be
requested by the Company or its underwriters. In the event of the declaration of
a stock dividend, a spin-off, a stock split, an adjustment in conversion ratio,
a recapitalization or a similar transaction affecting the Company's outstanding
securities without receipt of consideration, any new, substituted or additional
securities which are by reason of such transaction distributed with respect to
any Common Stock subject to the Market Stand-Off, or into which such Common
Stock thereby becomes convertible, shall immediately be subject to the Market
Stand-Off. In order to enforce the Market Stand-Off, the Company may impose
stop-transfer instructions with respect to Common Stock received pursuant to the
Plan until the end of the applicable market Stand-Off period.

                                   ARTICLE IV
                                   ELIGIBILITY

Awards may be granted to such Employees, Officers, directors, consultants or
independent contractors as may be designated from time to time by the Board,
pursuant to guidelines, if any, which may be adopted by the Committee from time
to time.

                                    ARTICLE V
                       COMMON STOCK AVAILABLE FOR THE PLAN

The aggregate number of shares of Common Stock which may be issued pursuant to
this Plan shall be one million (1,000,000). If and to the extent that the number
of issued shares of Common Stock shall be increased or reduced by change in par
value, split up, reclassification, distribution of a dividend payable in Common
Stock, merger, consolidation, reorganization, recapitalization, reincorporation,
or the like, the Board may make appropriate adjustment in the number of shares
of Common Stock authorized by the Plan and in the number and exercise price of
shares covered by outstanding Awards under the Plan. In the event of any
adjustment in the number of shares covered by any Award, any fractional shares
resulting from such adjustment shall be disregarded and each such Award shall
cover only the number of full shares resulting from such adjustment. The Board
may make such adjustments, and its determination shall be final, binding and
conclusive.

The Board also may adjust the number of shares subject to outstanding Awards and
the exercise price and the terms of outstanding Awards to take into
consideration material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock or property or
any other event if it is determined by the Board that such adjustment is
appropriate in order to prevent dilution or expansion of the rights of
Participants, provided that no such adjustment shall be made in the case of an
Incentive Stock Option, without the consent of the Participant, if such
adjustment would constitute a modification, extension or renewal of the Option
within the meaning of Section 424(h) of the Code.

No shares shall be the subject of more than one Award at any time, but if an
Award as to any shares is surrendered before exercise, or expires or terminates
for any reason without having been exercised in full, or for any other reason
ceases to be exercisable, the number of shares covered thereby shall again
become available for grant under the Plan as if no Awards had been previously
granted with respect to such shares.

                                   ARTICLE VI
                      PARTICIPATION; STOCK AWARD AGREEMENT

The Board shall, in its discretion, determine from time to time which Employees,
Officers, directors, consultants or independent contractors will participate in
the Plan and receive Awards under the Plan. In making all such determinations,
there shall be taken into account the duties, responsibilities and performance
of each respective Employee, Officer, director, consultant or independent
contractor, his or her present and potential contributions to the growth and
success of the Company and its subsidiaries, his or her cash compensation and
such other factors as the Board shall deem relevant to accomplishing the
purposes of the Plan.

Awards may be granted individually or in tandem with other Awards. All Awards
are subject to the terms, conditions, restrictions and privileges of the Plan in
addition to the terms, conditions, restrictions and privileges for an Award
contained in the Stock Award Agreement. No Award under this Plan shall be
effective unless memorialized in writing by the Committee in a Stock Award
Agreement delivered to and signed by the Participant.

                                   ARTICLE VII
                                     AWARDS

7.01   STOCK OPTIONS. The Board may from time to time grant to eligible
Participants Awards of Incentive Stock Options or Non-Qualified Stock Options;
provided however that Awards of Incentive Stock Options shall be limited to
Employees of the Company or any of its subsidiaries. Options intended to qualify
as Incentive Stock Options must have an exercise price at least equal to the
Fair Market Value of a share of Common Stock at the time of grant, except as
provided in Section 8.05. Non-Qualified Stock Options may have an exercise price
that is equal to, below, or above the Fair Market Value of a share of Common
Stock at the time of grant. The exercise price applicable to a particular Award
shall be set forth

in each individual Stock Award Agreement.

7.02   RESTRICTED STOCK. The Board may from time to time grant Restricted Stock
Awards to eligible Participants in such amounts, on such terms and conditions,
and for such consideration, including no consideration or such minimum
consideration as may be required by law, as it shall determine. A Restricted
Stock Award represents shares of Common Stock that are issued subject to such
restrictions on transfer and other incidents of ownership and such forfeiture
conditions as the Board may determine. The Board may, in connection with any
Restricted Stock Award, require the payment of a specified purchase price.

7.03   STOCK APPRECIATION RIGHTS. The Board may grant Stock Appreciation Rights
to eligible Participants in such amounts and on such terms or conditions as it
shall determine. A Stock Appreciation Right is an Award in the form of a right
to receive, upon surrender of the right but without other payment, an amount
based on appreciation in the Fair Market Value of the Common Stock over a base
price established for the Award. Stock Appreciation Rights may be paid by the
delivery of Common Stock or cash, or any combination thereof, as determined in
the sole discretion of the Board.

                                  ARTICLE VIII
                                  OPTION AWARDS

8.01   VESTING OF OPTIONS.
(a) GENERAL RULES. The Board, in its sole discretion, shall prescribe the time
or times at which, or the conditions upon which, an Option shall become vested
and exercisable, and may accelerate the exercisability of any Option at any
time. Notwithstanding the foregoing, no vesting shall occur on or after the date
that an Employee's employment or personal services contract with the Company or
any of its subsidiaries terminates for any reason other than his death,
Disability or Retirement.

(b) ACCELERATION OF VESTING UPON DEATH, DISABILITY OR RETIREMENT. In the event a
Participant dies while in the employ of the Company or any of its subsidiaries
or terminates employment with the Company or any of its subsidiaries as a result
of Disability, any Option(s) granted to such Participant under this Plan not yet
vested on such date shall become 100% vested as of such date and be exercisable
either by the Participant or the Participant's representative, subject to
Section 8.03. In the event of a Participant's Retirement, any Option(s) granted
to such Participant under this Plan not yet vested on such date shall become
100% vested as of such date and become exercisable only if the grant date of
such Option(s) precedes the Participant's date of Retirement by two (2) or more
years.

8.02   DURATION OF OPTIONS.
(a) GENERAL RULE. Except as provided in Section 8.05, each Option granted to a
Participant shall be exercisable at any time on or after it vests until the
earlier of (i) ten (10) years after its date of grant or (ii) the date that is
six (6) months (ninety (90) days in the case of Incentive Stock Options granted
to Employees) following the last day on which the Participant is employed or
renders services for the benefit of the Company or its subsidiaries.

(b) EXCEPTION FOR TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. If a
Participant dies while in the employ of the Company or any of its subsidiaries
or terminates employment with the Company or any of its subsidiaries as a result
of death, Disability or Retirement without having fully exercised his Options,
the Participant or his legal representative or guardian, or the executors,
administrators, legatees or distributes of his estate shall have the right,
during the twelve (12) month period following the earlier of his death,
Disability or Retirement, to exercise such Options to the extent vested on the
date of such death, Disability or Retirement. In no event, however, shall any
Option be exercisable more than ten (10) years from the date it was granted.

(c) NOTICE OF DISPOSITION; WITHHOLDING; ESCROW. A Grantee shall immediately
notify the Company in writing of any sale, transfer, assignment or other
disposition (or action constituting a disqualifying disposition within the
meaning of Section 421 of the Code) of any shares of Common Stock acquired
through exercise of an Incentive Stock Option, within two (2) years after the
grant of such

Incentive Stock Option or within one (1) year after the acquisition of such
shares, setting forth the date and manner of disposition, the number of shares
disposed of and the price at which such shares were disposed. The Company shall
be entitled to withhold from any compensation or other payments then or
thereafter due to the Grantee such amounts as may be necessary to satisfy any
withholding requirements of Federal or state law or regulation and, further, to
collect from the Grantee any additional amounts which may be required for such
purpose. The Board may, in its discretion, require shares of Common Stock
acquired by a Grantee upon exercise of an Incentive Stock Option to be held in
an escrow arrangement for the purpose of enabling compliance with the provisions
of this Section 8.02(c).

8.03   NONASSIGNABILITY. Options shall not be transferable by a Grantee except
by will or the laws of descent or distribution, and during a Grantee's lifetime
shall be exercisable only by such Grantee or the Grantee's guardian or legal
representative. Notwithstanding the foregoing, or any other provision of this
Plan, a Grantee who holds Non-Qualified Stock Options may transfer such Options
to his or her spouse, lineal ascendants, lineal descendants, or to a duly
established trust for the benefit of one or more of these individuals. Options
so transferred may thereafter be transferred only to the Grantee who originally
received the grant or to an individual or trust to whom the Grantee would have
initially transferred the Option pursuant to this Section 8.03. Awards which are
transferred pursuant to this Section 8.03 shall be exercisable by the transferee
according to the same terms and conditions as applied to the Grantee.

8.04   MANNER OF EXERCISE. To the extent vested and exercisable, Options may be
exercised in part or in whole from time to time by execution of a written notice
directed to the Company, at the Company's principal place of business,
accompanied by cash or a check in payment of the exercise price for the number
of shares specified and paid for. The Board may, in its discretion, permit a
Grantee to exercise vested and exercisable options awarded under this Plan by
surrendering an amount of Common Stock already owned by the Grantee equal to the
Options' exercise price, but only in instances where the shares to be
surrendered have been held by the Grantee for a period of at least six (6)
months. Subject to the limitations set forth in the Stock Award Agreement, for
so long as the Common Stock is listed or admitted to trading on a national
securities exchange or included for quotation on the Nasdaq market, the Board
may, in its discretion, allow the Grantee may make payment by arranging with a
third party broker to sell a number of shares otherwise deliverable to the
Grantee and attributable to the exercise of the Option in order to pay the
exercise price of the Option.

8.05   $100,000 LIMITATION. Notwithstanding any contrary provisions contained
elsewhere in this Plan and as long as required by Section 422 of the Code, the
aggregate Fair Market Value, determined as of the time an Incentive Stock Option
is granted, of the Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by the Grantee during any calendar year under
this Plan and stock options that satisfy the requirements of Section 422 of the
Code under any other stock option plan or plans maintained by the Company, shall
not exceed $100,000. To the extent that the aggregate value of shares of Common
Stock to be received by the Grantee for the first time in any one year pursuant
to the exercise of an Incentive Stock Option ("ISO Stock") exceeds $100,000
based on the fair market value of the Common Stock as of the date of the
Incentive Stock Option's grant, such excess shall be treated as Common Stock
received pursuant to the exercise of a Nonqualified Stock Option ("NQSO Stock").
The Company shall designate which shares of Common Stock to be received by the
Grantee will be treated as ISO Stock and which shares of Common Stock, if any,
will be treated as NQSO Stock by issuing separate share certificates identifying
in the Company's share transfer records which shares are ISO Stock.

8.06   LIMITATION ON TEN PERCENT STOCKHOLDERS. The price at which shares of Common
Stock may be purchased upon exercise of an Incentive Stock Option granted to an
individual who, at the time such Incentive Stock Option is granted, owns,
directly or indirectly, more than ten percent (10%) of the total combined voting
power of all classes of stock issued to stockholders of the Company, shall be no
less than one hundred and ten percent (110%) of the Fair Market Value of a share
of the Common Stock of the Company at the time of grant, and such Incentive
Stock Option shall by its terms not be exercisable after the expiration of five
(5) years from the date such Incentive Stock Option is granted.

                                   ARTICLE IX
                            STOCK APPRECIATION RIGHTS

9.01   TANDEM SARS. A Stock Appreciation Right may be granted in connection with
an Option, either at the time of grant or at any time thereafter during the term
of the Option. An SAR granted in connection with an Option will entitle the
holder, upon exercise, to surrender such Option or any portion thereof to the
extent unexercised, with respect to the number of shares as to which such SAR is
exercised, and to receive payment of an amount computed as described in Section
9.03 hereof. Such Option will, to the extent and when surrendered, cease to be
exercisable. An SAR granted in connection with an Option hereunder will have a
base price per share equal to the per share exercise price of the Option, will
be exerciseable at such time or times, and only to the extent, that a related
Option is exercisable, and will expire no later than the related Option expires.

9.02   FREESTANDING SARS. A Stock Appreciation Right may be granted without any
related Option and, in such case, will be exercisable as determined by the
Board, but in no event after 10 years from the date of grant. The base price of
an SAR granted without any related Option shall be determined by the Board in
its sole discretion; provided, however, that the base price per share of any
such freestanding SAR shall not be less than one hundred (100%) of the Fair
Market Value of the Common Stock on the date of grant.

9.03   PAYMENT OF SARS. An SAR will entitle the holder, upon exercise of the SAR,
to receive payment of an amount determined by multiplying: (i) the excess of the
Fair Market Value of a share of Common Stock on the date of exercise of the SAR
over the base price of such SAR, by (ii) the number of shares as to which such
SAR is exercised. Payment of the amount determined under the foregoing may be
made, in the discretion of the Board, in cash, in shares of Common Stock valued
at their Fair Market Value on the date of exercise, or in a combination of cash
and shares of Common Stock.

                                    ARTICLE X
                             RESTRICTED STOCK AWARDS

10.01  VESTING REQUIREMENTS. The restrictions imposed on shares granted under a
Restricted Stock Award shall lapse in accordance with the vesting requirements
specified by the Board in the Stock Award Agreement. Such vesting requirements
may be based on the continued employment of the Participant with the Company or
its subsidiaries for a specified time period or periods, provided that any such
restriction shall not be scheduled to lapse in its entirety earlier than the
first anniversary of the date of grant. Such vesting requirements may also be
based on the attainment of specified business goals or measures established by
the Board in its sole discretion.

10.02  RESTRICTIONS. Shares granted under any Restricted Stock Award may not be
transferred, assigned or subject to any encumbrance, pledge, or charge until all
applicable restrictions are removed or have expired, unless otherwise allowed by
the Board. The Board may require the Participant to enter into an escrow
agreement providing that the certificates representing the shares granted or
sold under a Restricted Stock Award will remain in the physical custody of an
escrow holder until all restrictions are removed or have expired. Failure to
satisfy any applicable restrictions shall result in the subject shares of the
Restricted Stock Award being forfeited and returned to the Company, with any
purchase price paid by the Participant to be refunded, unless otherwise provided
by the Board. The Board may require that certificates representing the shares
granted under a Restricted Stock Award bear a legend making appropriate
reference to the restrictions imposed.

10.03  RIGHTS AS SHAREHOLDER. Subject to the foregoing provisions of this Article
X and the applicable Stock Award Agreement, the Participant will have all rights
of a shareholder with respect to the shares granted to him under a Restricted
Stock Award, including the right to vote the shares and receive all dividends
and other distributions paid or made with respect thereto, unless the Board
determines otherwise at the time the Restricted Stock Award is granted.

10.04  SECTION 83(B) ELECTION. The Board may provide in a Stock Award Agreement
that the

Restricted Stock Award is conditioned upon the Participant's refraining from
making an election with respect to the Award under section 83(b) of the Code.
Irrespective of whether an Award is so conditioned, if a Participant makes an
election pursuant to section 83(b) of the Code with respect to a Restricted
Stock Award, the Participant shall be required to promptly file a copy of such
election with the Company.

                                   ARTICLE XI
                      AMENDMENT AND TERMINATION OF THE PLAN

The Board may, by resolution, at any time terminate or amend the Plan with
respect to any shares of Common Stock or Awards which have not been granted, but
no such action shall adversely affect the rights under any outstanding Award
without the holder's consent. If and to the extent necessary to ensure that
Incentive Stock Options granted under the Plan remain qualified under Section
422 of the Code, Plan amendments shall be subject to approval by the Company's
stockholders who are eligible to vote at a meeting of stockholders.

                                   ARTICLE XII
                                EMPLOYMENT RIGHTS

Neither the Plan nor any Award hereunder shall create any right on the part of
any Employee of the Company or any of its subsidiaries to continue in such
capacity.

                                  ARTICLE XIII
                                   WITHHOLDING

The Company may withhold from any cash payment made under this Plan sufficient
amounts to cover any applicable withholding and employment taxes, and if the
amount of such cash payment is insufficient, the Company may require the Grantee
to pay to the Company the amount required to be withheld as a condition to
delivering the shares acquired pursuant to an Award. The Company also may
withhold or collect amounts with respect to a disqualifying disposition of
shares of Common Stock acquired pursuant to exercise of an Incentive Stock
Option, as provided in Section 8.02(c).

The Board is authorized to adopt rules, regulations or procedures which provide
for the satisfaction of a Participant's tax withholding obligation by the
retention of shares of Common Stock to which he otherwise would be entitled
pursuant to an Award or by the Participant's delivery of previously-owned shares
of Common Stock or other property. However, if the Company adopts rules,
regulations or procedures which permit withholding obligations to be met by the
retention of Common Stock to which a Grantee otherwise would be entitled
pursuant to an Award, the fair market value of the Common Stock retained for
such purpose shall not exceed the minimum required Federal, state and local tax
withholding due upon exercise of the Award.

                                   ARTICLE XIV
                        EFFECTIVE DATE OF THE PLAN; TERM

14.01  EFFECTIVE DATE OF THE PLAN. This Plan shall become effective on the
Effective Date, and Awards may be granted hereunder as of or after the Effective
Date and prior to the termination of the Plan, provided that no Incentive Stock
Option issued pursuant to this Plan shall qualify as such unless this Plan is
approved by the requisite vote of the holders of the outstanding voting shares
of the Company at a meeting of stockholders of the Company held within twelve
(12) months before or after the Effective Date.

14.02  TERM OF PLAN. Unless sooner terminated, this Plan shall remain in effect
for a period of ten (10) years ending on the tenth anniversary of the Effective
Date. Termination of the Plan shall not affect any Awards previously granted and
such Awards shall remain valid and in effect until they have been fully
exercised or earned, are surrendered or by their terms expire or are forfeited.

                                   ARTICLE XV
                                  GOVERNING LAW

To the extent not governed by Federal law, this Plan shall be construed under
the laws of the State of Maryland.

IN WITNESS WHEREOF, the Company has caused a duly authorized officer to execute
this MortgageIT Holdings, Inc. Amended Long-Term Incentive Plan, and to apply
the Corporate seal hereto as of the day of              , 2005.

                                            MORTGAGEIT HOLDINGS, INC.

                                            By:
                                                    ----------------------------

                                            Name:
                                                    ----------------------------
                                            Title:
                                                    ----------------------------

--------------------------------------------------------------------------------

                            MORTGAGEIT HOLDINGS, INC.
                        AMENDED LONG-TERM INCENTIVE PLAN

                       FORM OF RESTRICTED STOCK AGREEMENT
                       ----------------------------------

Restricted Stock Agreement (this "Agreement"), dated as of           (the "Grant
Date"), between MortgageIT Holdings, Inc. (the "Company") and               (the
"Participant"). This Agreement is pursuant to the terms of the MortgageIT
Holdings, Inc. Amended Long-Term Incentive Plan (the "Plan"), a copy of which
has been furnished to the Participant and the terms of which are incorporated
herein by reference. Unless otherwise indicated, whenever capitalized terms are
used in this Agreement, they shall have the meanings set forth in the Plan.

SECTION 1. GRANT OF AWARD. The Participant is hereby granted an award of
restricted stock representing shares of Common Stock under the terms and
conditions specified herein (the "Award").

SECTION 2.  VESTING OF SHARES.

2.1    Vesting Schedule. Subject to Section 3, shares covered by the Award (the
"Restricted Shares") shall vest based on the passage of time according to the
following vesting schedule:

NUMBER OF RESTRICTED SHARES                             VESTING DATE
-------------------------------------         ---------------------------------

2.2    Accelerated Vesting. Notwithstanding Section 2.1, Restricted Shares shall
become fully and immediately vested upon a Sale Event.

2.3    Discretionary Vesting. The Board may, in its sole discretion, accelerate
the vesting of any or all Restricted Shares at any time and for any reason.

SECTION 3. FORFEITURE IN THE EVENT OF TERMINATION OF EMPLOYMENT. If the
Participant's employment with the Company and its subsidiaries is terminated for
any reason, the Participant shall forfeit his or her interest in any Restricted
Shares that have not yet become vested, which shall be cancelled and be of no
further force or effect.

SECTION 4. DIVIDENDS AND VOTING RIGHTS. The Participant shall be entitled to
receive any dividends paid with respect to the Restricted Shares; provided,
however, that no dividends shall be payable to or for the benefit of a
Participant with respect to record dates occurring prior to the Grant Date, or
with respect to record dates occurring on or after the date, if any, on which
the Participant has forfeited the Restricted Shares pursuant to Section 3
hereof. The Participant shall be entitled to vote the Restricted Shares to the
same extent as would have been applicable to the Participant if the Participant
was then vested in the Restricted Shares; provided, however, that the
Participant shall not be entitled to vote the Restricted Shares with respect to
record dates occurring prior to the Grant Date, or with respect to record dates
occurring on or after the date, if any, on which the Participant has forfeited
the Restricted Shares pursuant to Section 3 hereof.

SECTION 5. ADJUSTMENTS. If at any time while the Award is outstanding, the
number of outstanding shares of Common Stock is changed by reason of a
reorganization, recapitalization, stock split or any other event described in
Article V of the Plan, the number and/or kind of Restricted Shares covered by
the Award shall be adjusted accordingly pursuant to the provisions of the Plan.

SECTION 6. LIMITATIONS ON RESTRICTED SHARES. Restricted Shares may not be sold,
assigned, transferred, pledged or otherwise encumbered until the Participant is
vested in such shares in accordance with the provisions hereof.

SECTION 7. NO RIGHT TO CONTINUED EMPLOYMENT. Nothing in this Agreement shall
confer upon a Participant who is an employee of the Company or any of its
subsidiaries any right to continue in the employ of the Company or any of its
subsidiaries or to interfere in any way with the right of the Company or any of
its subsidiaries to terminate the Participant's employment at any time.

SECTION 8. DEPOSIT OF RESTRICTED SHARES. Each certificate issued in respect of
Restricted Shares granted under this Agreement shall be registered in the name
of the Participant and shall be deposited with an escrow agent designated by the
Board. The grant of Restricted Shares is conditioned upon the Participant
endorsing in blank a stock power for the Restricted Shares.

SECTION 9. WITHHOLDING OF TAXES. The Company shall withhold from any amounts due
and payable by the Company to the Participant (or secure a cash payment from the
Participant in lieu of withholding) the amount of any federal or state
withholding or other taxes, if any, due from the Company with respect to the
Restricted Shares.

SECTION 10.  MISCELLANEOUS PROVISIONS.

10.1   Notices. All notices, requests and demands to or upon a party hereto
shall be in writing and shall be deemed to have been duly given when delivered
by hand or three days after being deposited in the mail, postage prepaid or, in
the case of facsimile notice, when received, addressed as follows or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.

(a) If to the Company, to the following address:

       MortgageIT Holdings, Inc.
       33 Maiden Lane, 6th Floor
       New York, NY  10038
       Attn: Doug W. Naidus,
             Chairman of the Board and
             Chief Executive Officer
       Facsimile:  (212) 651-7623

(b) If to the Participant, to the address or facsimile number as shown on the
signature page hereto.

10.2   Amendment. This Agreement may be amended only by a writing executed by
the parties hereto that specifically states that it is amending this Agreement.

10.3   Governing Law. This Agreement shall be construed and interpreted in
accordance with and governed by the laws of the State of Maryland, other than
the conflict of laws provisions of such laws.

10.4   Titles. Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.

10.5   Construction. The construction of this Agreement is vested in the Board,
and the Board's construction shall be final and conclusive on all persons.

       IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.

PARTICIPANT                                     MORTGAGEIT HOLDINGS, INC.

--------------------------------------          --------------------------------
Name:                                           Name:

                                                --------------------------------
                                                Title:

--------------------------------------
Address:

--------------------------------------
Telephone Number:

--------------------------------------
Facsimile:

--------------------------------------------------------------------------------

                            MORTGAGEIT HOLDINGS, INC.
                        AMENDED LONG-TERM INCENTIVE PLAN

                    FORM OF INCENTIVE STOCK OPTION AGREEMENT
                    ----------------------------------------

Stock Option Agreement (this "Option Agreement"), dated as of               (the
"Grant Date"), between MortgageIT Holdings, Inc. (the "Company") and
(the "Participant"). This Option Agreement is pursuant to the terms of the
MortgageIT Holdings, Inc. Amended Long-Term Incentive Plan (the "Plan"), a copy
of which has been furnished to the Participant and the terms of which are
incorporated herein by reference. Unless otherwise indicated, whenever
capitalized terms are used in this Option Agreement, they shall have the
meanings set forth in the Plan.

SECTION 1. GRANT OF OPTIONS. The Participant is hereby granted an option
representing shares of Common Stock ("Shares") under the terms and conditions
specified herein (the "Option"). Such Option is intended to constitute an
Incentive Stock Option. If the Option granted hereunder fails to qualify as an
Incentive Stock Option for any reason, then the Option, or portion thereof that
does not so qualify, shall be treated as a Nonqualified Stock Option.

SECTION 2. OPTION PRICE. The exercise price of the Option shall be $
per share (the "Option Price").

SECTION 3. VESTING OF OPTION.

3.1    Vesting Schedule. The Option shall vest and become exercisable based on
the passage of time according to the following vesting schedule:

NUMBER OF SHARES                                   VESTING DATE
----------------------------------  --------------------------------------------

3.2    Accelerated Vesting. Notwithstanding Section 3.1, the Option shall become
fully and immediately vested and exercisable upon: (i) a Sale Event; or (ii)
upon the death, Disability or Retirement of the Participant as set forth in
Section 8.01(b) of the Plan.

3.3    Discretionary Vesting. The Board may, in its sole discretion, accelerate
the vesting of the Option at any time and for any reason.

SECTION 4. INCENTIVE STOCK OPTION LIMITATION. Pursuant to section 422(d) of the
Code, to the extent the aggregate Fair Market Value of shares of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by the Participant during any calendar year under all plans of the Company and
its subsidiaries exceeds $100,000, such options shall be treated as Nonqualified
Stock Options (the Company shall designate which options will be treated as
Nonqualified Stock Options).

SECTION 5. OPTION TERM. The Option may be exercised, to the extent that it is
vested pursuant to Section 3, during the Option Term, unless earlier terminated
in accordance with the terms of the Plan. For purposes hereof, the "Option Term"
shall commence on the Grant Date and shall expire on the tenth anniversary
thereof. Upon the expiration of the Option Term, to the extent unexercised, the
Option shall terminate and be of no further force or effect.

SECTION 6. EXERCISE OF OPTION. An Option may be exercised by the Participant (or
such other person as may be specified in the Plan) to the extent vested, with
respect to whole shares only, by giving written

notice to the Company of exercise along with payment of the aggregate exercise
price. The Option Price for the Shares acquired pursuant to the exercise of the
Option shall be paid: (i) in cash or by check; (ii) in whole shares of Common
Stock; or (iii) a combination of (i) and (ii) above. The value of any share of
Common Stock delivered in payment of the Option Price shall be its Fair Market
Value on the date the Option is exercised.

SECTION 7. WITHHOLDING OF TAXES. The Company shall withhold from any amounts due
and payable by the Company to the Participant (or secure payment from the
Participant in lieu of withholding) the amount of any federal or state
withholding or other taxes, if any, due from the Company with respect to the
exercise of the Option, and the Company may defer such issuance until such
withholding or payment is made unless otherwise indemnified to its satisfaction
with respect thereto. The Company shall have the right to: (i) make deductions
from any settlement of this Option, including the delivery of Shares, or require
Shares or cash, or both, be withheld from any settlement of this Option, in each
case in an amount sufficient to satisfy the withholding obligation; or (ii) take
such other action as may be necessary or appropriate to satisfy the withholding
obligation.

SECTION 8. ADJUSTMENTS. If at any time while the Option is outstanding, the
number of outstanding shares of Common Stock is changed by reason of a
reorganization, recapitalization, stock split or any other event described in
Article V of the Plan, the number and/or kind of Shares subject to the Option
and/or the Option Price of such Shares shall be adjusted in accordance with the
provisions of the Plan.

SECTION 9. OPTION NOT TRANSFERABLE. This Option may not be transferred, pledged,
assigned, hypothecated or otherwise disposed of in any way by the Participant,
except by will or laws of descent and distribution, and during the Participant's
life, may only be exercised by the Participant. Any attempt to effect a transfer
of this Option that is not otherwise permitted by the Board, the Plan, or this
Option Agreement shall be null and void.

SECTION 10. DISQUALIFYING DISPOSITION. If Shares acquired by exercise of the
Option are disposed of within two years following the Grant Date or one year
following the transfer of such Shares to the Participant upon exercise, the
Participant shall, promptly following such disposition, notify the Company in
writing of the date and terms of such disposition and provide such other
information regarding the disposition as the Board may reasonably require.

SECTION 11. NO RIGHTS AS SHAREHOLDER OR CONTINUED EMPLOYMENT.

11.1   No Right as Shareholder. The Participant shall not have any privileges of
a Shareholder of the Company with respect to any Shares subject to (but not
acquired upon valid exercise of) the Option, nor shall the Company have any
obligation to pay any dividends or otherwise afford any rights to which Shares
are entitled with respect to such Shares, until the date of the issuance to the
Participant of a stock certificate evidencing such Shares.

11.2   No Right to Continued Employment. Nothing in this Option Agreement shall
confer upon a Participant who is an employee of the Company or any of its
subsidiaries any right to continue in the employ of the Company or any of its
subsidiaries or to interfere in any way with the right of the Company or any of
its subsidiaries to terminate the Participant's employment at any time.

SECTION 12. MISCELLANEOUS PROVISIONS.

12.1 Notices. All notices, requests and demands to or upon a party hereto shall
be in writing and shall be deemed to have been duly given when delivered by hand
or three days after being deposited in the mail, postage prepaid or, in the case
of facsimile notice, when received, addressed as follows or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notices of change of address shall be effective only upon
receipt.

If to the Company, to the following address:

          MortgageIT Holdings, Inc.
          33 Maiden Lane, 6th Floor
          New York, NY  10038
          Attn: Doug W. Naidus,
                Chairman of the Board and
                Chief Executive Officer
          Facsimile:  (212) 651-7623

If to the Participant, to the address or facsimile number as shown on the
signature page hereto.

12.2   Amendment. This Option Agreement may be amended only by a writing
executed by the parties hereto that specifically states that it is amending this
Option Agreement.

12.3   Governing Law. This Option Agreement shall be construed and interpreted
in accordance with and governed by the laws of the State of Maryland, other than
the conflict of laws provisions of such laws.

12.4   Titles. Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Option Agreement.

12.5   Construction. The construction of this Option Agreement is vested in the
Board, and the Board's construction shall be final and conclusive on all
persons.

--------------------------------------------------------------------------------

       IN WITNESS WHEREOF, this Option Agreement has been executed and delivered
by the parties hereto.

PARTICIPANT                                    MORTGAGEIT HOLDINGS, INC.

-------------------------------------          ---------------------------------
Name:                                          Name:

                                               ---------------------------------
                                               Title:

-------------------------------------
Address:

-------------------------------------
Telephone number:

-------------------------------------
Facsimile:

--------------------------------------------------------------------------------

                            MORTGAGEIT HOLDINGS, INC.
                        AMENDED LONG-TERM INCENTIVE PLAN

                   FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
                   -------------------------------------------

Stock Option Agreement (this "Option Agreement"), dated as of               (the
"Grant Date"), between MortgageIT Holdings, Inc. (the "Company") and
(the "Participant"). This Option Agreement is pursuant to the terms of the
MortgageIT Holdings, Inc. Amended Long-Term Incentive Plan (the "Plan"), a copy
of which has been furnished to the Participant and the terms of which are
incorporated herein by reference. Unless otherwise indicated, whenever
capitalized terms are used in this Option Agreement, they shall have the
meanings set forth in the Plan.

SECTION 1. GRANT OF OPTIONS. The Participant is hereby granted an option
representing shares of Common Stock ("Shares") under the terms and conditions
specified herein (the "Option"). Such Option is a nonqualified Stock Option and
is not intended to constitute an Incentive Stock Option.

SECTION 2. OPTION PRICE. The exercise price of the Option shall be $
per share (the "Option Price").

SECTION 3. VESTING OF OPTION.

3.1    Vesting Schedule. The Option shall vest and become exercisable based on
the passage of time according to the following vesting schedule:

NUMBER OF SHARES                                VESTING DATE
----------------------------------  --------------------------------------

3.2    Accelerated Vesting. Notwithstanding Section 3.1, the Option shall become
fully and immediately vested and exercisable upon: (i) a Sale Event; or (ii)
upon the death, Disability or Retirement of the Participant as set forth in
Section 8.01(b) of the Plan.

3.3    Discretionary Vesting. The Board may, in its sole discretion, accelerate
the vesting of the Option at any time and for any reason.

SECTION 4. OPTION TERM. The Option may be exercised, to the extent that it is
vested pursuant to Section 3, during the Option Term, unless earlier terminated
in accordance with the terms of the Plan. For purposes hereof, the "Option Term"
shall commence on the Grant Date and shall expire on the tenth anniversary
thereof. Upon the expiration of the Option Term, to the extent unexercised, the
Option shall terminate and be of no further force or effect.

SECTION 5. EXERCISE OF OPTION. An Option may be exercised by the Participant (or
such other person as may be specified in the Plan) to the extent vested, with
respect to whole shares only, by giving written notice to the Company of
exercise along with payment of the aggregate exercise price. The Option Price
for the Shares acquired pursuant to the exercise of the Option shall be paid:
(i) in cash or by check; (ii) in whole shares of Common Stock; or (iii) a
combination of (i) and (ii) above. The value of any share of Common Stock
delivered in payment of the Option Price shall be its Fair Market Value on the
date the Option is exercised.

SECTION 6. WITHHOLDING OF TAXES. The Company shall withhold from any amounts due
and payable by

the Company to the Participant (or secure payment from the Participant in lieu
of withholding) the amount of any federal or state withholding or other taxes,
if any, due from the Company with respect to the exercise of the Option, and the
Company may defer such issuance until such withholding or payment is made unless
otherwise indemnified to its satisfaction with respect thereto. The Company
shall have the right to: (i) make deductions from any settlement of this Option,
including the delivery of Shares, or require Shares or cash, or both, be
withheld from any settlement of this Option, in each case in an amount
sufficient to satisfy the withholding obligation; or (ii) take such other action
as may be necessary or appropriate to satisfy the withholding obligation.

SECTION 7. ADJUSTMENTS. If at any time while the Option is outstanding, the
number of outstanding shares of Common Stock is changed by reason of a
reorganization, recapitalization, stock split or any other event described in
Article V of the Plan, the number and/or kind of Shares subject to the Option
and/or the Option Price of such Shares shall be adjusted in accordance with the
provisions of the Plan.

SECTION 8. OPTION NOT TRANSFERABLE. This Option may not be transferred, pledged,
assigned, hypothecated or otherwise disposed of in any way by the Participant,
except by will or laws of descent and distribution, and during the Participant's
life, may only be exercised by the Participant. Any attempt to effect a transfer
of this Option that is not otherwise permitted by the Board, the Plan, or this
Option Agreement shall be null and void.

SECTION 9. NO RIGHTS AS SHAREHOLDER OR CONTINUED EMPLOYMENT.

9.1    No Right as Shareholder. The Participant shall not have any privileges of
a Shareholder of the Company with respect to any Shares subject to (but not
acquired upon valid exercise of) the Option, nor shall the Company have any
obligation to pay any dividends or otherwise afford any rights to which Shares
are entitled with respect to such Shares, until the date of the issuance to the
Participant of a stock certificate evidencing such Shares.

9.2    No Right to Continued Employment. Nothing in this Option Agreement shall
confer upon a Participant who is an employee of the Company or any of its
subsidiaries any right to continue in the employ of the Company or any of its
subsidiaries or to interfere in any way with the right of the Company or any of
its subsidiaries to terminate the Participant's employment at any time.

SECTION 10. MISCELLANEOUS PROVISIONS.

10.1   Notices. All notices, requests and demands to or upon a party hereto
shall be in writing and shall be deemed to have been duly given when delivered
by hand or three days after being deposited in the mail, postage prepaid or, in
the case of facsimile notice, when received, addressed as follows or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.

If to the Company, to the following address:

     MortgageIT Holdings, Inc.
     33 Maiden Lane, 6th Floor
     New York, NY  10038
     Attn: Doug W. Naidus,
           Chairman of the Board and
           Chief Executive Officer
     Facsimile: (212) 651-7623

If to the Participant, to the address or facsimile number as shown on the
Fsignature page hereto.

10.2   Amendment. This Option Agreement may be amended only by a writing
executed by the parties hereto that specifically states that it is amending this
Option Agreement.

10.3   Governing Law. This Option Agreement shall be construed and interpreted
in accordance with and governed by the laws of the State of Maryland, other than
the conflict of laws provisions of such laws.

10.4   Titles. Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Option Agreement.

10.5   Construction. The construction of this Option Agreement is vested in the
Board, and the Board's construction shall be final and conclusive on all
persons.

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, this Option Agreement has been executed and delivered by the
parties hereto.

PARTICIPANT                                    MORTGAGEIT HOLDINGS, INC.

-------------------------------------          ---------------------------------
Name:                                          Name:

                                               ---------------------------------
                                               Title:

-------------------------------------
Address:

-------------------------------------
Telephone number:

-------------------------------------
Facsimile:

--------------------------------------------------------------------------------<PAGE>

                                                                     EXHIBIT 4.1

                            STANDARD INDENTURE TERMS

                                 WITH RESPECT TO

                      PRINCIPAL LIFE INCOME FUNDINGS TRUSTS

                           SECURED MEDIUM-TERM NOTES,
                      SECURED MEDIUM-TERM RETAIL NOTES AND
                         PRINCIPAL(R) LIFE CORENOTES(R)

                                 DATED AS OF [O]

"CoreNotes(R)" is a registered service mark of Merrill Lynch & Co.
"Principal(R)" is a registered service mark of Principal Financial Services,
Inc. and is used under license.

<PAGE>

                                TABLE OF CONTENTS

                                    ARTICLE 1
             DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
<TABLE>
<CAPTION>
<S>            <C>                                                                                      <C>
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.............................................................................16
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.....................................................................17
SECTION 1.13.  Counterparts.............................................................................18
SECTION 1.14.  Third Party Beneficiaries................................................................18
SECTION 1.15.  Conflict with Trust Indenture Act........................................................18
</TABLE>

                                    ARTICLE 2
                                    THE NOTES
<TABLE>
<S>            <C>                                                                                      <C>
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.............................................................................28
SECTION 2.11.  Persons Deemed Owners....................................................................29
SECTION 2.12.  Tax Treatment; Tax Returns and Reports...................................................29
SECTION 2.13.  No Association...........................................................................29
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
</TABLE>

                                        i
<PAGE>

<TABLE>
<S>            <C>                                                                                      <C>
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
</TABLE>

                                       ii
<PAGE>

<TABLE>
<S>            <C>                                                                                      <C>
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
</TABLE>

                                       iii
<PAGE>

<TABLE>
<S>            <C>                                                                                      <C>
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
</TABLE>

                                       iv
<PAGE>

                            STANDARD INDENTURE TERMS

     This document constitutes the Standard Indenture Terms, dated as of [o],
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
<PAGE>

     "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) (i) 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,
(ii) for LIBOR Notes only, any day on which commercial banks are open for
business (including dealings in the LIBOR Currency) in London, England, (iii)
for Notes that have a Specified Currency other than U.S. Dollars only, and other
than Notes denominated in euros, any day that is not a day on which commercial
banks are authorized or required by law, regulation or executive order to close
in the Principal Financial Center of the

                                       2
<PAGE>

country issuing the Specified Currency, and (iv) for Notes that have euros as
the Specified Currency only a day on which the TARGET System is open.

     "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).

     "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.

                                       3
<PAGE>

     "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
[o], 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 [o], 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
[o], by and between Principal Life and the Indenture Trustee, (iii) that certain
Expense and Indemnity Agreement, dated [o], by and between Principal Life and
the Trust Beneficial Owner and (iv) that certain Expense and Indemnity
Agreement, dated [o], 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.

     "FUNDING AGREEMENT HOLDER" means, with respect to the Notes, the "Agreement
Holder" as specified in the Funding Agreement.

                                       4
<PAGE>

     "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.

     "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.

     "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).

                                       5
<PAGE>

     "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.

     "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:

                                       6
<PAGE>

                  (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.

     "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.

                                       7
<PAGE>

     "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(R) Life CoreNotes(R)
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.

     "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.

                                       8
<PAGE>

     "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.

     "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.

                                       9
<PAGE>

     "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 [o].

     "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.

     "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.

                                       10
<PAGE>

     "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 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.

                                       11
<PAGE>

         (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;

                  (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;

                                       12
<PAGE>

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

                                       13
<PAGE>

         (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 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.

                                       14
<PAGE>

     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:  Nancy Forte

         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:  Nancy Forte

         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 Designated in the Omnibus Instrument)
         c/o U.S. Bank Trust National Association
         100 Wall Street, 16th Floor
         New York, NY  10005
                                       15
<PAGE>

         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)438-5215
         Attention:  Capital Markets

         Moody's Investors Service, Inc.
         Life Insurance Group
         99 Church Street
         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.

     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.

                                       16
<PAGE>

     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.

     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

                                       17
<PAGE>

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 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

                                       18
<PAGE>

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 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

                                       19
<PAGE>

         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.

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.

                                       20
<PAGE>

         (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 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

                                       21
<PAGE>

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 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

                                       22
<PAGE>

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;

                  (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

                                       23
<PAGE>

         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 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

                                       24
<PAGE>
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
<PAGE>

         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, 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

                                       26
<PAGE>

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.

         (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.

                                       27
<PAGE>

         (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.

     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

                                       28
<PAGE>

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.

     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.

                                       29
<PAGE>

     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:

                                       30
<PAGE>

                  (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
<PAGE>

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
<PAGE>

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.

                                       33
<PAGE>

         (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

                                       34
<PAGE>

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
<PAGE>

         (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
<PAGE>

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
<PAGE>

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 [o] of each calendar year, commencing
[o], 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 [o] in the following calendar year.

         (b) On or before the 15th day of [o] of each calendar year, commencing
[o], 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 of his or her present

                                       38
<PAGE>

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
<PAGE>

         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.

                                       40
<PAGE>

         (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 [o] and the 15th day of [o] 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 [o] 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 [o] 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 [o] and
the date of the Indenture.

                  (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.

                                       41
<PAGE>

                  (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 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,

                                       42
<PAGE>

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;

         (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

                                       43
<PAGE>

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 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

                                       44
<PAGE>

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 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

                                       45
<PAGE>

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

                                       46
<PAGE>

         (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;

                  (vii) other than the security interests granted to the
         Indenture Trustee for the benefit and security of the Holders pursuant
         to the Indenture, the

                                       47
<PAGE>

         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 interest in or be the recipient of a valid
assignment for collateral purposes of the Funding

                                       48
<PAGE>

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

                                       49
<PAGE>

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

                                       50
<PAGE>

                  (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

                                       51
<PAGE>

            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

                                       52
<PAGE>

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
<PAGE>

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,

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<PAGE>

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
<PAGE>

     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
<PAGE>

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
<PAGE>

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

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<PAGE>

to 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;

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<PAGE>

                  (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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<PAGE>

                  (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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<PAGE>

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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<PAGE>

         (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;

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         (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;

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<PAGE>

                  (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
<PAGE>

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
<PAGE>

     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
<PAGE>

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
<PAGE>

     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
<PAGE>

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
<PAGE>
                                                                     EXHIBIT A-1

       FORM OF GLOBAL NOTE FOR THE PRINCIPAL(R) LIFE CORENOTES PROGRAM(R)

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 o

                         PRINCIPAL(R) LIFE CORENOTES(R)

<TABLE>

<S>                                                          <C>
Original Issue Date:                                         Floating Rate Note: [  ] Yes [  ] No.  If yes,
Issue Price:                                                          Regular Floating Rate Notes [  ]
Stated Maturity Date:                                                 Floating Rate/ Fixed Rate Notes: [  ]
Settlement Date:                                                      Interest Rate:
Securities Exchange Listing:  [  ] Yes  [  ] No.  If yes,             Interest Rate Basis(es):
         indicate name(s) of Securities Exchange(s):                  LIBOR [  ]
         ________________________.                                             [ ] LIBOR Reuters Page:
Depositary:                                                                    [ ] LIBOR Moneyline Telerate Page:
Authorized Denominations:                                                      LIBOR Currency:
Collateral held in the Trust:  Principal Life Insurance               CMT Rate [  ]
   Company Funding Agreement No. o, the related Principal                      Designated CMT Telerate Page:
   Financial Group, Inc. Guarantee which fully and
   unconditionally guarantees the payment

</TABLE>
                                     A-1-1
<PAGE>
<Table>
<S>                                                         <C>
obligations of Principal Life Insurance                      If Telerate Page 7052:
Company under the Funding Agreement, all                                     [ ] Weekly Average
proceeds of the Funding Agreement and the                                    [ ] Monthly Average
related Guarantee and all rights and                                  Designated CMT Maturity Index:
books and records pertaining to the foregoing.               CD Rate [  ]
                                                             Commercial Paper Rate [  ]
Interest Rate or Formula:                                             Constant Maturity Swap Rate [  ]
Fixed Rate Note: [  ] Yes [  ] No.  If yes,                           Federal Funds Open Rate [  ]
         Interest Rate:                                               Federal Funds Rate [  ]
         Interest Payment Frequency:                                  Prime Rate [  ]
         Interest Payment Dates:                                      Treasury Rate [  ]
         Day Count Convention:                                        Index Maturity:
         Additional/Other Terms:                                      Spread and/or Spread Multiplier:
Discount Note: [  ] Yes [  ] No.  If yes,                             Initial Interest Rate, if any:
         Total Amount of Discount:                                    Initial Interest Reset Date:
         Initial Accrual Period of Discount:                          Interest Reset Dates:
         Interest Payment Dates:                                      Interest Determination Date(s):
         Additional/Other Terms:                                      Interest Payment Dates:
Redemption Provisions: [  ] Yes  [  ] No.  If yes,                    Maximum Interest Rate, if any:
         Initial Redemption Date:                                     Minimum Interest Rate, if any:
         Additional/Other Terms:                                      Fixed Rate Commencement Date, if any:
Repayment Provisions: [  ] Yes  [  ] No.  If yes,                     Floating Rate Commencement Date, if any:
         Repayment Date(s):                                           Fixed Interest Rate, if any:
         Repayment Price:                                             Day Count Convention:
         Additional/Other Terms:                                      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:
</TABLE>

         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
<PAGE>

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-1-3
<PAGE>

         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.

<TABLE>

<S>                                     <C>
                                        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
</Table>

                          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-1-4
<PAGE>

                             [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:

<TABLE>
<CAPTION>

 INTEREST PAYMENT FREQUENCY     INTEREST PAYMENT DATES
 --------------------------     --------------------------------------
 <S>                            <C>
 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.

</TABLE>

                  (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-1-5
<PAGE>

                  (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
<PAGE>

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

                                     A-1-7
<PAGE>

               (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
<PAGE>

               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
<PAGE>

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 CMT Moneyline Telerate Page 7051 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 Moneyline Telerate (or any successor service)
                    on page 7051 (or any other page as may replace the specified
                    page on that service) ("Moneyline Telerate Page 7051"), for
                    the particular Interest Determination Date; or

               ii.  if the rate referred to in clause (i) does not so appear on
                    Moneyline Telerate Page 7051, 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-1-10
<PAGE>

                    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
<PAGE>

     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 CMT Moneyline Telerate Page 7052 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 Moneyline Telerate
          (or any successor service) (on page 7052 or any other page as may
          replace the specified page on that service) ("Moneyline Telerate Page
          7052"), 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 Moneyline
          Telerate Page 7052, 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-1-12
<PAGE>

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

                                     A-1-13
<PAGE>

(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:

<TABLE>

     <S>                        <C>
     Money Market Yield =             D x 360      x 100
                                ------------------
                                  360 - (D x M)

</TABLE>

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)
ISDAFIX1 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) ISDAFIX1 Page by 2:00 P.M., New
York City time, on such Interest Determination Date, a percentage determined on

                                     A-1-14
<PAGE>

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 Moneyline Telerate (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 on 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 Moneyline Telerate (or any successor service) on page 120 (or any
other page as may replace the specified page on that service) ("Moneyline
Telerate Page 120"); or (2) if the rate referred to in clause (1) does not so
appear on Moneyline Telerate Page 120 or is not so published by 3:00 P.M., New
York City time, on the related Calculation Date, the rate on the particular
Interest

                                     A-1-15
<PAGE>

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 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 for the last transaction in overnight United
States dollar federal funds arranged by three leading brokers of United States
dollar federal funds transactions in The City of New York (which may include the
purchasing agent or its affiliates) selected by the Calculation Agent prior to
9:00 A.M., New York City time, on that Interest Determination Date; or (4) if
the brokers so selected by the Calculation Agent are not quoting as mentioned in
clause (3), the Federal Funds Rate in effect on the particular Interest
Determination Date.

(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) if "LIBOR Moneyline Telerate" is specified on the face hereof or if neither
"LIBOR Reuters" nor "LIBOR Moneyline Telerate" is 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 "LIBOR Reuters" is specified on the face hereof,
the arithmetic mean of the offered rates, calculated by the Calculation Agent,
or the offered rate, if the LIBOR Page by its terms provides only for a single
rate, for deposits in the LIBOR Currency having the particular Index Maturity,
commencing on the related Interest Reset Date, that appear or appears, as the
case may be, on the LIBOR Page as of 11:00 A.M., London time, on the particular
Interest Determination Date; or (3) if fewer than two offered rates appear, or
no rate appears, as the case may be, on the particular Interest Determination
Date on the LIBOR Page as specified in clause (1) or (2), as applicable, the
rate calculated by the Calculation Agent 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
purchasing agent) in the London interbank market 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 (4) if fewer than two offered quotations referred to in
clause (3) 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
purchasing agent) 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

                                     A-1-16
<PAGE>

and in a principal amount that is representative for a single transaction in the
LIBOR Currency in that market at that time; or (5) if the banks so selected by
the Calculation Agent are not quoting as mentioned in clause (4), 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 either: (1) if "LIBOR Reuters" is specified on the face hereof, the
display on the Reuter Monitor Money Rates 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; or (2) if "LIBOR Moneyline Telerate" is
specified on the face hereof or neither "LIBOR Reuters" nor "LIBOR Moneyline
Telerate" is specified on the face hereof as the method for calculating LIBOR,
the display on Moneyline Telerate (or any successor service) on the page
specified on the face hereof (or any other page as may replace such page on such
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 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.

                                     A-1-17
<PAGE>

(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 Moneyline Telerate (or any
successor service) on page 56 (or any other page as may replace that page on
that service) ("Moneyline Telerate Page 56") or page 57 (or any other page as
may replace that page on that service) ("Moneyline Telerate Page 57"); 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:

<TABLE>
      <S>                            <C>
      Bond Equivalent Yield =              D x N        x 100
                                     ------------------
                                      360 - (D x M)
</TABLE>

                                     A-1-18
<PAGE>

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 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

                                     A-1-19
<PAGE>

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. 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.

                                     A-1-20
<PAGE>

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 (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.

                                     A-1-21
<PAGE>

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 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-1-22
<PAGE>

                            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).

<Table>
<S>                                                  <C>
$
 --------------------------------                    --------------------------------------

       -------------------------
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     Fill in for registration of Notes
Note (Principal Amount remaining must be an          if to be issued otherwise than
authorized denomination)                             to the registered Holder:

                                                     Name: __________________________
$_________________________                           Address: _______________________
                                                     ___________________________
                                                     (Please print name and
                                                     address including zip code)

SOCIAL SECURITY OR OTHER TAXPAYER ID NUMBER: _________________
</TABLE>

                                     A-1-23
<PAGE>

                             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(R) Life CoreNotes(R) 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(R) Life
     CoreNotes(R) 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").

     (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
<PAGE>

     (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(R) Life CoreNotes(R) 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
<PAGE>

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
<PAGE>

                                                                         ANNEX A

                             REPAYMENT ELECTION FORM

                        PRINCIPAL LIFE INSURANCE COMPANY

                         PRINCIPAL(R) LIFE CORENOTES(R)

                              CUSIP NUMBER ________

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

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

     o    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(R) Life CoreNotes(R) (CUSIP
          No. ____________) (the "NOTES").

     o    At the time of his or her death, the Deceased Beneficial Owner owned
          Notes in the principal amount listed below.

     o    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.

     o    The Financial Institution currently holds such notes as a direct or
          indirect participant in The Depository Trust Company (the
          "DEPOSITARY").

     o    The Financial Institution agrees to the following terms:

     o    The Financial Institution shall follow the instructions (the
          "INSTRUCTIONS") accompanying this Repayment Election Form (this
          "FORM").

     o    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.

----------
(R)"Principal(R)" is a registered service mark of Principal Financial Services,
Inc. and is used under license.

"CoreNotes(R)" is a registered service mark of Merrill Lynch & Co.

                                     A-1-27
<PAGE>

     o    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.

     o    Repayment elections may not be withdrawn.

     o    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.

     o    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.

     o    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

<PAGE>

                             REPAYMENT ELECTION FORM
<Table>

<S>          <C>
(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):

--------------------------------------------------------------------------------
</Table>

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
<PAGE>
             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:

         o        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.

         o        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.

         o        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.

         o        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
<PAGE>

                  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.

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-1-31
<PAGE>

                                                                     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 o

                            SECURED MEDIUM-TERM NOTES

<TABLE>
<S>                                                          <C>
Original Issue Date:                                         Floating Rate Note: [  ] Yes [  ] No.  If yes,
Issue Price:                                                          Regular Floating Rate Notes [  ]
Stated Maturity Date:                                                 Inverse Floating Rate Notes [  ]
Settlement Date:                                                      Floating Rate/ Fixed Rate Notes: [  ]
Securities Exchange Listing:  [  ] Yes  [  ] No.  If yes,             Interest Rate:
         indicate name(s) of Securities Exchange(s):                  Interest Rate Basis(es):
         ________________________.                                    LIBOR [  ]
Depositary:                                                                    [ ] LIBOR Reuters Page:
Authorized Denominations:                                                      [ ] LIBOR Moneyline Telerate Page:
Collateral held in the Trust:  Principal Life Insurance                        LIBOR Currency:
   Company Funding Agreement No. o, the related Principal             EURIBOR [  ]
   Financial Group, Inc. Guarantee which fully and                    CMT Rate [  ]
   unconditionally guarantees the payment
</Table>

                                     A-2-1
<PAGE>

<Table>

<S>                                                                   <C>
   obligations of Principal Life Insurance Company                    Designated CMT Telerate Page:
   under the Funding Agreement, all proceeds of the                            If Telerate Page 7052:
   Funding Agreement and the related Guarantee and all                         [ ] Weekly Average
   rights and books and records pertaining to the                              [ ] Monthly Average
   foregoing.                                                         Designated CMT Maturity Index:

Additional Amounts to be Paid: [  ] Yes  [  ] No                      CD Rate [  ]
Interest Rate or Formula:                                             Commercial Paper Rate [  ]
Fixed Rate Note: [  ] Yes [  ] No.  If yes,                           Constant Maturity Swap Rate [  ]
         Interest Rate:                                               Eleventh District Cost of Funds Rate [  ]
         Interest Payment Frequency:                                  Federal Funds Open Rate [  ]
         Interest Payment Dates:                                      Federal Funds Rate [  ]
         Day Count Convention:                                        Prime Rate [  ]
         Additional/Other Terms:                                      Treasury Rate [  ]
Amortizing Note: [  ] Yes [  ] No.  If yes,                           Index Maturity:
         Amortization schedule or formula:                            Spread and/or Spread Multiplier:
         Additional/Other Terms:                                      Initial Interest Rate, if any:
Discount Note: [  ] Yes [  ] No.  If yes,                             Initial Interest Reset Date:
         Total Amount of Discount:                                    Interest Reset Dates:
         Initial Accrual Period of Discount:                          Interest Determination Date(s):
         Interest Payment Dates:                                      Interest Payment Dates:
         Additional/Other Terms:                                      Maximum Interest Rate, if any:
Redemption Provisions: [  ] Yes  [  ] No.  If yes,                    Minimum Interest Rate, if any:
         Initial Redemption Date:                                     Fixed Rate Commencement Date, if any:
         Initial Redemption Percentage:                               Floating Rate Commencement Date, if any:
         Annual Redemption Percentage Reduction,                      Fixed Interest Rate, if any:
                  if any:                                             Day Count Convention:
         Additional/Other Terms:                                      Additional/Other Terms:
Repayment Provisions: [  ] Yes  [  ] No.  If yes,            Regular Record Date(s):
         Repayment Date(s):                                  Sinking Fund:
         Repayment Price:                                    Specified Currency:
         Additional/Other Terms:                             Exchange Rate Agent:
                                                             Calculation Agent:
                                                             Additional/Other Terms:
</TABLE>

         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
<PAGE>

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
<PAGE>

         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
<PAGE>

         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
<PAGE>

                             [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
<PAGE>
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.

                                     A-2-7
<PAGE>

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

                 <TABLE>
                 <CAPTION>
<S>                                        <C>
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.
</TABLE>

         (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

<PAGE>

         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
<PAGE>

         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 Commercial Paper Rate, Federal Funds Rate and the Prime Rate--the
         Business Day immediately preceding the related Interest Reset Date; (3)
         with respect to the CD 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
<PAGE>

         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
<PAGE>

         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
<PAGE>

                  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 CMT Moneyline Telerate Page 7051 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 Moneyline Telerate (or any
                                    successor service) on page 7051 (or any
                                    other page as may replace the specified page
                                    on that service) ("Moneyline Telerate Page
                                    7051"), for the particular Interest
                                    Determination Date; or

                               ii.  if the rate referred to in clause (i) does
                                    not so appear on Moneyline Telerate Page
                                    7051, 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
<PAGE>

                                    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
<PAGE>

                                    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 CMT Moneyline Telerate Page 7052 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 Moneyline Telerate
                                    (or any successor service) (on page 7052 or
                                    any other page as may replace the specified
                                    page on that service) ("Moneyline Telerate
                                    Page 7052"), 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 Moneyline Telerate Page
                                    7052, 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
<PAGE>

                               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
<PAGE>

                               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:

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

                                     A-2-17
<PAGE>

                  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) ISDAFIX1 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) ISDAFIX1 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 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) 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 Moneyline
                  Telerate (or any successor service) on page 7058 (or any other
                  page as may replace the specified page on that service)
                  ("Moneyline Telerate Page 7058") 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
                  Moneyline Telerate Page 7058, 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

                                     A-2-18
<PAGE>

                  Index") by the Federal Home Loan Bank of San Francisco as 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) 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 Moneyline Telerate (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.

                  (G) 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 on 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 Moneyline
                  Telerate (or any successor service) on page 120 (or any other
                  page as may replace the specified page on that service)
                  ("Moneyline Telerate Page 120"); or (2) if the rate referred
                  to in clause (1) does not so appear on Moneyline Telerate Page
                  120 or 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 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 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 for the last
                  transaction in overnight United States dollar federal funds
                  arranged by three leading brokers of United States dollar
                  federal funds transactions in The City of New York (which may
                  include the purchasing agent or its affiliates) selected by
                  the Calculation Agent prior to 9:00 A.M., New York City time,
                  on that Interest Determination Date; or (4) if the brokers so
                  selected by the Calculation Agent are not quoting as mentioned
                  in clause (3), the Federal Funds Rate in effect on the
                  particular Interest Determination Date.

                  (H) 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) if "LIBOR
                  Moneyline Telerate" is specified on the face hereof or if
                  neither "LIBOR Reuters" nor "LIBOR Moneyline Telerate" is
                  specified on the face hereof as the method for calculating
                  LIBOR, the rate for

                                     A-2-19
<PAGE>

                  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 "LIBOR
                  Reuters" is specified on the face hereof, the arithmetic mean
                  of the offered rates, calculated by the Calculation Agent, or
                  the offered rate, if the LIBOR Page by its terms provides only
                  for a single rate, for deposits in the LIBOR Currency having
                  the particular Index Maturity, commencing on the related
                  Interest Reset Date, that appear or appears, as the case may
                  be, on the LIBOR Page as of 11:00 A.M., London time, on the
                  particular Interest Determination Date; or (3) if fewer than
                  two offered rates appear, or no rate appears, as the case may
                  be, on the particular Interest Determination Date on the LIBOR
                  Page as specified in clause (1) or (2), as applicable, the
                  rate calculated by the Calculation Agent 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
                  purchasing agent) in the London interbank market 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 (4) if fewer than two offered quotations referred to in
                  clause (3) 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 purchasing agent) 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 (5) if the banks so selected
                  by the Calculation Agent are not quoting as mentioned in
                  clause (4), 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 either: (1) if
                  "LIBOR Reuters" is specified on the face hereof, the display
                  on the Reuter Monitor Money Rates 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; or (2) if "LIBOR Moneyline
                  Telerate" is specified on the face hereof or neither "LIBOR
                  Reuters" nor "LIBOR Moneyline Telerate" is specified on the
                  face hereof as the method for calculating LIBOR, the display
                  on Moneyline Telerate (or any successor service) on the page
                  specified on the face hereof (or any other page as may replace
                  such page on such service) for the purpose of displaying the
                  London interbank rates of major banks for the LIBOR Currency.

                                     A-2-20
<PAGE>

                  (I) 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 Moneyline Telerate
                  or any successor service, on page 248 (or any other page as
                  may replace that specified page on the service) ("Moneyline
                  Telerate Page 248") as of 11:00 A.M., Brussels time, on the
                  applicable EURIBOR Interest Determination Date; or (2) if such
                  rate does not appear on Moneyline Telerate Page 248, 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.

                  (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

                                     A-2-21
<PAGE>

                  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.

                  (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 Moneyline Telerate (or any
                  successor service) on page 56 (or any other page as may
                  replace that page on that service) ("Moneyline Telerate Page
                  56") or page 57 (or any other page as may replace that page on
                  that service) ("Moneyline Telerate Page 57"); 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

                                     A-2-22
<PAGE>

                  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, 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

                                     A-2-23
<PAGE>

               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 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.

                                     A-2-24
<PAGE>

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 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.

                                     A-2-25
<PAGE>

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 (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.

                                     A-2-26
<PAGE>

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 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
<PAGE>

                            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).

<TABLE>
<S>                                                   <C>

$
 --------------------------------                     ---------------------------------------------------------

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          Fill in for registration of Notes
repaid is less than the Principal Amount of this        if to be issued otherwise than
Note (Principal Amount remaining must be an             to the registered Holder:
authorized denomination)

                                                        Name: __________________________
$_________________________                              Address: ________________________
                                                        ________________________
                                                        (Please print name and
                                                        address including zip code)
</TABLE>

SOCIAL SECURITY OR OTHER TAXPAYER ID NUMBER: _________________

                                     A-2-28
<PAGE>

                                   SCHEDULE I

                          AMORTIZATION TABLE OR FORMULA

                                     A-2-29
<PAGE>
                                                                 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 o

                        SECURED MEDIUM-TERM RETAIL NOTES

<TABLE>
<S>                                                          <C>
Original Issue Date:                                         Floating Rate Note: [  ] Yes [  ] No.  If yes,
Issue Price:                                                          Regular Floating Rate Notes [  ]
Stated Maturity Date:                                                 Floating Rate/ Fixed Rate Notes: [  ]
Settlement Date:                                                      Interest Rate:
Securities Exchange Listing:  [  ] Yes  [  ] No.  If yes,             Interest Rate Basis(es):
         indicate name(s) of Securities Exchange(s):                  LIBOR [  ]
         ________________________.                                             [ ] LIBOR Reuters Page:
Depositary:                                                                    [ ] LIBOR Moneyline Telerate Page:
Authorized Denominations:                                                      LIBOR Currency:
Collateral held in the Trust:  Principal Life Insurance               CMT Rate [  ]
   Company Funding Agreement No. o, the related Principal                      Designated CMT Telerate Page:
</Table>

                                     A-3-1
<PAGE>
<Table>
<S>                                                          <C>
   Financial Group, Inc. Guarantee which fully and                                      If Telerate Page 7052:
   unconditionally guarantees the payment obligations of                                [ ] Weekly Average
   Principal Life Insurance Company under the Funding                                   [ ] Monthly Average
   Agreement, all proceeds of the Funding Agreement and                        Designated CMT Maturity Index:
   the related Guarantee and all rights and books and                 CD Rate [  ]
   records pertaining to the foregoing.                               Commercial Paper Rate [  ]
Interest Rate or Formula:                                             Constant Maturity Swap Rate [  ]
Fixed Rate Note: [  ] Yes [  ] No.  If yes,                           Federal Funds Open Rate [  ]
         Interest Rate:                                               Federal Funds Rate [  ]
         Interest Payment Frequency:                                  Prime Rate [  ]
         Interest Payment Dates:                                      Treasury Rate [  ]
         Day Count Convention:                                        Index Maturity:
         Additional/Other Terms:                                      Spread and/or Spread Multiplier:
Discount Note: [  ] Yes [  ] No.  If yes,                             Initial Interest Rate, if any:
         Total Amount of Discount:                                    Initial Interest Reset Date:
         Initial Accrual Period of Discount:                          Interest Reset Dates:
         Interest Payment Dates:                                      Interest Determination Date(s):
         Additional/Other Terms:                                      Interest Payment Dates:
Redemption Provisions: [  ] Yes  [  ] No.  If yes,                    Maximum Interest Rate, if any:
         Initial Redemption Date:                                     Minimum Interest Rate, if any:
         Additional/Other Terms:                                      Fixed Rate Commencement Date, if any:
Repayment Provisions: [  ] Yes  [  ] No.  If yes,                     Floating Rate Commencement Date, if any:
         Repayment Date(s):                                           Fixed Interest Rate, if any:
         Repayment Price:                                             Day Count Convention:
         Additional/Other Terms:                                      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:
</TABLE>

         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
<PAGE>

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
<PAGE>

         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.

<Table>
<S>                                 <C>

                                    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
</TABLE>

                          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
<PAGE>

                             [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:

<TABLE>
<S>                                        <C>
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.

</TABLE>

                  (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
<PAGE>

                  (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
<PAGE>

                  (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
                  Commercial Paper Rate, 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 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

                                     A-3-7
<PAGE>

                  which 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
<PAGE>

                  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
<PAGE>

                           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 CMT Moneyline Telerate Page 7051 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 Moneyline
                                             Telerate (or any successor service)
                                             on page 7051 (or any other page as
                                             may replace the specified page on
                                             that service) ("Moneyline Telerate
                                             Page 7051"), for the particular
                                             Interest Determination Date; or

                                    ii.      if the rate referred to in clause
                                             (i) does not so appear on Moneyline
                                             Telerate Page 7051, 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
<PAGE>
                                             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
<PAGE>

                                    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 CMT Moneyline Telerate Page 7052 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 Moneyline
                                             Telerate (or any successor service)
                                             (on page 7052 or any other page as
                                             may replace the specified page on
                                             that service) ("Moneyline Telerate
                                             Page 7052"), 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 Moneyline
                                             Telerate Page 7052, 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
<PAGE>

                                             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
<PAGE>

                           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) ISDAFIX1 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) ISDAFIX1 Page
                  by 2:00 P.M., New York City time, on such Interest
                  Determination Date, a percentage determined on

                                     A-3-14
<PAGE>

                  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 Moneyline Telerate (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 on 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 Moneyline
                  Telerate (or any successor service) on page 120 (or any other
                  page as may replace the specified page on that service)
                  ("Moneyline Telerate Page 120"); or (2) if the rate referred
                  to in clause (1) does not so appear on Moneyline Telerate Page
                  120 or is not so published by 3:00 P.M., New York City time,
                  on the related Calculation Date, the rate on the particular
                  Interest

                                     A-3-15
<PAGE>

                  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 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 for the last transaction in
                  overnight United States dollar federal funds arranged by three
                  leading brokers of United States dollar federal funds
                  transactions in The City of New York (which may include the
                  purchasing agent or its affiliates) selected by the
                  Calculation Agent prior to 9:00 A.M., New York City time, on
                  that Interest Determination Date; or (4) if the brokers so
                  selected by the Calculation Agent are not quoting as mentioned
                  in clause (3), the Federal Funds Rate in effect on the
                  particular Interest Determination Date.

                  (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) if "LIBOR
                  Moneyline Telerate" is specified on the face hereof or if
                  neither "LIBOR Reuters" nor "LIBOR Moneyline Telerate" is
                  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
                  "LIBOR Reuters" is specified on the face hereof, the
                  arithmetic mean of the offered rates, calculated by the
                  Calculation Agent, or the offered rate, if the LIBOR Page by
                  its terms provides only for a single rate, for deposits in the
                  LIBOR Currency having the particular Index Maturity,
                  commencing on the related Interest Reset Date, that appear or
                  appears, as the case may be, on the LIBOR Page as of 11:00
                  A.M., London time, on the particular Interest Determination
                  Date; or (3) if fewer than two offered rates appear, or no
                  rate appears, as the case may be, on the particular Interest
                  Determination Date on the LIBOR Page as specified in clause
                  (1) or (2), as applicable, the rate calculated by the
                  Calculation Agent 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 purchasing agent) in the London
                  interbank market 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 (4) if fewer than two
                  offered quotations referred to in clause (3) 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 purchasing agent) 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

                                     A-3-16
<PAGE>

                  and in a principal amount that is representative for a single
                  transaction in the LIBOR Currency in that market at that time;
                  or (5) if the banks so selected by the Calculation Agent are
                  not quoting as mentioned in clause (4), 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 either:
                  (1) if "LIBOR Reuters" is specified on the face hereof, the
                  display on the Reuter Monitor Money Rates 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; or (2) if "LIBOR Moneyline
                  Telerate" is specified on the face hereof or neither "LIBOR
                  Reuters" nor "LIBOR Moneyline Telerate" is specified on the
                  face hereof as the method for calculating LIBOR, the display
                  on Moneyline Telerate (or any successor service) on the page
                  specified on the face hereof (or any other page as may replace
                  such page on such 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 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.

                                     A-3-17
<PAGE>

                  (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 Moneyline Telerate (or any
                  successor service) on page 56 (or any other page as may
                  replace that page on that service) ("Moneyline Telerate Page
                  56") or page 57 (or any other page as may replace that page on
                  that service) ("Moneyline Telerate Page 57"); 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:

                         Bond Equivalent Yield =        D x N        x 100
                                                   ----------------
                                                    360 - (D x M)

                                     A-3-18
<PAGE>

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 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
                                     A-3-19
<PAGE>
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. 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.

                                     A-3-20
<PAGE>

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 (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.

                                     A-3-21
<PAGE>

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 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-3-22
<PAGE>

                            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).

<TABLE>
<CAPTION>

<S>                                                   <C>
$
  --------------------------------                     ---------------------------------------------------------

     -----------------------------
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          Fill in for registration of Notes
repaid is less than the Principal Amount of this        if to be issued otherwise than
Note (Principal Amount remaining must be an             to the registered Holder:
authorized denomination)

                                                        Name: __________________________
$_________________________                              Address: ________________________
                                                        (Please print name and
                                                        address including zip code)

</TABLE>

SOCIAL SECURITY OR OTHER TAXPAYER ID NUMBER: _________________

                                     A-3-23
<PAGE>

                             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(R) Life CoreNotes(R) 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(R) Life CoreNotes(R) 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").

         (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
<PAGE>

         (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(R) Life CoreNotes(R) 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
<PAGE>

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
<PAGE>
                                                                         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:

         o        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").

         o        At the time of his or her death, the Deceased Beneficial Owner
                  owned Notes in the principal amount listed below.

         o        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.

         o        direct or indirect participant in The Depository Trust Company
                  (the "DEPOSITARY").

         o        The Financial Institution agrees to the following terms:

         o        The Financial Institution shall follow the instructions (the
                  "INSTRUCTIONS") accompanying this Repayment Election Form
                  (this "FORM").

o                 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.

o                 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
<PAGE>

         o        Repayment elections may not be withdrawn.

         o        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.

         o        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.

         o        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
<PAGE>

<TABLE>
<S>                  <C>

                                                  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):
</TABLE>

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
<PAGE>

             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:

         o        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.

         o        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.

         o        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.

         o        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
<PAGE>

                  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.

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-3-31
<PAGE>
                                                                       EXHIBIT B

                            Indenture Trustee Report
                                       for
              Principal Life Income Fundings Trust o (the "Trust")

                                  Payment Date
                                     o, 200o
                                 CUSIP Number o

(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. o (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: o
                                    Principal: o
                                    Premium, if any: o

(ii)     the amounts of compensation received by the Indenture Trustee, during
         the period relating to such Payment Date.

                                    Paid by the Trust: o
                                    Paid by Principal Life: o

(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: o
                                    Principal: o
                                    Unpaid Interest Accrued: o

(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: o
                                    Interest Rate: o
                                    Ratings: o
                                            Moody's Investor Service: o
                                            Standard & Poors' Rating Service: o

(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: o
                                    Reduction: o
                                    Principal Amount on the Payment Date: o
                                    Ratings: o
                                            Moody's Investor Service: o
                                            Standard & Poors' Rating Service: o

                                     B-1

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