Document:

exv4w2

 

EXHIBIT 4.2

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.

			
	 
	CUSIP No.: 74254PAA0

ISIN: US74254PAA03

Common Code: 018950863
	 	Principal Amount: U.S. $300,000,000

PRINCIPAL LIFE INCOME FUNDINGS TRUST 1

SENIOR SECURED MEDIUM-TERM NOTES

	 
	Original Issue Date: March 29, 2004

	Issue Price: 99.789%

	Stated Maturity Date: April 1, 2009

	Settlement Date: March 29, 2004

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

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

	New York Stock Exchange.

	Depositary: The Depository Trust Company

	Authorized Denominations: $1,000 and integral

	multiples of $1,000

	Collateral held in the Trust: Principal Life Insurance
Company Funding Agreement No. 6-11177, the

	related Principal Financial Group, Inc. Guarantee

	which fully and unconditionally guarantees the

	payment obligations of Principal Life Insurance

	Company under the Funding Agreement, all proceeds
of the Funding Agreement and the related Guarantee

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

	Regular Floating Rate Notes o

	Inverse Floating Rate Notes o

	Floating Rate/ Fixed Rate Notes: o

	Interest Rate:

	Interest Rate Basis(es):

	LIBOR o

	o LIBOR Reuters Page:

	o LIBOR Moneyline Telerate Page:

	LIBOR Currency:

	EURIBORo

	CMT Rate o

	Designated CMT Telerate Page:

	If Telerate Page 7052:

	o Weekly Average

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	and all rights and books and records pertaining to the

	foregoing.

	Additional Amounts to be Paid: o Yes þ No

	Interest Rate or Formula:

	Fixed Rate Note: þ Yes o No. If yes,

	Interest Rate: 3.20% per annum

	Interest Payment Frequency: Semi-annually

	Interest Payment Dates: April 1st and October

	1st of each year, commencing October 1,

	2004.

	Day Count Convention: 30/360

	Additional/Other Terms: Not applicable.

	Amortizing Note: o Yes þ No. If yes,

	Amortization schedule or formula:

	Additional/Other Terms:

	Discount Note: o Yes þ No. If yes,

	Total Amount of Discount:

	Initial Accrual Period of Discount:

	Interest Payment Dates:

	Additional/Other Terms:

	Redemption
Provisions: o Yes þ No. If yes,

	Initial Redemption Date:

	Initial Redemption Percentage:

	Annual Redemption Percentage Reduction,

	if any:

	Additional/Other Terms:

	Repayment Provisions: o Yes þ No. If yes,

	Repayment Date(s):

	Repayment Price:

	Additional/Other Terms:

	 
	o Monthly Average

	Designated CMT Maturity Index:

	CD Rate o

	Commercial Paper Rate o

	Eleventh District Cost of Funds Rate o

	Federal Funds Rate o

	Prime Rate o

	Treasury Rate o

	Index Maturity:

	Spread and/or Spread Multiplier:

	Initial Interest Rate,if any:

	Initial Interest Reset Date:

	Interest Reset Dates:

	Interest Determination Date(s):

	Interest Payment Dates:

	Maximum Interest Rate, if any:

	Minimum Interest Rate, if any:

	Fixed Rate Commencement Date, if any:

	Fixed Interest Rate, if any:

	Day Count Convention:

	Additional/Other Terms:

	Regular Record Date(s): The date that is fifteen (15)

	calendar days preceding the applicable Interest Payment

	Date

	Sinking Fund: Not applicable.

	Specified Currency: U.S. Dollars

	Exchange Rate Agent: Not applicable.

	Calculation Agent: Citibank, N.A.

	Additional/Other Terms: Not applicable

     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 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

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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 more than a percentage equal to the product of 0.25% 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.

     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.

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     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.

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     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:
	 	/s/ Nancy Forte	 	 
	 

	 	 	 	 	 	 
	 	 	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.

	 	 	 	 	 
	Dated: Original Issue Date 	CITIBANK, N.A. 

As Indenture Trustee

 	 
	 	By:  	

 	 
	 	 	Authorized Signatory 	 
	 	 	 	 
	 

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     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 Findings 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:
	 	/s/ Jean Clarke
 

Authorized Signatory
	 	 

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[REVERSE FORM OF NOTE]

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

Section 2. Currency.

     (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

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

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

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

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

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

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

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

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

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

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(ii) Unless otherwise specified on the face hereof, the Interest
payment Dated for this Notes will be as follows:

	 	 	 
	Interest Payment Frequency	 	Interest Payment Dates
	Monthly

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

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

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

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

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

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

	 	(i)     Interest Rate Basis. Interest on this Note will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may, as described below, include
the CD Rate, the CMT Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds
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 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

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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 exception of any weekly reset Floating Rate
Note as to which the Treasury Rate is an

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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 Commercial Paper Rate, Federal Funds Rate and the
Prime Rate—the Business Day immediately preceding the related Interest Reset Date; (2) with
respect to the CD Rate and the CMT Rate—the second Business Day preceding the related Interest
Reset Date; (3) 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); (4) with respect
to LIBOR and EURIBOR—the second London Banking Day (as defined below) preceding the related
Interest Reset Date; and (5) 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.

(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

10

 

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
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.

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(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 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. 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 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

12

 

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/H.15/ 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 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

13

 

	 	 	 	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
	 
	 	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:

14

 

	 	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 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

15

 

	 	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.

(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

16

 

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) 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
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.

17

 

(E) 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) (“MoneylineTelerate 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.

(F) 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

18

 

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.

(G) 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

19

 

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.

(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

20

 

the
“US PRIME 1” page (or any other page as may replace that
page on at service) for the purpose
of displaying prime rates or base lending rates of major United States banks.

(I) Treasury Rate Notes. If the Interest Rate Basis is the Treasury Rate, this Note shall
be deemed a “Treasury Rate Note.” Unless otherwise specified on the face hereof, “Treasury Rate”
means: (1) the rate from the auction held on the Interest Determination Date (the “Auction”) of
direct obligations of the United States (“Treasury Bills”) having the Index Maturity specified on
the face hereof under the caption “INVESTMENT RATE” on the display on Moneyline Telerate (or any
successor service) on page 56 (or any other page as may replace that page or 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	 

21

 

	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 

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 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.

22

 

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.

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.

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

23

 

in aggregate principal amount of the Outstanding Notes affected thereby, to enter into one or more
supplemental indentures for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, the Indenture or of modifying in any manner the rights of
Holders of Notes under the Indenture; provided, that, with respect to certain enumerated
provisions, no such supplemental indenture shall be entered into without the consent of the Holder
of each Note affected thereby. Any such consent or waiver by the Holder of this Note shall be
conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note
issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or
not notation of such consent or waiver is made upon this Note or such other Notes.

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

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

Section 10. Withholding; 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 Indenture, 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

24

 

date thereof, subject to U.S. federal income tax with respect to interest accrued or received on
the Funding Agreement or (ii) the Trust is, or will be within ninety (90) days of the date thereof,
subject to more than a de minimis amount of taxes, duties or other governmental charges. “Tax Event
Redemption Price” means an amount equal to the unpaid principal amount of this Note to be redeemed,
which shall be determined by multiplying (1) the Outstanding Principal Amount of this Note by (2)
the quotient derived by dividing (A) the outstanding principal amount to be redeemed by Principal
Life of the Funding Agreement by (B) the outstanding principal amount of the Funding Agreement.

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

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

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

Section 14. Miscellaneous.

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

     (b) Prior to due presentment for registration of transfer of this Note, the Trust,
the Indenture Trustee, the Registrar, the Paying Agent, any Agent, and any other agent of the
Trustor 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

25

 

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
will not 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.

26

 

OPTION TO ELECT REPAYMENT

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

 

 

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

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

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

	 	 	 	 	 	 	 	 	 
	$
	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	DATE: 	 	 	 	 	NOTICE: The signature on this	 	 
	 

	 	 	 	 	 	 	 
	 	 	 	 	 	Option to Elect Repayment must
correspond

 with the name as written
upon the face of this Note

 in every
particular, without alteration or
enlargement or any change
whatever.	 	 
	 
	 	 	 	 	 	 	 	 
	Principal Amount to
be repaid, if amount to be
repaid is less than the
Principal Amount of this
Note (Principal Amount
remaining must be an
authorized
denomination)	 	 	Fill in for registration of
Notes

 if to be issued otherwise than

to the registered Holder:	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	Name:	 	 	 
	$

	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	 	 
	 

	 	 	 	 	Address:  	 	 	 
	 

	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	(Please print name and

 address including zip code)	 	 

	 	 	 	 	 
	SOCIAL SECURITY OR OTHER TAXPAYER ID NUMBER:
	 	 	 	 
	 

	 	 

	 	 

27

 

SCHEDULE I

Amortization Table or Formula

28exv10w2

 

MTN GLOBAL FUNDING AGREEMENT

Principal Life Insurance Company
 711
High Street

Des Moines, Iowa 50392-0001

(515) 247-5111

In consideration of the payment made by, or at the direction of,

Principal
Life Income Fundings Trust 1

(the “Agreement Holder”)

of the Net Deposit, as described below, Principal Life Insurance Company (“Principal Life”) agrees
to make payments to the person or persons entitled to them, subject to the provisions of this
global funding agreement (this “Agreement”).

This Agreement is delivered in and subject to the laws of the State of Iowa.

This Agreement is issued and accepted subject to all the terms set out in it.

This Agreement is executed by Principal Life at its Corporate Center to take effect as of the
29th day of March, 2004, which is referred to as the Effective Date, subject to the receipt by
Principal Life or its designee of the Net Deposit (as set forth in Section 1).

	 	 	 
	
	 	
	Senior Vice President and
	 	Chairman, President and
	Corporate Secretary
	 	Chief Executive Officer

/s/ Sarah O’Brien

 

Registrar

March 29, 2004

 

Date

GLOBAL FUNDING AGREEMENT NO. 6-11177

RESTRICTIONS REGARDING THE TRANSFER OR SALE OF

THIS FUNDING AGREEMENT OR ANY INTEREST HEREIN ARE SET FORTH HEREIN

 

 

	 	 	 
	FUNDING AGREEMENT

	 	No. 6-11177

     This Agreement is issued in connection with the issuance by the Trust (specified in the Annex)
of Secured Notes (the “Notes”) which are identified in the annex hereto (the “Annex”) and which are
being issued by the Trust pursuant to the Prospectus dated March 5, 2004, the Prospectus Supplement
dated March 5, 2004, as from time to time amended or supplemented, and the Pricing Supplement
applicable to the Notes (the “Pricing Supplement”). Capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Notes. Where used in this Agreement, the term
“Notes” shall mean the Notes secured by this Agreement as the same exist on the Effective Date,
without giving effect to any amendments or modifications to said Notes effected or made after any
such Effective Date unless such amendments or modifications to said Notes have been consented to in
writing by Principal Life.

	1.	 	Deposit
	 
	 	 	Principal Life agrees to accept, and the Agreement Holder agrees to pay or cause to be paid
to Principal Life, for value on the Effective Date, the Net Deposit (as specified in the
Annex). All funds received by Principal Life under this Agreement shall become the exclusive
property of Principal Life and remain a part of Principal Life’s general account without any
duty or requirement of segregation or separate investment.
	 
	 	 	
This Agreement shall become effective only upon the receipt by Principal Life or its
designee of the Net Deposit.
	 
	2.	 	Fund
	 
	 	 	Upon receipt of the Net Deposit, Principal Life will establish, under this Agreement, a
bookkeeping account in the name of the Agreement Holder, which will evidence Principal
Life’s obligations under this Agreement.
	 
	 	 	The Deposit deemed received (as specified in the Annex), (i) less any withdrawals to
make payments hereunder (other than Additional Amounts (as defined in the Annex), if
applicable) and (ii) plus any interest accrued and premium, if any, pursuant to Section 7, will be
referred to as the “Fund”.
	 
	 	 	Principal Life is neither a trustee nor a fiduciary with respect to the Fund.
	 
	3.	 	Purchase of Notes By Principal Life.
	 
	 	 	Principal Life may purchase some or all of the Notes in the open market or otherwise at
any time, and from time to time. Simultaneously, upon such purchase, (1) the purchased Notes
shall, by their terms become mandatorily redeemable by the Trust as specified in the related
Pricing Supplement, Prospectus Supplement and/or Prospectus and (2) the Fund under this
Agreement shall be permanently reduced by the same percentage as the principal amount of the
Notes so redeemed bears to the sum of (i) the aggregate principal

2

 

	 	 	amount of all Notes issued and outstanding immediately prior to such redemption and (ii) the
principal amount of the Trust Beneficial Interest related to such Notes. If Principal Life,
in its sole discretion, engages in such open market or other purchases, then the Trust, the
Indenture Trustee in respect of such Notes, and Principal Life shall take such actions
(including, in the case of Principal Life, making the payment(s) necessary to effect the
Trust’s redemption of such Notes) as may be necessary or desirable to effect the
cancellation of such Notes by the Trust.
	 
	4.	 	Entire Agreement
	 
	 	 	This Agreement and the Annex attached hereto constitute the
entire Agreement.
	 
	5.	 	Representations

	 	(a)	 	Each party hereto represents and warrants to the other that as of the date hereof:

	 	(i)	 	it has the power to enter into this Agreement and to consummate the transactions
contemplated hereby;
	 
	 	(ii)	 	this Agreement has been duly authorized, executed and delivered, this Agreement
constitutes a legal, valid and binding obligation of each party hereto, and this
Agreement is enforceable in accordance with the terms hereof, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors’ rights, and subject as
to enforceability to general principles of equity, regardless of whether enforcement
is sought in a proceeding in equity or at law; and
	 
	 	(iii)	 	the execution and delivery of this Agreement and the performance of
obligations hereunder do not and will not constitute or result in a default, breach
or violation of the terms or provisions of its certificate, articles or charter of
incorporation, declaration of trust, by-laws or any agreement, instrument, mortgage,
judgment, injunction or order applicable to it or any of its property.

	 	(b)	 	The Trust further represents and warrants to Principal Life that:

	 	(i)	 	(a) it is a person other than a natural person and is purchasing this Agreement
for the purpose of providing collateral security for securities registered with the
United States Securities and Exchange Commission; (b) it is a person authorized by a
state or foreign country to engage in an insurance business or a subsidiary of such
business; or (c) this Agreement is being purchased for the purpose of funding any of
the following: (1) benefits under an employee benefit plan as defined in the federal
Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et
seq., maintained in the United States or in a foreign country; (2) activities of an
organization exempt from taxation pursuant to section 501 (c) of the Internal
Revenue Code, or any similar organization in any foreign country; (3) a program of
the United States government, another state government

3

 

	 	 	 	or political subdivision of such state, or of a foreign country, or any
agency or instrumentality of any such government, political subdivision, or
foreign country; (4) an agreement providing for periodic payments in satisfaction of
a claim; or (5) a program of an institution which has assets in excess of
USD 25,000,000.
	 
	 	(ii)	 	it has been informed and understands that transfer is restricted by the terms
of this Agreement; and
	 
	 	(iii)	 	it (a) is solely responsible for determining whether this Agreement is
suitable for the purpose intended; (b) has carefully read this Agreement (including
the Annex) before signing this Agreement; (c) has had a reasonable opportunity to
make such inquiries as it deemed necessary prior to signing this Agreement; and (d)
has received or had access to such additional information as it deemed necessary in
connection with its decision to sign this Agreement.

In performing its obligations hereunder Principal Life is not acting as a fiduciary, agent
or other representative for the Agreement Holder or anyone else. All representations and
warranties made by the Agreement Holder and Principal Life in this Agreement shall be
considered to have been relied upon by the other in connection with the execution hereof.

	6.	 	Assignment of Agreement
	 
	 	 	The following conditions must be satisfied in order to effectuate any assignment of
this Agreement:

	 	(i)	 	This Agreement may only be transferred through a book entry system maintained by
Principal Life, or an agent designated by it, within the meaning of Temporary Treasury
Regulations Section 5f.103-1(c) and Treasury Regulations Section 1.871-14(c)(1)(i).
	 
	 	(ii)	 	The Agreement Holder, and any assignee, must comply with applicable securities laws.
	 
	 	(iii)	 	Principal Life has consented in writing to the proposed assignment, such consent not
to be unreasonably withheld.
	 
	 	(iv)	 	Principal Life shall have received from the proposed assignee a duly executed
certificate containing, in substance, the information, representations, warranties,
acknowledgments and agreements set forth in this Agreement.

Any attempted sale, transfer, anticipation, assignment, hypothecation, or alienation
not in accordance with this Section 6 shall be void and of no effect. Until such time, if
any, as Principal Life has consented in writing to a proposed assignment, Principal Life
shall not be obligated to make any payments to or at the direction of anyone other than the
person shown on Principal Life’s books and records as the Agreement Holder. Once the
foregoing conditions have been satisfied with respect to an assignment, the assignee or its

4

 

successor shall be deemed to be the sole Agreement Holder for all purposes of this Agreement
and Principal Life shall promptly amend its records to reflect the assignee’s status as
Agreement Holder.

	7.	 	Payments to the Agreement Holder
	 
	 	 	Principal Life shall pay to, or at the direction of, the Agreement Holder by the date (the
“Due Date”) on which any payment becomes due in respect of the Notes secured by this
Agreement (and in any event such period of time prior to the Due Date as shall be necessary
to ensure that the Trust can fulfill its obligation to make payment in full of all amounts
due and payable under the Notes on the Due Date), an amount in the currency or currencies in
which the Notes are denominated as specified in the Notes equal to the sum of (i) the amount
of principal and/or (as the case may be) interest and/or (as the case may be) premium
falling due in respect of the Notes on such Due Date (the “Notes Component”) and (ii) the
amount of any payments owed by the Trust in respect of the Trust Beneficial Interest falling
due on such date (the “Beneficial Interest Component”). In the event that Principal Life
fails to make payment of any such amount on or prior to the Due Date, Principal Life shall
pay to or at the direction of the Agreement Holder, on demand by the Agreement Holder, (i)
if the failure relates to the Notes Component, an amount in the currency specified in the
Notes equal to the amount of default interest (or other amount)
which becomes due and payable by the Trust in accordance with the Notes as a consequence of
any delay in the Trust making the relevant payment of principal, interest or premium (as the
case may be) to the holders of the of Notes and (ii) if the failure relates to the
Beneficial Interest Component, such amount or default interest, if any, determined in the
same manner as default interest on the Notes Component.
	 
	 	 	Interest shall accrue on the Fund in the same amount and pursuant to the same terms as
interest accrues on the Notes secured by this Agreement and on the Trust Beneficial Interest
related to the Notes.
	 
	 	 	If any amount is withdrawn from the Fund in order to make a payment under this Section 7,
interest will cease to be credited with regard to such amount as of the end of the day
immediately preceding the date on which such withdrawal is made.
	 
	 	 	All payments made by Principal Life to the Agreement Holder hereunder shall be paid in
same-day, freely transferable funds to such account as has been specified for such purpose
by the Agreement Holder.
	 
	 	 	Notwithstanding anything to the contrary in this Section 7, if Principal Life shall, with
respect to any scheduled amount due and payable under any of the Notes, comply in all
respects with the requirements of this Section 7, but an event of default has occurred with
respect to the Notes and as a result payments with respect to the Notes have been
accelerated, otherwise than by reason of any default under this Agreement by Principal Life,
no Event of Default (as defined below) under this Funding Agreement shall be deemed to have
occurred, no payments with respect to this Agreement shall be accelerated and Principal Life
will remain obligated to make payments under this Agreement as if no event of default had
occurred with respect to the Notes.

5

 

	 	 	8. Termination of Agreement
	 
	 	 	Subject to the provisions of the following paragraph and the Annex, this Agreement
shall terminate and cease to be of any further force or effect on the day and at the time
upon which all amounts have been withdrawn from the Fund pursuant to this Agreement.
	 
	 	 	Upon the occurrence of any of the following events (each, an “Event of Default”) and
following a written demand by the Agreement Holder, Principal Life shall pay to, or at the
direction of, the Agreement Holder all amounts that the Trust is required to pay in such
event under the Notes and the Trust Beneficial Interest:

	 	(i)	 	Principal Life’s failure to make any payment of interest, premium (if
applicable), installment payments (if applicable) or Additional Amounts (if and as
specified in the Annex) in accordance with this Agreement, if such failure to pay is
not corrected within seven (7) Business Days after such payment becomes due and
payable; or
	 
	 	(ii)	 	Principal Life’s failure to make any payment of principal (other than any installment
payment) in accordance with this Agreement, if such failure to pay is not corrected within
one (1) Business Day after such payment becomes due and payable; or
	 
	 	(iii)	 	if Principal Life (a) is dissolved (other than pursuant to a consolidation,
amalgamation or merger in which the resulting entity assumes its obligations); (b) becomes
insolvent or is unable to pay its debts or fails or admits in writing its inability
generally to pay its debts as they become due; (c) makes a general assignment, arrangement
or composition with or for the benefit of its creditors; (d) institutes or has instituted
against it an administrative or legal proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any supervision, rehabilitation, liquidation,
bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition
is presented for its winding-up or liquidation, and, in the case of any such proceeding or
petition instituted or presented against it, such proceeding or petition (1) results in a
judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an
order for its rehabilitation, winding-up or liquidation or (2) is not dismissed, discharged,
stayed or restrained in each case within 60 days of the institution or presentation thereof;
(e) has a resolution passed for its
rehabilitation, winding-up, official management or liquidation (other than pursuant to a
consolidation, amalgamation or merger in which the resulting entity assumes the obligations
of Principal Life); (f) seeks or becomes subject to the appointment of an
administrator, supervisor, rehabilitator, provisional liquidator, conservator,
receiver, trustee, custodian or other similar official for it or for all or
substantially all its assets; (g) has a secured party take possession of all or
substantially all its assets or has a distress, execution, attachment, sequestration
or other legal process levied, enforced or sued on or against all or substantially
all its assets and such secured party maintains possession, or any such process is
not dismissed, discharged, stayed or restrained, in each case within 60 days
thereafter; (h) causes

6

 

	 	 	 	or is subject to any event with respect to it which, under the applicable laws of
any jurisdiction, has an analogous effect to any of the events specified in clauses
(a) to (g) (inclusive); or (i) takes any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the foregoing acts.

Notwithstanding anything to the contrary in this Section 8, if an event described in clause
(iii) above occurs, this Agreement will automatically terminate and the amount of the Fund
will be immediately due and payable by Principal Life to the Agreement Holder, or the
account specified by the Agreement Holder.

Principal Life will promptly notify the Agreement Holder and the Rating Agencies in writing
of the occurrence of any of (i) through (iii) above.

	9.	 	Withholding; Additional Amounts
	 
	 	 	All amounts due in respect of this Agreement 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 in the United States unless the withholding or deduction is required
by law, regulation or official interpretation thereof. Unless otherwise specified in the
Annex, Principal Life will not pay any additional amounts to the Agreement Holder in the
event that any withholding or deduction is so required by law, regulation or official
interpretation thereof, and the imposition of a requirement to make any such withholding or
deduction will not give rise to an Event of Default or any independent right or obligation
to redeem this Agreement.
	 
	10.	 	Currency
	 
	 	 	Except as may be specifically noted in the Annex, the Net Deposit and all payments under
Section 7 of this Agreement shall be made using the currency or currencies as specified in
the Notes.
	 
	11.	 	 Tax Treatment
	 
	 	 	Principal Life and the Agreement Holder agree that this Agreement shall be disregarded for
U.S. Federal income tax purposes. Principal Life and the Agreement Holder further agree that
if this Agreement is not so disregarded, it will and is intended to be treated as a debt
obligation of Principal Life issued in registered form within the meaning of Treasury
Regulations Section 1.871-14(c)(1)(i), except to the extent provided in Treasury Regulations
Section 1.163-5T (or any subsequent similar regulation).
	 
	12.	 	Amendment and Modification
	 
	 	 	This Agreement may be amended or modified in whole or in part, at any time and from time to
time, for any period or periods (a) by mutual written agreement by such officers of
Principal Life, the Agreement Holder and, where such Agreement Holder is the Indenture
Trustee upon an assignment by way of security of this Agreement by the Trust, the Trust and
(b) without the consent of any other person affected thereby.

7

 

	13.	 	Notice
	 
	 	 	Except as otherwise provided herein, all notices given pursuant to this Agreement
shall be in writing, and shall either be delivered, mailed or telecopied to the locations
listed below or at such other address or to the attention of such other persons as such
party shall have designated for such purpose in a written notice complying as to delivery
with the terms of this Section 13. Each such notice shall be effective (i) if given by
telecopy, when transmitted to the applicable number so specified in this Section 13 (if
required herein, such notice shall also be sent by mail, with first class postage prepaid),
(ii) if given by mail, three days after deposit in the mails with first class postage
prepaid, or (iii) if given by any other means, when actually delivered at such address.
	 
	 	 	If to Principal Life:

Principal Life Insurance Company

711 High Street

 Des Moines, Iowa 50392-0001

Attention: General Counsel

Telephone: (515) 247-5111

Telecopy: (515) 248-3011

Principal Life Insurance Company

711 High Street

Des Moines, Iowa 50392-0001

Attention: Jim Fifield, Counsel

Telephone: (515) 248-9196

Telecopy: (515) 235-9353

If to the Agreement Holder:

Principal Life Income Fundings Trust 1

c/o U.S. Bank Trust National Association

100 Wall Street, 16th Floor

New York, NY 10005

Attention: Adam Berman

Telephone: (212) 361-2458

Facsimile: (212) 509-3384

with a copy to:

Citibank, N.A.

Citibank Agency and Trust

111 Wall Street, 14th Floor, Zone 3

New York, NY 10005

Attention: Nancy Forte

Telephone: (212) 657-7403

Telecopy: (212) 657-3862

8

 

	14.	 	Business Day
	 
	 	 	For purposes of this Agreement, “Business Day” means any day that is a Business Day as
specified in the Notes or the Indenture.
	 
	15.	 	Business Day Convention
	 
	 	 	If the date on which any payment is due to be made under this Agreement shall occur on
a day on which is not a Business Day, such payment shall be made in accordance with the
Business Day Convention as specified in the Notes or the Indenture.
	 
	16.	 	Jurisdiction
	 
	 	 	The parties to this Agreement hereby consent to the non-exclusive jurisdiction of any State
or Federal Court of competent jurisdiction located within the State of New York, in the
Borough of Manhattan, in connection with any actions or proceedings arising directly or
indirectly from this Agreement.

	17.	 	Waiver
	 
	 	 	The obligations of Principal Life or the Agreement Holder under this Agreement may be
waived only in writing by the party to this Agreement whose interests are adversely
affected by such waiver. No failure or delay, on the part of the party adversely affected,
in exercising any right or remedy hereunder shall operate as a waiver thereof.
	 
	18.	 	Tax Redemption.
	 
	 	 	If a Tax Event (defined below) occurs, Principal Life will have the fight to redeem
this Agreement by giving not less than 30 and no more than 60 days prior written notice to
the Agreement Holder and by paying to the Agreement Holder an amount equal to the Fund. The
term “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 this Agreement,
there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days of
the date thereof, subject to U.S. federal income tax with respect to interest accrued or
received on this Agreement or (ii) the Trust is, or will be within 90 days of the date
thereof, subject to more than a de minimis amount of taxes, duties or other governmental
charges.

9

 

ANNEX

This Annex will become effective as of the Effective Date, subject to the requirements of Section
1.

	 	 	 
	Trust:

	 	Principal Life Income Fundings Trust 1
	 
	Net Deposit:

	 	The Net Deposit is USD 298,317,000.
	 
	Deposit:

	 	Regardless of the amount of the Net Deposit, the Deposit is deemed to be USD 300,000,015.
	 
	Bank and Account:

	 	Wells Fargo Bank Iowa, N.A (ABA No.: 121000248)
	 

	 	Acct. No.: 0000901239
	 
	Title of Notes:

	 	Principal Life Income Fundings Trust 1 3.20 % Secured Medium-Term Notes Due 2009

A-1 

 

	 	 	 	 	 
	PRINCIPAL LIFE INSURANCE COMPANY	 	 
	 
	 	 	 	 
	By:

	 	/s/ James C. Fifield
 

	 	 
	 
	 	 	 	 
	Name:

	 	James C. Fifield	 	 
	 
	 	 	 	 
	Title:
	 	Counsel	 	 
	 
	 	 
 	 	 
	PRINCIPAL LIFE INCOME FUNDINGS TRUST 1	 	 
	 
	 	 	 	 
	By:

	 	U.S. Bank Trust National Association, not in its
individual capacity, but solely in its capacity as trustee	 	 
	

	 	
	 	 
	By:

	 	Bankers Trust Company, N.A., 
under Limited Power of Attorney, dated
March 5, 2004	 	 
	 
	 	 	 	 
	By:

	 	/s/ Diana L. Cook	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Name:

	 	Diana L. Cook	 	 
	 
	 	 	 	 
	Title:

	 	Vice President	 	 

A-6

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