CUSTODIAL AGREEMENT

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                                                                    EXHIBIT 4.12

                               CUSTODIAL AGREEMENT

                        THIS CUSTODIAL AGREEMENT (this "CUSTODIAL AGREEMENT") is
entered into as of o, 2006 among Bankers Trust Company, N.A., a national banking
association, acting as custodian (the "CUSTODIAN"), Citibank, N.A. in its
capacity as indenture trustee (the "INDENTURE TRUSTEE") for the holders of the
notes (the "NOTES") to be issued by each trust (each a "TRUST") organized in
connection with the Principal Life Insurance Company Secured Notes Program (the
"PROGRAM"), and U.S. Bank Trust National Association, as trustee (the "TRUSTEE")
on behalf of each Trust organized in connection with the Program.

                        WHEREAS, in connection with the issuance and sale of the
Notes by each Trust, the Trustee, on behalf of each Trust, will purchase
from Principal Life Insurance Company ("PRINCIPAL LIFE") a funding agreement (a
"FUNDING AGREEMENT"), the payment obligations of which are fully and
unconditionally guaranteed by Principal Financial Group, Inc. ("PFG") pursuant
to a guarantee issued to such Trust (the "GUARANTEE");

                        WHEREAS, the parties desire that each Funding Agreement
and Guarantee be held in the State of Iowa at all times prior to the
occurrence and continuance of an Event of Default (as defined in each such
Funding Agreement) or a breach of PFG's obligations under the terms of the
Guarantee;

                        WHEREAS, the parties desire that the Custodian be
appointed as custodian for the Indenture Trustee, to hold in safe custody for
the benefit of the Indenture Trustee, on the terms and conditions provided in
this Custodial Agreement, each Funding Agreement and Guarantee; and

                        WHEREAS, the Custodian has the power and ability
sufficient to undertake and to discharge the duties accepted by it under this
Custodial Agreement;

                        NOW, THEREFORE, in consideration of the foregoing
premises and the covenants contained herein, and for other good and valuable
consideration, the receipt of which are hereby acknowledged, the parties hereto
covenant and agree as follows:

                                   ARTICLE 1
                                   DEFINITIONS

                        SECTION 1.1. Incorporation of Definitions by Reference.
All capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to such terms in the Standard Indenture Terms filed as an
exhibit to the registration statement concerning the Program.

                                   ARTICLE 2
                            APPOINTMENT OF CUSTODIAN

                        SECTION 2.1. Appointment of Custodian. The Indenture
Trustee hereby appoints the Custodian and the Custodian hereby acknowledges that
it will act as custodian for the Indenture Trustee with respect to each Funding
Agreement and Guarantee that is collaterally assigned to the Indenture Trustee
pursuant to the Indenture and with respect to


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each Funding Agreement and each Guarantee in which a security interest is
granted to the Indenture Trustee pursuant to the Indenture, and that comes into
the physical custody or possession of the Custodian under this Custodial
Agreement, until the earlier of (a) such time when the Indenture Trustee
notifies the Custodian in writing to the contrary, whereupon such physical
custody and possession of each Funding Agreement and Guarantee specified in such
notice will be transferred to the Indenture Trustee or another Person in the
manner directed by the Indenture Trustee or (b) the termination of this
Custodial Agreement. Acceptance by the Custodian of this appointment is
conclusively evidenced by its execution of this Custodial Agreement.

                        SECTION 2.2. Custodian Not Subject to Direction of Any
Trust. In no event shall the Custodian, in such custodial role, be construed to
be subject to the direction of the Trustee, on behalf of any Trust, or deliver
any such Funding Agreement or Guarantee to the Trustee, on behalf of any Trust,
without the express written consent of the Indenture Trustee.

                                   ARTICLE 3
                  DELIVERY OF FUNDING AGREEMENTS AND GUARANTEES

                        SECTION 3.1. Delivery of Funding Agreements and
Guarantees. The Indenture Trustee shall, for safekeeping, deposit each Funding
Agreement and Guarantee with and deliver each Funding Agreement and Guarantee
into, or cause each Funding Agreement and Guarantee to be deposited with and
delivered into, the actual, exclusive and continuous possession and control of
the Custodian as custodian for the Indenture Trustee.

                        SECTION 3.2. Limited Interest of Each Trust. Each Trust
shall retain and reserve only such interests, claims or rights in the Funding
Agreements and Guarantees as are set forth herein, in the Indenture or other
such documents as are used (i) to effect the applicable Trust's collateral
assignment of the applicable Funding Agreement and applicable Guarantee to the
Indenture Trustee and to record Principal Life's acknowledgement thereof and
(ii) to grant a security interest in the applicable Funding Agreement and
applicable Guarantee to the Indenture Trustee and to record PFG's and Principal
Life's, respectively, acknowledgement thereof.

                        SECTION 3.3. Security Interest of Indenture Trustee.
Delivery of any Funding Agreement or Guarantee to the Custodian shall, without
any further act or condition, constitute conclusive evidence against the
applicable Trust and all third parties of the Indenture Trustee's security
interest therein.

                        SECTION 3.4. Indenture Trustee Covenant to Abide by
Custodial Agreement. The Indenture Trustee hereby covenants that, at all times
prior to an Event of Default or a breach of PFG's obligation under the Guarantee
and so long as it retains a security interest or other ownership interest in a
Funding Agreement or Guarantee, it will take no action to terminate or to cause
the termination of this Custodial Agreement, and it will abide by the
requirement herein that the physical custody and possession of each such


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Funding Agreement and each such Guarantee be at the location provided in Section
9.5 or at such other location within the State of Iowa designated by the
Custodian.

                                   ARTICLE 4
         INSPECTION OF FUNDING AGREEMENTS, GUARANTEES, BOOKS AND RECORDS

                        SECTION 4.1. Inspection of Funding Agreements and
Guarantees. So long as any Notes are Outstanding, the Indenture Trustee and the
Trustee, on behalf of the applicable Trust, by or through their attorneys,
agents or employees, shall each be entitled, but shall be under no obligation,
at any mutually agreeable time, during normal business hours, at the expense of
the applicable Trust, upon two Business Days' notice to the Custodian, to
examine and audit each Funding Agreement and Guarantee held by the Custodian.

                        SECTION 4.2. Inspection of Books and Records. The
Custodian shall maintain appropriate books and records relating to services
performed by it with respect to each Funding Agreement and Guarantee and, so
long as any Notes are Outstanding, the Indenture Trustee and the Trustee, on
behalf of the applicable Trust, by or through their attorneys, agents or
employees, shall each be entitled, but shall be under no obligation, at any
mutually agreeable time, during normal business hours, at the expense of the
applicable Trust, upon two Business Days' notice to the Custodian, to examine
such books and records.

                                   ARTICLE 5
                               DUTIES OF CUSTODIAN

                        SECTION 5.1. General.  The Custodian shall:

                                                                            
              (a)       on behalf of the Indenture Trustee, accept and hold each
                        Funding Agreement and Guarantee in the State of Iowa at
                        its address indicated in Section 9.5 as custodian for
                        the Indenture Trustee, subject to the provisions of this
                        Custodial Agreement, the Indenture and each such Funding
                        Agreement and Guarantee;

              (b)       have and maintain open, continuous and exclusive
                        possession, dominion and control over each Funding
                        Agreement and Guarantee delivered to it under this
                        Custodial Agreement, subject only to the rights and
                        interest of the Indenture Trustee and the applicable
                        Trust;

              (c)       from time to time, certify the receipt of each Funding
                        Agreement and Guarantee as may be reasonably requested
                        by the Indenture Trustee or the Trustee, on behalf of
                        the applicable Trust;

              (d)       from time to time upon request by (i) the Indenture
                        Trustee, or (ii) the Trustee, on behalf of the
                        applicable Trust, and the Indenture Trustee, submit such
                        information and take such action as may be reasonably
                        required by the Trustee, on behalf of the applicable
                        Trust or the Indenture Trustee to assure



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                        that each Funding Agreement and Guarantee is maintained
                        in a proper and secure condition;

              (e)       upon receipt of any Funding Agreement or Guarantee,
                        issue to the Indenture Trustee and the applicable Trust
                        a certificate relating to the applicable Funding
                        Agreement and related Guarantee in substantially the
                        form attached as Exhibit A attached hereto, which is
                        made a part hereof;

              (f)       upon its receipt of written notice from the Indenture
                        Trustee that an Event of Default has occurred with
                        respect to any Funding Agreement or a breach of the
                        obligations of PFG under any Guarantee has occurred and
                        at the written direction of the Indenture Trustee,
                        deliver each such Funding Agreement and related
                        Guarantee to the Indenture Trustee;

              (g)       at its own expense, maintain at all times during the
                        term of this Custodial Agreement and keep in full force
                        and effect (i) fidelity insurance, (ii) theft of
                        documents insurance and (iii) forgery insurance;
                        provided, that such insurance shall be in amounts, with
                        standard coverage and subject to deductibles, as are
                        customary for similar insurance typically maintained by
                        financial institutions that act as custodians in similar
                        transactions;

              (h)       unless otherwise specified herein, in providing services
                        hereunder with respect to any Funding Agreement or
                        Guarantee, follow the written instructions received from
                        the Indenture Trustee;

              (i)       exercise reasonable care and diligence, consistent with
                        customary standards for such custody, in the possession,
                        retention and protection of each Funding Agreement and
                        Guarantee delivered to it under this Custodial
                        Agreement;

              (j)       except as otherwise required by applicable law, maintain
                        the confidentiality of the information provided
                        hereunder and in each Funding Agreement and Guarantee,
                        and not disclose or in any way communicate such
                        information to third parties without the express written
                        consent of the Trustee, on behalf of the applicable
                        Trust (provided, however, that notwithstanding anything
                        herein to the contrary and except as reasonably
                        necessary to comply with any applicable federal and
                        state securities laws, the Custodian (and each employee,
                        representative or other agent of the Custodian) may
                        disclose to any and all persons, without limitation of
                        any kind, the U.S. federal and state income tax
                        treatment and tax structure of the transaction and all
                        materials of any kind (including opinions or other tax
                        analyses) that are provided to the Custodian relating to
                        such U.S. federal and state income tax treatment and tax
                        structure, where "tax structure" is any fact that may be
                        relevant to understanding the U.S. federal or state
                        income tax treatment of the transaction);


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              (k)       request written direction from the Indenture Trustee and
                        rely upon such written direction in the event that (i)
                        any dispute shall arise between the parties with respect
                        to the disposition of any Funding Agreement or Guarantee
                        held hereunder or (ii) the Custodian shall be uncertain
                        as to how to proceed in a situation not explicitly
                        addressed by the terms of this Custodial Agreement
                        whether because of conflicting demands by the other
                        parties hereto or otherwise; and

              (l)       have only those duties as are specifically provided
                        herein, which shall be deemed purely ministerial in
                        nature, and shall under no circumstance be deemed a
                        fiduciary for any of the parties to this Custodial
                        Agreement.

                        SECTION 5.2. Merger, Conversion or Consolidation of
Custodian. Notwithstanding anything herein to the contrary, any banking
association or corporation into which the Custodian may be merged, converted or
with which the Custodian may be consolidated, or any corporation resulting from
any merger, conversion or consolidation to which the Custodian shall be a party,
or any banking association or corporation to which all or substantially all of
the corporate trust business of the Custodian shall be transferred, shall
succeed to all the Custodian's rights, obligations and immunities hereunder
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.

                        SECTION 5.3. Compliance with Writs, Orders or Decrees.
In the event that any Funding Agreement or Guarantee shall be attached,
garnished or levied upon by any court order, or the delivery thereof shall be
stayed or enjoined by an order of a court, or any order, judgment or decree
shall be made or entered by any court order affecting the property deposited
under this Custodial Agreement, the Custodian is hereby expressly authorized, in
its sole discretion, to obey and comply with all writs, orders or decrees so
entered or issued, which it is advised by legal counsel of its own choosing is
binding upon it, whether with or without jurisdiction, and in the event the
Custodian obeys or complies with any such writ, order or decree it shall not be
liable to any of the parties hereto or to any other Person, firm or corporation
by reason of such compliance notwithstanding such writ, order or decree be
subsequently reversed, modified, annulled, set aside or vacated.

                        SECTION 5.4. Delegation of Duties. The Custodian shall
not employ any third party institution to carry out any of the services to be
provided hereunder without the express written consent of the Indenture Trustee,
which consent shall not be unreasonably withheld.

                        SECTION 5.5. No Constructive Knowledge. The Custodian
shall not be deemed to have knowledge of the occurrence of a Default or Event of
Default unless the Custodian receives a written notice of such Default or Event
of Default from the Indenture Trustee or the Trustee, on behalf of the
applicable Trust.

                        SECTION 5.6. Reliance. In performance of its duties
under this Custodial Agreement, the Custodian shall be permitted to rely on any
certificate, instrument, document or communication believed by it to be genuine,
correct and signed by the proper


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Person or Persons. The Trustee, on behalf of the applicable Trust, and the
Indenture Trustee shall each execute and deliver to the Custodian a certificate
of i