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PROCTER & GAMBLE CO

FORM 10-K
(Annual Report)

Filed 9/9/2004 For Period Ending 6/30/2004

Address Telephone CIK Industry Sector Fiscal Year

ONE PROCTER & GAMBLE PLZ CINCINNATI, Ohio 45202 513-983-1100 0000080424 Personal & Household Prods. Consumer/Non-Cyclical 06/30

Table of Contents THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES ****************************************** ANNUAL REPORT ON FORM 10-K TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED JUNE 30, 2004 ******************************************

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549

Form 10-K
ANNUAL REPORT ON FORM 10-K PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2004 Commission File No. 1-434

THE PROCTER & GAMBLE COMPANY


One Procter & Gamble Plaza, Cincinnati, Ohio 45202 Telephone (513) 983-1100 IRS Employer Identification No. 31-0411980 State of Incorporation: Ohio

Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, without Par Value Name of each Exchange on which registered New York, National, Amsterdam, Paris, Basle, Geneva, Lausanne, Zurich, Frankfurt, Brussels

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No

There were 2,542,231,468 shares of Common Stock outstanding as of July 31, 2004. The aggregate market value of the voting stock held by non-affiliates amounted to $129 billion on December 31, 2003. Documents Incorporated By Reference

Portions of the Annual Report to Shareholders for the fiscal year ended June 30, 2004 are incorporated by reference into Part I, Part II and Part IV of this report to the extent described herein. Portions of the Proxy Statement for the 2004 Annual Meeting of Shareholders are incorporated by reference into Part III of this report to the extent described herein. 1

TABLE OF CONTENTS

PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions Item 14. Principal Accounting Fees and Services PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K SIGNATURES EXHIBIT INDEX EX-10.1 Exhibit 10.9 Exhibit 10.10 Exhibit 11 Exhibit 12 Exhibit 13 Exhibit 21 Exhibit 23 Exhibit 31 Exhibit 32 Exhibit 99-2 Exhibit 99.3 Exhibit 99-4 Exhibit 99-5 Exhibit 99-6 Exhibit 99-7 Exhibit 99-8 Exhibit 99.9 Exhibit 99-10

Table of Contents PART I Item 1. Business. Additional information required by this item is incorporated herein by reference to Managements Discussion and Analysis, which appears on pages 29-43; Note 3, Acquisitions and Spin-Off, which appears on pages 52-54; Note 5, Supplemental Financial Information, which appears on page 55; and Note 12, Segment Information, which appears on pages 65-66 of the Annual Report to Shareholders for the fiscal year ended June 30, 2004. The Procter & Gamble Company is focused on providing branded products of superior quality and value to improve the lives of the worlds consumers. The Company was incorporated in Ohio in 1905, having been built from a business founded in 1837 by William Procter and James Gamble. Today, we market over 300 branded products in more than 160 countries. Unless the context indicates otherwise, the terms the Company, we, our or us as used herein refers to The Procter & Gamble Company (the registrant) and its subsidiaries. The Company manages its business in five product segments: Fabric and Home Care; Baby and Family Care; Beauty Care; Health Care; and Snacks and Beverages. None of these segments is highly seasonal. Many of the factors necessary for an understanding of these five segments are similar. Operating margins of the individual segments vary slightly due to nature of the materials and processes used to manufacture the products, the capital intensity of the businesses and differences in selling, general and administrative expenses as a percent of net sales. Net sales growth by segment is also expected to vary slightly due to the underlying growth of the markets of each segments products. For example, we expect the Beauty Care and Health Care segments to provide a disproportionate percentage of overall Company net sales growth, as the market for these products is expected to grow at a higher rate than the remaining segments. The markets in which our products are sold are highly competitive. The products of the Companys business segments compete with products of many large and small companies, including well-known global competitors. We market our products with advertising, promotions and other vehicles to build awareness of our brands in conjunction with an extensive sales force. We believe this combination provides the most efficient method of marketing for these types of products. Product quality, performance, value and packaging are also important competitive factors. Throughout this Form 10-K, we incorporate by reference information from other documents filed with the Securities and Exchange Commission (SEC). The Companys annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K are filed electronically with the SEC. The SEC maintains an internet site that contains these reports at: http://www.sec.gov. The reports can also be accessed through links from the Companys website at: www.pg.com/investors/sectionmain.jhtml. Copies are also available, without charge, by contacting The Procter & Gamble Company, Shareholder Services Department, P.O. Box 5572, Cincinnati, Ohio 45201-5572. 2

Table of Contents Narrative Description of Business Business Model. Our business model relies on the continued growth and success of existing brands and products and the creation of new products. The markets and industry segments in which we offer our products are highly competitive. We work collaboratively with our customers to improve the in-store presence of our products and win the first moment of truth when a consumer is shopping in the store. We must also win the second moment of truth when a consumer uses the product, evaluates how well it met his or her expectations and whether it was a good value. We believe we must continue to provide new, innovative products and branding to the consumer in order to grow our business. Basic research and product development activities, designed to enable sustained organic growth, continued to carry a high priority during the past fiscal year. While many of the benefits from these efforts will not be realized until future years, the Company believes these activities demonstrate its commitment to future growth. Key Product Categories. We currently have three product categories that each account for 10% or more of consolidated net sales. The laundry category constituted approximately 18% of net sales for fiscal year 2004, compared to 19% in 2003 and 19% in 2002. The diaper category represents approximately 11% of consolidated sales in 2004, compared to 12% in 2003 and 2002. The retail hair care category accounted for approximately 11% of fiscal year 2004 net sales, up from just over 9% in 2003 and 2002. The increase in hair care category sales is due, in part, to the addition of Wella AG (Wella). Key Customers. Our customers include mass merchandisers, grocery stores, membership club stores and drug stores. Sales to Wal-Mart Stores, Inc. and its affiliates represent approximately 17% of our total revenue, compared to 18% in 2003 and 17% in 2002. No other customer represents more than 10% of our net sales. Our top ten customers account for approximately 33% of total unit volume, compared to 33% in 2003 and 35% in 2002. The nature of our business results in no material backlog orders or contracts with the government. We believe our practices related to working capital items for customers and suppliers are consistent with the industry segments in which we compete. Sources and Availability of Materials. Almost all of the raw and packaging materials used by the Company are purchased from others, some of whom are single-source suppliers. Some raw materials, primarily chemicals, are produced by the Company for further use in the manufacturing process. In addition, fuel and natural gas are important commodities used in our plants and in the trucks used to deliver our products to customers. The prices we pay for materials and other commodities are subject to fluctuation. When prices for these items change, we may or may not pass on the change to our customers depending on the magnitude and expected duration of the change. We have, however, recently announced price increases in some categories, including tissue, coffee and pet health and nutrition, to recover increases in commodity costs. The Company purchases and produces a substantial variety of raw and packaging materials, no one of which is material to the Companys business taken as a whole. Trademarks and Patents. We own or have licenses under patents and registered trademarks which are used in connection with our business in all segments. Some of these patents or licenses cover significant product formulation and processing of the Companys products. The trademarks of all major products in each segment are registered. In part, the 3

Table of Contents Companys success can be attributed to the existence and continued protection of these trademarks, patents and licenses. Expenditures for Environmental Compliance. Expenditures for compliance with federal, state and local environmental laws and regulations are fairly consistent from year to year and are not material to the Company. No material change is expected in fiscal year 2005. Employees. The Company has approximately 110,000 employees. The increase of approximately 12,000 employees versus the prior year is primarily related to the addition of Wella. Financial Information About Foreign and Domestic Operations Net sales in the United States account for approximately 46% of total net sales. No other individual country had net sales exceeding 10% of total net sales. Operations outside the United States are generally characterized by the same conditions discussed in the description of the business above and may also be affected by additional factors including changing currency values, different rates of inflation, economic growth and political and economic uncertainties and disruptions. Company sales by geography for the fiscal years ended June 30 were as follows:
2004 2003 2002

North America Western Europe Northeast Asia Developing Markets

50% 24% 5% 21%

54% 21% 5% 20%

57% 19% 4% 20%

Developing markets include Latin America, Central & Eastern Europe, China, ASEAN, Australasia, India, the Middle East and Africa. Net sales and assets in the United States and internationally were as follows (in millions):
Net Sales (for the year ended June 30) 2004 2003 2002 2004 Assets (as of June 30) 2003 2002

United States International Development of the Business

$23,688 27,719

$21,853 21,524

$21,198 19,040

$23,687 33,361

$23,424 20,282

$23,434 17,342

The discussion below provides insight to the general development of our business, including the material acquisitions and disposition of assets over the past five years. Wella. In March 2003, the Company entered into an agreement to acquire a controlling interest in Wella from the majority shareholders. In September 2003, we completed this purchase of the shares of Wella for EUR 3.16 billion (approximately $3.42 billion based on exchange rates on that date). Additionally, in September 2003, we purchased shares secured through a tender offer to remaining shareholders for EUR 1.49 billion (approximately $1.67 4

Table of Contents billion based on exchange rates on that date). As a result of these purchases, the Company acquired approximately 81% of the outstanding Wella shares (99% of the voting class shares and 45% of the preference shares). In June 2004, the Company and Wella entered into a Domination and Profit Transfer Agreement (the Domination Agreement). Under the Domination Agreement, we are entitled to exercise full operating control and receive 100% of the future earnings of Wella. As consideration for the Domination Agreement, we will pay the holders of the remaining outstanding shares of Wella a guaranteed annual dividend payment. Alternatively, the remaining Wella shareholders may elect to tender their shares to the Company for an agreed price. The fair value of the total guaranteed annual dividend payments is $1.11 billion, which is the approximate cost if all remaining shares were tendered. The acquisition of Wella was financed by a mixture of available cash balances and debt. Wella is a leading beauty care company selling its products in more than 150 countries, focused on professional hair care, retail hair care and cosmetics and fragrances. Hutchison . In June 2004, we purchased the remaining 20% stake of our China venture from our partner, Hutchison Whampoa China Ltd. (Hutchison), giving the Company full ownership of our operations in China. The net purchase price was $1.85 billion, which is the purchase price of $2.00 billion net of minority interest and certain obligations that were eliminated as a result of the transaction. The acquisition was funded by debt. Jif/Crisco. During May 2002, we completed the spin-off of the Jif peanut butter and Crisco shortening brands to the Companys shareholders and their subsequent merger into The J.M. Smucker Company. Clairol. In November 2001, we completed the acquisition of the Clairol business from The Bristol-Myers Squibb Company. Restructuring Program. In 1999, the Company announced its intention to transition from its previous geographic-based structure to a product-based global business unit structure. Concurrent with that change, we initiated a multi-year restructuring program, a discussion of which is incorporated herein by reference to Note 2, Restructuring Program, which appears on page 52 of the Annual Report to Shareholders for the fiscal year ended June 30, 2004. Item 2. Properties. In the United States, the Company owns and operates 37 manufacturing facilities located in 21 different states. In addition, the Company owns and operates 99 manufacturing facilities in 42 other countries. Many of the domestic and international facilities produce products for multiple business segments. Fabric and Home Care products are produced at 43 of these locations; Baby and Family Care products at 31; Health Care products at 22; Beauty Care products at 64; and Snacks and Beverages products at 11. Management believes that the Companys production facilities are adequate to support the business efficiently and that the properties and equipment have been well maintained. 5

Table of Contents Item 3. Legal Proceedings. The Company is involved in clean-up efforts at off-site Superfund locations, many of which are in the preliminary stages of investigation. The amount accrued at the end of June 30, 2004, representing the Companys probable future costs that can be reasonably estimated, was $8 million. The Company is also involved in certain other environmental proceedings. No such proceeding is expected to result in material monetary or other sanctions being imposed by any governmental entity, or in other material liabilities. In 2003 and thereafter, The Folger Coffee Company, a subsidiary of the Company, voluntarily contacted the Louisiana Department of Environmental Quality (LDEQ) concerning compliance with certain air emission permit requirements at its New Orleans coffee processing plant. As a result of these self-disclosures, the subsidiary expects to receive from the LDEQ an Administrative Order on Consent and anticipates negotiating an agreed penalty with the agency to resolve these issues. No judicial proceeding is pending. The Companys liability is estimated not to exceed $260,000. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. 6

Table of Contents Executive Officers of the Registrant The names, ages and positions held by the executive officers of the Company on September 8, 2004 are:
Name Position Age Elected to Officer Position

Alan G. Lafley Bruce L. Byrnes R. Kerry Clark Susan E. Arnold Robert A. McDonald Richard L. Antoine G. Gilbert Cloyd Clayton C. Daley, Jr. R. Keith Harrison, Jr. James J. Johnson Mariano Martin Charlotte R. Otto Filippo Passerini James R. Stengel John K. Jensen

Chairman of the Board, President and Chief Executive Director since June 8, 2000 Vice Chairman of the Board - Global Household Care Director since April 8, 2002 Vice Chairman of the Board - Global Health, Baby & Family Care Director since April 8, 2002 Vice Chairman - Global Beauty Care Vice Chairman - Global Operations Global Human Resources Officer Chief Technology Officer Chief Financial Officer Global Product Supply Officer Chief Legal Officer and Secretary Global Customer Business Development Officer Global External Relations Officer Chief Information Officer and Global Services Officer Global Marketing Officer Vice President and Comptroller

57 56 52 50 51 58 58 52 56 57 51 51 47 49 55

1992 1991 1995 2004 1999 1998 2000 1998 2001 1991 2003 1996 2003 2001 2002

All of the Executive Officers named above have been employed by the Company for more than five years. 7

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PART II Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. ISSUER PURCHASES OF EQUITY SECURITIES
Total number of Maximum number shares purchased as of shares that may part of publicly yet be purchased announced plans or under the plans or programs (3) programs (3)

Period

Total number of shares purchased (1)

Average price paid per share (2)

4/1/04 - 4/30/04 5/1/04 - 5/31/04 6/1/04 - 6/30/04


(1)

8,592,314 13,545,020 10,316,911

$52.79 $53.19 $54.84

0 0 0

0 0 0

All share repurchases were made in open-market transactions. None of these transactions were made pursuant to a publicly announced repurchase plan. This table excludes shares withheld from employees to satisfy minimum tax withholding requirements on option exercises and other equity-based transactions. The Company administers employee cashless exercises through an independent, third party broker and does not repurchase stock in connection with cashless exercises. Average price paid per share is calculated on a settlement basis and excludes commission. No share repurchases were made pursuant to a publicly announced plan or program. The Companys strategy for cash flow utilization is to pay dividends first and then repurchase Company common stock to cover option exercises made pursuant to the Companys stock option programs. The remaining cash is then available for strategic acquisitions and discretionary repurchase of the Companys common stock.

(2) (3)

Additional information required by this item is incorporated by reference to Shareholder Information, which appears on page 70 of the Annual Report to Shareholders for the fiscal year ended June 30, 2004, and Part III, Item 12 of this Annual Report on Form 10-K. Item 6. Selected Financial Data. The information required by this item is incorporated by reference to Note 1, Summary of Significant Accounting Policies, which appears on pages 50-52; Note 12, Segment Information, which appears on pages 65-66; and Financial Summary, which appears on page 67 of the Annual Report to Shareholders for the fiscal year ended June 30, 2004. Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations. The information required by this item is incorporated by reference to Managements Discussion and Analysis, which appears on pages 2943; Note 1, Summary of Significant Accounting Policies, which appears on pages 50-52; Note 2, Restructuring Program, which appears on page 52; Note 3, Acquisitions and Spin-Off, which appears on pages 52-54; Note 11, Commitments and Contingencies, which appears on page 64; and Note 12, Segment Information, 8

Table of Contents which appears on pages 65-66 of the Annual Report to Shareholders for the fiscal year ended June 30, 2004. The Company has made certain forward-looking statements in the Annual Report to Shareholders for the fiscal year ended June 30, 2004 and in other contexts relating to volume and net sales growth, increases in market shares, financial goals and cost reduction, among others. These forward-looking statements are based on assumptions and estimates regarding competitive activity, pricing, product introductions, economic conditions, customer and consumer trends, technological innovation, currency movements, governmental action and the development of certain markets available at the time the statements are made. Among the key factors that could impact results and must be managed by the Company are: (1) the ability to achieve business plans, including with respect to lower income consumers and growing existing sales and volume profitably despite high levels of competitive activity, especially with respect to the product categories and geographical markets (including developing markets) in which the Company has chosen to focus; (2) successfully executing, managing and integrating key acquisitions (including the Domination and Profit Transfer Agreement with Wella); (3) the ability to manage and maintain key customer relationships; (4) the ability to maintain key manufacturing and supply sources (including sole supplier and plant manufacturing sources); (5) the ability to successfully manage regulatory, tax and legal matters (including product liability matters), and to resolve pending matters within current estimates; (6) the ability to successfully implement, achieve and sustain cost improvement plans in manufacturing and overhead areas, including the success of the Companys outsourcing projects; (7) the ability to successfully manage currency (including currency issues in volatile countries), interest rate and certain commodity cost exposures; (8) the ability to manage the continued global political and/or economic uncertainty and disruptions, especially in the Companys significant geographical markets, as well as any political and/or economic uncertainty and disruptions due to terrorist activities; (9) the ability to successfully manage increases in the prices of raw materials used to make the Companys products; (10) the ability to stay close to consumers in an era of increased media fragmentation; and (11) the ability to stay on the leading edge of innovation. If the Companys assumptions and estimates are incorrect or do not come to fruition, or if the Company does not achieve all of these key factors, then our actual results might differ materially from the forward-looking statements made herein. 9

Table of Contents Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The information required by this item is incorporated by reference to the section entitled Other Information, which appears on pages 42-43, and Note 7, Risk Management Activities, which appears on pages 56-57 of the Annual Report to Shareholders for the fiscal year ended June 30, 2004. Item 8. Financial Statements and Supplementary Data. The financial statements and supplementary data are incorporated by reference to pages 44-67 of the Annual Report to Shareholders for the fiscal year ended June 30, 2004. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. Item 9A. Controls and Procedures. The Companys Chairman of the Board, President and Chief Executive, A.G. Lafley, and the Companys Chief Financial Officer, Clayton C. Daley, Jr., have evaluated the Companys internal control and disclosure control systems as of the end of the period covered by this report. Messrs. Lafley and Daley have concluded that the Companys disclosure control systems are functioning effectively to provide reasonable assurance that the Company can meet its disclosure obligations. The Companys disclosure control system is based upon a global chain of financial, staff and general business reporting lines that converge in the worldwide headquarters of the Company in Cincinnati, Ohio. The reporting process is designed to ensure that information required to be disclosed by the Company in the reports that it files or submits with the Commission is recorded, processed, summarized and reported within the time periods specified in the Commissions rules and forms. Consistent with SEC suggestion, the Company has formed a Disclosure Committee consisting of key Company personnel designed to review the accuracy and completeness of all disclosures made by the Company. In connection with the evaluation described above, no changes in the Companys internal control over financial reporting occurred during the Companys fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting. 10

Table of Contents PART III Item 10. Directors and Executive Officers of the Registrant. John F. Smith, Jr. is the Chairman of the Audit Committee. The Board of Directors has determined that Mr. Smith is both independent and an audit committee financial expert, as defined by SEC guidelines. Additional information required by this item is incorporated by reference to pages 4-9, up to but not including the section entitled Additional Information Concerning the Board of Directors; to the section entitled Code of Ethics, which appears on page 10; and to the section entitled Section 16(a) Beneficial Ownership Reporting Compliance, which appears on pages 27-28 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2004, pursuant to Regulation 14A which involved the election of directors. Pursuant to Item 401(b) of Regulation SK, Executive Officers of the Registrant are reported in Part I of this report. Item 11. Executive Compensation. The information required by this item is incorporated by reference to pages 9-24 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2004, pursuant to Regulation 14A which involved the election of directors, beginning with the section entitled Additional Information Concerning the Board of Directors. Item 12. Security Ownership of Certain Beneficial Owners and Management. The following table gives information about the Companys common stock that may be issued upon the exercise of options, warrants and rights under all of the Companys equity compensation plans as of June 30, 2004. The table includes the following plans: The Procter & Gamble 1992 Stock Plan; The Procter & Gamble 1992 Stock Plan (Belgian Version); The Procter & Gamble 1993 Non-Employee Directors Stock Plan; The Procter & Gamble Future Shares Plan; The Procter & Gamble 2001 Stock and Incentive Compensation Plan; and The Procter & Gamble 2003 Non-Employee Directors Stock Plan.
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)

Plan Category

Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)

Weighted-average exercise price of outstanding options, warrants and rights (b)

Equity compensation plans approved by security holders (1) Equity compensation plans not approved by security holders (2) Total

255,703,502 20,589,116 276,292,618

$38.68 $40.97 $38.85

159,738,239 5,660,800 165,399,039

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(1)

Includes The Procter & Gamble 1992 Stock Plan; The Procter & Gamble 1993 Non-Employee Directors Stock Plan; The Procter & Gamble 2001 Stock and Incentive Compensation Plan; and The Procter & Gamble 2003 Non-Employee Directors Stock Plan. Includes The Procter & Gamble 1992 Stock Plan (Belgian Version) and The Procter & Gamble Future Shares Plan.

(2)

The Procter & Gamble 1992 Stock Plan (Belgian Version) Effective February 14, 1997, the Companys Board of Directors approved The Procter & Gamble 1992 Stock Plan (Belgian Version). Although the plan has not been submitted to shareholders for approval, the plan is nearly identical to The Procter & Gamble 1992 Stock Plan, approved by the Companys shareholders on October 13, 1992, except for a few minor changes designed to comply with the Belgian tax laws. Although no further grants can be made under the plan, unexercised stock options previously granted under this plan remain outstanding. The plan is a stock incentive plan designed to attract, retain and motivate key Belgian employees. Under the plan, eligible participants may be granted or offered the right to purchase stock options, may be granted stock appreciation rights and/or may be granted shares of the Companys common stock. Except in the case of death of the recipient, all stock options and stock appreciation rights must vest in no less than one year from the date of grant and must expire no later than fifteen years from the date of grant. The exercise price for all stock options granted under the plan is the average price of the Companys stock on the date of grant. If a recipient of a grant leaves the Company while holding an unexercised option or right, any unexercisable portions immediately become void, except in the case of death, and any exercisable portions become void within one month of departure, except in the case of death or retirement. Any common stock awarded under the plan may be subject to restrictions on sale or transfer while the recipient is employed, as the committee administering the plan may determine. The Procter & Gamble Future Shares Plan On October 14, 1997, the Companys Board of Directors approved The Procter & Gamble Future Shares Plan pursuant to which options to purchase shares of the Companys common stock may be granted to employees worldwide. The purpose of this plan is to advance the interests of the Company by giving substantially all employees a stake in the Companys future growth and success and to strengthen the alignment of interests between employees and the Companys shareholders through increased ownership of shares of the Companys stock. The plan has not been submitted to shareholders for approval. Subject to adjustment for changes in the Companys capitalization, the number of shares to be granted under the plan is not to exceed 17 million shares. Under the plans regulations, recipients are granted options to acquire 100 shares of the Companys common stock at an exercise price equal to the average price of the Companys common stock on the date of the grant. These options vest five years after the date of grant and expire ten years following the date of grant. If a recipient leaves the employ of the Company prior to the vesting date for a reason other than disability, retirement or special separation (as defined in the plan), then the award is forfeited. At the time of the first grant following approval of the plan, each employee of the Company not eligible for an award under the 1992 Stock Plan was granted options for 100 shares. Since the date of the first grant, each new employee of the Company has also received options for 100 shares. Following the grant of options on June 30, 2003, the Company suspended this part of the plan and intends to make no further grants under this part of the plan. 12

Table of Contents In addition to the grants above, annual grants of options for 100 shares are granted to approximately 2,000 employees who are not eligible for participation in the 2001 Stock and Incentive Compensation Plan in recognition of outstanding performance. Additional information required by this item is incorporated by reference to pages 25-27 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2004, pursuant to Regulation 14A which involved the election of directors, including footnotes referenced therein. Item 13. Certain Relationships and Related Transactions. The information required by this item is incorporated by reference to the section entitled Transactions with Executive Officers, Directors and Others, which appears on page 28 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2004, pursuant to Regulation 14A which involved the election of directors. Item 14. Principal Accounting Fees and Services. The information required by this item is incorporated by reference to pages 28-30 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2004, pursuant to Regulation 14A which involved the election of directors, beginning with the section entitled Report of the Audit Committee up to but not including the section entitled Proposal to Ratify Appointment of Independent Registered Public Accounting Firm. 13

Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K. A. 1. Financial Statements: The following consolidated financial statements of The Procter & Gamble Company and subsidiaries and the independent auditors report are incorporated by reference in Part II, Item 8. - Independent Auditors Report - Consolidated statements of earnings for years ended June 30, 2004, 2003 and 2002 - Consolidated balance sheets as of June 30, 2004 and 2003 - Consolidated statements of shareholders equity for years ended June 30, 2004, 2003 and 2002 - Consolidated statements of cash flows for years ended June 30, 2004, 2003 and 2002 - Notes to consolidated financial statements 2. Financial Statement Schedules: These schedules are omitted because of the absence of the conditions under which they are required or because the information is set forth in the financial statements or notes thereto. Exhibits: Exhibit (3-1) (3-2) Exhibit (4) Exhibit (10-1) Amended Articles of Incorporation (Incorporated by reference to Exhibit (3-1) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003). Regulations (Incorporated by reference to Exhibit (3-2) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003). Registrant agrees to file a copy of documents defining the rights of holders of long-term debt upon request of the Commission. The Procter & Gamble 2001 Stock and Incentive Compensation Plan (as amended December 10, 2002) which was adopted by shareholders at the annual meeting on October 9, 2001, and related correspondence and terms and conditions.* The Procter & Gamble 1992 Stock Plan (as amended December 11, 2001) which was adopted by the shareholders at the annual meeting on October 12, 1992 (Incorporated by reference to Exhibit (10-2) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003).* The Procter & Gamble Executive Group Life Insurance Policy (each executive officer is covered for an amount equal to annual salary plus bonus) (Incorporated by reference to Exhibit (10-3) of the 14

(10-2)

(10-3)

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Companys Annual Report on Form 10-K for the year ended June 30, 2003).* (10-4) Additional Remuneration Plan (as amended July 11, 2000) which was adopted by the Board of Directors on April 12, 1949 (Incorporated by reference to Exhibit (10-4) of the Companys Annual Report on Form 10-K for the year ended June 30, 2000).* The Procter & Gamble Deferred Compensation Plan for Directors which was adopted by the Board of Directors on September 9, 1980 (Incorporated by reference to Exhibit (10-5) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003).* The Procter & Gamble 1993 Non-Employee Directors Stock Plan (as amended September 10, 2002) which was adopted by the shareholders at the annual meeting on October 11, 1994 (Incorporated by reference to Exhibit (10-6) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003).* The Procter & Gamble 1992 Stock Plan (Belgian Version) (as amended December 11, 2001) which was adopted by the Board of Directors on February 14, 1997 (Incorporated by reference to Exhibit (10-7) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003).* The Procter & Gamble Future Shares Plan (as amended June 10, 2003) which was adopted by the Board of Directors on October 14, 1997 (Incorporated by reference to Exhibit (10-8) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003).* The Procter & Gamble 2003 Non-Employee Directors Stock Plan, and related correspondence and terms and conditions.* The Procter & Gamble Company Executive Deferred Compensation Plan.* Computation of earnings per share. Computation of ratio of earnings to fixed charges. Annual Report to Shareholders (pages 1-70). Subsidiaries of the registrant. Independent Auditors Consent. Rule 13a-14(a)/15d-14(a) Certifications.

(10-5)

(10-6)

(10-7)

(10-8)

(10-9) (10-10) Exhibit (11) Exhibit (12) Exhibit (13) Exhibit (21) Exhibit (23) Exhibit (31)

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Exhibit (32) Section 1350 Certifications. Exhibit (99-1) Directors and Officers Liability Policy (Incorporated by reference to Exhibit (99-1) of the Companys Annual Report on Form 10-K for the year ended June 30, 2001). (99-2) Directors and Officers (First) Liability Binder of Insurance. (99-3) Directors and Officers (Second) Liability Binder of Insurance. (99-4) Directors and Officers (Third) Liability Binder of Insurance. (99-5) Directors and Officers (Fourth) Liability Binder of Insurance. (99-6) Directors and Officers (Fifth) Liability Binder of Insurance. (99-7) Directors and Officers (Sixth) Liability Binder of Insurance. (99-8) Directors and Officers (Seventh) Liability Binder of Insurance. (99-9) Directors and Officers (Eighth) Liability Binder of Insurance. (99-10) Directors and Officers (Ninth) Liability Binder of Insurance. * Compensatory plan or arrangement B. Reports on Form 8-K: During the quarter ended June 30, 2004, the Company did not file any Current Reports on Form 8-K. During the quarter ended June 30, 2004, the Company furnished reports on Form 8-K pursuant to Item 9 (Regulation FD Disclosure) dated April 1, 2004, relating to the sale of Sunny Delight and Punica juice-based drink businesses; dated April 26, 2004, relating to an alternative to the Wella Dividend Proposal; dated April 26, 2004, relating to the announcement that the Company has entered into a Domination and Profit Transfer Agreement with Wella AG; dated April 30, 2004, relating to the announcement that court appointed independent auditor, Ernst & Young, has confirmed the cash offer and annual compensation payment to be offered by P&G as part of its Domination and Profit Transfer Agreement with Wella AG; dated May 11, 2004, relating to the Company purchasing the remaining stake in its China joint venture; dated May 19, 2004, relating to some business unit realignments and associated management changes; dated June 10, 2004, relating to updating previously issued guidance for the April-June 2004 quarter; and dated June 14, 2004, relating to the announcement that the Domination and Profit Transfer Agreement between the Company and Wella AG has become effective. The Company also furnished reports on Form 8-K containing information pursuant to Item 12 (Results of Operations and Financial Condition) dated April 30, 2004, relating to earnings for the quarter ended March 31, 2004. 16

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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the city of Cincinnati, State of Ohio. THE PROCTER & GAMBLE COMPANY By A.G. LAFLEY (A.G. Lafley) Chairman of the Board, President and Chief Executive September 7, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date

A.G. LAFLEY (A.G. Lafley) CLAYTON C. DALEY, JR. (Clayton C. Daley, Jr.) JOHN K. JENSEN (John K. Jensen) NORMAN R. AUGUSTINE (Norman R. Augustine) BRUCE L. BYRNES (Bruce L. Byrnes) R. KERRY CLARK (R. Kerry Clark) SCOTT D. COOK (Scott D. Cook) DOMENICO DESOLE (Domenico DeSole) JOSEPH T. GORMAN (Joseph T. Gorman)

Chairman of the Board, President and Chief Executive (Principal Executive Officer) Chief Financial Officer (Principal Financial Officer) Vice President and Comptroller (Principal Accounting Officer) Director

September 7, 2004

September 7, 2004

September 7, 2004

September 7, 2004

Director

September 7, 2004

Director

September 7, 2004

Director

September 7, 2004

Director

September 7, 2004

Director

September 7, 2004

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Signature

Title

Date

CHARLES R. LEE (Charles R. Lee) LYNN M. MARTIN (Lynn M. Martin) W. JAMES MCNERNEY, JR. (W. James McNerney, Jr.) JOHNATHAN A. RODGERS (Johnathan A. Rodgers) JOHN F. SMITH, JR. (John F. Smith, Jr.) RALPH SNYDERMAN, M.D. (Ralph Snyderman, M.D.) ROBERT D. STOREY (Robert D. Storey) MARGARET C. WHITMAN (Margaret C. Whitman) ERNESTO ZEDILLO (Ernesto Zedillo)

Director

September 7, 2004

Director

September 7, 2004

Director

September 7, 2004

Director

September 7, 2004

Director

September 7, 2004

Director

September 7, 2004

Director

September 7, 2004

Director

September 7, 2004

Director

September 7, 2004

18

Table of Contents EXHIBIT INDEX Exhibit (3-1) (3-2) Exhibit (4) Exhibit (10-1) Amended Articles of Incorporation (Incorporated by reference to Exhibit (3-1) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003). Regulations (Incorporated by reference to Exhibit (3-2) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003). Registrant agrees to file a copy of documents defining the rights of holders of long-term debt upon request of the Commission. The Procter & Gamble 2001 Stock and Incentive Compensation Plan (as amended December 10, 2002) which was adopted by shareholders at the annual meeting on October 9, 2001, and related correspondence and terms and conditions. The Procter & Gamble 1992 Stock Plan (as amended December 11, 2001) which was adopted by the shareholders at the annual meeting on October 12, 1992 (Incorporated by reference to Exhibit (10-2) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003). The Procter & Gamble Executive Group Life Insurance Policy (each executive officer is covered for an amount equal to annual salary plus bonus) (Incorporated by reference to Exhibit (10-3) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003). Additional Remuneration Plan (as amended July 11, 2000) which was adopted by the Board of Directors on April 12, 1949 (Incorporated by reference to Exhibit (10-4) of the Companys Annual Report on Form 10-K for the year ended June 30, 2000). The Procter & Gamble Deferred Compensation Plan for Directors which was adopted by the Board of Directors on September 9, 1980 (Incorporated by reference to Exhibit (10-5) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003). The Procter & Gamble 1993 Non-Employee Directors Stock Plan (as amended September 10, 2002) which was adopted by the shareholders at the annual meeting on October 11, 1994 (Incorporated by reference to Exhibit (10-6) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003). The Procter & Gamble 1992 Stock Plan (Belgian Version) (as amended December 11, 2001) which was adopted by the Board of Directors on February 14, 1997 (Incorporated by reference to Exhibit (10-7) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003). The Procter & Gamble Future Shares Plan (as amended June 10, 2003) which was adopted by the Board of Directors on October 14, 1997 (Incorporated by reference to Exhibit (10-8) of the Companys Annual Report on Form 10-K for the year ended June 30, 2003).

(10-2)

(10-3)

(10-4)

(10-5)

(10-6)

(10-7)

(10-8)

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(10-9) (10-10) Exhibit (11) Exhibit (12) Exhibit (13) Exhibit (21) Exhibit (23) Exhibit (31) Exhibit (32) Exhibit (99-1) (99-2) (99-3) (99-4) (99-5) (99-6) (99-7) (99-8) (99-9) (99-10)

The Procter & Gamble 2003 Non-Employee Directors Stock Plan, and related correspondence and terms and conditions. The Procter & Gamble Company Executive Deferred Compensation Plan. Computation of earnings per share. Computation of ratio of earnings to fixed charges. Annual Report to Shareholders (pages 1-70). Subsidiaries of the registrant. Independent Auditors Consent. Rule 13a-14(a)/15d-14(a) Certifications. Section 1350 Certifications. Directors and Officers Liability Policy (Incorporated by reference to Exhibit (99-1) of the Companys Annual Report on Form 10-K for the year ended June 30, 2001). Directors and Officers (First) Liability Binder of Insurance. Directors and Officers (Second) Liability Binder of Insurance. Directors and Officers (Third) Liability Binder of Insurance. Directors and Officers (Fourth) Liability Binder of Insurance. Directors and Officers (Fifth) Liability Binder of Insurance. Directors and Officers (Sixth) Liability Binder of Insurance. Directors and Officers (Seventh) Liability Binder of Insurance. Directors and Officers (Eighth) Liability Binder of Insurance. Directors and Officers (Ninth) Liability Binder of Insurance.

EXHIBIT (10-1) The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and related correspondence and terms and conditions

THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN (AS APPROVED BY THE SHAREHOLDERS ON OCTOBER 9, 2001 AND AMENDED DECEMBER 10, 2002) ARTICLE A -- PURPOSE. The purposes of The Procter & Gamble 2001 Stock and Incentive Compensation Plan (the "Plan") are to strengthen the alignment of interests between those employees of The Procter & Gamble Company (the "Company") and its subsidiaries who are largely responsible for the success of the business (the "Participants") and the Company's shareholders through ownership behavior and the increased ownership of shares of the Company's common stock (the "Common Stock"), and to encourage the Participants to remain in the employ of the Company and its subsidiaries. This will be accomplished through the granting of options to purchase shares of Common Stock, the granting of performance related awards, the payment of a portion of the Participants' remuneration in shares of Common Stock, the granting of deferred awards related to the increase in the price of Common Stock, and the granting of restricted stock units ("RSUs") or other awards that are related to the price of Common Stock. ARTICLE B -- ADMINISTRATION. 1. The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors of the Company (the "Board"), or such other committee as may be designated by the Board. The Committee shall consist of not fewer than three (3) members of the Board who are "Non-Employee Directors" as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "1934 Act"), or any successor rule or definition adopted by the Securities and Exchange Commission, to be appointed by the Board from time to time and to serve at the discretion of the Board. The Committee may establish such regulations, provisions, and procedures within the terms of the Plan as, in its opinion, may be advisable for the administration and operation of the Plan, and may designate the Secretary of the Company or other employees of the Company to assist the Committee in the administration and operation of the Plan and may grant authority to such persons to execute documents on behalf of the Committee. The Committee shall report to the Board on the administration of the Plan not less than once each year. 2. Subject to the express provisions of the Plan, the Committee shall have authority: to grant nonstatutory and incentive stock options; to grant stock appreciation rights either freestanding or in tandem with simultaneously granted stock options; to grant Performance Awards (as defined in Article J); to award a portion of a Participant's remuneration in shares of Common Stock subject to such conditions or restrictions, if any, as the Committee may determine; to award RSUs or other awards that are related to the price of Common Stock; to determine all the terms and provisions of the respective stock option, stock appreciation right, stock award, RSU, or other award agreements including setting the dates when each stock option or stock appreciation right or part thereof may be exercised and determining the conditions and restrictions, if any, of any shares of Common Stock acquired through the exercise of any stock option; to provide for special terms for any stock options, stock appreciation rights, stock awards, RSUs or other awards granted to Participants who are foreign nationals or who are employed by the Company or any of its subsidiaries outside of the United States of America in order to fairly accommodate for differences in local law, tax policy or custom and to approve such supplements to or amendments, restatements or alternative versions of the Plan as the Committee may consider necessary or appropriate for such purposes (without affecting the terms of the Plan for any other purpose); and to make all other determinations it deems necessary or advisable for administering the Plan. In addition, at the time of grant the Committee shall have the further authority to: (a) waive the provisions of Article F, Paragraph 1(a);

(b) waive the provisions of Article F, Paragraph 1(b); (c) waive the provisions of Article G, Paragraph 4(a), 4(b) and 4(c); and (d) impose conditions in lieu of those set forth in Article G, Paragraphs 4 through 7, for nonstatutory stock options, stock appreciation rights, stock awards, or Performance Awards which do not increase or extend the rights of the Participant. ARTICLE C -- PARTICIPATION. The Committee shall select as Participants those employees of the Company and its subsidiaries who, in the opinion of the Committee, have demonstrated a capacity for contributing in a substantial manner to the success of such companies. ARTICLE D -- LIMITATION ON NUMBER OF SHARES AVAILABLE UNDER THE PLAN. 1. Unless otherwise authorized by the shareholders and subject to Paragraph 2 of this Article D, the maximum aggregate number of shares available for award under the Plan shall be ninety-five million shares. Any of the authorized shares may be used for any of the types of awards described in the Plan, except that no more than fifteen percent (15%) of the authorized shares may be awarded as restricted or unrestricted stock. 2. In addition to the shares authorized for award by Paragraph 1 of this Article, the following shares may be awarded under the Plan: (a) shares that were authorized to be awarded under The Procter & Gamble 1992 Stock Plan (the "1992 Plan"), but that were not awarded under the 1992 Plan; (b) shares awarded under the Plan or the 1992 Plan that are subsequently forfeited in accordance with the Plan or the 1992 Plan, respectively; (c) shares tendered by a Participant in payment of all or part of the exercise price of a stock option awarded under the Plan or the 1992 Plan; (d) shares tendered by or withheld from a Participant in satisfaction of withholding tax obligations with respect to a stock option awarded under the Plan or the 1992 Plan. ARTICLE E -- SHARES SUBJECT TO USE UNDER THE PLAN. 1. The shares to be delivered by the Company upon exercise of stock options or stock appreciation rights shall be determined by the Board and may consist, in whole or in part, of authorized but unissued shares or treasury shares. In the case of redemption of stock appreciation rights by one of the Company's subsidiaries, such shares shall be shares acquired by that subsidiary. 2. For purposes of the Plan, restricted or unrestricted stock awarded under the terms of the Plan shall be authorized but unissued shares, treasury shares, or shares acquired in the open market by the Company or a subsidiary, as determined by the Board.

ARTICLE F -- STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. 1. In addition to such other conditions as may be established by the Committee, in consideration of the granting of stock options or stock appreciation rights under the terms of the Plan, each Participant agrees as follows: (a) The right to exercise any stock option or stock appreciation right shall be conditional upon certification by the Participant at time of exercise that the Participant intends to remain in the employ of the Company or one of its subsidiaries for at least one (1) year following the date of the exercise of the stock option or stock appreciation right (provided that termination of employment due to Retirement or Special Separation shall not constitute a breach of such certification), and, (b) In order to better protect the goodwill of the Company and its subsidiaries and to prevent the disclosure of the Company's or its subsidiaries' trade secrets and confidential information and thereby help insure the long-term success of the business, the Participant, without prior written consent of the Company, will not engage in any activity or provide any services, whether as a director, manager, supervisor, employee, adviser, consultant or otherwise, for a period of three (3) years following the date of the Participant's termination of employment with the Company (except for terminations of employment resulting from Retirement or Special Separation), in connection with the manufacture, development, advertising, promotion, or sale of any product which is the same as or similar to or competitive with any products of the Company or its subsidiaries (including both existing products as well as products known to the Participant, as a consequence of the Participant's employment with the Company or one of its subsidiaries, to be in development): (1) with respect to which the Participant's work has been directly concerned at any time during the two (2) years preceding termination of employment with the Company or one of its subsidiaries or (2) with respect to which during that period of time the Participant, as a consequence of the Participant's job performance and duties, acquired knowledge of trade secrets or other confidential information of the Company or its subsidiaries. For purposes of this paragraph, it shall be conclusively presumed that Participants have knowledge of information they were directly exposed to through actual receipt or review of memos or documents containing such information, or through actual attendance at meetings at which such information was discussed or disclosed. (c) The provisions of this Article are not in lieu of, but are in addition to the continuing obligation of the Participant (which Participant hereby acknowledges) to not use or disclose the Company's or its subsidiaries' trade secrets and confidential information known to the Participant until any particular trade secret or confidential information become generally known (through no fault of the Participant), whereupon the restriction on use and disclosure shall cease as to that item. Information regarding products in development, in test marketing or being marketed or promoted in a discrete geographic region, which information the Company or one of its subsidiaries is considering for broader use, shall not be deemed generally known until such broader use is actually commercially implemented. As used in this Article, "generally known" means known throughout the domestic U. S. industry or, in the case of Participants who have job responsibilities outside of the United States, the appropriate foreign country or countries' industry.

(d) By acceptance of any offered stock option or stock appreciation rights granted under the terms of the Plan, the Participant acknowledges that if the Participant were, without authority, to use or disclose the Company's or any of its subsidiaries' trade secrets or confidential information or threaten to do so, the Company or one of its subsidiaries would be entitled to injunctive and other appropriate relief to prevent the Participant from doing so. The Participant acknowledges that the harm caused to the Company by the breach or anticipated breach of this Article is by its nature irreparable because, among other things, it is not readily susceptible of proof as to the monetary harm that would ensue. The Participant consents that any interim or final equitable relief entered by a court of competent jurisdiction shall, at the request of the Company or one of its subsidiaries, be entered on consent and enforced by any court having jurisdiction over the Participant, without prejudice to any rights either party may have to appeal from the proceedings which resulted in any grant of such relief. (e) If any of the provisions contained in this Article shall for any reason, whether by application of existing law or law which may develop after the Participant's acceptance of an offer of the granting of stock appreciation rights or stock options, be determined by a court of competent jurisdiction to be overly broad as to scope of activity, duration, or territory, the Participant agrees to join the Company or any of its subsidiaries in requesting such court to construe such provision by limiting or reducing it so as to be enforceable to the extent compatible with then applicable law. If any one or more of the terms, provisions, covenants, or restrictions of this Article shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the terms, provisions, covenants, and restrictions of this Article shall remain in full force and effect and shall in no way be affected, impaired, or invalidated. 2. The fact that a Participant has been granted a stock option or a stock appreciation right under the Plan shall not limit the right of the employer to terminate the Participant's employment at any time. The Committee is authorized to suspend or terminate any outstanding stock option or stock appreciation right for actions taken by a Participant prior to termination of employment if the Committee determines the Participant has acted significantly contrary to the best interests of the Company or its subsidiaries. 3. The maximum number of shares with respect to which stock options or stock appreciation rights may be granted to any Participant in any calendar year shall not exceed 1,000,000 shares. 4. The aggregate fair market value (determined at the time when the incentive stock option is exercisable for the first time by a Participant during any calendar year) of the shares for which any Participant may be granted incentive stock options under the Plan and all other stock option plans of the Company and its subsidiaries in any calendar year shall not exceed $100,000 (or such other amount as reflected in the limits imposed by Section 422(d) of the Internal Revenue Code of 1986, as it may be amended from time to time). 5. If the Committee grants incentive stock options, all such stock options shall contain such provisions as permit them to qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as may be amended from time to time. 6. With respect to stock options granted in tandem with stock appreciation rights, the exercise of either such stock options or such stock appreciation rights will result in the simultaneous cancellation of the same number of tandem stock appreciation rights or stock options, as the case may be.

7. The exercise price for all stock options and stock appreciation rights shall be established by the Committee at the time of their grant and shall be not less than one hundred percent (100%) of the fair market value of the Common Stock on the date of grant. 8. Unless otherwise authorized by the shareholders of the Company, neither the Board nor the Committee shall authorize the amendment of any outstanding stock option or stock appreciation right to reduce the exercise price. 9. No stock option or stock appreciation right shall be cancelled and replaced with awards having a lower exercise price without the prior approval of the shareholders of the Company. This Article F, Paragraph 9 is intended to prohibit the repricing of "underwater" stock options and stock appreciation rights and shall not be construed to prohibit the adjustments permitted under Article J of the Plan. 10. The Committee may require any Participant to accept any stock options or stock appreciation rights by means of electronic signature. ARTICLE G -- EXERCISE OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS. 1. All stock options and stock appreciation rights granted hereunder shall have a maximum life of no more than ten (10) years from the date of grant. 2. No stock options or stock appreciation rights shall be exercisable within one (1) year from their date of grant, except in the case of the death of the Participant. 3. Unless a transfer has been duly authorized by the Committee pursuant to Article G, Paragraph 6 of the Plan, during the lifetime of the Participant, stock options and stock appreciation rights may be exercised only by the Participant personally, or, in the event of the legal incompetence of the Participant, by the Participant's duly appointed legal guardian. 4. In the event that a Participant ceases to be an employee of the Company or any of its subsidiaries while holding an unexercised stock option or stock appreciation right: (a) Any unexercisable portions thereof are then void, except in the case of: (1) death of the Participant; (2) Retirement or Special Separation that occurs more than six months from the date the options were granted; or (3) any option as to which the Committee has waived, at the time of grant, the provisions of this Article G, Paragraph 4(a). (b) Any exercisable portions thereof are then void, except in the case of: (1) death of the Participant; (2) Retirement or Special Separation; or (3) any option as to which the Committee has waived, at the time of grant, the provisions of this Article G, Paragraph 4(b). (c) In the case of Special Separation, any stock option or stock appreciation right must be exercised within the time specified in the original grant or five (5) years from the date of Special Separation, whichever is shorter. 5. In the case of the death of a Participant, the persons to whom the stock options or stock appreciation rights have been transferred by will or the laws of descent and distribution shall have the privilege of exercising remaining stock options, stock appreciation rights or parts thereof, whether or not exercisable on the date of death of such Participant, at any time prior to the expiration date of the stock options or stock appreciation rights.

6. Stock options and stock appreciation rights are not transferable other than by will or by the laws of descent and distribution. For the purpose of exercising stock options or stock appreciation rights after the death of the Participant, the duly appointed executors and administrators of the estate of the deceased Participant shall have the same rights with respect to the stock options and stock appreciation rights as legatees or distributees would have after distribution to them from the Participant's estate. Notwithstanding the foregoing, the Committee may authorize the transfer of stock options and stock appreciation rights upon such terms and conditions as the Committee may require. Such transfer shall become effective only upon the Committee's complete satisfaction that the proposed transferee has strictly complied with such terms and conditions, and both the original Participant and the transferee shall be subject to the same terms and conditions hereunder as the original Participant. 7. Upon the exercise of stock appreciation rights, the Participant shall be entitled to receive a redemption differential for each such stock appreciation right which shall be the difference between the then fair market value of one share of Common Stock and the exercise price of one stock appreciation right then being exercised. In the case of the redemption of stock appreciation rights by a subsidiary of the Company not located in the United States, the redemption differential shall be calculated in United States dollars and converted to the appropriate local currency on the exercise date. As determined by the Committee, the redemption differential may be paid in cash, Common Stock to be valued at its fair market value on the date of exercise, any other mode of payment deemed appropriate by the Committee or any combination thereof. 8. Time spent on leave of absence shall be considered as employment for the purposes of the Plan. Leave of absence means any period of time away from work granted to any employee by his or her employer because of illness, injury, or other reasons satisfactory to the employer. 9. The Company reserves the right from time to time to suspend the exercise of any stock option or stock appreciation right where such suspension is deemed by the Company as necessary or appropriate for corporate purposes. No such suspension shall extend the life of the stock option or stock appreciation right beyond its expiration date, and in no event will there be a suspension in the five (5) calendar days immediately preceding the expiration date. 10. The Committee may require any Participant to exercise any stock options or stock appreciation rights by means of electronic signature. ARTICLE H -- PAYMENT FOR STOCK OPTIONS AND TAX WITHHOLDING. Upon the exercise of a stock option, payment in full of the exercise price shall be made by the Participant. As determined by the Committee, the stock option exercise price may be paid by the Participant either in cash, shares of Common Stock valued at their fair market value on the date of exercise, a combination thereof, or such other method as determined by the Committee. In addition to payment of the exercise price, the Committee may authorize the Company to charge a reasonable administrative fee for the exercise of any stock option. Furthermore, to the extent the Company is required to withhold federal, state, local or foreign taxes in connection with any Participant's stock option exercise, the Committee may require the Participant to make such arrangements as the Company may deem necessary for the payment of such taxes required to be withheld (including, without limitation, relinquishment of a portion of such stock options or relinquishment of a portion of the proceeds received by the Participant in a simultaneous exercise and sale of stock during a "cashless" exercise). In no event, however, shall the Committee be permitted to require payment from a Participant in excess of the maximum required tax withholding rates.

ARTICLE I -- GRANT OF UNRESTRICTED OR RESTRICTED STOCK. The Committee may grant Common Stock to Participants under the Plan subject to such conditions or restrictions, if any, as the Committee may determine. To the extent the Company is required to withhold federal, state, local or foreign taxes in connection with the lapse of restrictions on any Participant's shares of Common Stock, the Committee may require the Participant to make such arrangements as the Company may deem necessary for the payment of such taxes required to be withheld (including, without limitation, relinquishment of a portion of such shares of Common Stock). In no event, however, shall the Committee be permitted to require payment from a Participant in excess of the maximum required tax withholding rates. ARTICLE J -- PERFORMANCE RELATED AWARDS. 1. The Committee, in its discretion, may establish performance goals for selected Participants and authorize the granting of cash, stock options, stock appreciation rights, Common Stock, RSUs or other awards that are related to the price of Common Stock, other property, or any combination thereof ("Performance Awards") to such Participants upon achievement of such established performance goals during a specified time period (the "Performance Period"). The Committee, in its discretion, shall determine the Participants eligible for Performance Awards, the performance goals to be achieved during each Performance Period, the amount of any Performance Awards to be paid, and the method of payment for any Performance Awards. Performance Awards may be granted either alone or in addition to other grants made under the Plan. 2. Notwithstanding the foregoing, any Performance Awards granted to the Chief Executive and the Company's other four highest paid executive officers (as reported in the Company's proxy statement pursuant to Regulation S-K, Item 402(a)(3)) under Article J, Paragraph 1 shall comply with all of the following requirements: (a) Each grant shall specify the specific performance objectives (the "Performance Objectives") which, if achieved, will result in payment or early payment of the Performance Award. The Performance Objectives may be described in terms of Company-wide objectives that are related to the individual Participant or objectives that are related to a subsidiary, division, department, region, function or business unit of the Company in which the Participant is employed, and may consist of one or more or any combination of the following criteria: stock price, market share, sales revenue, cash flow, earnings per share, return on equity, total shareholder return, gross margin, and/or costs. The Performance Objectives may be made relative to the performance of other corporations. The Committee, in its discretion, may change or modify these criteria, however, at all times the criterion must be valid performance criterion for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Committee may not change the criteria or Performance Objectives for any Performance Period that has already been approved by the Committee. The Committee may cancel a Performance Period or replace a Performance Period with a new Performance Period, provided that any such cancellation or replacement shall not cause the Performance Award to fail to meet the requirements of Section 162(m) of the Code. (b) Each grant shall specify the minimum level of achievement required by the Participant relative to the Performance Objectives to qualify for a Performance Award. In doing so, the grant shall establish a formula for determining the percentage of the Performance Award to be awarded if performance is at or above the minimum level, but falls short of full achievement of the specified Performance Objectives. Each grant may also establish a formula for determining an additional award above and beyond the Performance Award to be granted to the Participant if performance is at or above the specified Performance Objectives. Such additional award shall also be established as a percentage of

the Performance Award. The Committee may decrease a Performance Award as determined by the Performance Objectives, but in no case may the Committee increase any Performance Award as determined by the Performance Objectives. (c) The maximum Performance Award that may be granted to any Participant for any one-year Performance Period shall not exceed $20,000,000 or 400,000 shares of Common Stock (the "Annual Maximum"). The maximum Performance Award that may be granted to any Participant for a Performance Period greater than one year shall not exceed the Annual Maximum multiplied by the number of full years in the Performance Period. ARTICLE K -- ADJUSTMENTS. In the event of any future reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, share exchange, reclassification, distribution, spin-off or other change affecting the corporate structure, capitalization or Common Stock of the Company occurring after the date of approval of the Plan by the Company's shareholders, (i) the amount of shares authorized to be issued under the Plan and (ii) the number of shares and/or the exercise prices covered by outstanding stock options and stock appreciation rights shall be adjusted appropriately and equitably to prevent dilution or enlargement of rights under the Plan. Following any such change, the term "Common Stock" shall be deemed to refer to such class of shares or other securities as may be applicable. ARTICLE L -- ADDITIONAL PROVISIONS AND DEFINITIONS. 1. The Board may, at any time, repeal the Plan or may amend it except that no such amendment may amend this paragraph, increase the total aggregate number of shares subject to the Plan, reduce the price at which stock options or stock appreciation rights may be granted or exercised, alter the class of employees eligible to receive stock options, or increase the percentage of shares authorized to be transferred as restricted or unrestricted stock. Participants and the Company shall be bound by any such amendments as of their effective dates, but if any outstanding stock options or stock appreciation rights are materially affected adversely, notice thereof shall be given to the Participants holding such stock options and stock appreciation rights and such amendments shall not be applicable without such Participant's written consent. If the Plan is repealed in its entirety, all theretofore granted unexercised stock options or stock appreciation rights shall continue to be exercisable in accordance with their terms and shares subject to conditions or restrictions granted pursuant to the Plan shall continue to be subject to such conditions or restrictions. 2. In the case of a Participant who is an employee of a subsidiary of the Company, performance under the Plan, including the granting of shares of the Company, may be by the subsidiary. Nothing in the Plan shall affect the right of the Company or any subsidiary to terminate the employment of any employee with or without cause. None of the Participants, either individually or as a group, and no beneficiary, transferee or other person claiming under or through any Participant, shall have any right, title, or interest in any shares of the Company purchased or reserved for the purpose of the Plan except as to such shares, if any, as shall have been granted or transferred to him or her. Nothing in the Plan shall preclude the awarding or granting of shares of the Company to employees under any other plan or arrangement now or hereafter in effect. 3. "Subsidiary" means any company in which more than fifty percent (50%) of the total combined voting power of all classes of stock is owned, directly or indirectly, by the Company or, if the company does not issue stock, more than fifty percent (50%) of the total combined ownership interest is owned, directly or indirectly, by the Company. In addition, the Board may designate for participation in

the Plan as a "subsidiary," except for the granting of incentive stock options, those additional companies affiliated with the Company in which the Company's direct or indirect stock ownership is fifty percent (50%) or less of the total combined voting power of all classes of such company's stock, or, if the company does not issue stock, the Company's direct or indirect ownership is fifty percent (50%) or less of the company's total combined ownership interest. 4. Notwithstanding anything to the contrary in the Plan, stock options and stock appreciation rights granted hereunder shall vest immediately and any conditions or restrictions on Common Stock shall lapse upon a "Change in Control." A "Change in Control" shall mean the occurrence of any of the following: (a) An acquisition (other than directly from the Company) of any voting securities of the Company (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Exchange Act), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding shares or the combined voting power of the Company's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred pursuant to this Paragraph 4(a), shares or Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a "Related Entity"), (ii) the Company or any Related Entity, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (b) The individuals who, as of July 10, 2001 are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least half of the members of the Board; or, following a Merger (as hereinafter defined) which results in a Parent Corporation (as hereinafter defined), the board of directors of the ultimate Parent Corporation; provided, however, that if the election, or nomination for election by the Company's common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of the Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) The consummation of: (i) A merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued (a "Merger"), unless such Merger is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a Merger where: (A) the stockholders of the Company, immediately before such Merger own directly or indirectly immediately following such Merger at least fifty percent (50%) of the combined voting power of the outstanding voting securities of (x) the corporation resulting from such Merger (the "Surviving Corporation") if fifty

percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by another Person (a "Parent Corporation"), or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Merger constitute at least half of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; and (C) no Person other than (1) the Company, (2) any Related Entity, (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such Merger was maintained by the Company or any Related Entity, or (4) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or shares, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the outstanding voting securities or common stock of (x) the Surviving Corporation if there is no Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; (ii) A complete liquidation or dissolution of the Company; or (iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Related Entity or under conditions that would constitute a Non-Control Transaction with the disposition of assets being regarded as a Merger for this purpose or the distribution to the Company's stockholders of the stock of a Related Entity or any other assets). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding shares or Voting Securities as a result of the acquisition of shares or Voting Securities by the Company which, by reducing the number of shares or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional shares or Voting Securities which increases the percentage of the then outstanding shares or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 5. The term "Special Separation" shall mean any termination of employment that occurs prior to the time a Participant is eligible to retire, except a termination for cause or a voluntary resignation that is not initiated or encouraged by the Company. 6. The term "Retirement" shall mean: (a) retirement in accordance with the provisions of any appropriate retirement plan of the Company or any of its subsidiaries; or (b) termination of employment under the permanent disability provision of any retirement plan of the Company or any of its subsidiaries.

ARTICLE M -- CONSENT. Every Participant who receives a stock option, stock appreciation right, or grant of shares pursuant to the Plan shall be bound by the terms and provisions of the Plan and of the stock option, stock appreciation right, or grant of shares agreement referable thereto, and the acceptance of any stock option, stock appreciation right, or grant of shares pursuant to the Plan shall constitute a binding agreement between the Participant and the Company and its subsidiaries and any successors in interest to any of them. Every Person who receives a stock option, stock appreciation right, or grant of shares from a Participant pursuant to the Plan shall, in addition to such terms and conditions as the Committee may require upon such grant, be bound by the terms and provisions of the Plan and of the stock option, stock appreciation right, or grant of shares agreement referable thereto, and the acceptance of any stock option, stock appreciation right, or grant of shares by such Person shall constitute a binding agreement between such Person and the Company and its subsidiaries and any successors in interest to any of them. The Plan shall be governed by and construed in accordance with the laws of the State of Ohio, United States of America. ARTICLE N -- PURCHASE OF SHARES OR STOCK OPTIONS. The Committee may authorize any Participant to convert cash compensation otherwise payable to such Participant into stock options or shares of Common Stock under the Plan upon such terms and conditions as the Committee, in its discretion, shall determine. Notwithstanding the foregoing, in any such conversion the shares of Common Stock shall be valued at no less than one hundred percent (100%) of their fair market value. ARTICLE O -- DURATION OF PLAN. The Plan will terminate on July 10, 2011 unless a different termination date is fixed by the shareholders or by action of the Board of Directors, but no such termination shall affect the prior rights under the Plan of the Company (or any subsidiary) or of anyone to whom stock options or stock appreciation rights were granted prior thereto or to whom shares have been transferred prior to such termination.

ADDITIONAL INFORMATION 1. SHARES AWARDED AS A PORTION OF REMUNERATION Any shares of Common Stock of the Company awarded as a portion of a participant's remuneration shall be valued at not less than one hundred percent (100%) of the fair market value of the Company's Common Stock on the date of the award. These shares may be subject to such conditions or restrictions as the Committee may determine, including a requirement that the participant remain in the employ of the Company or one of its subsidiaries for a set period of time, or until retirement. Failure to abide by any applicable restriction will result in forfeiture of the shares. 2. U.S. TAX EFFECTS INCENTIVE STOCK OPTIONS With regard to tax effects which may accrue to the optionee, counsel advises that if the optionee has continuously been an employee from the time an option has been granted until at least three months before it is exercised, under existing law no taxable income results to the optionee from the exercise of an incentive stock option at the time of exercise. However, the spread at exercise is an "adjustment" item for alternative minimum tax purposes. Any gain realized on the sale or other disposition of stock acquired on exercise of an incentive stock option is considered as long-term capital gain for tax purposes if the stock has been held more than two years after the date the option was granted and more than one year after the date of exercise of the option. If the stock is disposed of within one year after exercise, the lesser of any gain on such disposition or the spread at exercise (i.e., the excess of the fair market value of the stock on the date of exercise over the option price) is treated as ordinary income, and any appreciation after the date of exercise is considered long-term or short-term capital gain to the optionee depending on the holding period prior to sale. However, the spread at exercise (even if greater than the gain on the disposition) is treated as ordinary income if the disposition is one on which a loss, if sustained, is not recognized--e.g., a gift, a "wash" sale or a sale to a related party. The amount of ordinary income recognized by the optionee is treated as a tax deductible expense to the Company. No other amount relative to an incentive stock option is a tax deductible expense to the Company. NONSTATUTORY STOCK OPTIONS With regard to tax effects which may accrue to the optionee, counsel advises that under existing tax law gain taxable as ordinary income to the optionee is deemed to be realized at the date of exercise of the option, the gain on each share being the difference between the market price on the date of exercise and the option price. This amount is treated as a tax deductible expense to the Company at the time of the exercise of the option. Any appreciation in the value of the stock after the date of exercise is considered a long-term or short-term capital gain to the optionee depending on whether or not the stock was held for the appropriate holding period prior to sale. STOCK APPRECIATION RIGHTS With regard to tax effects which may accrue to the recipient, counsel advises that "United States persons," as defined in the Internal Revenue Code of 1986 (the "I.R.C."), must

recognize ordinary income as of the date of exercise equal to the amount paid to the recipient, i.e., the difference between the grant price and the value of the shares on the date of exercise. SHARES AWARDED AS A PORTION OF REMUNERATION With regard to tax effects which may accrue to the recipient, counsel advises that "United States persons" as defined in the Internal Revenue Code of 1986 (the "I.R.C."), must recognize ordinary income in the first taxable year in which the recipient's rights to the stock are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable. Recipients who are "United States persons" may also elect to include the income in their tax returns for the taxable year in which they receive the shares by filing an election to do so with the appropriate office of the Internal Revenue Service within 30 days of the date the shares are transferred to them. The amount includable in income is the fair market value of the shares as of the day the shares are transferable or not subject to a substantial risk of forfeiture, whichever is applicable; if the recipient has elected to include the income in the year in which the shares are received, the amount of income includable is the fair market value of the shares at the time of transfer. For non-United States persons, the time when income is realized, its measurement and its taxation, will depend on the laws of the particular countries in which the recipients are residents and/or citizens at the time of transfer or when the shares are first transferable and not subject to a substantial risk of forfeiture, as the case may be. "United States persons" who receive shares awarded as a portion of remuneration may also have tax consequences with respect to the receipt of shares or the expiration of restrictions or substantial risk of forfeiture on such shares under the laws of the particular country other than the United States of which such person is a resident or citizen. Notwithstanding the above advice received by the Company, it is each individual recipient's responsibility to check with his or her personal tax adviser as to the tax effects and proper handling of stock options, stock appreciation rights and Common Stock acquired. The above advice relates specifically to the U.S. consequences of stock options, stock appreciation rights and Common Stock acquired, including the U.S. consequences to "United States persons" whether or not resident in the U.S. In addition to U.S. tax consequences, for all persons who are not U.S. residents, the time when income, if any, is realized, the measurement of such income and its taxation will also depend on the laws of the particular country other than the U.S. of which such persons are resident and/or citizens at the time of grant or the time of exercise, as the case may be. The Plan is not subject to the qualification requirements of Section 401(a) of the I.R.C. 3. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 The Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended. 4. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Securities and Exchange Commission (File No. 1-434) pursuant to the 1934 Act are incorporated into this document by reference: 1. The Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2002;

2. The Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002; and 3. All other documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act after the date of this Prospectus and prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold. The Company will provide without charge to each participant in the Plan, upon oral or written request, a copy of any or all of these documents other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into such documents. In addition, the Company will provide without charge to such participants a copy of the Company's most recent annual report to shareholders, proxy statement, and other communications distributed generally to security holders of the Company. Requests for such copies should be directed to Mr. James C. Ashley, Manager, Shareholder Services, The Procter & Gamble Company, P.O. Box 5572, Cincinnati, Ohio 45201, (513) 983-3413. 5. ADDITIONAL INFORMATION Additional information about the Plan and its administrators may be obtained from Ms. Sharon E. Abrams, Secretary, The Procter & Gamble Company, One Procter & Gamble Plaza, Cincinnati, Ohio 45202, (513) 983-7854.

[PROCTER & GAMBLE LOGO] [GRANT_DATE] [GLOBALID] [FIRST_NAME] [MIDDLE_NAME] [LAST_NAME]] Subject: NON-STATUTORY STOCK OPTION SERIES 04-AA-2 In recognition of your contributions to the future success of the business, the Company hereby grants you an option to purchase, in accordance with and subject to the terms of The Procter & Gamble 2001 Stock and Incentive Compensation Plan, the Regulations of the Compensation Committee of the Board of Directors and the Exercise Instructions in place from time to time, shares of Procter & Gamble Common Stock as follows:
Grant Value: Option Price per Share: Number of Shares: Date of Grant: Expiration of Option: Option Vest Date: Acceptance Deadline: $[DELIVERED_GRANT_VALUE] $[STOCK_PRCE] [SHARES] [GRANT_DATE] [DATE] 100% after [DATE] [DATE]

The option is not transferable other than by will or the laws of descent and distribution and is exercisable during your life only by you. This option may become void upon separation from the Company or any of its subsidiaries (see Article G, paragraph 4 of the Plan). For the purposes of this option, separation from the Company or any of its subsidiaries and termination of employment will be effective as of the date that you are no longer actively employed and will not be extended by any notice period required under local law. Please note that when the issue or transfer of the Common Stock covered by this option may, in the opinion of the Company, conflict or be inconsistent with any applicable law or regulation of any governmental agency, the Company reserves the right to refuse to issue or transfer said Common Stock and that any outstanding options may be suspended or terminated if you engage in actions that are significantly contrary to the best interests of the Company or any of its subsidiaries. THE PROCTER & GAMBLE COMPANY [ ] I hereby accept the Employee Acknowledgement and Consent Form set forth on the reverse of this letter and I hereby accept the above option to purchase shares of the Common Stock of the Company in accordance with and subject to the terms of The Procter & Gamble 2001 Stock and Incentive Compensation Plan, with which I am familiar, including the non-compete provision and other terms of Article F, and agree that this option and The Procter & Gamble 2001 Stock and Incentive Compensation Plan together constitute an agreement between the Company and me in accordance with the terms thereof and hereof, and I further agree that any legal action related to this option, including Article F, may be brought in any federal or state court located in Hamilton County, Ohio, USA, and I hereby accept the jurisdiction of these courts and consent to service of process from said courts solely for legal actions related to this option grant. [ ] I hereby reject the above option to purchase shares of the Common Stock of the Company.

Date Optionee Signature

EMPLOYEE ACKNOWLEDGEMENT AND CONSENT FORM I understand that I am eligible to receive a grant of stock options under The Procter & Gamble 2001 Stock and Incentive Compensation Plan (the "Plan"). Data Privacy I hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of my personal data as described in this document by and among, as applicable, my employer ("Employer") and The Procter & Gamble Company and its subsidiaries and affiliates ("P&G") for the exclusive purpose of implementing, administering and managing my participation in the Plan. I understand that P&G and my Employer hold certain personal information about me, including, but not limited to, my name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in P&G, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in my favor, for the purpose of implementing, administering and managing the Plan ("Data"). I understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in my country or elsewhere, and that the recipient's country may have different data privacy laws and protections than my country. I understand that I may request a list with the names and addresses of any potential recipients of the Data by contacting my local human resources representative. I authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing my participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom I may elect to deposit any shares of stock acquired upon exercise of the option. I understand that Data will be held only as long as is necessary to implement, administer and manage my participation in the Plan. I understand that I may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing my local human resources representative. I understand, however, that refusing or withdrawing my consent may affect my ability to participate in the Plan. For more information on the consequences of my refusal to consent or withdrawal of consent, I understand that I may contact my local human resources representative. Nature of Grant By completing this form and accepting the grant of the stock option evidenced hereby, I acknowledge that: i) the Plan is established voluntarily by The Procter & Gamble Company, it is discretionary in nature and it may be amended, suspended or terminated at any time; ii) the grant of options under the Plan is voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted repeatedly in the past; iii) all decisions with respect to future grants of options, if any, will be at the sole discretion of P&G; iv) my participation in the Plan is voluntary; v) the option is an extraordinary item and not part of normal or expected compensation or salary for any purposes including, but not limited to, calculating any termination, severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; vi) in the event that my employer is not P&G, the grant of options will not be interpreted to form an employment relationship with P&G; and furthermore, the grant of options will not be interpreted to form an employment contract with my Employer; vii) the future value of the shares purchased under the Plan is unknown and cannot be predicted with certainty, may increase or decrease in value, even below the exercise price and, if the underlying shares do not increase in value, the option will have no value; iix) my participation in the Plan shall not create a right to further employment with my Employer and shall not interfere with the ability of my Employer to terminate my employment relationship at any time, with or without cause; ix) and no claim or entitlement to compensation or damages arises from the termination of the option or the diminution in value of the option or shares purchased and I irrevocably release P&G and my Employer from any such claim that may arise. Responsibility for Taxes Regardless of any action P&G or my Employer takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding ("Tax-Related Items"), I acknowledge that the ultimate liability for all Tax-Related Items is and remains my responsibility and that P&G and/or my Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the option grant, including the grant, vesting or exercise of the option, the subsequent sale of shares acquired pursuant to such exercise and the receipt of any dividends; and (2) do not commit to structure the terms of the grant or any aspect of the option to reduce or eliminate my liability for Tax-Related Items. Prior to exercise of the option, I shall pay or make adequate arrangements satisfactory to P&G and/or my Employer to satisfy all withholding and payment on account obligations of P&G and/or my Employer. In this regard, I authorize P&G and/or my Employer to withhold all applicable Tax-Related Items from my wages or other cash compensation paid to me by P&G and/or my Employer or from proceeds of the sale of the shares. Alternatively, or in addition, if permissible under local law, P&G may (1) sell or arrange for the sale of shares that I acquire to meet the withholding obligation for Tax-Related Items, and/or (2) withhold in shares, provided that P&G only withholds the amount of shares necessary to satisfy the minimum withholding amount. Finally, I shall pay to P&G or my Employer any amount of Tax-Related Items that P&G or my Employer may be required to withhold as a result of my participation in the Plan or my purchase of shares that cannot be satisfied by the means previously described. P&G may refuse to honor the exercise and refuse to deliver the shares if I fail to comply with my obligations in connection with the Tax-Related Items as described in this section.

[date] [name] SUBJECT: AWARD OF RESTRICTED STOCK UNITS This is to advise you that The Procter & Gamble Company, an Ohio corporation is awarding you with Restricted Stock Units, on the dates and in the amounts listed below, pursuant to The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and subject to the attached Statement of Terms and Conditions Form RTN.
Grant Date: Forfeiture Date: Original Settlement Date: Number of Restricted Stock Units: [date] [date] [date] [number] THE PROCTER & GAMBLE COMPANY

[ ] I hereby accept the Award of Restricted Stock Units set forth above in accordance with and subject to the terms of The Procter & Gamble 2001 Stock and Incentive Compensation Plan and the attached Statement of Terms and Conditions for Restricted Stock Units, with which I am familiar. I agree that the Award of Restricted Stock Units, The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and the attached Statement of Terms and Conditions for Restricted Stock Units together constitute an agreement between the Company and me in accordance with the terms thereof and hereof, and I further agree that any legal action related to this Award of Restricted Stock Units may be brought in any federal or state court located in Hamilton County, Ohio, USA, and I hereby accept the jurisdiction of these courts and consent to service of process from said courts solely for legal actions related to this Award of Restricted Stock Units. [ ] I hereby reject the Award of Restricted Stock Units set forth above.
---------------Date -----------------------------------Signature

FORM RTN

THE PROCTER & GAMBLE COMPANY STATEMENT OF TERMS AND CONDITIONS FOR RESTRICTED STOCK UNITS THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN The Restricted Stock Units awarded to you as set forth in the letter you received from the Company (your "Award Letter"), and your ownership thereof, are subject to the following terms and conditions. 1. DEFINITIONS. For purposes of this Statement of Terms and Conditions for Restricted Stock Units ("Terms and Conditions"), all capitalized terms not defined in these Terms and Conditions will have the meanings described in The Procter & Gamble 2001 Stock and Incentive Compensation Plan (the "Plan"), and the following terms will have the following meanings. (a) "DATA" has the meaning described in Section 10; (b) "DISABILITY" means termination of employment under the permanent disability provision of any retirement plan of Procter & Gamble; (c) "DIVIDEND EQUIVALENTS" has the meaning described in Section 4; (d) "FORFEITURE DATE" is the date identified as such in your Award Letter; (e) "FORFEITURE PERIOD" means the period from the Grant Date until the Forfeiture Date. (f) "GRANT DATE" means the date a Restricted Stock Unit was awarded to you, as identified in your Award Letter; (g) "ORIGINAL SETTLEMENT DATE" is the date identified as such in your Award Letter, as adjusted, if applicable, by Section 2; (h) "POST-FORFEITURE PERIOD" means the period from the Forfeiture Date until the Original Settlement Date; (i) "PROCTER & GAMBLE" means the Company and/or its Subsidiaries; (j) "RESTRICTED STOCK UNIT" means an unfunded, unsecured promise by the Company, in accordance with these Terms and Conditions and the provisions of the Plan, to issue to you one share of Common Stock on the Original Settlement Date. 2. TRANSFER AND RESTRICTIONS. (a) Neither Restricted Stock Units nor your interest in them may be sold, exchanged, transferred, pledged, hypothecated, given or otherwise disposed of by you at any time, except by will or by the laws of descent and distribution. Any attempted transfer of a Restricted Stock Unit, whether voluntary or involuntary on your part, will result in the immediate forfeiture to the Company, and cancellation, of the Restricted Stock Unit (including all rights to receive Dividend Equivalents).

(b) During the Forfeiture Period, your Restricted Stock Units (including all rights to receive Dividend Equivalents) will be forfeited and cancelled if you leave your employment with Procter & Gamble for any reason, except due to: (i) your Disability; or (ii) in certain circumstances, your Special Separation. In the event of your Disability during the Forfeiture Period, unless otherwise agreed to in writing by the Company, your Original Settlement Date will automatically and immediately become, without any further action by you or the Company, the date of your Disability. In the event of your Special Separation during the Forfeiture Period, your Restricted Stock Units will be forfeited and cancelled unless otherwise agreed to in writing by the Company. (c) During the Post-Forfeiture Period, if you leave your employment with Procter & Gamble for any reason other than: (i) Disability; (ii) Special Separation; or (iii) retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble, your Original Settlement Date will automatically and immediately become, without any further action by you or the Company, the date of your termination of employment. In the event of your Disability or Special Separation during the Post-Forfeiture Period, unless otherwise agreed to in writing by the Company, your Original Settlement Date will automatically and immediately become, without any further action by you or the Company, the date of your Disability or Special Separation, as applicable. In the event of your retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble during the Post-Forfeiture Period, you will retain your Restricted Stock Units subject to the Plan and these Terms and Conditions. (d) Upon your death or the occurrence of a Change in Control at any time while you hold Restricted Stock Units and/or Dividend Equivalents, your Original Settlement Date will automatically and immediately become, without any further action by you or the Company, the date of your death or of the Change in Control, as applicable. (e) From time to time, the Company and/or the Committee may establish procedures with which you must comply in order to accept an award of Restricted Stock Units, or to settle your Restricted Stock Units, including requiring you to do so by means of electronic signature, or charging you an administrative fee for doing so. (f) Once your Restricted Stock Units have been settled by delivery to you of an equivalent number of shares of Common Stock, the Restricted Stock Units will have no further value, force or effect and you will cease to receive Dividend Equivalents associated with the Restricted Stock Units. 3. CONFIDENTIALITY AND NON-COMPETITION (a) In order to better protect the goodwill of Procter & Gamble and to prevent the disclosure of Procter & Gamble's trade secrets and confidential information, and thereby help ensure the long-term success of Procter & Gamble's business, in consideration of your being awarded Restricted Stock Units, you (without prior written consent of Procter & Gamble), will not engage in any activity or provide any services, whether as a director, manager, supervisor, employee, advisor, consultant or otherwise, for a period of three (3) years following the date your employment with Procter & Gamble is terminated (except for terminations resulting from Retirement or Special Separation), in connection with the manufacture, development, advertising, promotion, or sale of any product which is the same as or similar to or competitive with any products of Procter & Gamble (including both existing products as well as products known to you, as a consequence of your employment with Procter & Gamble, to be in development): (i) with respect to which your work has been directly concerned at any time during the two (2) years preceding the termination of your employment with Procter & Gamble; or

(ii) with respect to which, during the two (2) years preceding the termination of your employment with Procter & Gamble, you, as a consequence of your job performance and duties, acquired knowledge of trade secrets or other confidential information of Procter & Gamble. For purposes of this Section 3(a), it will be conclusively presumed that you have knowledge of information you were directly exposed to through actual receipt or review of memoranda or documents containing such information, or through attendance at meetings at which such information was discussed or disclosed. (b) The provisions of Section 3(a) are not in lieu of, but are in addition to your continuing obligation (which you acknowledge by accepting an award of Restricted Stock Units) to not use or disclose Procter & Gamble's trade secrets or confidential information known to you until any particular trade secret or confidential information becomes generally known (through no fault of yours). As used in this Section 3(b), "generally known" means known throughout the domestic United States industry or, if you have job responsibilities partially or entirely outside of the United States, the appropriate domestic United States and/or appropriate foreign country or countries' industry(ies). Information regarding products in development, in test marketing, or being marketed or promoted in a discrete geographic region, which information Procter & Gamble is considering for broader use, will not be deemed to be "generally known" until such broader use is actually commercially implemented. (c) By accepting an award of Restricted Stock Units, you agree that, if you were, without authority, to use or disclose Procter & Gamble's trade secrets or confidential information or threaten to do so, Procter & Gamble would be entitled to injunctive and other appropriate relief to prevent you from doing so. You further agree that the harm caused to Procter & Gamble by the breach or anticipated breach of this Section 3(c) is, by its nature, irreparable because, among other things, it is not readily susceptible of proof as to the monetary harm that would ensue. You agree that any interim or final equitable relief entered by a court of competent jurisdiction will, at the request of Procter & Gamble, be entered on consent and enforced by any court having jurisdiction over you, without prejudice to any rights you or Procter & Gamble may have to appeal from the proceedings which resulted in any grant of such relief. (d) If any of the provisions contained in Sections 3(a) through (c) are for any reason, whether by application of existing law or law which may develop after your acceptance of an award of Restricted Stock Units, determined by a court of competent jurisdiction to be overly broad as to scope of activity, duration, or territory, then by accepting an award of Restricted Stock Units you agree to join Procter & Gamble in requesting such court to construe such provision by limiting or reducing it so as to be enforceable to the extent compatible with then-applicable law. If any one or more of the provisions contained in Section 3(a) through (c) are determined by a court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the provisions will remain in full force and effect and will not be affected, impaired or invalidated in any way. 4. DIVIDEND EQUIVALENTS. As a holder of Restricted Stock Units, during the period from the Grant Date until the Original Settlement Date, each time a cash dividend or other cash distribution is paid with respect to Common Stock, you will receive additional Restricted Stock Units ("Dividend Equivalents"). The number of such additional Restricted Stock Units will be determined as follows: multiply the number of Restricted Stock Units currently held by the per share amount of the cash dividend or other cash distribution on the Common Stock, and then divide the result by the price of the Common Stock on the date of the dividend or distribution. These Dividend Equivalent Restricted Stock Units will be subject to the same terms and conditions as the original Restricted Stock Units that gave rise to them, including forfeiture and settlement terms, except that if there is a fractional number of Dividend Equivalent Restricted Stock Units on the

date they are to be settled, you will receive one share of Common Stock for the fractional Dividend Equivalent Restricted Stock Units. 5. VOTING AND OTHER SHAREHOLDER RIGHTS. A Restricted Stock Unit is not a share of Common Stock, and thus you are not entitled to any voting, dividend or other rights as a shareholder of the Company with respect to the Restricted Stock Units you hold. 6. ADJUSTMENTS IN CASE OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In the event of a future reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, share exchange, reclassification, distribution, spin-off, or other change affecting the corporate structure, capitalization or Common Stock, the number of Restricted Stock Units you hold will be adjusted appropriately and equitably to prevent dilution or enlargement of your rights. 7. TAX WITHHOLDING. To the extent Procter & Gamble is required to withhold federal, state, local or foreign taxes in connection with your Restricted Stock Units or Dividend Equivalents, the Committee may require you to make such arrangements as Procter & Gamble may deem appropriate for the payment of such taxes required to be withheld, including without limitation, relinquishment of some of the shares of Common Stock that would otherwise be given to you. However, regardless of any action taken by Procter & Gamble with respect to any income tax, social insurance, payroll tax, or other tax, by accepting a Restricted Stock Unit or Dividend Equivalent, you acknowledge that the ultimate liability for any such tax owed by you is and remains your responsibility, and that Procter & Gamble makes no representations about the tax treatment of your Restricted Stock Units or Dividend Equivalents, and does not commit to structure any aspect of the Restricted Stock Units or Dividend Equivalents to reduce or eliminate your tax liability. 8. SUSPENSION PERIODS AND TERMINATION. The Company reserves the right from time to time to temporarily suspend your right to settle your Restricted Stock Units for shares of Common Stock where such suspension is deemed by the Company as necessary or appropriate. 9. PROCTER & GAMBLE RIGHT TO TERMINATE EMPLOYMENT AND OTHER REMEDIES. (a) Nothing in these Terms and Conditions, or the fact that you have been awarded Restricted Stock Units, affects in any way the right or power of Procter & Gamble to terminate your employment at any time for any reason, with or without cause, or precludes Procter & Gamble from taking any action or enforcing any remedy available to it with respect to any action or conduct on your part. Without limiting the previous sentence, the Committee may, for example, suspend or terminate any outstanding Restricted Stock Units for actions taken by you prior to the termination of your employment if the Committee determines that you have acted significantly contrary to the best interests of Procter & Gamble. (b) By accepting a Restricted Stock Unit, you acknowledge that: (i) the Plan is established voluntarily by The Procter & Gamble Company, is discretionary in nature, and may be amended, suspended or terminated at any time; (ii) the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been awarded repeatedly in the past; (iii) all decisions with respect to future Restricted Stock Unit awards, if any, will be at the sole discretion of the Company; (iv) your participation in

the Plan is voluntary; (v) Restricted Stock Units are an extraordinary item and not part of normal or expected compensation or salary for any purpose, including without limitation calculating any termination, severance, resignation, redundancy, or end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; (vi) in the event that your employer is not the Company, the award of Restricted Stock Units will not be interpreted to form an employment relationship with the Company; and, furthermore, the award of Restricted Stock Units will not be interpreted to form an employment contract with any Procter & Gamble entity; (vii) the future value of Common Stock is unknown and cannot be predicted with certainty; and (viii) no claim or entitlement to compensation or damages arises from termination or forfeiture of Restricted Stock Units, or diminution in value of Restricted Stock Units or Common Stock received in settlement thereof, and you irrevocably release Procter & Gamble from any such claim that may arise. 10. DATA PRIVACY. By accepting a Restricted Stock Unit, you explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among, as applicable, any Procter & Gamble entity or third party for the purpose of implementing, administering and managing your participation in the Plan. You understand that Procter & Gamble holds certain personal information about you, including without limitation your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in a Procter & Gamble entity, details of all options, Restricted Stock Units, or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan ("Data"). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, and that the recipient's country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to any broker or other third party with whom you may elect to deposit any shares of Common Stock in connection with the settlement of your Restricted Stock Units. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data, or refuse or withdraw the consents contained in this paragraph, in any case without cost, by contacting in writing your local human resources representative. You understand, however, that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative. 11. NOTICES. (a) Any notice to Procter & Gamble that is required or appropriate with respect to Restricted Stock Units held by you must be in writing and addressed to: The Procter & Gamble Company ATTN: Corporate Secretary's Office P.O. Box 599 Cincinnati, OH 45201 or such other address as Procter & Gamble may from time to time provide to you in writing.

(b) Any notice to you that is required or appropriate with respect to Restricted Stock Units held or to be awarded to you will be provided to you in written or electronic form at any physical or electronic mail address for you that is on file with Procter & Gamble. 12. SUCCESSORS AND ASSIGNS. These Terms and Conditions are binding on, and inure to the benefit of, (a) the Company and its successors and assigns; and (b) you and, if applicable, the representative of your estate. 13. GOVERNING LAW. The validity, interpretation, performance and enforcement of these Terms and Conditions, the Plan and your Restricted Stock Units will be governed by the laws of the State of Ohio, U.S.A. without giving effect to any other jurisdiction's conflicts of law principles. With respect to any dispute concerning these Terms and Conditions, the Plan and your Restricted Stock Units, you consent to the exclusive jurisdiction of the federal or state courts located in Hamilton County, Ohio, U.S.A. 14. THE PLAN. All Restricted Stock Units awarded to you have been awarded under the Plan. Certain provisions of the Plan may have been repeated or emphasized in these Terms and Conditions; however, all terms of the Plan apply to you and your Restricted Stock Units whether or not they have been called out in these Terms and Conditions. 15. EFFECT OF THESE TERMS AND CONDITIONS. These Terms and Conditions and the terms of the Plan, which are incorporated herein by reference, describe the contractual rights awarded to you in the form of Restricted Stock Units, and the obligations imposed on you in connection with those rights. No right exists with respect to Restricted Stock Units except as described in these Terms and Conditions and the Plan.

[INSERT DATE] [INSERT NAME] SUBJECT: AWARD OF RESTRICTED STOCK UNITS This is to advise you that The Procter & Gamble Company, an Ohio corporation, is awarding you with Restricted Stock Units, on the dates and in the amounts listed below, pursuant to The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and subject to the attached Statement of Terms and Conditions Form RTD.
Grant Date: Forfeiture Date: Original Settlement Date: Number of Restricted Stock Units: [DATE] [DATE] [DATE] [AMOUNT]

Paragraph 3(a) of Statement of Terms and Conditions Form RTD [is/is not] waived. As you will see from the Statement of Terms and Conditions Form RTD, under certain circumstances you may agree with The Procter & Gamble Company to delay the settlement of your Restricted Stock Units beyond the Original Settlement Date. You may want to consult your personal tax advisor before making a decision about this matter. [ ] I hereby accept the Award of Restricted Stock Units set forth above in accordance with and subject to the terms of The Procter & Gamble 2001 Stock and Incentive Compensation Plan and the attached Statement of Terms and Conditions for Restricted Stock Units, with which I am familiar. I agree that the Award of Restricted Stock Units, The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and the attached Statement of Terms and Conditions for Restricted Stock Units together constitute an agreement between the Company and me in accordance with the terms thereof and hereof, and I further agree that any legal action related to this Award of Restricted Stock Units may be brought in any federal or state court located in Hamilton County, Ohio, USA, and I hereby accept the jurisdiction of these courts and consent to service of process from said courts solely for legal actions related to this Award of Restricted Stock Units. [ ] I hereby reject the Award of Restricted Stock Units set forth above.
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FORM RTD

THE PROCTER & GAMBLE COMPANY STATEMENT OF TERMS AND CONDITIONS FOR RESTRICTED STOCK UNITS THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN The Restricted Stock Units awarded to you as set forth in the letter you received from the Company (your "Award Letter"), and your ownership thereof, are subject to the following terms and conditions. 1. DEFINITIONS. For purposes of this Statement of Terms and Conditions for Restricted Stock Units ("Terms and Conditions"), all capitalized terms not defined in these Terms and Conditions will have the meanings described in The Procter & Gamble 2001 Stock and Incentive Compensation Plan (the "Plan"), and the following terms will have the following meanings. (a) "AGREED SETTLEMENT DATE" has the meaning described in Section 2(c); (b) "DATA" has the meaning described in Section 10; (c) "DISABILITY" means termination of employment under the permanent disability provision of any retirement plan of Procter & Gamble; (d) "DIVIDEND EQUIVALENTS" has the meaning described in Section 4; (e) "FORFEITURE DATE" is the date identified as such in your Award Letter; (f) "FORFEITURE PERIOD" means the period from the Grant Date until the Forfeiture Date. (g) "GRANT DATE" means the date a Restricted Stock Unit was awarded to you, as identified in your Award Letter; (h) "ORIGINAL SETTLEMENT DATE" is the date identified as such in your Award Letter, as adjusted, if applicable, by Section 2; (i) "POST-FORFEITURE PERIOD" means the period from the Forfeiture Date until the later of the Original Settlement Date or the Agreed Settlement Date; (j) "PROCTER & GAMBLE" means the Company and/or its Subsidiaries; (k) "RESTRICTED STOCK UNIT" means an unfunded, unsecured promise by the Company, in accordance with these Terms and Conditions and the provisions of the Plan, to issue to you one share of Common Stock on the later of the Original Settlement Date or the Agreed Settlement Date. 2. TRANSFER AND RESTRICTIONS. (a) Neither Restricted Stock Units nor your interest in them may be sold, exchanged, transferred, pledged, hypothecated, given or otherwise disposed of by you at any time, except by will or by the laws of descent and distribution. Any attempted transfer of a Restricted Stock Unit,

whether voluntary or involuntary on your part, will result in the immediate forfeiture to the Company, and cancellation, of the Restricted Stock Unit (including all rights to Dividend Equivalents). (b) During the Forfeiture Period, your Restricted Stock Units (including all rights to receive Dividend Equivalents) will be forfeited and cancelled if you leave your employment with Procter & Gamble for any reason, except due to: (i) your Disability; (ii) your retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble; or (iii) in certain circumstances, your Special Separation. In the event of your Disability during the Forfeiture Period, unless otherwise agreed to in writing by the Company, your Original Settlement Date will automatically and immediately become, without any further action by you or the Company, the date of your Disability. In the event of your retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble during the Forfeiture Period, you will retain your Restricted Stock Units subject to the Plan and these Terms and Conditions. In the event of your Special Separation during the Forfeiture Period, your Restricted Stock Units will be forfeited and cancelled unless otherwise agreed to in writing by the Company. (c) At any time at least one calendar year prior to the Original Settlement Date, you and the Company may agree to postpone the date on which you are entitled to receive one share of Common Stock for each Restricted Stock Unit you hold until January 15th of any later year (the "Agreed Settlement Date"). During the Post-Forfeiture Period, if you leave your employment with Procter & Gamble for any reason other than: (i) Disability; (ii) Special Separation; or (iii) retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your termination of employment. In the event of your Disability or Special Separation during the Post-Forfeiture period, unless otherwise agreed to in writing by the Company, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your Disability or Special Separation, as applicable. In the event of your retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble during the Post-Forfeiture Period, you will retain your Restricted Stock Units subject to the Plan and these Terms and Conditions. (d) Upon your death or the occurrence of a Change in Control at any time while you hold Restricted Stock Units and/or Dividend Equivalents, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your death or of the Change in Control, as applicable. (e) From time to time, the Company and/or the Committee may establish procedures with which you must comply in order to accept an award of Restricted Stock Units, to agree to an Agreed Settlement Date, or to settle your Restricted Stock Units, including requiring you to do so by means of electronic signature, or charging you an administrative fee for doing so. (f) Once your Restricted Stock Units have been settled by delivery to you of an equivalent number of shares of Common Stock, the Restricted Stock Units will have no further value, force or effect and you will cease to receive Dividend Equivalents associated with the Restricted Stock Units. 3. CONFIDENTIALITY AND NON-COMPETITION (a) In order to better protect the goodwill of Procter & Gamble and to prevent the disclosure of Procter & Gamble's trade secrets and confidential information, and thereby help ensure the long-term success of Procter & Gamble's business, in consideration of your being awarded Restricted Stock Units, you (without prior written consent of Procter & Gamble), will not engage

in any activity or provide any services, whether as a director, manager, supervisor, employee, advisor, consultant or otherwise, for a period of three (3) years following the date your employment with Procter & Gamble is terminated (except for terminations resulting from Retirement or Special Separation), in connection with the manufacture, development, advertising, promotion, or sale of any product which is the same as or similar to or competitive with any products of Procter & Gamble (including both existing products as well as products known to you, as a consequence of your employment with Procter & Gamble, to be in development): (i) with respect to which your work has been directly concerned at any time during the two (2) years preceding the termination of your employment with Procter & Gamble; or (ii) with respect to which, during the two (2) years preceding the termination of your employment with Procter & Gamble, you, as a consequence of your job performance and duties, acquired knowledge of trade secrets or other confidential information of Procter & Gamble. For purposes of this Section 3(a), it will be conclusively presumed that you have knowledge of information you were directly exposed to through actual receipt or review of memoranda or documents containing such information, or through attendance at meetings at which such information was discussed or disclosed. (b) The provisions of Section 3(a) are not in lieu of, but are in addition to your continuing obligation (which you acknowledge by accepting an award of Restricted Stock Units) to not use or disclose Procter & Gamble's trade secrets or confidential information known to you until any particular trade secret or confidential information becomes generally known (through no fault of yours). As used in this Section 3(b), "generally known" means known throughout the domestic United States industry or, if you have job responsibilities partially or entirely outside of the United States, the appropriate domestic United States and/or appropriate foreign country or countries' industry(ies). Information regarding products in development, in test marketing, or being marketed or promoted in a discrete geographic region, which information Procter & Gamble is considering for broader use, will not be deemed to be "generally known" until such broader use is actually commercially implemented. (c) By accepting an award of Restricted Stock Units, you agree that, if you were, without authority, to use or disclose Procter & Gamble's trade secrets or confidential information or threaten to do so, Procter & Gamble would be entitled to injunctive and other appropriate relief to prevent you from doing so. You further agree that the harm caused to Procter & Gamble by the breach or anticipated breach of this Section 3(c) is, by its nature, irreparable because, among other things, it is not readily susceptible of proof as to the monetary harm that would ensue. You agree that any interim or final equitable relief entered by a court of competent jurisdiction will, at the request of Procter & Gamble, be entered on consent and enforced by any court having jurisdiction over you, without prejudice to any rights you or Procter & Gamble may have to appeal from the proceedings which resulted in any grant of such relief. (d) If any of the provisions contained in Sections 3(a) through (c) are for any reason, whether by application of existing law or law which may develop after your acceptance of an award of Restricted Stock Units, determined by a court of competent jurisdiction to be overly broad as to scope of activity, duration, or territory, then by accepting an award of Restricted Stock Units you agree to join Procter & Gamble in requesting such court to construe such provision by limiting or reducing it so as to be enforceable to the extent compatible with then-applicable law. If any one or more of the provisions contained in Section 3(a) through (c) are determined by a court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the provisions will remain in full force and effect and will not be affected, impaired or invalidated in any way.

4. DIVIDEND EQUIVALENTS. As a holder of Restricted Stock Units, during the period from the Grant Date until the Original Settlement Date or the Agreed Settlement Date, whichever is later, each time a cash dividend or other cash distribution is paid with respect to Common Stock, you will receive additional Restricted Stock Units ("Dividend Equivalents"). The number of such additional Restricted Stock Units will be determined as follows: multiply the number of Restricted Stock Units currently held by the per share amount of the cash dividend or other cash distribution on the Common Stock, and then divide the result by the price of the Common Stock on the date of the dividend or distribution. These Dividend Equivalent Restricted Stock Units will be subject to the same terms and conditions as the original Restricted Stock Units that gave rise to them, including forfeiture and settlement terms, except that if there is a fractional number of Dividend Equivalent Restricted Stock Units on the date they are to be settled, you will receive one share of Common Stock for the fractional Dividend Equivalent Restricted Stock Units. 5. VOTING AND OTHER SHAREHOLDER RIGHTS. A Restricted Stock Unit is not a share of Common Stock, and thus you are not entitled to any voting, dividend or other rights as a shareholder of the Company with respect to the Restricted Stock Units you hold. 6. ADJUSTMENTS IN CASE OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In the event of a future reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, share exchange, reclassification, distribution, spin-off, or other change affecting the corporate structure, capitalization or Common Stock, the number of Restricted Stock Units you hold will be adjusted appropriately and equitably to prevent dilution or enlargement of your rights. 7. TAX WITHHOLDING. To the extent Procter & Gamble is required to withhold federal, state, local or foreign taxes in connection with your Restricted Stock Units or Dividend Equivalents, the Committee may require you to make such arrangements as Procter & Gamble may deem appropriate for the payment of such taxes required to be withheld, including without limitation, relinquishment of some of the shares of Common Stock that would otherwise be given to you. However, regardless of any action taken by Procter & Gamble with respect to any income tax, social insurance, payroll tax, or other tax, by accepting a Restricted Stock Unit or Dividend Equivalent, you acknowledge that the ultimate liability for any such tax owed by you is and remains your responsibility, and that Procter & Gamble makes no representations about the tax treatment of your Restricted Stock Units or Dividend Equivalents, and does not commit to structure any aspect of the Restricted Stock Units or Dividend Equivalents to reduce or eliminate your tax liability. 8. SUSPENSION PERIODS AND TERMINATION. The Company reserves the right from time to time to temporarily suspend your right to settle your Restricted Stock Units for shares of Common Stock where such suspension is deemed by the Company as necessary or appropriate. 9. PROCTER & GAMBLE RIGHT TO TERMINATE EMPLOYMENT AND OTHER REMEDIES. (a) Nothing in these Terms and Conditions, or the fact that you have been awarded Restricted Stock Units, affects in any way the right or power of Procter & Gamble to terminate your employment at any time for any reason, with or without cause, or precludes Procter & Gamble from taking any action or enforcing any remedy available to it with respect to any action or conduct on your part. Without limiting the previous sentence, the Committee may, for

example, suspend or terminate any outstanding Restricted Stock Units for actions taken by you prior to the termination of your employment if the Committee determines that you have acted significantly contrary to the best interests of Procter & Gamble. (b) By accepting a Restricted Stock Unit, you acknowledge that: (i) the Plan is established voluntarily by The Procter & Gamble Company, is discretionary in nature, and may be amended, suspended or terminated at any time; (ii) the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been awarded repeatedly in the past; (iii) all decisions with respect to future Restricted Stock Unit awards, if any, will be at the sole discretion of the Company; (iv) your participation in the Plan is voluntary; (v) Restricted Stock Units are an extraordinary item and not part of normal or expected compensation or salary for any purpose, including without limitation calculating any termination, severance, resignation, redundancy, or end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; (vi) in the event that your employer is not the Company, the award of Restricted Stock Units will not be interpreted to form an employment relationship with the Company; and, furthermore, the award of Restricted Stock Units will not be interpreted to form an employment contract with any Procter & Gamble entity; (vii) the future value of Common Stock is unknown and cannot be predicted with certainty; and (viii) no claim or entitlement to compensation or damages arises from termination or forfeiture of Restricted Stock Units, or diminution in value of Restricted Stock Units or Common Stock received in settlement thereof, and you irrevocably release Procter & Gamble from any such claim that may arise. 10. DATA PRIVACY. By accepting a Restricted Stock Unit, you explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among, as applicable, any Procter & Gamble entity or third party for the purpose of implementing, administering and managing your participation in the Plan. You understand that Procter & Gamble holds certain personal information about you, including without limitation your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in a Procter & Gamble entity, details of all options, Restricted Stock Units, or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan ("Data"). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, and that the recipient's country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to any broker or other third party with whom you may elect to deposit any shares of Common Stock in connection with the settlement of your Restricted Stock Units. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data, or refuse or withdraw the consents contained in this paragraph, in any case without cost, by contacting in writing your local human resources representative. You understand, however, that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.

11. NOTICES. (a) Any notice to Procter & Gamble that is required or appropriate with respect to Restricted Stock Units held by you must be in writing and addressed to: The Procter & Gamble Company ATTN: Corporate Secretary's Office P.O. Box 599 Cincinnati, OH 45201 or such other address as Procter & Gamble may from time to time provide to you in writing. (b) Any notice to you that is required or appropriate with respect to Restricted Stock Units held or to be awarded to you will be provided to you in written or electronic form at any physical or electronic mail address for you that is on file with Procter & Gamble. 12. SUCCESSORS AND ASSIGNS. These Terms and Conditions are binding on, and inure to the benefit of, (a) The Procter & Gamble Company and its successors and assigns; and (b) you and, if applicable, the representative of your estate. 13. GOVERNING LAW. The validity, interpretation, performance and enforcement of these Terms and Conditions, the Plan and your Restricted Stock Units will be governed by the laws of the State of Ohio, U.S.A. without giving effect to any other jurisdiction's conflicts of law principles. With respect to any dispute concerning these Terms and Conditions, the Plan and your Restricted Stock Units, you consent to the exclusive jurisdiction of the federal or state courts located in Hamilton County, Ohio, U.S.A. 14. THE PLAN. All Restricted Stock Units awarded to you have been awarded under the Plan. Certain provisions of the Plan may have been repeated or emphasized in these Terms and Conditions; however, all terms of the Plan apply to you and your Restricted Stock Units whether or not they have been called out in these Terms and Conditions. 15. EFFECT OF THESE TERMS AND CONDITIONS. These Terms and Conditions and the terms of the Plan, which are incorporated herein by reference, describe the contractual rights awarded to you in the form of Restricted Stock Units, and the obligations imposed on you in connection with those rights. No right exists with respect to Restricted Stock Units except as described in these Terms and Conditions and the Plan.

[INSERT DATE] [INSERT NAME] SUBJECT: AWARD OF RESTRICTED STOCK UNITS This is to advise you that The Procter & Gamble Company, an Ohio corporation, is awarding you with Restricted Stock Units, on the dates and in the amounts listed below, pursuant to The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and subject to the attached Statement of Terms and Conditions Form OPN.
Grant Date: Original Settlement Date: Number of Restricted Stock Units: [DATE] [DATE] [AMOUNT]

Paragraph 3(a) of Statement of Terms and Conditions Form OPN [is/is not] waived. As you will see from the Statement of Terms and Conditions Form OPN, under certain circumstances you may agree with The Procter & Gamble Company to delay the settlement of your Restricted Stock Units beyond the Original Settlement Date. You may want to consult your personal tax advisor before making a decision about this matter. THE PROCTER & GAMBLE COMPANY [ ] I hereby accept the Award of Restricted Stock Units set forth above in accordance with and subject to the terms of The Procter & Gamble 2001 Stock and Incentive Compensation Plan and the attached Statement of Terms and Conditions for Restricted Stock Units, with which I am familiar. I agree that the Award of Restricted Stock Units, The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and the attached Statement of Terms and Conditions for Restricted Stock Units together constitute an agreement between the Company and me in accordance with the terms thereof and hereof, and I further agree that any legal action related to this Award of Restricted Stock Units may be brought in any federal or state court located in Hamilton County, Ohio, USA, and I hereby accept the jurisdiction of these courts and consent to service of process from said courts solely for legal actions related to this Award of Restricted Stock Units. [ ] I hereby reject the Award of Restricted Stock Units set forth above.
------------------Date ------------------------------------------Signature

FORM OPN

THE PROCTER & GAMBLE COMPANY STATEMENT OF TERMS AND CONDITIONS FOR RESTRICTED STOCK UNITS THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN The Restricted Stock Units awarded to you as set forth in the letter you received from the Company (your "Award Letter"), and your ownership thereof, are subject to the following terms and conditions. 1. DEFINITIONS. For purposes of this Statement of Terms and Conditions for Restricted Stock Units ("Terms and Conditions"), all capitalized terms not defined in these Terms and Conditions will have the meanings described in The Procter & Gamble 2001 Stock and Incentive Compensation Plan (the "Plan"), and the following terms will have the following meanings. (a) "AGREED SETTLEMENT DATE" has the meaning described in Section 2(b); (b) "DATA" has the meaning described in Section 10; (c) "DISABILITY" means termination of employment under the permanent disability provision of any retirement plan of Procter & Gamble; (d) "DIVIDEND EQUIVALENTS" has the meaning described in Section 4; (e) "GRANT DATE" means the date a Restricted Stock Unit was awarded to you, as identified in your Award Letter; (f) "ORIGINAL SETTLEMENT DATE" is the date identified as such in your Award Letter, as adjusted, if applicable, by Section 2; (g) "PROCTER & GAMBLE" means the Company and/or its Subsidiaries; (h) "RESTRICTED STOCK UNIT" means an unfunded, unsecured promise by the Company, in accordance with these Terms and Conditions and the provisions of the Plan, to issue to you one share of Common Stock on the later of the Original Settlement Date or the Agreed Settlement Date. (i) "SETTLEMENT PERIOD" means the period from the Grant Date until the later of the Original Settlement Date or the Agreed Settlement Date. 2. TRANSFER AND RESTRICTIONS. (a) Neither Restricted Stock Units nor your interest in them may be sold, exchanged, transferred, pledged, hypothecated, given or otherwise disposed of by you at any time, except by will or by the laws of descent and distribution. Any attempted transfer of a Restricted Stock Unit, whether voluntary or involuntary on your part, will result in the immediate forfeiture to the Company, and cancellation, of the Restricted Stock Unit (including all rights to Dividend Equivalents).

(b) At any time at least one calendar year prior to the Original Settlement Date, you and the Company may agree to postpone the date on which you are entitled to receive one share of Common Stock for each Restricted Stock Unit you hold until January 15th of any later year (the "Agreed Settlement Date"). During the Settlement Period, if you leave your employment with Procter & Gamble for any reason other than: (i) Disability; (ii) Special Separation; or (iii) retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your termination of employment. In the event of your Disability or Special Separation during the Settlement Period, unless otherwise agreed to in writing by the Company, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your Disability or Special Separation, as applicable. In the event of your retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble during the Settlement Period, you will retain your Restricted Stock Units subject to the Plan and these Terms and Conditions. (c) Upon your death or the occurrence of a Change in Control at any time while you hold Restricted Stock Units and/or Dividend Equivalents, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your death or of the Change in Control, as applicable. (d) From time to time, the Company and/or the Committee may establish procedures with which you must comply in order to accept an award of Restricted Stock Units, to agree to an Agreed Settlement Date, or to settle your Restricted Stock Units, including requiring you to do so by means of electronic signature, or charging you an administrative fee for doing so. (e) Once your Restricted Stock Units have been settled by delivery to you of an equivalent number of shares of Common Stock, the Restricted Stock Units will have no further value, force or effect and you will cease to receive Dividend Equivalents associated with the Restricted Stock Units. 3. CONFIDENTIALITY AND NON-COMPETITION (a) In order to better protect the goodwill of Procter & Gamble and to prevent the disclosure of Procter & Gamble's trade secrets and confidential information, and thereby help ensure the long-term success of Procter & Gamble's business, in consideration of your being awarded Restricted Stock Units, you (without prior written consent of Procter & Gamble), will not engage in any activity or provide any services, whether as a director, manager, supervisor, employee, advisor, consultant or otherwise, for a period of three (3) years following the date your employment with Procter & Gamble is terminated (except for terminations resulting from Retirement or Special Separation), in connection with the manufacture, development, advertising, promotion, or sale of any product which is the same as or similar to or competitive with any products of Procter & Gamble (including both existing products as well as products known to you, as a consequence of your employment with Procter & Gamble, to be in development): (i) with respect to which your work has been directly concerned at any time during the two (2) years preceding the termination of your employment with Procter & Gamble; or (ii) with respect to which, during the two (2) years preceding the termination of your employment with Procter & Gamble, you, as a consequence of your job performance and duties, acquired knowledge of trade secrets or other confidential information of Procter & Gamble.

For purposes of this Section 3(a), it will be conclusively presumed that you have knowledge of information you were directly exposed to through actual receipt or review of memoranda or documents containing such information, or through attendance at meetings at which such information was discussed or disclosed. (b) The provisions of Section 3(a) are not in lieu of, but are in addition to your continuing obligation (which you acknowledge by accepting an award of Restricted Stock Units) to not use or disclose Procter & Gamble's trade secrets or confidential information known to you until any particular trade secret or confidential information becomes generally known (through no fault of yours). As used in this Section 3(b), "generally known" means known throughout the domestic United States industry or, if you have job responsibilities partially or entirely outside of the United States, the appropriate domestic United States and/or appropriate foreign country or countries' industry(ies). Information regarding products in development, in test marketing, or being marketed or promoted in a discrete geographic region, which information Procter & Gamble is considering for broader use, will not be deemed to be "generally known" until such broader use is actually commercially implemented. (c) By accepting an award of Restricted Stock Units, you agree that, if you were, without authority, to use or disclose Procter & Gamble's trade secrets or confidential information or threaten to do so, Procter & Gamble would be entitled to injunctive and other appropriate relief to prevent you from doing so. You further agree that the harm caused to Procter & Gamble by the breach or anticipated breach of this Section 3(c) is, by its nature, irreparable because, among other things, it is not readily susceptible of proof as to the monetary harm that would ensue. You agree that any interim or final equitable relief entered by a court of competent jurisdiction will, at the request of Procter & Gamble, be entered on consent and enforced by any court having jurisdiction over you, without prejudice to any rights you or Procter & Gamble may have to appeal from the proceedings which resulted in any grant of such relief. (d) If any of the provisions contained in Sections 3(a) through (c) are for any reason, whether by application of existing law or law which may develop after your acceptance of an award of Restricted Stock Units, determined by a court of competent jurisdiction to be overly broad as to scope of activity, duration, or territory, then by accepting an award of Restricted Stock Units you agree to join Procter & Gamble in requesting such court to construe such provision by limiting or reducing it so as to be enforceable to the extent compatible with then-applicable law. If any one or more of the provisions contained in Section 3(a) through (c) are determined by a court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the provisions will remain in full force and effect and will not be affected, impaired or invalidated in any way. 4. DIVIDEND EQUIVALENTS. As a holder of Restricted Stock Units, during the period from the Grant Date until the Original Settlement Date or the Agreed Settlement Date, whichever is later, each time a cash dividend or other cash distribution is paid with respect to Common Stock, you will receive additional Restricted Stock Units ("Dividend Equivalents"). The number of such additional Restricted Stock Units will be determined as follows: multiply the number of Restricted Stock Units currently held by the per share amount of the cash dividend or other cash distribution on the Common Stock, and then divide the result by the price of the Common Stock on the date of the dividend or distribution. These Dividend Equivalent Restricted Stock Units will be subject to the same terms and conditions as the original Restricted Stock Units that gave rise to them, including forfeiture and settlement terms, except that if there is a fractional number of Dividend Equivalent Restricted Stock Units on the date they are to be settled, you will receive one share of Common Stock for the fractional Dividend Equivalent Restricted Stock Units.

5. VOTING AND OTHER SHAREHOLDER RIGHTS. A Restricted Stock Unit is not a share of Common Stock, and thus you are not entitled to any voting, dividend or other rights as a shareholder of the Company with respect to the Restricted Stock Units you hold. 6. ADJUSTMENTS IN CASE OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In the event of a future reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, share exchange, reclassification, distribution, spin-off, or other change affecting the corporate structure, capitalization or Common Stock, the number of Restricted Stock Units you hold will be adjusted appropriately and equitably to prevent dilution or enlargement of your rights. 7. TAX WITHHOLDING. To the extent Procter & Gamble is required to withhold federal, state, local or foreign taxes in connection with your Restricted Stock Units or Dividend Equivalents, the Committee may require you to make such arrangements as Procter & Gamble may deem appropriate for the payment of such taxes required to be withheld, including without limitation, relinquishment of some of the shares of Common Stock that would otherwise be given to you. However, regardless of any action taken by Procter & Gamble with respect to any income tax, social insurance, payroll tax, or other tax, by accepting a Restricted Stock Unit or Dividend Equivalent, you acknowledge that the ultimate liability for any such tax owed by you is and remains your responsibility, and that Procter & Gamble makes no representations about the tax treatment of your Restricted Stock Units or Dividend Equivalents, and does not commit to structure any aspect of the Restricted Stock Units or Dividend Equivalents to reduce or eliminate your tax liability. 8. SUSPENSION PERIODS AND TERMINATION. The Company reserves the right from time to time to temporarily suspend your right to settle your Restricted Stock Units for shares of Common Stock where such suspension is deemed by the Company as necessary or appropriate. 9. PROCTER & GAMBLE RIGHT TO TERMINATE EMPLOYMENT AND OTHER REMEDIES. (a) Nothing in these Terms and Conditions, or the fact that you have been awarded Restricted Stock Units, affects in any way the right or power of Procter & Gamble to terminate your employment at any time for any reason, with or without cause, or precludes Procter & Gamble from taking any action or enforcing any remedy available to it with respect to any action or conduct on your part. Without limiting the previous sentence, the Committee may, for example, suspend or terminate any outstanding Restricted Stock Units for actions taken by you prior to the termination of your employment if the Committee determines that you have acted significantly contrary to the best interests of Procter & Gamble. (b) By accepting a Restricted Stock Unit, you acknowledge that: (i) the Plan is established voluntarily by the Company, is discretionary in nature, and may be amended, suspended or terminated at any time; (ii) the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been awarded repeatedly in the past; (iii) all decisions with respect to future Restricted Stock Unit awards, if any, will be at the sole discretion of the Company; (iv) your participation in the Plan is voluntary; (v) Restricted Stock Units are an extraordinary item and not part of normal or expected compensation or salary for any purpose, including without limitation calculating any termination, severance, resignation, redundancy, or end-of-service payments, bonuses, long-service awards,

pension or retirement benefits or similar payments; (vi) in the event that your employer is not the Company, the award of Restricted Stock Units will not be interpreted to form an employment relationship with the Company; and, furthermore, the award of Restricted Stock Units will not be interpreted to form an employment contract with any Procter & Gamble entity; (vii) the future value of Common Stock is unknown and cannot be predicted with certainty; and (viii) no claim or entitlement to compensation or damages arises from termination or forfeiture of Restricted Stock Units, or diminution in value of Restricted Stock Units or Common Stock received in settlement thereof, and you irrevocably release Procter & Gamble from any such claim that may arise. 10. DATA PRIVACY. By accepting a Restricted Stock Unit, you explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among, as applicable, any Procter & Gamble entity or third party for the purpose of implementing, administering and managing your participation in the Plan. You understand that Procter & Gamble holds certain personal information about you, including without limitation your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in a Procter & Gamble entity, details of all options, Restricted Stock Units, or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan ("Data"). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, and that the recipient's country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to any broker or other third party with whom you may elect to deposit any shares of Common Stock in connection with the settlement of your Restricted Stock Units. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data, or refuse or withdraw the consents contained in this paragraph, in any case without cost, by contacting in writing your local human resources representative. You understand, however, that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative. 11. NOTICES. (a) Any notice to Procter & Gamble that is required or appropriate with respect to Restricted Stock Units held by you must be in writing and addressed to: The Procter & Gamble Company ATTN: Corporate Secretary's Office P.O. Box 599 Cincinnati, OH 45201 or such other address as Procter & Gamble may from time to time provide to you in writing. (b) Any notice to you that is required or appropriate with respect to Restricted Stock Units held or to be awarded to you will be provided to you in written or electronic form at any physical or electronic mail address for you that is on file with Procter & Gamble.

12. SUCCESSORS AND ASSIGNS. These Terms and Conditions are binding on, and inure to the benefit of, (a) the Company and its successors and assigns; and (b) you and, if applicable, the representative of your estate. 13. GOVERNING LAW. The validity, interpretation, performance and enforcements of these Terms and Conditions, the Plan and your Restricted Stock Units will be governed by the laws of the State of Ohio, U.S.A. without giving effect to any other jurisdiction's conflicts of law principles. With respect to any dispute concerning these Terms and Conditions, the Plan and your Restricted Stock Units, you consent to the exclusive jurisdiction of the federal or state courts located in Hamilton County, Ohio, U.S.A. 14. THE PLAN. All Restricted Stock Units awarded to you have been awarded under the Plan. Certain provisions of the Plan may have been repeated or emphasized in these Terms and Conditions; however, all terms of the Plan apply to you and your Restricted Stock Units whether or not they have been called out in these Terms and Conditions. 15. EFFECT OF THESE TERMS AND CONDITIONS. These Terms and Conditions and the terms of the Plan, which are incorporated herein by reference, describe the contractual rights awarded to you in the form of Restricted Stock Units, and the obligations imposed on you in connection with those rights. No right exists with respect to Restricted Stock Units except as described in these Terms and Conditions and the Plan.

[PROCTER & GAMBLE LOGO] The Procter & Gamble Company Executive Offices 1 Procter & Gamble Plaza, Cincinnati, Ohio 45202-3315 [Date] [Name] Subject: Restricted Stock Award As authorized by the Compensation Committee of the Board of Directors on [Date], I hereby award you [amount] shares of Procter & Gamble Restricted Stock under The Procter & Gamble 2001 Stock and Incentive Plan. These shares will vest 100% on [date] (the vesting date) and are subject to the attached Statement of Conditions and Restrictions, Form SRS. These restricted shares will be forfeited as a result of any separation from the Company (except separation due to death or permanent disability) prior to the vesting date. As a reminder, since you are subject to U.S. taxation, you may make a Section 83(b) election, which includes the value of the restricted stock in your gross income in the year it is granted. You must make the election within 30 days of the grant by filing the required notification with both the IRS and the Company. You may want to consult your personal tax advisor before making any Section 83(b) election. THE PROCTER & GAMBLE COMPANY

FORM SRS PROCTER & GAMBLE STATEMENT OF CONDITIONS AND RESTRICTIONS THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN The shares of Common Stock of The Procter & Gamble Company (the "Restricted Shares") awarded to you as stated in the accompanying letter have been transferred to you on the express condition that these Restricted Shares, and your ownership thereof, are subject to the following conditions and restrictions: 1. RESTRICTIONS AND CONDITIONS ON SHARES -(a) Neither these Restricted Shares nor any of your interest therein may be sold, exchanged, transferred, pledged, hypothecated, given or otherwise disposed of by you at any time except as specifically permitted or otherwise required by the terms of this Statement. (b) In the event that your employment with Procter & Gamble terminates for any reason except as set forth in Section 4(a)(ii) below prior to the vesting date shown in the accompanying letter, you will be deemed to have received delivery on the date of the termination of your employment a written demand by the Company to sell to the Company within ten (10) days any of these Restricted Shares where the conditions and restrictions have not lapsed as set forth in paragraph 4 below at a price of ten cents ($.10) per share, which price is subject to adjustment as hereinafter provided. For the purpose of this subparagraph, your employment with Procter & Gamble shall not be deemed to terminate by reason of your being on leave of absence for any purpose approved in writing by the Company. (c) In the event that you shall at any time attempt to sell, exchange, transfer, pledge, hypothecate, give or otherwise dispose of any of the Restricted Shares, or any interest therein, in violation of the terms and conditions of this Statement, you will be required, within ten (10) days after delivery to you of a written demand by the Company made within ninety (90) days after the occurrence of such event, to sell to the Company all Restricted Shares then registered in your name with respect to which the conditions and restrictions set forth in this Statement are still in effect at a price of ten cents ($.10) per share, which price is subject to adjustment as hereinafter provided. (d) (i) The determination as to whether an event has occurred requiring a sale of Restricted Shares to the Company in accordance with any provision of this paragraph 1, paragraph 7 following or any other provision of this Statement shall be made by the Compensation Committee (the "Committee") in its sole discretion, and all determinations of the Committee with respect thereto shall in all respects be conclusive upon you and any persons claiming under or through you. (ii) If you shall at any time be required to sell any or all of these Restricted Shares to the Company pursuant to any provisions of this paragraph 1, paragraph 7 following or any other provision in this Statement, you shall, effective on the date of the delivery or deemed delivery of the Company's demand to you, cease to have any rights as a shareholder with respect to the Restricted Shares so required to be sold, or any interest therein; and, without limitation, you shall cease to be entitled to receive any future dividends upon such Restricted Shares with record dates occurring after the date of delivery of such demand; and in the event that for any reason you shall receive any such dividends upon such Restricted Shares you will be required to repay the Company an amount equal to such dividends. THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.

(iii) If you shall at any time be required to sell any or all of these Restricted Shares to the Company pursuant to the provisions of this paragraph 1, paragraph 7 following or any other provision in this Statement, and if within thirty (30) days after delivery or deemed delivery to you of the Company's demand you have not delivered a stock power or other instrument of transfer appropriately executed in blank, together with any certificates which you may hold representing such Restricted Shares to the Secretary of the Company at the Executive Offices of The Procter & Gamble Company, P. O. Box 599, Cincinnati, Ohio 45201, the Company may thereupon cause to be mailed to you, in the manner and at the address specified in paragraph 8(b) following, its check payable to your order in the amount of the purchase price for such shares provided for in this Statement and direct the Transfer Agent and Registrar of the Company's Common Stock to make appropriate entries upon their records showing the cancellation of such certificates and return the shares represented thereby to the Company. 2. SHAREHOLDER RIGHTS -Effective upon the date of award of these Restricted Shares you shall for all purposes be a holder of record of these Restricted Shares and shall thereafter have all rights of a common shareholder with respect to such shares (including the right to vote such shares at any meeting of common shareholders of The Procter & Gamble Company and the right to receive all dividends paid with respect to such shares), subject only to the conditions and restrictions imposed by this Statement. Until such conditions and restrictions have lapsed with respect to any restricted Shares, any certificate for such shares will bear a legend to the effect that they were issued or transferred subject to, and may be sold or otherwise disposed of only in accordance with, the terms of this Statement. 3. ADJUSTMENTS IN CASE OF STOCK DIVIDENDS, STOCK SPLITS, ETC. -In the event that, as the result of a stock dividend, stock split, recapitalization, merger, consolidation, reorganization, or other event, you shall, as the owner of Restricted Shares, be entitled to new, additional or different shares or securities: (a) such new, additional or different shares or securities shall for all purposes be deemed "Restricted Shares," (b) all of the terms of this Statement shall be applicable thereto as modified by this paragraph 3, (c) the purchase price of ten cents ($.10) per share and all of the computations provided for in this Statement shall, if and to the extent required, be appropriately adjusted, and (d) any certificates or other instruments evidencing such new, additional or different shares or securities shall bear the legend referred to in paragraph 2; provided, however, any fractional shares and any pre-emptive or other rights or warrants to purchase securities issued to you as a holder of Restricted Shares in connection with a public offering will be issued to you free and clear of all conditions and restrictions imposed by this Statement. 4. LAPSE OF CONDITIONS AND RESTRICTIONS -(a) The conditions and restrictions set forth in paragraph 1 above shall lapse as follows: (i) The conditions and restrictions on the Restricted Shares shall lapse on the dates set forth in the accompanying letter. (ii) In the event your employment with Procter & Gamble terminates as a result of your death or permanent disability, the conditions and restrictions on these Restricted Shares shall lapse in their entirety. (b) The Committee may accelerate the lapse of conditions and restrictions on all or any part of the Restricted Shares in the case of hardship which in the sole judgment of the Committee justifies such action. (c) When the conditions and restrictions lapse with respect to Restricted Shares pursuant to this paragraph 4, the Company will deliver to you, or your legal representative in case of death, promptly after surrender of any certificate(s) for such Restricted Shares to the Treasurer of The Procter & Gamble Company, Cincinnati, Ohio 45201, one or more certificates for a like number of shares, free of any legend.

5. COMPANY RIGHT TO TERMINATE EMPLOYMENT AND OTHER REMEDIES -Nothing provided herein shall be construed to affect in any way the right or power of the Company to terminate your employment at any time for any reason with or without cause, nor to preclude the Company from taking any action or enforcing any remedy available to it with respect to any action or conduct on your part. 6. DEFINITIONS -(a) The term "Company" as used in this Statement shall mean the corporation which awarded the Restricted Shares to you. (b) The term "Procter & Gamble" as used in this Statement shall include The Procter & Gamble Company and all corporations, more than 50% of whose capital stock entitled to vote for the election of directors is owned or controlled, directly or indirectly, by The Procter & Gamble Company or by any corporation so controlled by The Procter & Gamble Company, if and as long as such corporations are so controlled. 7. ADDITIONAL DOCUMENTS -a It is the intention of the Company that this grant of Restricted Shares shall meet the requirements of, and result in the application of, the rules prescribed by Section 83 of the Internal Revenue Code of 1986, as in effect at the date hereof, and applicable Regulations thereunder. Accordingly, each and every provision shall be construed and interpreted in such manner as to conform with such intention and the Company reserves the right to execute and to require you to execute any further agreements or other instruments which may be effective as of the date of award of these Restricted Shares, including, but without limitation, an instrument modifying or correcting any provision hereof, or of the letter advising you of the award or any action taken hereunder or contemporaneously herewith, and to take any other action, which may be effective as of the date of award of these Restricted Shares, that, in the opinion of counsel for the Company, may be necessary or desirable to carry out such intention. (b) If you fail, refuse or neglect to execute and deliver any instrument or document or to take any action requested by the Company or Committee to be executed or taken by you pursuant to the provisions of paragraph 7(a) above for a period of thirty (30) days after the date of such request, the Committee may require you, within ten (10) days after delivery to you of a written demand by the Company, to sell to the Company all of the Restricted Shares then registered in your name with respect to which the conditions and restrictions set forth in this Statement are still in effect at a price of ten cents ($.10) per share, which price is subject to adjustment as herein provided. 8. NOTICES -(a) Any notice to the Company under or pursuant to the conditions and restrictions of this Statement shall be deemed to have been delivered to the Company when delivered in person to the Secretary of the Company or when deposited in the mails, by certified or registered mail, addressed to the Secretary of the Company at the Executive Offices of The Procter & Gamble Company, P.O. Box 599, Cincinnati, Ohio 45201, or such other address as the Company may from time to time designate in writing by notice to you given pursuant to paragraph 8(b) hereof. (b) Any notice or demand to you under or pursuant to any provisions of this Statement shall be deemed to have been delivered to you when delivered to you in person or when deposited in the mails, by certified or registered mail, addressed to you at the address on record in the Shareholder Services Department or such other address as you may from time to time designate in writing by notice to the Company given pursuant to paragraph 8(a) above. 9. THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN -The Restricted Shares have been awarded to you pursuant to The Procter & Gamble 2001 Stock and Incentive Compensation Plan adopted and approved by the shareholders of The Procter & Gamble Company on October 9, 2001, and such shares and your ownership thereof shall be in all respects subject to the terms of such Plan, the terms and provisions of which are incorporated herein by reference as applicable.

10. SUCCESSORS AND ASSIGNS -The provisions of this Statement shall be binding upon and inure to the benefit of (a) the Company, its successors and assigns, and (b) you and, to the extent applicable, your legal representative. 11. GOVERNING LAW -The validity, interpretation, performance and enforcement of the conditions and restrictions contained in this Statement and your rights in, to and under the Restricted Shares shall for all purposes be governed by the laws of the State of Ohio. 12. ADDITIONAL INFORMATION CONCERNING COMMON STOCK -The following information which appears on certificates representing shares of the Common Stock of the Company is provided pursuant to Section 1701.24(F) of the Ohio Revised Code as pertinent to Restricted Shares awarded or held without issuance of certificates: (a) The Procter & Gamble Company is organized under the laws of the State of Ohio. (b) The Restricted Shares are fully paid and non-assessable shares of the Common Stock without par value of the Company. (c) The name of the person to whom the shares are issued and the number of shares so issued and made subject to this Statement of Conditions and Restrictions are set forth in the accompanying letter. (d) A copy of the express terms of such shares and of all other classes and series of shares authorized will be mailed to any shareholder without charge within five (5) days after receipt from such shareholder of a written request therefor addressed to the Secretary of The Procter & Gamble Company, P.O. Box 599, Cincinnati, Ohio 45201.

[PROCTER & GAMBLE LOGO] The Procter & Gamble Company 2 P&G Plaza Cincinnati, Ohio 45202-3315 www.pg.com [Date] [Name] The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan (PST Plan) is the oldest continuous profit sharing plan in the United States. This year the Company celebrates the [number] anniversary of employee profit sharing! As you know, the Company's contribution to your PST Plan account is a percentage of the Base Wages paid to you during the Plan Year [date] while you were a participant in the Plan. However, Federal Regulations limit the amount of wages that can be used for making contributions to a qualified retirement plan, such as the PST Plan. For the Plan Year ended [Date], the available wages were limited to [amount]. The Company's strategy is to make up the difference between the allowable PST Plan credit and what would otherwise be your credit (if wages were not limited) by making a Retirement Supplement award in the form of stock with restrictions until retirement. This credit in Restricted Stock is known as the ERISA Excess (previously called the OBRA Excess), as ERISA, and its many amendments, is the law that governs US qualified retirement plans. ERISA stands for the Employee Retirement Income Security Act. - Value of ERISA Excess Award for Restricted Stock allocation (based on wages of [amount]): [amount] NOTICE OF ERISA EXCESS AWARD: Your Restricted Stock account has now been updated to include your [date] non-qualified retirement plan credit award. As a reminder, we have a `certificateless" restricted stock system, so instead of issuing a certificate to you for your [date] award, you can view your account on-line. As a reminder, if you are subject to U.S. taxation, you may make an Section 83(b) election, which includes the value of the restricted stock in your gross income in the year it is granted. YOU MUST MAKE THE ELECTION WITHIN 30 DAYS OF THE GRANT BY FILING THE REQUIRED NOTIFICATION WITH BOTH THE IRS AND THE COMPANY. Attached is a general information sheet on the U.S. taxation of restricted stock, including the tax consequences of the Section 83(b) election. You may want to consult your personal tax advisor before making any Section 83(b) election. IF YOU HAVE QUESTIONS REGARDING YOUR RESTRICTED STOCK ACCOUNT, PLEASE CONTACT [NAME] IN GLOBAL PROCESSES & SYSTEMS.

FORM RRS PROCTER & GAMBLE STATEMENT OF CONDITIONS AND RESTRICTIONS THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN The shares of Common Stock of The Procter & Gamble Company (the "Restricted Shares") awarded to you as stated in the accompanying letter have been transferred to you on the express condition that these Restricted Shares, and your ownership thereof, are subject to the following conditions and restrictions: 1. RESTRICTIONS AND CONDITIONS ON SHARES -(a) Neither these Restricted Shares nor any of your interest therein may be sold, exchanged, transferred, pledged, hypothecated, given or otherwise disposed of by you at any time except as specifically permitted or otherwise required by the terms of this Statement. (b) In the event that your employment with Procter & Gamble terminates, except as the result of your death or disability or your retirement under circumstances permitted by the terms of a Procter & Gamble retirement plan in which you are then a participant, you will be deemed to have received on the date of the termination of your employment a written demand by the Company to sell to the Company within ten (10) days these Restricted Shares at a price of ten cents ($.10) per share, which price is subject to adjustment as hereinafter provided. For the purpose of this subparagraph, your employment with Procter & Gamble shall not be deemed to terminate by reason of your being on leave of absence for any purpose approved in writing by the Company. (c) In the event that you shall at any time attempt to sell, exchange, transfer, pledge, hypothecate, give or otherwise dispose of any of the Restricted Shares, or any interest therein, in violation of the terms and conditions of this Statement, you will be required, within ten (10) days after delivery to you of a written demand by the Company made within ninety (90) days after the occurrence of such event, to sell to the Company all Restricted Shares then registered in your name with respect to which the conditions and restrictions set forth in this Statement are still in effect at a price of ten cents ($.10) per share, which price is subject to adjustment as hereinafter provided. (d) (i) The determination as to whether an event has occurred requiring a sale of Restricted Shares to the Company in accordance with any provision of this paragraph 1, paragraph 7 following or any other provision of this Statement shall be made by the Compensation Committee (the "Committee") in its sole discretion, and all determinations of the Committee with respect thereto shall in all respects be conclusive upon you and any persons claiming under or through you. (ii) If you shall at any time be required to sell any or all of these Restricted Shares to the Company pursuant to any provisions of this paragraph 1, paragraph 7 following or any other provision in this Statement, you shall, effective on the date of the delivery of the Company's demand to you, cease to have any rights as a shareholder with respect to the Restricted Shares so required to be sold, or any interest therein; and, without limitation, you shall cease to be entitled to receive any future dividends upon such Restricted Shares with record dates occurring after the date of delivery of such demand; and in the event that for any reason you shall receive any such dividends upon such Restricted Shares you will be required to repay the Company an amount equal to such dividends. THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.

(iii) If you shall at any time be required to sell any or all of these Restricted Shares to the Company pursuant to the provisions of this paragraph 1, paragraph 7 following or any other provision in this Statement, and if within thirty (30) days after delivery to you of the Company's demand you have not delivered a stock power or other instrument of transfer appropriately executed in blank, together with any certificates which you may hold representing such Restricted Shares to the Secretary of the Company at the Executive Offices of The Procter & Gamble Company, P. O. Box 599, Cincinnati, Ohio 45201, the Company may thereupon cause to be mailed to you, in the manner and at the address specified in paragraph 8(b) following, its check payable to your order in the amount of the purchase price for such shares provided for in this Statement and direct the Transfer Agent and Registrar of the Company's Common Stock to make appropriate entries upon their records showing the cancellation of such certificates and return the shares represented thereby to the Company. 2. SHAREHOLDER RIGHTS -Effective upon the date of award of these Restricted Shares you shall for all purposes be a holder of record of these Restricted Shares and shall thereafter have all rights of a common shareholder with respect to such shares (including the right to vote such shares at any meeting of common shareholders of The Procter & Gamble Company and the right to receive all dividends paid with respect to such shares), subject only to the conditions and restrictions imposed by this Statement. Until such conditions and restrictions have lapsed with respect to any restricted Shares, any certificate for such shares will bear a legend to the effect that they were issued or transferred subject to, and may be sold or otherwise disposed of only in accordance with, the terms of this Statement. 3. ADJUSTMENTS IN CASE OF STOCK DIVIDENDS, STOCK SPLITS, ETC. -In the event that, as the result of a stock dividend, stock split, recapitalization, merger, consolidation, reorganization, or other event, you shall, as the owner of Restricted Shares, be entitled to new, additional or different shares or securities: (a) such new, additional or different shares or securities shall for all purposes be deemed "Restricted Shares," (b) all of the terms of this Statement shall be applicable thereto as modified by this paragraph 3, (c) the purchase price of ten cents ($.10) per share and all of the computations provided for in this Statement shall, if and to the extent required, be appropriately adjusted, and (d) any certificates or other instruments evidencing such new, additional or different shares or securities shall bear the legend referred to in paragraph 2; provided, however, any fractional shares and any pre-emptive or other rights or warrants to purchase securities issued to you as a holder of Restricted Shares in connection with a public offering will be issued to you free and clear of all conditions and restrictions imposed by this Statement. 4. LAPSE OF CONDITIONS AND RESTRICTIONS -(a) The conditions and restrictions set forth in paragraph 1 above shall lapse in their entirety on the earliest of (i) the date your employment with Procter & Gamble terminates as the result of your death or disability or your retirement under circumstances permitted by the terms of a Procter & Gamble retirement plan in which you are then a participant, provided, however, that the Treasurer of The Procter & Gamble Company may agree to extend the restrictions to a date after retirement to provide for expiration (a) on a date not later than December 15 of the year of retirement; (b) on January 15 of the year following retirement; or (c) in five or ten annual installments beginning on January 15 of the year following retirement, with any such extension to be agreed to only upon your written request made prior to January 1 of the year of your retirement and your agreement not to engage in competitive employment (as defined in Article F(1) of The Procter & Gamble 2001 Stock and Incentive Compensation Plan following retirement until expiration of the restrictions without first obtaining written permission from the Company; or (ii) there is a "change in control" (as defined in the Plan) of Procter & Gamble; or (iii) the date the Committee, in its sole discretion, accepts in writing your written request to accelerate the lapse of conditions and restrictions due to Company approval in writing of your planned retirement under circumstances permitted by the terms of a Procter & Gamble retirement plan in which you are then a participant. In no case will the Committee accept your request to accelerate the lapse of conditions and restrictions prior to October 1 of the calendar year preceding the calendar year of your approved retirement. (b) The Committee may accelerate the lapse of conditions and restrictions on all or any part of the Restricted Shares in the case of hardship which in the sole judgment of the Committee justifies such action.

(c) When the conditions and restrictions lapse with respect to Restricted Shares pursuant to this paragraph 4, the Company will deliver to you, or your legal representative in case of death, promptly after surrender of any certificate(s) for such Restricted Shares to the Treasurer of The Procter & Gamble Company, Cincinnati, Ohio 45201, one or more certificates for a like number of shares, free of any legend. 5. COMPANY RIGHT TO TERMINATE EMPLOYMENT AND OTHER REMEDIES -Nothing provided herein shall be construed to affect in any way the right or power of the Company to terminate your employment at any time for any reason with or without cause, nor to preclude the Company from taking any action or enforcing any remedy available to it with respect to any action or conduct on your part. 6. DEFINITIONS -(a) The term "Company" as used in this Statement shall mean the corporation which awarded the Restricted Shares to you. (b) The term "Procter & Gamble" as used in this Statement shall include The Procter & Gamble Company and all corporations, more than 50% of whose capital stock entitled to vote for the election of directors is owned or controlled, directly or indirectly, by The Procter & Gamble Company or by any corporation so controlled by The Procter & Gamble Company, if and as long as such corporations are so controlled. 7. ADDITIONAL DOCUMENTS -a It is the intention of the Company that this transaction shall meet the requirements of, and result in the application of, the rules prescribed by Section 83 of the Internal Revenue Code of 1986, as in effect at the date hereof, and applicable Regulations thereunder. Accordingly, each and every provision shall be construed and interpreted in such manner as to conform with such intention and the Company reserves the right to execute and to require you to execute any further agreements or other instruments which may be effective as of the date of award of these Restricted Shares, including, but without limitation, an instrument modifying or correcting any provision hereof, or of the letter advising you of the award or any action taken hereunder or contemporaneously herewith, and to take any other action, which may be effective as of the date of award of these Restricted Shares, that, in the opinion of counsel for the Company, may be necessary or desirable to carry out such intention. (b) If you fail, refuse or neglect to execute and deliver any instrument or document or to take any action requested by the Company or Committee to be executed or taken by you pursuant to the provisions of paragraph 7(a) above for a period of thirty (30) days after the date of such request, the Committee may require you, within ten (10) days after delivery to you of a written demand by the Company, to sell to the Company all of the Restricted Shares then registered in your name with respect to which the conditions and restrictions set forth in this Statement are still in effect at a price of ten cents ($.10) per share, which price is subject to adjustment as herein provided. 8. NOTICES -(a) Any notice to the Company under or pursuant to the conditions and restrictions of this Statement shall be deemed to have been delivered to the Company when delivered in person to the Secretary of the Company or when deposited in the mails, by certified or registered mail, addressed to the Secretary of the Company at the Executive Offices of The Procter & Gamble Company, P.O. Box 599, Cincinnati, Ohio 45201, or such other address as the Company may from time to time designate in writing by notice to you given pursuant to paragraph 8(b) hereof. (b) Any notice or demand to you under or pursuant to any provisions of this Statement shall be deemed to have been delivered to you when delivered to you in person or when deposited in the mails, by certified or registered mail, addressed to you at the address on record in the Shareholder Services Department or such other address as you may from time to time designate in writing by notice to the Company given pursuant to paragraph 8(a) above. 9. THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN -The Restricted Shares have been awarded to you pursuant to The Procter & Gamble 2001 Stock and Incentive Compensation Plan adopted and approved by the shareholders of The Procter & Gamble Company on October 9, 2001, and such shares and your ownership thereof shall be in all respects subject to the terms of such Plan, the terms and provisions of which are incorporated herein by reference as applicable. 10. SUCCESSORS AND ASSIGNS --

The provisions of this Statement shall be binding upon and inure to the benefit of (a) the Company, its successors and assigns, and (b) you and, to the extent applicable, your legal representative. 11. GOVERNING LAW -The validity, interpretation, performance and enforcement of the conditions and restrictions contained in this Statement and your rights in, to and under the Restricted Shares shall for all purposes be governed by the laws of the State of Ohio. 12. ADDITIONAL INFORMATION CONCERNING COMMON STOCK -The following information which appears on certificates representing shares of the Common Stock of the Company is provided pursuant to Section 1701.24(F) of the Ohio Revised Code as pertinent to Restricted Shares awarded or held without issuance of certificates: (a) The Procter & Gamble Company is organized under the laws of the State of Ohio. (b) The Restricted Shares are fully paid and non-assessable shares of the Common Stock without par value of the Company. (c) The name of the person to whom the shares are issued and the number of shares so issued and made subject to this Statement of Conditions and Restrictions are set forth in the accompanying letter. (d) A copy of the express terms of such shares and of all other classes and series of shares authorized will be mailed to any shareholder without charge within five (5) days after receipt from such shareholder of a written request therefor addressed to the Secretary of The Procter & Gamble Company, P.O. Box 599, Cincinnati, Ohio 45201.

EXHIBIT (10-9) The Procter & Gamble 2003 Non-Employee Directors' Stock Plan, and related correspondence and terms and conditions

THE PROCTER & GAMBLE 2003 NON-EMPLOYEE DIRECTORS' STOCK PLAN ARTICLE A -- PURPOSE. The purposes of The Procter & Gamble 2003 Non-Employee Directors' Stock Plan (the "Plan") are to strengthen the alignment of interests between the non-employee Directors ("Participants") and the shareholders of The Procter & Gamble Company (the "Company") through ownership behavior and the increased ownership of shares of the Company's common stock ("Common Stock"). This will be accomplished by allowing each Participant to elect voluntarily to convert a portion or all of his/her cash fees for services as a Director into Common Stock or RSUs (as hereinafter defined), and by granting Participants (i) restricted stock units or other awards related to the price of Common Stock ("RSUs"), (ii) shares of Common Stock restricted in a manner determined by the Committee ("Restricted Shares"), (iii) non-qualified options to purchase shares of Common Stock ("Stock Options"), and/or (iv) stock appreciation rights ("SARs"). ARTICLE B -- ADMINISTRATION. 1. The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Board"), or such other committee as may be designated by the Board (the "Committee"). The Committee shall consist of not less than three (3) members of the Board who are "Non-Employee Directors" as defined in Rule 16b-3 under the Securities Exchange Act of 1934 (the "1934 Act"), as amended, or any successor rule or definition adopted by the Securities and Exchange Commission, or such other number of Non-Employee Directors required from time to time by such rule or any successor rule adopted by the Securities and Exchange Commission, to be appointed by the Board from time to time and to serve at the discretion of the Board. The Committee may establish such regulations, provisions, and procedures within the terms of the Plan as, in its opinion, may be advisable for the administration and operation of the Plan, and may designate the Secretary of the Company or other employees of the Company to assist the Committee in the administration and operation of the Plan and may grant authority to such persons to execute documents on behalf of the Committee. The Committee shall report to the Board on the administration of the Plan not less than once each year. 2. Subject to the express provisions of the Plan, the Committee shall have authority: (i) to allow Participants the right to elect to receive fees for services as a Director in either cash or an equivalent amount of whole shares of Common Stock or RSUs of the Company, or partly in cash and partly in whole shares of the Common Stock or RSUs of the Company, subject to such conditions or restrictions, if any, as the Committee may determine; (ii) to grant Participants Restricted Shares, subject to such conditions or restrictions, if any, as the Committee may determine; (iii) to grant RSUs, subject to such conditions or restrictions, if any, as the Committee may determine; (iv) to grant Participants Stock Options, subject to such conditions or restrictions, if any, as the Committee may determine; (v) to grant Participants SARs, subject to such conditions or restrictions, if any, as the Committee may determine; (vi) to make all other determinations it deems necessary or advisable for administering the Plan; and (vii) to provide for special terms for any RSUs, Restricted Shares, Stock Options, SARs or other awards granted to Participants who are foreign nationals or who reside outside of the United States of America in order to fairly accommodate for differences in local law, tax policy or custom

and to approve such supplements to or amendments, restatements or alternative versions of the Plan as the Committee may consider necessary or appropriate for such purposes (without affecting the terms of the Plan for any purpose); and to make all other determinations it deems necessary or advisable for administering the Plan. ARTICLE C -- PARTICIPATION. Participation in the Plan shall be limited to non-employee Directors of the Company. ARTICLE D -- LIMITATION ON NUMBER OF SHARES AVAILABLE UNDER THE PLAN. 1. The maximum aggregate number of shares available for grant under the Plan shall be 500,000 shares. 2. In addition to the shares authorized for award by Paragraph 1 of this Article, the following shares may be awarded under the Plan: (a) shares that were authorized to be awarded under The Procter & Gamble 1993 Non-Employee Directors' Stock Plan (the "1993 Plan"), but that were not awarded under the 1993 Plan; (b) shares awarded under the Plan or the 1993 Plan that are subsequently forfeited in accordance with the Plan or the 1993 Plan, respectively; or shares tendered by or withheld from a Participant in payment of all or part of the exercise price of a stock option awarded under the Plan or the 1993 Plan. ARTICLE E -- SHARES SUBJECT TO USE UNDER THE PLAN. Shares of Common Stock to be granted by the Company or delivered by the Company upon exercise of Stock Options shall be treasury shares. ARTICLE F - STOCK OPTIONS AND SARS 1. The Committee may, from time to time, grant Participants one or more Stock Options to purchase shares of Common Stock, each having an exercise price equal to no less than the average of the high and low quotations for Common Stock on the New York Stock Exchange on the day of the grant. 2. The Committee may, from time to time, grant Participants one or more SARs each entitling the Participant to receive, upon exercise, a redemption differential for each such SAR which shall be the difference between the average of the high and low quotations for one share of Common Stock on the New York Stock Exchange on the date of exercise and the exercise price of the SAR then being exercised. The exercise price for each SAR granted under this Plan shall be the average of the high and low quotations for Common Stock on the New York Stock Exchange on the day of the grant. 3. Stock Options and SARs shall have a term of not less than ten (10) years from the date of grant, subject to earlier termination as provided herein, and shall be exerciseable one hundred percent (100%) not less than one (1) year from the date of grant, except in the case of death of a Participant, in which case such Participant's Stock Options or SARs shall immediately vest and be exercisable in accordance with this Article F.

4. In the case of death of a Participant, the persons to whom the Stock Options or SARs have been transferred by will or the laws of descent and distribution shall have the privilege of exercising remaining Stock Options or SARs or parts thereof, whether or not exercisable on the date of death of such Participant, at any time prior to the expiration date of such Stock Options or SARs. 5. Stock Options are not transferable other than by will or by the laws of descent and distribution. For the purpose of exercising Stock Options or SARs after the death of the Participant, the duly appointed executors and administrators of the estate of the deceased Participant shall have the same rights with respect to the Stock Options and SARs as legatees or distributees would have after distribution to them from the Participant's estate, subject in all respects to Article J hereof. 6. If a Participant ceases to be a Director while holding unexercised Stock Options or SARs, such Stock Options or SARs are then void, except in the case of (i) death, in which case such Stock Options or SARS may be transferred in accordance with this Article F and Article J hereof, (ii) disability, (iii) retirement at the end of a term, (iv) retirement after attaining the age of sixty nine (69), (v) resignation from the Board following a Participant's retirement from a principal employer in good standing under the terms of that employer's retirement plan, or (vi) resignation from the Board for reasons of antitrust laws or the Company's conflict of interest, corporate governance or continued service policies. In cases covered by (ii), (iii), (iv), (v) and (vi) above, the Participant shall be immediately vested in his or her Stock Options or SARs subject to all other terms of such Stock Options or SARs. 7. Upon the exercise of a Stock Option, payment in full of the exercise price shall be made by the Participant. The exercise price may be paid for by the Participant either in cash, shares of Common Stock to be valued at their fair market value on the date of exercise, or a combination thereof. ARTICLE G -- ADJUSTMENTS. In the event of any future reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, share exchange, reclassification, distribution, spin-off or other change affecting the corporate structure, capitalization or Common Stock of the Company occuring after the date of approval of the Plan by the Company's shareholders, (i) the amount of shares authorized to be issued under the Plan, (ii) the number of shares covered by outstanding Stock Options, SARs, Restricted Shares or RSUs, and (iii) the exercise price of stock options or the grant price of SARs shall be adjusted appropriately and equitably to prevent dilution or enlargement of rights under the Plan. Following any such change, the term "Common Stock" shall be deemed to refer to such class of shares or other securities as may be applicable. ARTICLE H - GRANT OF COMMON STOCK, RESTRICTED SHARES OR RSUS. 1. The Committee may grant Common Stock, Restricted Shares, or RSUs to Participants under the Plan subject to such conditions or restrictions, if any, as the Committee may determine. 2. The shares granted under this Article H shall be valued at the average of the high and low

quotations for Common Stock on the New York Stock Exchange on the day of the grant to a Participant. All shares granted shall be full shares, rounded up to the nearest whole share. ARTICLE I -- ADDITIONAL PROVISIONS. 1. The Board may, at any time, repeal the Plan or may amend it except that no such amendment may amend this paragraph, increase the total aggregate number of shares subject to the Plan, alter the persons eligible to receive shares under the Plan. Participants and the Company shall be bound by any such amendments as of their effective dates, but if any outstanding grants are materially affected adversely, notice thereof shall be given to Participants holding such grants and such amendments shall not be applicable without such Participant's written consent. If the Plan is repealed in its entirety, all theretofore granted shares subject to conditions or restrictions granted pursuant to the Plan shall continue to be subject to such conditions or restrictions. Notwithstanding this or any other provision of this Plan, Stock Options and SARs may not be repriced or re-valued except in accordance with Article G hereof. 2. Notwithstanding anything to the contrary in this Plan, Stock Options and SARs granted hereunder shall vest immediately, and any conditions or restrictions on Common Stock, Restricted Stock or RSUs shall lapse, upon a "Change in Control." A "Change in Control" shall mean the occurrence of any of the following: (a) An acquisition (other than directly from the Company) of any voting securities of the Company (the "Voting Securities") by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the 1934 Act), immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the then outstanding shares or the combined voting power of the Company's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred pursuant to this Section 2(a), shares or Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a "Related Entity"), (ii) the Company or any Related Entity, or (iii) any Person in connection with a "Non-Control Transaction" (as hereinafter defined); (b) The individuals who, as of July 10, 2001 are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least half of the members of the Board; or, following a Merger (as hereinafter defined) which results in a Parent Corporation (as hereinafter defined), the board of directors of the ultimate Parent Corporation; provided, however, that if the election, or nomination for election by the Company's common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of the Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or

threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest; or (c) The consummation of: (i) A merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued (a "Merger"), unless such Merger is a "Non-Control Transaction". A "Non-Control Transaction" shall mean a Merger where: (A) the stockholders of the Company, immediately before such Merger own directly or indirectly immediately following such Merger at least fifty percent (50%) of the combined voting power of the outstanding voting securities of (x) the corporation resulting from such Merger (the "Surviving Corporation") if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by another Person (a "Parent Corporation"), or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; (B) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Merger constitute at least half of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; and (C) no Person other than (1) the Company, (2) any Related Entity, (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such Merger was maintained by the Company or any Related Entity, or (4) any Person who, immediately prior to such merger, consolidation or reorganization had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or shares, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the outstanding voting securities or common stock of (x) the Surviving Corporation if there is no Parent Corporation, or (y) if there is one or more Parent Corporations, the ultimate Parent Corporation; (ii) A complete liquidation or dissolution of the Company; or (iii) The sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Related Entity or under conditions that would constitute a Non-Control Transaction with the disposition of assets being regarded as a Merger for this purpose or the distribution to the Company's stockholders of the stock of a Related Entity or any other assets). Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding shares or Voting Securities as a result of the acquisition of shares or

Voting Securities by the Company which, by reducing the number of shares or Voting Securities then outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of shares or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional shares or Voting Securities which increases the percentage of the then outstanding shares or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. ARTICLE J --CONSENT. Every Participant who receives a grant of Common Stock, Stock Options, SARs, Restricted Shares or RSUs pursuant to the Plan shall be bound by the terms and provisions of the Plan and of any grant agreement referable thereto, and the acceptance of any grant of shares or RSUs pursuant to the Plan shall constitute a binding agreement between the Participant and the Company and any successors in interest to any of them. Every person who receives Stock Options or SARs, in accordance with Article F hereof, that a Participant received pursuant to the Plan shall, in addition to such terms and conditions as the Committee may require upon such grant, be bound by the terms and provisions of the Plan and of the grant of Stock Options or SARs referable thereto, and the acceptance of any grant of shares or RSUs by such person shall constitute a binding agreement between such person and the Company and any successors in interest to any of them. The Plan shall be governed by and construed in accordance with the laws of the State of Ohio, United States of America. ARTICLE K -- DURATION OF PLAN. The Plan shall be effective as of January 1, 2004 and terminate on December 31, 2013 unless a different termination date is fixed by the shareholders or by action of the Board but no such termination shall affect the prior rights under the Plan of the Company or of anyone to whom Common Stock, Stock Options, SARs, Restricted Shares or RSUs have been granted prior to such termination.

[PROCTER & GAMBLE LOGO] The Procter & Gamble Company Executive Offices 1 P&G Plaza Cincinnati, Ohio 45202-3315 www.pg.com [Date] [Name] SUBJECT: AWARD OF RESTRICTED STOCK UNITS This is to advise you that The Procter & Gamble Company is awarding you with Restricted Stock Units, on the date and in the amount listed below, pursuant to The Procter & Gamble 2003 Non-Employee Directors' Stock Plan, and subject to the attached Statement of Terms and Conditions Form RSU.
Grant Date: Forfeiture Date: Original Settlement Date: Number of Restricted Stock Units: [Date] [Date] [Date] [Number]

As you will see from the Statement of Terms and Conditions Form RSU, under certain circumstances you may agree with The Procter & Gamble Company to delay the settlement of your Restricted Stock Units beyond the Original Settlement Date. You may want to consult your personal tax advisor before making a decision about this matter. THE PROCTER & GAMBLE COMPANY

Form RSU THE PROCTER & GAMBLE COMPANY STATEMENT OF TERMS AND CONDITIONS FOR RESTRICTED STOCK UNITS THE PROCTER & GAMBLE 2003 NON-EMPLOYEE DIRECTORS' STOCK PLAN The Restricted Stock Units awarded to you as set forth in the letter you received from the Company (your "Award Letter"), and your ownership thereof, are subject to the following terms and conditions. 1. DEFINITIONS. For purposes of this Statement of Terms and Conditions for Restricted Stock Units ("Terms and Conditions"), all capitalized terms not defined in these Terms and Conditions will have the meanings described in The Procter & Gamble 2003 Non-Employee Directors' Stock Plan (the "Plan"), and the following terms will have the following meanings. (a) "AGREED SETTLEMENT DATE" has the meaning described in Section 2(c); (b) "DATA" has the meaning described in Section 8; (c) "DIVIDEND EQUIVALENTS" has the meaning described in Section 3; (d) "FORFEITURE DATE" is the date identified as such in your Award Letter; (e) "FORFEITURE PERIOD" means the period from the Grant Date until the Forfeiture Date. (f) "GRANT DATE" means the date a Restricted Stock Unit was awarded to you, as identified in your Award Letter; (g) "ORIGINAL SETTLEMENT DATE" is the date identified as such in your Award Letter, as adjusted, if applicable, by Section 2; (h) "POST-FORFEITURE PERIOD" means the period from the Forfeiture Date until the later of the Original Settlement Date or the Agreed Settlement Date; (i) "PROCTER & GAMBLE" means the Company and/or its Subsidiaries; (j) "RESTRICTED STOCK UNIT" means an unfunded, unsecured promise by the Company, in accordance with these Terms and Conditions and the provisions of the Plan, to issue to you one share of Common Stock on the later of the Original Settlement Date or the Agreed Settlement Date. 2. TRANSFER AND RESTRICTIONS. (a) Neither Restricted Stock Units nor your interest in them may be sold, exchanged, transferred, pledged, hypothecated, given or otherwise disposed of by you at any time, except by will or by the laws of descent and distribution. Any attempted transfer of a Restricted Stock Unit, whether voluntary or involuntary on your part, will result in the immediate forfeiture to the

Company, and cancellation, of the Restricted Stock Unit (including all rights to receive Dividend Equivalents). (b) During the Forfeiture Period, your Restricted Stock Units (including all rights to receive Dividend Equivalents) will be forfeited and cancelled if you leave your position as a Director of the Company for any reason, except due to your: (i) disability; (ii) retirement after attaining the age of sixty-nine (69); (iii) resignation following retirement from your principal employer in good standing under the terms or your principal employer's retirement plan; or (iv) resignation for reasons of antitrust laws or the Company's conflict of interest, corporate governance or continued service policies. In the event of your disability during the Forfeiture Period, unless otherwise agreed to in writing by the Company, your Original Settlement Date shall automatically and immediately become, without any further action by you or the Company, the date of your disability. In the event of any of the other above exceptions occurring, you will retain your Restricted Stock Units subject to the Plan and these Terms and Conditions. (c) At any time at least one calendar year prior to the Original Settlement Date, you and the Company may agree to postpone the date on which you are entitled to receive one share of Common Stock for each Restricted Stock Unit you hold until January 15th of any later year (the "Agreed Settlement Date"). During the Post-Forfeiture Period, you will retain your Restricted Stock Units subject to the Plan and these Terms and Conditions if you leave your position as a Director for any reason, except due to your disability. In the event of your disability during the Post-Forfeiture Period, unless otherwise agreed to in writing by the Company, your Original Settlement Date or Agreed Settlement Date, as applicable, shall automatically and immediately become, without any further action by you or the Company, the date of your disability. (d) Upon your death or the occurrence of a Change in Control at any time while you hold Restricted Stock Units and/or Dividend Equivalents, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your death or of the Change in Control, as applicable. (e) From time to time, the Company and/or the Committee may establish procedures with which you must comply in order to accept an award of Restricted Stock Units, to agree to an Agreed Settlement Date, or to settle your Restricted Stock Units, including requiring you to do so by means of electronic signature, or charging you an administrative fee for doing so. (f) Once your Restricted Stock Units have been settled by delivery to you of an equivalent number of shares of Common Stock, the Restricted Stock Units will have no further value, force or effect and you will cease to receive Dividend Equivalents associated with the Restricted Stock Units. 3. DIVIDEND EQUIVALENTS. As a holder of Restricted Stock Units, during the period from the Grant Date until the Original Settlement Date or the Agreed Settlement Date, whichever is later, each time a cash dividend or other cash distribution is paid with respect to Common Stock, you will receive additional Restricted Stock Units ("Dividend Equivalents"). The number of such additional Restricted Stock Units will be determined as follows: multiply the number of Restricted Stock Units currently held by the per share amount of the cash dividend or other cash distribution on the Common Stock, and then divide the result by the price of the Common Stock on the date of the dividend or distribution. These Dividend Equivalent Restricted Stock Units will be subject to the same terms and conditions as the original Restricted Stock Units that gave rise to them, including forfeiture and settlement terms, except that if there is a fractional number of Dividend Equivalent Restricted Stock Units on the date they are to be settled, you will receive one share of Common Stock for the fractional Dividend Equivalent Restricted Stock Units.

4. VOTING AND OTHER SHAREHOLDER RIGHTS. A Restricted Stock Unit is not a share of Common Stock, and thus you are not entitled to any voting, dividend or other rights as a shareholder of the Company with respect to the Restricted Stock Units you hold. 5. ADJUSTMENTS IN CASE OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In the event of a future reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, share exchange, reclassification, distribution, spin-off, or other change affecting the corporate structure, capitalization or Common Stock, the number of Restricted Stock Units you hold will be adjusted appropriately and equitably to prevent dilution or enlargement of your rights. 6. TAX WITHHOLDING. To the extent Procter & Gamble is required to withhold federal, state, local or foreign taxes in connection with your Restricted Stock Units or Dividend Equivalents, the Committee may require you to make such arrangements as Procter & Gamble may deem appropriate for the payment of such taxes required to be withheld, including without limitation, relinquishment of some of the shares of Common Stock that would otherwise be given to you. However, regardless of any action taken by Procter & Gamble with respect to any income tax, social insurance, payroll tax, or other tax, by accepting a Restricted Stock Unit or Dividend Equivalent, you acknowledge that the ultimate liability for any such tax owed by you is and remains your responsibility, and that Procter & Gamble makes no representations about the tax treatment of your Restricted Stock Units or Dividend Equivalents, and does not commit to structure any aspect of the Restricted Stock Units or Dividend Equivalents to reduce or eliminate your tax liability. 7. SUSPENSION PERIODS AND TERMINATION. The Company reserves the right from time to time to temporarily suspend your right to settle your Restricted Stock Units for shares of Common Stock where such suspension is deemed by the Company as necessary or appropriate. 8. DATA PRIVACY. By accepting a Restricted Stock Unit, you explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among, as applicable, any Procter & Gamble entity or third party for the purpose of implementing, administering and managing your participation in the Plan. You understand that Procter & Gamble holds certain personal information about you, including without limitation your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in a Procter & Gamble entity, details of all options, Restricted Stock Units, or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan ("Data"). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, and that the recipient's country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to any broker or other third party with whom you may elect to deposit any shares of Common Stock in connection with the settlement of your Restricted Stock Units. You understand that Data will be held only as long as is necessary to implement, administer and manage your

participation in the plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data, or refuse or withdraw the consents contained in this paragraph, in any case without cost, by contacting in writing your local human resources representative. You understand, however, that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative. 9. NOTICES. (a) Any notice to Procter & Gamble that is required or appropriate with respect to Restricted Stock Units held by you must be in writing and addressed to: The Procter & Gamble Company ATTN: Corporate Secretary's Office P.O. Box 599 Cincinnati, OH 45201 or such other address as Procter & Gamble may from time to time provide to you in writing. (b) Any notice to you that is required or appropriate with respect to Restricted Stock Units held or to be awarded to you will be provided to you in written or electronic form at any physical or electronic mail address for you that is on file with Procter & Gamble. 10. SUCCESSORS AND ASSIGNS. These Terms and Conditions are binding on, and inure to the benefit of, (a) The Procter & Gamble Company and its successors and assigns; and (b) you and, if applicable, the representative of your estate. 11. GOVERNING LAW. The validity, interpretation, performance and enforcements of these Terms and Conditions, the Plan and your Restricted Stock Units will be governed by the laws of the State of Ohio, U.S.A. without giving effect to any other jurisdiction's conflicts of law principles. With respect to any dispute concerning these Terms and Conditions, the Plan and your Restricted Stock Units, you consent to the exclusive jurisdiction of the federal or state courts located in Hamilton County, Ohio, U.S.A. 12. THE PLAN. All Restricted Stock Units awarded to you have been awarded under the Plan. Certain provisions of the Plan may have been repeated or emphasized in these Terms and Conditions; however, all terms of the Plan apply to you and your Restricted Stock Units whether or not they have been called out in these Terms and Conditions. 13. EFFECT OF THESE TERMS AND CONDITIONS. These Terms and Conditions and the terms of the Plan, which are incorporated herein by reference, describe the contractual rights awarded to you in the form of Restricted Stock Units, and the obligations imposed on you in connection with those rights. No right exists with respect to Restricted Stock Units except as described in these Terms and Conditions and the Plan.

Form RRS PROCTER & GAMBLE STATEMENT OF CONDITIONS AND RESTRICTIONS THE PROCTER & GAMBLE 2003 NON-EMPLOYEE DIRECTORS' STOCK PLAN The shares of Common Stock of The Procter & Gamble Company (the "Company") awarded to you as stated in the accompanying letter (the "Restricted Shares") have been transferred to you on the express condition that these Restricted Shares, and your ownership thereof, are subject to the following conditions and restrictions: 1. RESTRICTIONS AND CONDITIONS ON SHARES -(a) Neither these Restricted Shares nor any of your interest therein may be sold, exchanged, transferred, pledged, hypothecated, given or otherwise disposed of by you at any time except as specifically permitted or otherwise required by the terms of this Statement. (b) In the event that you cease to be a member of the Board of Directors of the Company (the "Board") as a result of a Disqualifying Termination (as defined below), you will be deemed to have received on the date of the termination of your membership a written demand by the Company to sell to the Company within ten (10) days these Restricted Shares at a price of ten cents ($.10) per share, which price is subject to adjustment as hereinafter provided. A "Disqualifying Termination" shall include any termination of your membership on the Board for reasons of cause (a criminal act, an act of fraud, breach of trust or other act of gross conduct) or your voluntary resignation from the Board prior to the end of a term. However, "Disqualifying Termination" will not include resignation from the Board prior to the end of a term if it is for reasons of the antitrust laws, conflict of interest, corporate governance or continued service policies, death, disability, your retirement from your principal employer under the terms of an appropriate retirement plan or your attainment of the age of 69. (c) In the event that you shall at any time attempt to sell, exchange, transfer, pledge, hypothecate, give or otherwise dispose of any of the Restricted Shares, or any interest therein, in violation of the terms and conditions of this Statement, you will be required, within ten (10) days after delivery to you of a written demand by the Company made within ninety (90) days after the occurrence of such event, to sell to the Company all Restricted Shares then registered in your name with respect to which the conditions and restrictions set forth in this Statement are still in effect at a price of ten cents ($.10) per share, which price is subject to adjustment as hereinafter provided. (d) (i) The determination as to whether an event has occurred requiring a sale of Restricted Shares to the Company in accordance with any provision of this paragraph 1, paragraph 5, following, or any other provision of this Statement shall be made by the Compensation Committee (the "Committee") in its sole discretion, and all determinations of the Committee with respect thereto shall in all respects be conclusive upon you and any persons claiming under or through you. (ii) If you shall at any time be required to sell any or all of these Restricted Shares to the Company pursuant to any provisions of this paragraph 1, paragraph 5, following, or any other provision in this Statement, you shall, effective on the date of the delivery of the Company's demand to you, cease to have any rights as a shareholder with respect to the Restricted Shares so required to be sold, or any interest therein; and, without limitation, you shall cease to be entitled to receive any future dividends upon such Restricted Shares with record dates occurring after the date of delivery of such

demand; and in the event that for any reason you shall receive any such dividends upon such Restricted Shares you will be required to repay the Company an amount equal to such dividends. (iii) If you shall at any time be required to sell any or all of these Restricted Shares to the Company pursuant to the provisions of this paragraph 1, paragraph 5 following, or any other provision in this Statement, and if within thirty (30) days after delivery to you of the Company's demand you have not delivered a stock power or other instrument of transfer appropriately executed in blank, together with any certificates which you may hold representing such Restricted Shares to the Secretary of the Company at the Executive Offices of The Procter & Gamble Company, P. O. Box 599, Cincinnati, Ohio 45201, the Company may thereupon cause to be mailed to you, in the manner and at the address specified in paragraph 6(b), following, its check payable to your order in the amount of the purchase price for such shares provided for in this Statement and direct the Transfer Agent and Registrar of the Company's Common Stock to make appropriate entries upon their records showing the cancellation of such certificates and return the shares represented thereby to the Company. 2. SHAREHOLDER RIGHTS -Effective upon the date of award of these Restricted Shares you shall for all purposes be a holder of record of these Restricted Shares and shall thereafter have all rights of a common shareholder with respect to such shares (including the right to vote such shares at any meeting of common shareholders of The Procter & Gamble Company and the right to receive all dividends paid with respect to such shares), subject only to the conditions and restrictions imposed by this Statement. Until such conditions and restrictions have lapsed with respect to any Restricted Shares, any certificate for such shares will bear a legend to the effect that they were issued or transferred subject to, and may be sold or otherwise disposed of only in accordance with, the terms of this Statement. 3. ADJUSTMENTS IN CASE OF STOCK DIVIDENDS, STOCK SPLITS, ETC. -In the event that, as the result of a stock dividend, stock split, recapitalization, merger, consolidation, reorganization, or other event, you shall, as the owner of Restricted Shares, be entitled to new, additional or different shares or securities: (a) such new, additional or different shares or securities shall for all purposes be deemed "Restricted Shares," (b) all of the terms of this Statement shall be applicable thereto as modified by this paragraph 3, (c) the purchase price of ten cents ($.10) per share and all of the computations provided for in this Statement shall, if and to the extent required, be appropriately adjusted, and (d) any certificates or other instruments evidencing such new, additional or different shares or securities shall bear the legend referred to in paragraph 2; provided, however, any fractional shares and any pre-emptive or other rights or warrants to purchase securities issued to you as a holder of Restricted Shares in connection with a public offering will be issued to you free and clear of all conditions and restrictions imposed by this Statement. 4. LAPSE OF CONDITIONS AND RESTRICTIONS -(a) The conditions and restrictions set forth in paragraph 1 above shall lapse in their entirety on the date you cease to be a member of the Board for reasons other than a Disqualifying Termination, provided, however, that the Treasurer of The Procter & Gamble Company may agree to extend the restrictions to a date after retirement to provide for expiration in up to five annual installments beginning on January 15 of the year following retirement, with any such extension to be agreed to only upon your written request made prior to January 1 of the year of your retirement and your agreement not to provide services as a director, employee or a consultant for a company that is a direct competitor of the Company following retirement until expiration of the restrictions without first obtaining written permission from the Company. (b) The Committee may accelerate the lapse of conditions and restrictions on all or any part of the Restricted Shares in the case of hardship which in the sole judgment of the Committee justifies such action.

(c) When the conditions and restrictions lapse with respect to Restricted Shares pursuant to this paragraph 4, the Company will promptly deliver to you, or your legal representative in case of death, after surrender of any certificate(s) for such Restricted Shares to the Treasurer of The Procter & Gamble Company, Cincinnati, Ohio 45201, one or more certificates for a like number of shares, free of any legend. 5. ADDITIONAL DOCUMENTS -(a) It is the intention of the Company that this transaction shall meet the requirements of, and result in the application of, the rules prescribed by Section 83 of the Internal Revenue Code of 1986, as in effect at the date hereof, and applicable Regulations thereunder. Accordingly, each and every provision shall be construed and interpreted in such manner as to conform with such intention and the Company reserves the right to execute and to require you to execute any further agreements or other instruments which may be effective as of the date of award of these Restricted Shares, including, but without limitation, an instrument modifying or correcting any provision hereof, or of the letter advising you of the award or any action taken hereunder or contemporaneously herewith, and to take any other action, which may be effective as of the date of award of these Restricted Shares, that, in the opinion of counsel for the Company, may be necessary or desirable to carry out such intention. (b) If you fail, refuse or neglect to execute and deliver any instrument or document or to take any action requested by the Company or Committee to be executed or taken by you pursuant to the provisions of paragraph 5(a) above for a period of thirty (30) days after the date of such request, the Committee may require you, within ten (10) days after delivery to you of a written demand by the Company, to sell to the Company all of the Restricted Shares then registered in your name with respect to which the conditions and restrictions set forth in this Statement are still in effect at a price of ten cents ($.10) per share, which price is subject to adjustment as herein provided. 6. NOTICES -(a) Any notice to the Company under or pursuant to the conditions and restrictions of this Statement shall be deemed to have been delivered to the Company when delivered in person to the Secretary of the Company or when deposited in the mails, by certified or registered mail, addressed to the Secretary of the Company at the Executive Offices of The Procter & Gamble Company, P. O. Box 599, Cincinnati, Ohio 45201, or such other address as the Company may from time to time designate in writing by notice to you given pursuant to paragraph 6(b) hereof. (b) Any notice or demand to you under or pursuant to any provisions of this Statement shall be deemed to have been delivered to you when delivered to you in person or when deposited in the mails, by certified or registered mail, addressed to you at the address on record in the Shareholder Services Department or such other address as you may from time to time designate in writing by notice to the Company given pursuant to paragraph 6(a) above. 7. THE PROCTER & GAMBLE 2003 NON-EMPLOYEE DIRECTORS' STOCK PLAN -The Restricted Shares have been awarded to you pursuant to The Procter & Gamble 2003 Non-Employee Directors' Stock Plan and such shares and your ownership thereof shall be in all respects subject to the terms of such Plan, the terms and provisions of which are incorporated herein by reference. 8. SUCCESSORS AND ASSIGNS -The provisions of this Statement shall be binding upon and inure to the benefit of (a) the Company, its successors and assigns, and

(b) you and, to the extent applicable, your legal representative. 9. GOVERNING LAW -The validity, interpretation, performance and enforcement of the conditions and restrictions contained in this Statement and your rights in, to and under the Restricted Shares shall for all purposes be governed by the laws of the State of Ohio. 10. ADDITIONAL INFORMATION CONCERNING COMMON STOCK -The following information which appears on certificates representing shares of the Common Stock of the Company is provided pursuant to Section 1701.24(F) of the Ohio Revised Code as pertinent to Restricted Shares awarded or held without issuance of certificates: (a) The Procter & Gamble Company is organized under the laws of the State of Ohio. (b) The Restricted Shares are fully paid and non-assessable shares of the Common Stock without par value of the Company. (c) The name of the person to whom the shares are issued and the number of shares so issued and made subject to this Statement of Conditions and Restrictions are set forth in the accompanying letter. (d) A copy of the express terms of such shares and of all other classes and series of shares authorized will be mailed to any shareholder without charge within five (5) days after receipt from such shareholder of a written request therefor addressed to the Secretary of The Procter & Gamble Company, P. O. Box 599, Cincinnati, Ohio 45201.

EXHIBIT (10-10) The Procter & Gamble Company Executive Deferred Compensation Plan

THE PROCTER & GAMBLE COMPANY EXECUTIVE DEFERRED COMPENSATION PLAN (EFFECTIVE JULY 1, 2004)

CONTENTS
Article 1. Purpose, Status, and Effective Date Article 2. Definitions Article 3. Eligibility and Participation Article 4. Contributions and Credits Article 5. Vesting Article 6. Participant Accounts; Investment Options Article 7. Distribution of Benefits Article 8. Claims Procedures Article 9. Plan Administration Article 10. Amendment and Termination Article 11. Additional Provisions 1 1 4 4 5 6 7 9 10 12 13

THE PROCTER & GAMBLE COMPANY DEFERRED COMPENSATION PLAN ARTICLE 1. PURPOSE, STATUS, AND EFFECTIVE DATE 1.1 PURPOSE OF PLAN. The Procter & Gamble Company (the "Company"), an Ohio corporation, has adopted The Procter & Gamble Company Executive Deferred Compensation Plan (the "Plan"), as set forth herein, as a means of rewarding and retaining selected employees and providing such individuals the opportunity for capital accumulation through elective deferrals of compensation. 1.2 STATUS OF PLAN. The Company has established the Plan as an unfunded deferred compensation plan for a select group of management and highly compensated employees within the meaning of Sections 201(2), 301(3), and 401(1) of the Employee Retirement Income Security Act of 1974, as amended. The Plan shall at all times be administered and interpreted in a manner that is consistent with such status. 1.3 EFFECTIVE DATE. The Effective Date of the Plan is July 1, 2004. ARTICLE 2. DEFINITIONS Whenever used in this Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized. (a) "ACCOUNT" shall mean the bookkeeping account for a Participant that is established and maintained to record the Participant's interest under the Plan. The balance posted to the record of the Account of a Participant shall reflect the Participant's Contributions, distributions, adjustments for income, gain, or loss, and other charges and credits pursuant to Article 6. (b) "ADMINISTRATIVE COMMITTEE" shall mean the committee that administers the Short-Term Achievement Reward incentive plan or such other administrative committee of the Company appointed by the Compensation Committee to administer the Plan. Pursuant to Section 9.2, the Administrative Committee has the authority to delegate its responsibilities. Throughout this plan document, the term "Administrative Committee" shall also include any individual to whom the Administrative Committee has delegated its responsibilities pursuant to Section 9.2. (c) "BENEFICIARY" shall mean the person or persons or entity designated by the Participant to receive the balance of the Participant's Account in the event of the Participant's death. The designation may be in favor of one or more Beneficiaries, may include contingent as well as primary designations and named or unnamed trustees under any will or trust agreement and may apportion the benefits payable in any manner among the Beneficiaries. A Participant's designation of one or more Beneficiaries shall be made in writing in a manner designated by the Administrative Committee and shall not be effective until received by the Administrative Committee. If a Participant fails to properly designate a Beneficiary or if the designated beneficiaries of such Participant shall have predeceased the Participant, the Participant's estate shall be the Beneficiary.

A Participant may change his or her Beneficiary without the consent of any Beneficiary by similar instrument in accordance with rules and procedures established by the Administrative Committee. The beneficiary designation form received and acknowledged most recently by the Administrative Committee shall control as of any date. If concurrent Beneficiaries are named without specifying the proportion of benefits due each, distribution shall be made in equal shares to those Beneficiaries. (d) "CLAIMANT" shall mean the Participant or Beneficiary or his or her representative submitting a claim for benefits under the Plan. (e) "CODE" shall mean the Internal Revenue Code of 1986, as amended, or as it may be amended from time to time. Furthermore, the phrase "to the extent permitted under the Code" means to the extent the action described does not cause taxation of a Participant's Account prior to distribution of all or a portion of the Participant's Account. (f) "COMPANY" shall mean The Procter & Gamble Company, an Ohio corporation, and any successor thereto which continues the Plan. (g) "COMPENSATION" shall mean the definition of compensation for the Plan Year announced in writing by the Administrative Committee on or before the due date for the Administrative Committee's receipt of Participants' Deferral Elections for such Plan Year. Unless and until superceded, the definition of compensation announced by the Administrative Committee for a Plan Year shall remain in effect for subsequent Plan Years. (h) "COMPENSATION COMMITTEE" shall mean the Compensation Committee of the Board of Directors, as constituted from time to time, of the Company. If the Compensation Committee has delegated any of its authority under the Plan to a committee or to an individual, the term "Compensation Committee" shall also include such committee or individual. (i) "CONTRIBUTIONS" shall mean Deferrals. (j) "DEFERRAL ELECTION" shall mean the election or elections filed by the Participant with the Company to defer Compensation under the Plan. (k) "DEFERRALS" shall mean the amounts credited to a Participant's Account as Deferrals pursuant to the Participant's Deferral Election. (l) "DISABILITY" shall mean "Permanent Disability" as defined in and as determined by, the plan administrator of The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan under The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan's procedures for disability claims. In addition, where the context so requires, "Disability" shall mean a termination of employment by reason of Disability. (m) "EFFECTIVE DATE" shall mean the date set forth in Section 1.3. (n) "ELIGIBLE EMPLOYEE" shall mean an Employee who satisfies one of the requirements for eligibility under Article 3 of the Plan.

(o) "EMPLOYEE" shall mean any employee of the Company or a subsidiary who is expressly designated as an Employee. Any person who is not expressly designated as an Employee by the Company (or by the subsidiary of the Company for whom the person performs services) shall not be an Employee for purposes of the Plan, notwithstanding that such person may be later determined by the Internal Revenue Service or by a court of competent jurisdiction to be an employee. (p) "EMPLOYER" shall mean, with respect to any Participant, the Company or, if applicable, a subsidiary of the Company (that is participating in the Plan with the consent of the Compensation Committee) that employs such Participant. (q) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. (r) "INVESTMENT OPTION" shall mean a security (other than stock of the Company), mutual fund, common or collective trust, insurance company pooled separate account, or other benchmark selected by the Administrative Committee pursuant to Section 6.2 for measuring the income, gain, or loss, and other charges and credits recorded for a Participant's Account. (s) "PARTICIPANT" shall mean an Employee who is eligible to participate in the Plan: (i) by reason of being selected for participation pursuant to Section 3.1(a) of the Plan; or (ii) because the Employee satisfies eligibility criteria established by the Administrative Committee for participation by a class of employees pursuant to Section 3.1(b) of the Plan. (t) "PLAN" shall mean The Procter & Gamble Company Deferred Compensation Plan, as herein set out or as duly amended. (u) "PLAN YEAR" for this Plan shall mean the calendar year. (v) "RETIREMENT" shall have the same meaning as provided under The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan. (w) "SCHEDULED IN-SERVICE WITHDRAWAL" shall mean a distribution of all or a portion of the Deferrals credited to a Participant's Account in the Plan Year elected by the Participant for such distribution. ARTICLE 3. ELIGIBILITY AND PARTICIPATION 3.1 ELIGIBILITY. (a) Participation in the Plan is limited to the class of Employees who are expressly selected for Plan participation by the Compensation Committee. (b) In lieu of expressly selecting Employees for Plan participation, the Compensation Committee may establish eligibility criteria providing for the participation of all Employees who satisfy such criteria.

(c) The Compensation Committee may adopt, amend, or abolish a Participant's selection for eligibility or eligibility criteria under Sections 3.1 (a) and 3.1(b) hereof at any time, and for any reason, by resolution, which resolutions shall be attached to the copy of the Plan maintained by the Company and shall be effective as of the date specified therein, or if later, the date submitted to the Company. 3.2 PARTICIPATION. A Participant shall continue to participate in the Plan with respect to amounts credited to his or her Account until: (i) the Participant ceases to satisfy any of the eligibility criteria for participation under Section 3.1, and (ii) there has been a complete distribution or forfeiture of the Participant's Account. ARTICLE 4. CONTRIBUTIONS AND CREDITS 4.1 DEFERRALS. (a) A Participant may elect to make Deferrals to his or her Account for a Plan Year by timely executing and filing a Deferral Election with the Administrative Committee on or before the due date established by the Administrative Committee for the Plan Year for which the Deferral Election is being made. Except as provided in paragraphs (b) and (c) of this Section 4.1, such due date shall be prior to January 1 of the Plan Year for which the Compensation would otherwise be payable. (b) The Administrative Committee may provide for separate Deferral Elections and due dates for the various elements of Compensation, such as base salary and bonuses. Any Deferral Election must be made prior to the period for which the element of Compensation being deferred is earned, as determined by the Administrative Committee in its sole discretion, and the Participant's Deferral Election shall only apply to Compensation earned after the date on which it is received by the Administrative Committee. (c) A Participant who first becomes eligible for participation in the Plan after January 1 of a Plan Year who wishes to make Deferrals to his or her Account for such Plan Year shall execute and file with the Administrative Committee a Deferral Election within thirty (30) days after the date on which such Participant is notified that he or she has become eligible to participate in the Plan. For this purpose, the date of the notice shall be the date of notification, regardless of when actually received by the Participant. (d) Only one Deferral Election may be made for each element of Compensation earned in a single Plan Year (or earned over a period of more than one Plan Year). Any Participant who fails to timely execute and file a Deferral Election with the Administrative Committee for a Plan Year with respect to an element of Compensation shall not be permitted to make Deferrals for such element of Compensation for such Plan Year. (e) A Deferral Election shall direct the Employer to reduce the Participant's Compensation (or the element thereof) by a whole percentage specified by the Participant in the Deferral Election.

(f) The amount specified by the Participant in the Deferral Election cannot reduce the Participant's current Compensation for such Plan Year below the amount necessary to satisfy any applicable taxes and withholdings required by law, as determined by the Administrative Committee. (g) A Deferral Election for Compensation shall be effective only for the Plan Year for which it is made. Once filed with the Administrative Committee, a Deferral Election shall be irrevocable. (h) In making a Deferral Election, a Participant consents to the Employer's withholding from his or her currently payable Compensation the amount or amounts elected and the crediting of such withheld amounts to the Participant's Account, as provided in the Plan. 4.2 AUTOMATIC CANCELLATION OF DEFERRAL ELECTIONS. Notwithstanding anything in the Plan to the contrary, in the event the Participant ceases to be a Participant, all of such Participant's outstanding Deferral Elections shall immediately be cancelled, and the Participant's right to make future Deferral Elections shall be suspended until the Participant again becomes a Participant. ARTICLE 5. VESTING A Participant shall at all times be one hundred percent (100%) vested in amounts credited to the Participant's Account. ARTICLE 6. PARTICIPANT ACCOUNTS; INVESTMENT OPTIONS 6.1 ACCOUNTS. The Administrative Committee shall establish an Account for each Participant to record the Contributions, distributions, adjustments for income, gain, or loss, and other charges and credits to the Account under the Plan. 6.2 INVESTMENT OPTIONS. The Administrative Committee shall designate one or more Investment Options for measuring the income, gain, or loss, and other charges and credits recorded for a Participant's Account and may change Investment Options prospectively at any time provided that any Investment Options designated must be comparable to an investment option available under a tax-qualified defined contribution plan of the Company. Notwithstanding anything in this Plan to the contrary, an Investment Option that provides an above-market return, as defined by Item 402 of Regulation S-K of the Securities Act of 1933, may not be designated without the approval of the Compensation Committee. 6.3 PARTICIPANT ALLOCATIONS. (a) A Participant shall elect on his or her Deferral Election form or on such other form or by such other means as may be specified by the Administrative Committee, one or more Investment Options to which Contributions to be credited to the Participant's Account shall be allocated. A Participant may change the allocation of future Contributions among the Investment Options and may change the allocation of his or her Account balance among the Investment Options as frequently as permitted by the Administrative Committee under rules and procedures applicable to all Participants. The Administrative Committee shall establish and may prospectively change its rules regarding the timing and

frequency of Investment Option elections and may establish minimum amounts or percentages for allocating Contributions and transferring Account balances among the Investment Options. (b) In the event a Participant fails or refuses to make an election allocating Contributions credited to his or her Account among the then available Investment Options, the Administrative Committee shall, in its discretion, either: (i) reject the Participant's Deferral Election as incomplete, or (ii) specify the Investment Option or Options to which the Participant's Account shall be allocated and notify the Participant of its selection, which notification may be the Account statements provided to the Participant. 6.4 ADJUSTMENT OF ACCOUNTS. A Participant's Account balance shall be adjusted daily, based on the performance of the Investment Options selected by the Participant, as if the portion of the Participant's Account allocated to an Investment Option were actually invested in such Investment Option and adjusted for other amounts as if such other amounts were actually charged or credited to an actual Account balance of the Participant. The Administrative Committee may also charge as an expense against a Participant's Account: (i) amounts customarily charged by the sponsor of one or more Investment Options that are charged on a per-Participant or per-transaction basis and not otherwise charged as an expense of an Investment Option, and (ii) the Administrative Committee's and the Employer's own expenses and out-of-pocket fees in administering the Plan. The Administrative Committee's allocation of charges and expenses among Participant Accounts shall be final and conclusive against the Participants and all other parties. 6.5 STATUS OF INVESTMENT OPTIONS. The Investment Options established by the Administrative Committee from time to time are for the sole purpose of providing a performance measurement for adjusting Participants' Accounts for income, gain, or loss, and other charges and credits. Notwithstanding anything in this Plan to the contrary, neither the Company nor the Administrative Committee shall be required to actually invest monies in any fund designated as an Investment Option, any decision to so invest shall remain within the discretion of the Company (subject to the approval of the Compensation Committee), and any amounts so invested shall remain the property of the Company. ARTICLE 7. DISTRIBUTION OF BENEFITS 7.1 DISTRIBUTION ELECTION. (a) At the time each Deferral Election is made, the Participant may elect to receive a distribution of all or a portion of the related amount deferred (including adjustments thereon pursuant to Section 6.4) upon the first to occur of the Participant's Retirement or termination of employment by reason of Disability. (b) A Participant may instead elect to receive a Scheduled In-Service Withdrawal of up to one hundred percent (100%) of the related amount deferred (including adjustments thereon pursuant to Section 6.4); provided, however, that any Scheduled In-Service Withdrawal must occur at least one (1) year after the end of the Plan Year in which the Deferrals being distributed were credited to the Participant's Account.

(c) Separate distribution elections may be made for each Plan Year's credited Contributions. The Participant's distribution election shall be made in writing as specified by the Administrative Committee. 7.2 RETIREMENT/DISABILITY DISTRIBUTIONS. (a) A Participant may elect one or both of the following forms of distribution for his or her Account distributable by reason of the Participant's Retirement or Disability: (i) a single sum distribution, or (ii) a distribution in approximately equal annual installments payable over a period of two (2) to ten (10) years. The Account balance of a Participant who fails or refuses to elect a method of distribution shall be paid in a single sum. (b) A distribution payable by reason of the Participant's Retirement or Disability shall be paid (in the case of a single sum) or commence to be paid (in the case of annual payments) as soon as practicable in the calendar year following the calendar year in which the Participant's Retirement or Disability occurs. 7.3 DEATH DISTRIBUTIONS. If a Participant dies before a complete distribution of his or her Account under the Plan has occurred, the Participant's undistributed Account balance shall commence to be distributed to his or her Beneficiary under the distribution method (for death) elected by the Participant as soon as administratively possible following receipt by the Administrative Committee of satisfactory notice and confirmation of the Participant's death. 7.4 SCHEDULED IN-SERVICE WITHDRAWALS. (a) A Scheduled In-Service Withdrawal shall be paid in a single sum as soon as practicable in the January of the payout year elected by the Participant to receive such Scheduled In-Service Withdrawal. (b) If a Participant has elected a Scheduled In-Service Withdrawal for all or a portion of his or her Account, but terminates employment with all Employers for any reason other than Disability or death prior to the year specified by the Participant for such Scheduled In-Service Withdrawal to be paid, the Scheduled In-Service Withdrawal shall be paid in the year following the year employment terminates. (c) If a Participant terminates employment with all Employers by reason of Disability or death prior to the year specified by the Participant for such Scheduled In-Service Withdrawal to be paid, the Scheduled In-Service Withdrawal distribution shall be distributed in the manner elected by the Participant for Disability or death. However, if Disability or death occurs within a Plan Year during which a Scheduled In-Service Withdrawal is still to be paid, such withdrawal shall be paid as scheduled to the Participant (or in the event of death, to the Participant's estate). 7.5 TERMINATION OF EMPLOYMENT. If a Participant terminates employment with all Employers prior to his or her Retirement, death, or Disability for any reason, notwithstanding any distribution election made by the Participant, the undistributed portion of the Participant's Account

balance shall be payable to the Participant in a single sum in January following the calendar year in which such termination of employment occurs. 7.6 FORM OF DISTRIBUTIONS. All amounts distributed to a Participant from his or her Account shall be paid in cash by the Employer or its designee. 7.7 POSTPONEMENT OF DISTRIBUTIONS. The Administrative Committee may postpone the distribution of all or part of an amount otherwise payable to a Participant to the extent that the distribution would not be deductible by the Employer under Section 162(m) of the Code. A conversion or distribution that is so postponed pursuant to this Section 7.7 shall be converted and/or paid as soon as it is possible to do so within the deduction limitations of Section 162(m) of the Code. 7.8 PERMITTED CHANGES IN DISTRIBUTION ELECTIONS. To the extent permitted under the Code and by the Administrative Committee, a Participant may change his or her distribution election related to amount(s) distributable by reason of his or her Disability or death if such change is made in writing at least twelve (12) months prior to the Participant's Disability or death and only if such change will not result in taxation of amounts previously deferred. In the event that the Participant's most recent form of distribution election was made within twelve (12) months of the Participant's Disability or death, the next most recent election made by the Participant at least twelve (12) months prior to the Participant's termination of employment by reason of Disability or death (or if none, the Participant's initial election) shall be used. ARTICLE 8. CLAIMS PROCEDURES 8.1 GENERALLY. A distribution request (also referred to herein as a claim) shall be made by filing a written request with the Administrative Committee on a form provided by the Administrative Committee, which shall be delivered to the Administrative Committee. If the claims procedure form made available by the Administrative Committee does not contain information on where to file the claim, the claim may be submitted to the human resources office at the site where the Claimant is employed. 8.2 DENIED CLAIMS. If a claim is denied in whole or in part, the Claimant shall receive a written or electronic notice explaining the denial of the claim within ninety (90) days after the Administrative Committee's receipt of the claim. If the Administrative Committee determines that for reasons beyond its control, a ninety (90) day extension of time is necessary to process the claim, the Claimant shall be notified in writing of the extension and reason for the extension within ninety (90) days after the Administrative Committee's receipt of the claim. The written extension notification shall also indicate the date by which the Administrative Committee expects to render a final decision. A notice of denial of claim shall contain the following: the specific reason or reasons for the denial; reference to the specific Plan provisions on which the denial is based; a description of any additional materials or information necessary for such Claimant to perfect the claim and an explanation of why such material or information is necessary; and a description of the Plan's review procedures and the time limits applicable to such procedures, including a statement of the Claimant's right to bring a civil action under Section 502(c) of ERISA following an adverse determination on review. 8.3 REVIEW OF DENIED CLAIMS. A Claimant may file a written request for a review of the denial of a claim within sixty (60) days after receiving written notice of the denial. The Claimant may submit written comments, documents, records, and other relevant information in support of the

claim. A Claimant shall be provided, upon request and without charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim. A document, record, or other information shall be considered relevant if it: (a) was relied upon in denying the claim; (b) was submitted, considered or generated in the course of processing the claim, regardless of whether it was relied upon; (c) demonstrates compliance with the claims procedures process; or (d) constitutes a statement of Plan policy or guidance concerning the denied claim. 8.4 DECISIONS ON REVIEWED CLAIMS. The Administrative Committee shall notify the Claimant in writing of its decision on the appeal. Such notification shall be in a form designed to be understood by the Claimant. If the claim is denied in whole or in part on appeal, the notification shall also contain: the specific reason or reasons for the denial; reference to the specific Plan provisions on which the determination is based; a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits; and a statement that the Claimant has a right to bring an action under Section 502(a) of ERISA. A document, record, or other information shall be considered relevant if it: (a) was relied upon in denying the claim; (b) was submitted, considered, or generated in the course of processing the claim, regardless of whether it was relied upon; (c) demonstrates compliance with the claims procedures process; or (d) constitutes a statement of Plan policy or guidance concerning the denied claim. Such notification shall be given by the Administrative Committee within sixty (60) days after the complete appeal is received by the Administrative Committee (or within one hundred twenty (120) days if the Administrative Committee determines special circumstances require an extension of time for considering the appeal, and if written notice of such extension and circumstances is given to the Claimant within the initial sixty (60) day period). Such written extension notice shall also indicate the date by which the Administrative Committee expects to render a decision. 8.5 REVIEW PROCEDURES. In reviewing a denied claim, the reviewer shall take into consideration all comments, documents, records, and other information submitted by the Claimant in support of the claim, without regard to whether such information was submitted or considered in the initial determination. ARTICLE 9. PLAN ADMINISTRATION 9.1 ESTABLISHMENT OF THE ADMINISTRATIVE COMMITTEE. The Administrative Committee shall have the sole responsibility for the administration of the Plan. The Administrative Committee shall consist of at least three (3) members who shall be appointed by the Compensation Committee and who may also be officers, directors, or employees of the Company or an Employer. An Administrative Committee member may resign by written notice to, or may be removed by, the Company, which shall appoint a successor to fill any vacancy on the Administrative Committee, howsoever caused. An Employee's membership on the Administrative Committee shall automatically terminate upon such Employee's termination of employment with all Employers. 9.2 APPOINTMENT AND DUTIES OF THE ADMINISTRATIVE COMMITTEE. (a) The Administrative Committee may delegate its responsibilities hereunder to one or more persons, to serve at the Administrative Committee's discretion. The Administrative Committee or its delegatee(s) shall have such powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following:

(i) To administer and enforce the Plan, including the discretionary and exclusive authority to interpret the Plan, to make all factual determinations under the Plan, and to resolve questions between the Company and Participants or Beneficiaries, including questions which relate to eligibility and distributions from the Plan, to remedy possible ambiguities, inconsistencies, or omissions, and decisions on claims which shall, subject to the claims procedures under the Plan, be conclusive and binding upon all persons hereunder, including, without limitation, Participants, other Employees of the Company, Beneficiaries, and former Participants, and their executors, administrators, conservators, or heirs; (ii) To prescribe procedures to be followed by Participants or Beneficiaries filing applications for benefits; (iii) To prepare and distribute, in such manner as the Administrative Committee determines to be appropriate, information explaining the Plan; (iv) To receive from the Employer and from Participants such information as shall be necessary for the proper administration of the Plan; (v) To furnish the Employer, upon request, such reports with respect to the administration of the Plan as are reasonable and appropriate; (vi) To receive, review, and keep on file (as it deems convenient or proper) reports of the receipts and disbursements under the Plan; (vii) To appoint or employ individuals to assist in the administration of the Plan and any other agents it deems advisable, including legal counsel, and such clerical, medical, accounting, auditing, actuarial, and other services as it may require in carrying out the provisions of the Plan or in connection with any legal claim or proceeding involving the Plan, to settle, compromise, contest, prosecute, or abandon claims in favor of or against the Plan; and (viii) To discharge all other duties set forth herein. (b) The Administrative Committee shall have no power to add to, subtract from, or modify any of the terms of the Plan, or to change or add to any benefits provided by the Plan, or to waive or fail to apply any requirements of eligibility under the Plan. No member of the Administrative Committee shall participate in any action on any matters involving solely his or her own rights or benefits as a Participant under the Plan, and any such matters shall be determined by the Compensation Committee. 9.3 ACTIONS BY THE ADMINISTRATIVE COMMITTEE. The Administrative Committee may act at a meeting or by writing without a meeting, by the vote or assent of a majority of its members. The Administrative Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs and the administration of the Plan. A dissenting Administrative Committee member who, within a reasonable time after he or she has knowledge of any action or failure to act

by the majority, registers his or her dissent in writing delivered to the other Administrative Committee members shall not be responsible for any such action or failure to act. 9.4 EXPENSES OF THE ADMINISTRATIVE COMMITTEE. Members of the Administrative Committee shall not receive compensation from the Plan for those services they perform as the Administrative Committee members while employed by an Employer. Any and all necessary expenses related to Plan administration shall be paid by the Company but may be charged against Plan Accounts. 9.5 RECORDS OF THE ADMINISTRATIVE COMMITTEE. The Administrative Committee shall keep a record of all of its meetings and shall keep all such books of account, records, and other data as may be necessary or desirable in its judgment for the administration of the Plan. 9.6 INFORMATION FROM PARTICIPANT. The Administrative Committee may require a Participant to complete and file with the Administrative Committee forms approved by the Administrative Committee, and to furnish all pertinent information requested by such Administrative Committee. The Administrative Committee may rely upon all such information so furnished, including the Participant's current mailing address. 9.7 NOTIFICATION OF PARTICIPANT'S ADDRESS. Each Participant, retired Participant, and Beneficiary entitled to benefits under the Plan must file with the Administrative Committee or such other person designated by the Administrative Committee, in writing, his or her post office address and each change of post office address. Any communication, statement, or notice addressed to such a person at this latest post office address as filed with the Administrative Committee shall, on deposit in the United States mail with postage prepaid, be binding upon such person for all purposes of the Plan, and the Administrative Committee shall not be obliged to search for, or ascertain the whereabouts of, any such person. 9.8 INDEMNIFICATION. Notwithstanding any provision herein to the contrary, no member of the Administrative Committee nor any individual to whom the Administrative Committee has delegated duties under this Plan shall be liable to any Participant, former Participant, designated Beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection with the Plan, unless attributable to fraud or willful misconduct on the part of such member or individual. Furthermore, members of the Administrative Committee and all individuals to whom the Administrative Committee has delegated duties under this Plan shall be indemnified by the Company against any and all liabilities arising by reason of any act or failure to act made in good faith pursuant to the provisions of the Plan, including expenses reasonably incurred in the defense of any claim relating thereto. ARTICLE 10. AMENDMENT AND TERMINATION The Company hereby reserves the right, by written resolution of the Compensation Committee, to amend or terminate the Plan at any time, and for any reason, without the consent of any Participant. No amendment shall impair or curtail the Employer's contractual obligations to a Participant for the vested portion of the Participant's Account prior to the date of any such amendment or termination of the Plan.

ARTICLE 11. ADDITIONAL PROVISIONS 11.1 NO CONTRACT. Nothing in the Plan shall be deemed to give a Participant any right to be retained in the employ of the Employer or to interfere with the Employer's right to discharge the Participant at any time, with or without cause. 11.2 WITHHOLDINGS. The Employer shall withhold from any amount distributable to a Participant under the Plan any applicable actual or hypothetical federal, state, or local income or employment taxes or any other amounts required to be withheld by law or withheld pursuant to Section 11.4. In addition, the Employer may withhold from a Participant's currently payable salary, bonus, or other compensation any applicable federal, state, or local income or employment taxes that may be due upon the crediting of an amount to the Participant's Account. 11.3 RIGHTS NOT TRANSFERABLE. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer, hypothecate, alienate, or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment, or sequestration for the payment of any debts, judgments, alimony, or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise. 11.4 OFFSET. If, at the time payments or installments of payments are to be made hereunder, the Participant or Beneficiary or both are indebted or obligated to the Company, then the remaining payments under the Plan to be made to the Participant or the Beneficiary or both may, at the discretion of the Company, be reduced by the amount of the indebtedness or obligation, provided, however, that an election by the Company not to reduce any such payment or payments shall not constitute a waiver of its claim for such indebtedness or obligation or a waiver of its right to make an offset against payments in the future. 11.5 NO FUNDING. The Plan constitutes a mere promise of the Employer to make payments in accordance with the terms of the Plan. This Plan does not give any Participant or his or her Beneficiary any interest, lien, or claim in or against any specific assets of the Employer. The Participant and his or her Beneficiary shall have only the rights of general, unsecured creditors of the Employer with respect to their rights under the Plan. The Company may, but shall not be required to, establish a grantor trust as a funding source for its obligations under the Plan. If such a trust is so established, it shall be the intention of the Company that the trust shall constitute an unfunded arrangement for purposes of the Plan, such that the Plan shall continue to be an unfunded plan maintained for the purpose of providing deferred compensation to a select group of management or highly compensated employees under ERISA. With respect to any Participant, the assets of the trust so established shall remain subject to the claims of the creditors of that Participant's Employer in the event of the Employer's bankruptcy or insolvency. 11.6 CONSTRUCTION. The headings in this Plan have been inserted for convenience of reference only and are to be ignored in any construction of the provision.

11.7 GENDER AND NUMBER. Except when otherwise clearly indicated by the context, when used in the Plan words in any gender shall include any other gender, and words in the singular shall include the plural, and words in the plural shall include the singular. 11.8 SEVERABILITY. In the event any provision of the Plan shall be held invalid or illegal for any reason, any illegality or invalidity shall not affect the remaining parts of the Plan, but the Plan shall be construed and enforced as if the illegal or invalid provision had never been inserted, and the Company shall have the right to correct and remedy such questions of illegality or invalidity by amendment as provided by the Plan. 11.9 GOVERNING LAW. The Plan shall be regulated, construed, and administered in all respects under and by the laws of the state of Ohio, without regard to its conflict of laws provisions, except when preempted by federal law. 11.10 VOIDING OF PLAN PROVISIONS. If any provision under this Plan causes an amount deferred to become subject to income tax under the Code prior to the time such amount is paid to the Participant, such provision shall be deemed null and void with respect to such amount deferred and the Administrative Committee shall take whatever steps as may be required to accomplish the deferral objectives of the Plan without causing early taxation of such amount deferred and without any Employer incurring additional cost or liability. Plan adopted July 1, 2004

EXHIBIT (11) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Computation of Earnings Per Share Amounts in millions except per share amounts (Table restated for two-for-one stock split effective May 21, 2004)
Years Ended June 30 ------------------2002 2003 -------------------

2000 ---------BASIC NET EARNINGS PER SHARE ---------------------------Net earnings Preferred dividends, net of tax benefit Net earnings available to common shareholders Basic weighted average common shares outstanding Basic net earnings per common share DILUTED NET EARNINGS PER SHARE -----------------------------Net earnings Deduct preferred dividend impact on funding of ESOP Diluted net earnings Basic weighted average common shares outstanding Add potential effect of: Conversion of preferred shares (1) Exercise of stock options (2) Diluted weighted average common shares outstanding Diluted net earnings per common share

2001 ----------

2004 ----------

3,542 115 ---------$ 3,427 ========== 2,626.4 ========== $ 1.30 ==========

2,922 121 ---------$ 2,801 ========== 2,600.7 ========== $ 1.08 ==========

4,352 124 ---------$ 4,228 ========== 2,594.8 ========== $ 1.63 ==========

5,186 125 ---------$ 5,061 ========== 2,593.2 ========== $ 1.95 ==========

6,481 131 ---------$ 6,350 ========== 2,580.1 ========== $ 2.46 ==========

3,542

2,922

4,352

5,186

6,481

18 ---------$ 3,524 ========== 2,626.4 188.6 39.4 ---------2,854.4 ========== $ 1.23 ==========

15 ---------$ 2,907 ========== 2,600.7 183.8 26.6 ---------2,811.1 ========== $ 1.03 ==========

12 ---------$ 4,340 ========== 2,594.8 177.6 37.5 ---------2,809.9 ========== $ 1.54 ==========

9 ---------$ 5,177 ========== 2,593.2 170.2 39.2 ---------2,802.6 ========== $ 1.85 ==========

4 ---------$ 6,477 ========== 2,580.1 164.0 46.0 ---------2,790.1 ========== $ 2.32 ==========

(1) Despite being included currently in diluted net earnings per common share, the actual conversion to common stock occurs pursuant to the repayment of the ESOP debt through 2021. (2) Approximately 38 million in 2004, 66 million in 2003 and 72 million in 2002 of the Company's outstanding stock options were not included in the diluted net earnings per share calculation because to do so would have been antidilutive (i.e., the exercise price exceeded market value).

EXHIBIT (12) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges Millions of Dollars
Years Ended June 30 ------------------2002 2003 -------------------

2000 ---------EARNINGS, AS DEFINED Earnings from operations before income taxes and before adjustments for minority interests in consolidated subsidiaries and after eliminating undistributed earnings of equity method investees Fixed charges TOTAL EARNINGS, AS DEFINED FIXED CHARGES, AS DEFINED Interest expense 1/3 of rental expense (1) TOTAL FIXED CHARGES, AS DEFINED RATIO OF EARNINGS TO FIXED CHARGES $ 792 89 ---------$ 881 ========== 7.1

2001 ----------

2004 ----------

5,474

4,574

6,442

7,760

9,454

811 ---------$ 6,285 ==========

872 ---------$ 5,446 ==========

687 ---------$ 7,129 ==========

657 ---------$ 8,417 ==========

719 ---------$ 10,173 ==========

794 78 ---------$ 872 ========== 6.2

603 84 ---------$ 687 ========== 10.4

561 96 ---------$ 657 ========== 12.8

629 90 ---------$ 719 ========== 14.1

(1) Considered to be representative of interest factor in rental expense.

EXHIBIT (13) Annual Report to Shareholders (pages 1-70)

Consumers around the world trust P&G brands - such as Pampers, Tide, Ariel, Pantene, Wella, Always, Crest, Bounty, Charmin, Olay, Pringles, Iams, Downy, Actonel, Folgers and Head & Shoulders - to make everyday life a little bit better. Almost 110,000 P&G people in over 80 countries worldwide work hard to earn that trust. Touching lives, improving life. P&G. FINANCIAL HIGHLIGHTS
Years ended June 30 Amounts in millions ------------------------------------------except per share amounts 2004 2003 % Change ---------------------------------------------------------------------------------------------Net Sales $51,407 $43,377 19% Operating Income 9,827 7,853 25% Net Earnings 6,481 5,186 25% ------------------------------------------------------------------------------------------Per Common Share(1) Diluted Net Earnings 2.32 1.85 25% Dividends 0.93 0.82 13% -------------------------------------------------------------------------------------------

[BAR CHART] Net Sales (in billions of dollars)


2002 2003 2004 40.2 43.4 51.4

[BAR CHART] Operating Cash Flow (in billions of dollars)


2002 2003 2004 7.7 8.7 9.4

[BAR CHART] Diluted Net Earnings(1) (per common share)


2002 2003 2004 1.54 1.85 2.32

[BAR CHART] Additional Earnings Information(1,2) (per common share, on a diluted basis)
Reported EPS 1.54 1.85 2.32 Restructuring Charges .26 .19 -

2002 2003 2004

Total 1.80 2.04 2.32

TABLE OF CONTENTS
Letter to Shareholders P&G's Billion-Dollar Brands Business Unit Perspective Financial Contents 1 12 16 28

Directors and Corporate Officers Shareholder Information

68 70

ON THE COVER A mother and her daughter enjoy one of life's moments in Russia. P&G sent photographer Peter Menzel around the world to capture moments like these. The photos you'll see in this publication reflect just some of the moments every day where P&G touches consumers' lives. (1) Restated for two-for-one stock split effective May 21, 2004. (2) Restructuring charges per share total $0.26 in 2002 and $0.19 in 2003.

SUSTAINING P&G'S GROWTH P&G is delivering broad-based, organic growth driven by clear strategies and a unique combination of P&G strengths. P&G's performance has accelerated over the past three years, and we are confident double-digit earnings-per-share growth is sustainable for the foreseeable future. FELLOW SHAREHOLDERS, P&G is delivering broad-based, organic growth driven by clear strategies and a unique combination of P&G strengths. The Company's performance has accelerated over the past three years, and we are confident double-digit earnings-per-share growth is sustainable for the foreseeable future. P&G's goals are to deliver 4% - 6% sales growth (excluding the impact of foreign exchange), 10% or better earnings-per-share growth, and free cash flow equal to 90% or more of net earnings.1 We know we have to earn your trust every year by meeting or exceeding these goals consistently and reliably. P&G exceeded all its financial goals in fiscal 2004. - Volume is up 17%. Organic volume is up 10%.(2) - Sales are $51.4 billion, up 19%. Organic sales are up 8%.(3) - Earnings are $6.5 billion, up 25%. Earnings are up 13% versus prior-year core earnings.(4) - Earnings per share are $2.32, up 25%. Earnings per share are up 14% versus prior-year core earnings per share. - Free Cash Flow is $7.3 billion, or 113% of earnings. - Dividends are up 13%, annualized. - Total Shareholder Return is 24%. Growth was broad-based. All five Global Business Units delivered at or above the sales goal; four of five were at or above the earnings goal. Every Market Development Organization delivered sales and volume growth at or above Company targets. P&G brands grew share in categories accounting for more than two-thirds of total Company sales. This year's results culminate increasingly strong performance over the past three years. Since July 2001: - P&G cumulative sales have grown 30%. Fiscal 2004 marked the first time in P&G history that sales exceeded $50 billion. - Earnings per share have grown over 40%, cumulatively, from core results three years ago.(4) - P&G businesses have generated more than $20 billion in cumulative free cash flow. - Most important, P&G has delivered a cumulative shareholder return of 81% over the past three years, and the price of P&G's stock has increased more than 70%. (In fact, over the past four years, cumulative shareholder return is above 100%.) Three years of strong performance is a good start. But we know it's only that - a start. Necessary, but not sufficient. It's consistent long-term performance that counts, and consistent performance is not easy. Growing P&G sales 4% - 6% per year, for example, is the equivalent of adding a business the size of P&G's total business in the U.K. or a brand the size of Tide - every year. The challenge is significant, and we don't take it lightly, but I'm confident P&G can reliably deliver the balanced, consistent growth to which we've committed. There are three reasons for my confidence: 1. P&G strategies are working, and there is still considerable room for growth. 2. P&G strengths give us the ability to respond to major external trends and challenges. 3. Systemic and structural changes implemented over the past several years are improving the consistency and reliability of P&G performance. When combined with the strength of P&G's culture and P&G people, these three factors make P&G a better investment proposition today than we have been in many years.

(1) This Annual Report contains a number of forward-looking statements. For more information, please see page 32. (2) Organic volume excludes the impact of acquisitions and divestitures. (3) Organic sales exclude the impact of acquisitions, divestitures and foreign exchange. (4) Core earnings exclude restructuring charges of $538 million in 2003 and $1.48 billion in 2001. GROWTH STRATEGIES ARE WORKING In my 2001 Letter to Shareholders, I outlined five growth

3 strategies. We've executed well over the last three years. Every strategy is delivering, and there's plenty of room for additional growth. 1. Build existing core businesses into stronger global leaders P&G's core businesses are Baby Care, Fabric Care, Feminine Care and Hair Care. These are categories in which P&G is #1 in global sales and #1 in global market share. Together, they generate more than half of the Company's total profits. Most important, they are categories in which we believe we can maintain and extend P&G leadership. In fact, over the past three years, we have steadily expanded P&G's share in all these businesses. Baby Care now has a 36% global share - an increase of nearly four percentage points over the past three years. P&G's 35% share of global Feminine Care is up more than two percentage points in three years. We have a 31% share of global Fabric Care, and a 20% share of global Hair Care, each up one point or more in three years. For perspective, a one-percentage-point increase in market share across these four core businesses is worth about $1 billion in annual sales and more than $150 million in annual earnings. [BAR CHART] (Organic Unit Volume Growth (% increase versus previous year)
2002 2003 2004 4% 8% 10%

[BAR CHART] Free Cash Flow (in billions of dollars)


2002 2003 2004 6.1 7.2 7.3

[LINE GRAPH] Total Shareholder Return (indexed versus June 30, 2001) 2. Grow leading brands, big countries, winning customers I explained in 2001 that we intended to grow sales, market shares and profits - at rates above total Company targets - on our leading brands, in our biggest markets, in growing distribution channels, at winning retailers. Again, we've delivered and continue to build momentum. P&G now has 16 billion-dollar brands, up from 10 just four years ago. One of these, Pampers, is a $5 billion brand. Another, Tide, is a $3 billion brand. And two others, Pantene and Ariel, are $2 billion brands. Eight of these billion-dollar brands are leaders in their category or segment. The portfolio of billion-dollar brands delivered compounded annual sales and profit growth of 7% and 16%, respectively, over the past three years. Ten more P&G brands have sales between $500 million and $1 billion - with credible potential to pass the billion-dollar mark in the years ahead. We don't push brands to cross the billion-dollar line. They must have clear strategies to achieve and sustain the growth, a brand equity grounded in deep consumer insight and a solid innovation pipeline. But, as P&G brands join the billion-dollar club, the Company takes important steps toward the strategic goal of having global category leadership and the #1 global brand in every major category in which we compete. All top 10 countries grew volume and sales. Over the past three years, we've demonstrated we can keep growing clear-cut leadership positions in core markets by being closer to consumers and customers, leading innovation, delivering superior value and building stronger local organizations. For example, in the U.S., P&G Feminine Care has added seven percentage points to its share leadership margin, and now has a 22-share-point advantage versus the next-best competitor. In the U.K., Baby Care has added nearly 13 points to its share leadership margin, and now has a 28-share-point advantage over the #2 competitor. P&G is growing volume and share at 9 of our top 10 retail customers. Our strategy is to develop highly collaborative partnerships with customers so we both win when consumers choose where to shop and what to buy. We do this by leveraging P&G strengths in shopper understanding, innovation that drives category growth and supply chain efficiency.

3. Develop faster-growing, higher-margin, more asset-efficient businesses with global leadership potential Health Care and Beauty Care businesses now represent

4 nearly half of Company sales and profits. Since July 2001, we've delivered double-digit compounded annual growth across the following Health Care and Beauty Care businesses: - Skin Care sales are up 17% behind a strong initiative pipeline, including Olay Total Effects, Olay Daily Facials and Olay Regenerist. - Hair Care sales are up 19% as we've strengthened global brands such as Pantene and Head & Shoulders and as we've added new brands like Clairol Herbal Essences. - Oral Care sales are up 18% on the strength of a solid-base dentifrice business and fast-growing new segments led by Crest Whitestrips, Crest Night Effects and Crest SpinBrush. - Pharmaceutical sales are up 26% and the business has become profitable - led by Actonel, which has grown about 90% a year over the threeyear period. Actonel became a billion-dollar brand faster than any other brand in P&G history. - Personal Health Care sales are up 15%, led most recently by Prilosec OTC, which achieved market leadership within five days of launch and continued to grow to its current 26% share of the heartburn remedy category. In addition, profits in all of these Health Care and Beauty Care categories are up double-digits. 4. Regain growth momentum and leadership in Western Europe We have turned around this critical business - one of the largest consumer markets in the world. Growth has been broad-based. Share is presently growing in categories representing about 80% of Western Europe sales. Baby Care and Feminine Care shares are now 50%. Laundry share is 30%. Shampoo, Feminine Care and Home Care shares are at all-time highs. 5. Drive growth in key developing markets Developing markets now account for about 20% of P&G sales. P&G volume in key markets such as China and Russia has more than doubled in the past three years, significantly outpacing market growth. In China, P&G's Laundry and Oral Care market shares have all more than doubled in the past three years. And in Russia over the past three years, Laundry, Hair Care and Oral Care - all category leaders - have each earned at least five additional share points. CONSISTENT PERFORMANCE Three years of strong performance is a good start, but it's long term performance that counts. Consistent performance is not easy. Growing P&G sales 4%-6% per year is roughly the equivalent of adding a brand the size of Tide - every year. ROOM TO GROW These highlights demonstrate that P&G strategies are working. What's most important, however, is that there's plenty of room to keep growing. Global market shares in core categories - those where P&G is already the global leader - are in the range of only 20% - 36%. In our most successful markets, we have shares that are nearly twice the level of our current global shares. As a result, we believe we can continue to expand P&G's market-share leadership in these important categories. We're also optimistic that we can keep growing in big countries. For example, while we've restored much of P&G's leadership in Western Europe, we are still not back to peak share levels in several categories, such as Diapers and Laundry. Further, we are substantially underdeveloped in health and beauty. In Dentifrice, we have only a 13% share in Western Europe, versus a 32% share in North America. In Hair Care, we have an 18% share in Western Europe, but this is still 16 share points lower than in North America. We are committed to reaching best-in-class share levels in all major Western Europe categories. With a strong core business that we will keep strong, we're now in a position to begin pushing out from that core into new markets, new channels, new customer segments and new businesses. Beauty Care is a good example. P&G has about a 10% share of the nearly $170 billion global beauty market. With billion-

5 dollar beauty brands and new capabilities added by Clairol and Wella, we are well positioned for strong growth. In Health Care, we have strong, growing franchises in Crest, Iams and Prilosec OTC. We've only scratched the surface with Actonel, our first billion-dollar pharmaceutical brand, and we're optimistic about our pipeline, particularly Intrinsa, our female testosterone patch. Home Care is another faster-growing, higher-margin growth opportunity. We have more than doubled P&G's Home Care business in the past three years. Still, P&G is a significant player in categories representing less than half of the total home care market. Developing markets, with 80% of the world's population, are another opportunity. P&G's organic volume in these markets is growing more than 50% faster than in developed markets. As we build leadership scale, we believe we can grow developing markets to a third of P&G sales. There are also important sources of continued bottom-line improvement. Global Business Services, for example, has locked-in substantial guaranteed savings over the next four fiscal years - and is expecting additional purchasing savings over the same period. In addition, the shift in our portfolio toward Health Care and Beauty Care has added almost three percentage points to the Company's gross margin over the past five years. We expect the more balanced portfolio to continue improving gross margins in the years ahead. The key point is that P&G strategies are working, and there is plenty of room left to grow. We are committed to keep leading product innovation in our categories; nothing is more central to sustained growth than category-leading innovation. We are equally committed to continued innovation in marketing and sales, as well as other areas of the business. And we are focused on getting the most from dedicated business units, global scale and the strength of our growth businesses to capture the significant opportunities still ahead of us. SOURCES OF CONFIDENCE We're confident P&G can reliably deliver the future growth to which we've committed. Our strategies are working. There still is room to grow. Our strengths enable us to respond to external trends and challenges. Major changes are improving the consistency of P&G performance. CHALLENGES PLAY TO P&G STRENGTHS While our business is strong, and future prospects are bright, there are clearly challenges we must acknowledge and manage. First, there are business issues we need to address in the near-term. Family Care and Coffee categories have experienced considerable price competition and commodity cost pressure. Hair Colorants faces heavy competitive activity. To become a leader in Colorants, we need an even more competitive cost structure; we need to lead innovation; and we need to build even stronger brand equities. We recognize these issues and are taking decisive steps to address them. There are also the ever-present risks of complacency and complexity. When times are good, it's easy to lose focus, to lose touch with consumers and customers, to let costs rise. We recognize this, and are committed to keeping P&G businesses simple and focused like a laser on delivering superior consumer value and better customer service. Competitive pressure, of course, is an unrelenting challenge. We compete against some of the best companies in the world, and they are not standing still. They are responding to P&G share growth with their own initiatives. Branded competition, as well as retailer brands in a variety of formats, present a constant challenge to lead innovation and offer superior value. Another challenge is rising commodity costs. Where possible, we recover these costs via pricing. When we cannot fully price to recover higher costs, we must find offsetting cost savings elsewhere. We cannot permit

6 rising costs to erode the consumer value of P&G brands, particularly as brand choices and consumer expectations for value continue to grow. Media fragmentation is yet another challenge. Today, the average U.S. household has access to 90 television channels, up from 27 channels a decade ago. Prime-time audience share for the big three U.S. networks has dropped 23 percentage points over the same period. The reality is that there is less "mass" in mass media today. We have to develop capabilities to communicate with consumers when, where and how they choose. We must be as innovative in marketing as we are in product design and development. Global economic and political disruptions are also a continuing risk. Our diversified portfolio and geographic breadth provide significant shock absorption, but we must always closely monitor these situations so we can respond fast when crises occur - as we did in Latin America in 2003. These are significant challenges. We believe, however, that P&G's strengths in branding, innovation, go-to-market capability and scale will help ensure that these challenges do not prevent us from delivering reliable, consistent growth. - In a world of abundant consumer choice and retail consolidation, branding becomes more important than ever. P&G's proven ability to understand consumers and build billion-dollar brands that consumers love and retailers find indispensable can be an increasing source of advantage. - In an environment of rising consumer expectations, relentless competition and rapid technological change, innovation becomes more important than ever. P&G is setting the pace of innovation in its major businesses today, and improving its innovation success rate. We are also thinking more broadly about what innovation is, where it comes from, who is responsible for it and how it can be commercialized. We're connecting externally with a global network of innovation partners and strengthening internal capabilities in design and marketing innovation. - In a marketplace that is simultaneously global and local, P&G's go-to-market strengths and scale advantages are increasingly important. We have the ability to reap the benefits of a $50 billion global company while understanding and responding to needs in individual local markets. P&G has a history of leading change. Our willingness to deal realistically with change and our proven ability to turn change - and the challenges it presents - to advantage are important sources of my confidence in P&G's future. P&G'S GROWTH STRATEGY Build existing core business into strong global leaders. [GRAPHICS] Grow leading brands in big countries with winning customers. Accelerate growth in Western Europe. SYSTEMIC AND STRUCTURAL CHANGES ARE IMPROVING PERFORMANCE I am also confident P&G can sustain growth because several systemic and structural changes implemented over the past few years are improving the consistency and reliability of P&G performance. Four changes in particular are enabling more consistent growth and are creating competitive advantage: a more balanced business portfolio, greater ability to serve lower-income consumers, a unique organization structure, and strong cash and cost control. A Balanced Portfolio Creates Flexibility We have moved toward a more balanced mix of household businesses and health and beauty businesses. Longer term, this more balanced portfolio will help us sustain strong revenue growth, absorb inevitable short-term "bumps in the road," and deliver more balanced, consistent, predictable profit growth.

7 P&G's foundation is household products. These are large businesses that are growing steadily and reliably generate earnings and cash. Overall Company performance has been driven by these foundation categories for generations. We grew P&G sales eightfold in the 1970s and 1980s when virtually all our business was in household categories. Our enthusiasm and expectations for these household businesses have not diminished. We remain the global leader in many of these businesses, and are growing fast in categories such as Home Care. Health Care and Beauty Care are faster-growing, higher-margin businesses in which P&G is emerging as a global leader. We expect both Health and Beauty to be disproportionate engines of growth in the first decade of the 21st century. These businesses are appealing because they're huge markets - the beauty market is more than four times the size of the fabric care market, for example - with no dominant leaders. P&G shares are low, and we're developing the capabilities to grow rapidly. We will keep our foundation healthy and growing while we build momentum in these newer businesses. Our near-term goal is to break out as a clear global leader in Beauty and to continue building Health Care at a fast rate. This makes P&G a unique investment proposition. We have strong healthy household businesses - anchored by leading, billion-dollar brands like Pampers, Ariel and Downy that are growing at rates above industry averages. We also have faster-growing, higher-margin health and beauty businesses that are growing ahead of both industry averages and P&G target growth rates. No other consumer products company offers this unique portfolio balance. [GRAPHICS] Accelerate faster-growing, higher-margin health and beauty business. [GRAPHICS] Accelerate growth in developing markets and with lower-income consumers. Serving More Consumers Drives Growth We are building capability to serve lower-income consumers who are not buying and using P&G products on a regular basis today. There are major unserved and underserved populations in every market where P&G competes. The opportunity is greatest in developing markets. The risk, however, is greater, too. The key is to be selective, focused and disciplined. We have made clear choices about where we will focus P&G investments and efforts, and are executing plans in ways that minimize risks. This approach is working in big developing markets such as China, Russia and Mexico. In China, for example, we entered the market in 1988. Our first categories were Shampoo, Skin Care and Personal Cleansing. We became market leaders in these categories, and developed distribution and supply chains to reach China's largest cities. In the mid-1990s, we entered Fabric Care, Feminine Care and Oral Care. Then, we entered Baby Care in the late 1990s. We accelerated entry into these categories by using the distribution and supply chains we'd built earlier, and we leveraged P&G's branding and innovation strengths to win with consumers. We've doubled the size of P&G's China business over the past three years. We're now expanding these categories by innovating to the needs of more Chinese consumers. In 2001, P&G brands were focused on premium-tier consumers. The premium tier made up about 16% of the market in the categories where we competed. Today, we've expanded our product offerings to mid-tier consumers and are reaching more than 50% of the market. There still is room to grow, and we remain optimistic about P&G's potential in China. A Unique Organization Structure Creates Advantage I explained in my 2002 Letter to Shareholders that P&G had moved to a new operating structure. We organized around Global Business Units (GBUs), Market Development Organizations (MDOs), a Global Business Services organization (GBS) and Corporate Functions. We're now

8 able to capture the benefits of focused, smaller companies through dedicated GBUs while capturing the go-to-market strengths and capabilities of a $50 billion company through local market development organizations, the shared business services organization and lean corporate functions that ensure P&G's functional disciplines continue to lead the industry. Global Business Units are able to develop clearer, better long-term growth strategies for P&G brands. They identify common consumer needs and quickly expand brands and product innovations to different markets around the world. They are aligned behind Total Shareholder Return metrics and are focused exclusively on leadership in their individual industries. Other companies have this single-minded strategic business-unit focus, but P&G has two additional advantages that play to our unique combination of strengths: Market Development Organizations and Global Business Services. The MDO teams know local markets: people, retailers, supply chains and local governments. They have a broader portfolio of brands to meet a wider range of specific needs for local consumers and customers. They are aligned behind top-line growth, market share, cash, cost and valuecreation objectives, and are focused exclusively on winning in local markets. The key advantage of our structure is that the MDOs can focus 100% of their resources on local consumers and customers without duplicating product innovation, product sourcing, brand advertising or other activities that are now led by the Global Business Units. We have eliminated inefficient overlaps and, as a result, freed up resources to collaborate better with customers and focus exclusively on winning in local markets. In addition, there is an intangible but important benefit that comes from P&G's "promote from within" culture. The men and women working in the GBUs and MDOs often know each other because they've spent their entire careers at P&G. They're focused on the same purpose. They have similar values. They've had similar career experiences. This strengthens their ability to debate issues, make decisions and execute with excellence. The third advantage of P&G's structure is Global Business Services, which delivers better service and better technology at best-in-class costs to P&G businesses. Very few other companies in any industry have global business services capability that rivals P&G's for quality, innovation, cost and scale. Multiply these benefits across categories, markets and trade channels, and you can see the scale advantages available to P&G: - We can compete on multiple fronts simultaneously without spreading ourselves too thin. - We can deliver a higher frequency of new products across multiple markets. - We can plan long term globally while focusing locally on superior execution every day. In short, we can reap the benefits of global scale while acting like a local company everywhere we compete. P&G now has sufficient experience with the new structure to begin taking fuller advantage of the benefits it creates. EARNING YOUR TRUST P&G strategies, strengths, and the systemic and structural changes we've made to improve the reliability of our performance should give shareholders confidence that P&G can sustain double-digit earnings-per-share growth for the foreseeable future. Focus on Cost and Cash Is Keeping P&G Brands Competitive The final change I want to highlight is the degree to which cash and cost discipline is now ingrained in the organization. We're driving a costreduction and cash-improvement mindset deeper into the Company with clearer reporting structures, clearer accountability and the disciplined use of Total Shareholder Return at the business unit level.

9 P&G's approach to Research and Development is a good example. Historically, systems for evaluating R&D were strongly linked to technical product performance. There was a heavy focus on patents and internally generated innovation. There was less focus on perceived consumer value, on the cost/benefit trade-off for consumers versus competition, and on fast, successful commercialization. In the new structure, R&D leaders are more effectively integrated into the global business units. There's greater emphasis on winning when consumers compare brands for overall value. We're integrating commercial and technical innovation more seamlessly, and we're leveraging the Company's "connect and develop" capability to build even stronger relationships with external innovation partners for increased speed to market. We're accelerating the pace of innovation and increasing the efficiency of R&D investments. We've doubled P&G's innovation success rate. Our portfolio of initiatives launched in the last calendar year is on track to deliver more than 100% of going-in expectations. At the same time, R&D investment as a percent of sales is down from 4.5% of net sales three years ago to 3.5% of net sales this past fiscal year. P&G R&D is now much more effective and efficient. The focus on rigorous cost control and cash management ensures consumer value that keeps P&G brands competitive worldwide. STRENGTH OF P&G PEOPLE It's been genuinely inspiring to watch the way P&G people have responded to the Company's challenges over the past four years. In the end, P&G people - their values and capabilities, commitment and dedication to excellence - are the best guarantee of consistent, reliable growth. EARNING YOUR TRUST The three factors I've outlined - strategies that are working, strengths that enable us to deal effectively with challenges and trends, systemic and structural changes that are improving the reliability of P&G performance - convince me that P&G can sustain double-digit earnings-per-share growth for the foreseeable future, particularly when combined with the capability and commitment of P&G people. It's almost a cliche in CEO letters to shareholders to credit employees as a company's greatest asset. It's far more than a cliche at P&G. There is no greater evidence of this than the performance of P&G people over the past four years. We committed ourselves at the beginning of this decade to get P&G back on track and to ensure that P&G is and is seen as one of the world's great companies. In many companies, a crisis like the one P&G faced in the spring and summer of 2000 could have sent people running for the doors. Not here. P&G people are proud of their company, and they refused to let P&G be anything other than the industry leader we've always been. They dealt with the reality of what we were up against and set about the hard work of fixing problems, creating and seizing opportunities, and getting P&G back in the lead. It's been genuinely inspiring to watch and be part of this tremendous employee response. Ultimately, this is the reason P&G is where it is today. P&G strategies provide clear direction. P&G systems and structure leverage P&G strengths. But it's P&G people who are the best guarantee of consistent, reliable growth. It's P&G people who create and execute strategies, who get to know consumers and create the innovations that delight them, who work side-by-side with customers and business partners. It's P&G people whose individual efforts ultimately deliver the returns we provide to you, as shareholders. In the end, you place your trust in P&G people. And, we work hard to earn your trust by delivering consistent, reliable sales and earnings growth year after year.
/s/ A.G. Lafley A.G. Lafley Chairman of the Board, President and Chief Executive

August 6, 2004

10 BALANCED ORGANIZATION We rebalanced and refocused our Global Business Units to create units of about the same size. Beauty Care, Household Care, and Health, Baby and Family Care are each about $17 billion in sales. Individually, each would rank within the top 115 companies in the Fortune 500.(R) ORGANIZATION/MANAGEMENT CHANGES In July 2004, we realigned P&G's business units and made associated management changes. The realignments streamline our business operations to support further growth. They affect organization alignment only (they will not result in any special charges). P&G retains its unique Global Business Unit/Market Development Organization/Global Business Services structure. It is building businesses and delivering competitive advantage. We're implementing these changes as several senior P&G leaders prepare to retire. We owe these leaders a great debt of gratitude. They have made lasting contributions to accelerating P&G's growth and building strong organizations. We'll tap their experience in their remaining months with the Company to ensure a smooth transition to the next generation of P&G leaders: - STEVE DAVID, Chief Information Officer and Business-to-Business Officer. Steve will retire January 2, 2005 after more than 34 years of service. - MIKE GRIFFITH, President - Global Beverages. Mike will retire January 2, 2005 after more than 23 years of service. - MARK KETCHUM, President - Global Baby and Family Care. Mark will retire November 1, 2004 after more than 33 years of service. - JORGE MONTOYA, President - Global Snacks and Beverages/Latin America Market Development Organization. Jorge will retire October 1, 2004 after more than 33 years of service. - MARTIN NUECHTERN, President - Global Hair Care. Martin will retire June 30, 2005 after more than 26 years of service. Why are we realigning the business units? Our Beauty and Health Care businesses have grown dramatically. As the size of key businesses changed with acquisitions and divestitures, it became clear we needed to rebalance and refocus our Global Business Units to create units of about the same size. Beauty Care, Household Care, and Health, Baby and Family Care are each about $17 billion in sales. Individually, each would rank within the top 115 companies in the Fortune 500.(R)
Business Unit Detail ------------------------------------------------------------------------------------------------Global Beauty Care Cosmetics, Deodorant, Feminine Care, Fine Fragrances, Hair Care, Hair Colorants, Personal Cleansing, Professional Hair Care, Skin Care ------------------------------------------------------------------------------------------------Global Household Care Coffee, Commercial Products Group, Fabric Care, Home Care, Snacks ------------------------------------------------------------------------------------------------Global Health, Baby and Family Care Baby Care, Family Care, Oral Care, Personal Health Care, Pet Health and Nutrition, Pharmaceuticals -------------------------------------------------------------------------------------------------

We also re-titled the combination of our Market Development Organizations, Global Business Services and other business functions into one new unit called Global Operations. The four business units are led by vice chairmen: - SUSAN ARNOLD is Vice Chairman - Global Beauty Care. Susan was previously the president - Global Personal Beauty Care and Global Feminine Care. - BRUCE BYRNES is Vice Chairman of the Board - Global Household Care. Bruce was previously vice chairman of the board and president Global Beauty and Feminine Care and Global Health Care. - KERRY CLARK is Vice Chairman of the Board - Global Health, Baby and Family Care. Kerry was previously vice chairman of the board and president - Global Market Development and Business Operations. - BOB MCDONALD is Vice Chairman - Global Operations. Bob was previously the president - Global Fabric and Home Care.

These vice chairmen and the other senior managers - line presidents and global staff officers - provide us with an extremely strong, collaborative leadership team. Few companies can match the diversity and breadth of their total experience. The changes build on our successful organization structure, and maintain significant continuity of leadership to drive further growth.

11 P&G'S BILLION-DOLLAR BRANDS P&G added three billion-dollar brands this year: Actonel, Head & Shoulders and the Wella family of Professional and Retail Hair Care products. P&G has 16 brands with over one billion dollars in sales - up from 10 billion-dollar brands four years ago. Together, these 16 brands generate about $30 billion in annual sales.

12 FABRIC AND HOME CARE [BAR CHART] Net Sales (in billions of dollars)
2002 2203 2004 11.6 12.6 13.9

[BAR CHART] Net Earnings (in billions of dollars)


2002 2003 2004 1.8 2.1 2.2

FISCAL YEAR 2004 RESULTS The Fabric and Home Care business unit delivered another year of solid results. Volume increased 9%, sales grew 10% and net earnings grew 7%. The growth in fiscal 2004 came from strengthening leadership positions in existing categories, growing rapidly in developing markets and with lower-income consumers, and launching and leveraging new products that have created entirely new categories. In addition, we supported this exceptional top-line growth with increased investments in marketing and supply systems. P&G grew its leadership share in the mature Fabric Care market to more than 31% of this $40 billion category. Innovations like Tide Clean White in China, Downy One Rinse in Latin America and Gain Fabric Enhancer in North America are great examples of new products that helped Fabric Care grow market share globally. In addition, Home Care products such as Swiffer, Febreze, Mr. Clean Magic Eraser and Mr. Clean AutoDry Carwash have created entirely new product categories for P&G and our customers. These products led P&G Home Care to 12% unit volume growth. WHAT'S WORKING P&G's Fabric and Home Care business has accelerated pro?table market share and sales growth by improving fundamentals, strengthening innovation and developing low-cost activity systems to reach more consumers more profitably. Our business fundamentals are sound. Nearly all of our products test superior to the best competitive products and are supported by business-building marketing and advertising programs. We have more than doubled our innovation success rate and more than doubled the future value potential of the innovations in our pipeline. Importantly, we are introducing new-to-the-world products that are making consumers' lives easier and building business for our trade customers. We are satisfying more lower-income consumers with unique product designs and marketing programs. We are building unique activity systems that integrate product design, manufacturing supply chain and customer distribution systems to keep our costs competitive with local, low-cost competition. The Tide Clean White initiative is an excellent example of a locally tailored product using a low-cost activity system to significantly grow our share in China. Over the past year we have profitably built global market share in all of our categories (detergents, fabric conditioners, dishwashing and surface care), and we begin ?scal year 2005 with strong momentum and a full innovation pipeline. Fabric and Home Care continues to be an important engine of growth for P&G.
[GRAPHICS] TIDE CLEAN WHITE Tide Clean White has led China's laundry business to a 50% market share increase in 12 months. [GRAPHICS] SWIFFER DUSTER The Swiffer household cleaning system franchise grew volume by more than 20% versus [GRAPHICS] MR. CLEAN Mr. Clean Magic Eraser and AutoDry Carwash, two very successful new product [GRAPHICS] GAIN FABRIC ENHANCER The Gain brand delivered volume growth of over 20% in the U.S. A steady stream of new scents on

P&G now holds over 16% value share of the China laundry detergent market.

the prior year. New versions, such as Swiffer Duster with Extendable Handle, continue to attract new consumers to the brand.

innovations, spurred this well-known brand to volume growth of nearly 20% in fiscal year 2004.

Gain laundry detergent and the launch of Gain Fabric Enhancer in early 2003 have driven the strong performance.

13 BEAUTY CARE [BAR CHART] Net Sales (in billions of dollars) 2002 2003 2004 10.7 12.2 17.1

[BAR CHART] Net Earnings (in billions of dollars)


2002 2003 2004 1.6 2.0 2.4

FISCAL YEAR 2004 RESULTS The Beauty Care business unit delivered excellent results in fiscal 2004. Unit volume increased 37%, sales grew 40% and net earnings increased 22%. This excellent performance was driven by a combination of double-digit organic growth and the acquisition of Wella. Wella joined P&G Beauty Care in September 2003 and added approximately $3.3 billion to Beauty Care sales in fiscal 2004. Beauty Care's organic growth was led by brands that have been favorites of consumers for many years. Head & Shoulders delivered 18% global volume growth and became P&G Beauty Care's fifth billion-dollar brand, joining Pantene, Always, Olay and Wella. Pantene passed the $2 billion sales mark and strengthened its position as the world's leading hair care brand. Olay grew global sales 26% with new innovations like Regenerist and continued growth of the Total Effects and Daily Facials product lines. Always feminine care products grew global volume double-digits and Tampax Pearl has helped grow the brand to over 46% of the U.S. tampon market. Lacoste, with annual volume up nearly 400% in just two years, has helped make P&G a global leader in men's fine fragrances. WHAT'S WORKING Leadership innovation and holistic marketing programs are the cornerstones of P&G Beauty's growth strategy. We are continuously improving the performance of our existing products and launching new products to meet previously unmet consumer needs. Products like Olay Total Effects, with our proprietary VitaNiacin ingredient, established Olay as the leader in anti-aging skin care. We then followed with Olay Regenerist - developed from wound-healing science and marketed to Olay skin care's most demanding consumers as an anti-aging alternative to cosmetic medical procedures. Next, we built upon the success of Regenerist in the U.S. and expanded it to delight consumers in all corners of the world. Priced at the top end of mass market skin care products, Regenerist is driving outstanding growth in China and Southeast Asia. In addition, Beauty Care is successfully complementing innovation with acquisitions. In 2001, the Clairol acquisition moved P&G into the growing hair colorants category. In 2003, the addition of Wella connected P&G to the cutting edge of hair trends - the professional hair care market. Both acquisitions have expanded P&G's Beauty portfolio, added world-class brands and strengthened P&G's capabilities to win long term in Beauty Care. Beauty Care is an attractive market. It has high margins, low capital intensity and is growing worldwide at a pace well ahead of population growth. Combined with P&G's historical capabilities in building leadership brands and leveraging scale for low costs, Beauty Care should be a growth leader for P&G for many years to come.

[GRAPHICS] WELLA Wella joined the P&G family in September 2003, making P&G one of the largest, most profitable Beauty Care companies in the world.

[GRAPHICS] HEAD & SHOULDERS In fiscal year 2004, Head & Shoulders became Beauty Care's fifth billion-dollar brand. Over the past three years, global sales growth for Head & Shoulders

[GRAPHICS] OLAY Olay is one of P&G's fastest-growing billion-dollar brands, with global sales up 26% in 2004. Regenerist, Olay's latest breakthrough in anti-aging, is

[GRAPHICS] PANTENE The Pantene brand passed a significant growth milestone in fiscal year 2004, delivering over $2 billion in annual sales.

has averaged 16% per year.

fueling strong growth in the U.S. as well as in China and Southeast Asia.

14 BABY AND FAMILY CARE [BAR CHART] Net Sales (in billions of dollars) 2002 2003 2004 9.2 9.9 10.7

[BAR CHART] Net Earnings (in millions of dollars)


2002 2003 2004 738 882 996

FISCAL YEAR 2004 RESULTS Baby and Family Care delivered another strong year of volume, sales and profit growth. Unit volume grew 6%, net sales grew 8% and net earnings increased 13%. The Baby Care business continued its strong global growth, increasing unit volume double-digits and growing global market share. Western Europe and Latin America led the way. Western Europe grew baby care market share to 50%, a five-year high, and Latin America grew diaper volume by almost 30%. In the U.S., Pampers delivered mid-single-digit volume growth behind continuing leverage of the Baby Stages of Development and Baby Dry product lines. Family Care delivered modest volume growth in a difficult competitive environment. Despite competitive marketing spending increases and new product launches, Charmin and Bounty maintained market share and product performance leadership versus key competitors. Both brands announced price increases effective in July 2004 to partially offset rising commodity costs. The business is well positioned for profit growth in line with company targets in fiscal 2005. WHAT'S WORKING The strong results delivered by Baby and Family Care are a direct outcome of delighting consumers with better performing products that represent good value for the money, and a relentless focus on cost reduction and cash generation. We have strengthened all elements of our innovation system - better understanding consumers' desires, reducing innovation costs and lead times, and creating holistic marketing plans that resonate at every consumer touch point. We are designing new products, such as Pampers Basica in Latin America, that are tailored to meet the unique product performance and affordability needs of lower-income consumers. Pampers diaper volume has grown double-digits in each Latin American market since the Basica launch. We have increased market share in Western Europe by continuing to leverage our Baby Stages of Development and Baby Dry diaper lines and by rapidly growing our Kandoo toddler personal care business. Our investment in Baby Care's standardized manufacturing platform is paying off as we better leverage our scale for cost savings and faster speed to market with new products. We are improving manufacturing productivity, which helps reduce the capital investment necessary to meet increased consumer demand. We introduced our softest, strongest, thickest Charmin ever last year and simultaneously increased capacity and lowered costs. Cost-savings efforts have allowed us to maintain sharp consumer value, invest behind new products with strong marketing programs, offset rising commodity costs, and improve profit margins and cash generation - all of which are critical to delivering superior shareholder returns.

[GRAPHICS] PAMPERS Pampers became P&G's first brand to deliver over $5 billion in annual sales.

[GRAPHICS] CHARMIN ULTRA The latest upgrade to Charmin Ultra has maintained the brand's advantages in softness,

[GRAPHICS] BOUNTY In early 2004, Bounty launched a new array of prints and package formats. Bounty is the clear market

[GRAPHICS] PAMPERS BASICA Pampers Basica, designed to broaden the base of consumers who can appreciate and afford Pampers, helped

thickness, absorbency and wet strength against all competitors.

leader in the U.S., with over 40% share of category value.

increase baby care shipments by almost 30% in Latin America.

15 HEALTH CARE [BAR CHART] Net Sales (in billions of dollars)


2002 2003 2004 5.0 5.8 7.0

[BAR CHART] Net Earnings (in billions of dollars)


2002 2003 2004 521 706 962

FISCAL YEAR 2004 RESULTS The Health Care business unit delivered its fifth consecutive year of strong double-digit growth in volume, sales and profit. Volume increased 18%, sales grew 21% and net earnings increased 36% behind outstanding new product innovations and improving profit margins. All of the Health Care business segments delivered great results in fiscal 2004. Actonel led the growth in Pharmaceuticals, building global value share in the fast-growing osteoporosis treatment category to become a billion-dollar brand. Personal Health Care growth was fueled by the launch of Prilosec OTC for the treatment of frequent heartburn. Prilosec OTC is widely regarded as one of the most successful over-thecounter health care launches ever. The Crest brand became the clear Oral Care market leader in the U.S. Crest Whitening Expressions and Vivid White drove share in the U.S. toothpaste segment to over 33%, and Crest Whitestrips Premium drove U.S. tooth whitening share to over 70%. Iams continued to deliver steady growth, posting its fifth consecutive year of U.S. market share increases. Iams is now the #1 pet nutrition brand in the U.S. WHAT'S WORKING P&G's Health Care business continues to be driven by a powerful combination of breakthrough innovation, strategic acquisitions and alliances, and operating cost discipline. In the last four years alone, new health care innovations have contributed more than $1.5 billion in incremental sales. This growth comes from a strict application of P&G's "launch and leverage" approach. First, Health Care develops and launches outstanding new products with holistic introductory marketing plans and excellent in-store execution. Prilosec OTC is an excellent example of P&G's initiative launch capabilities. Second, we leverage these new products with strong marketing support and product improvements for several years after initial launch. Two great examples of this "launch and leverage" approach are Crest Whitestrips and Actonel, which have continued to deliver strong sales growth in their third and fourth years in the market, respectively. The acquisition of Crest SpinBrush in 2001 and Glide Floss last year have helped make P&G a leading player in all major segments of the oral care market. Upstream development alliances with pharmaceutical companies have helped us develop a full pipeline of life-enhancing drugs that are at various stages of testing. And while we invest to support new product launches and research to develop tomorrow's breakthrough new products, we are in tight control of operating costs. Only with strict cost control can we deliver new products at a great value for consumers while still delivering an excellent return for our shareholders.
[GRAPHICS] PRILOSEC OTC Prilosec OTC became the leading over-the-counter heartburn remedy in the U.S. within five days [GRAPHICS] ACTONEL In fiscal year 2004, Actonel became P&G's third Health Care brand to reach $1 billion in global sales. [GRAPHICS] CREST Crest worldwide sales grew more than 13% in fiscal year 2004, behind new innovations like Crest [GRAPHICS] IAMS Iams latest dog and cat nutrition innovation delivers a significant taste

of launch. First year retail sales are expected to approach $400 million.

Actonel reached the billion-dollar milestone in just four years based on global alliance sales.

Whitestrips Premium, Crest Vivid White and Crest Whitening Expressions.

improvement for better feeding and includes seven nutrients for healthy hearts.

16 SNACKS AND BEVERAGES [BAR CHART] Net Sales (in billions of dollars) 2002 2003 2004 3.2 3.2 3.5

[BAR CHART] Net Earnings (in millions of dollars)


2002 2003 2004 303 306 363

FISCAL YEAR 2004 RESULTS Snacks and Beverages delivered strong profit growth in a difficult competitive environment. Volume increased 4%, sales grew 8% and net earnings increased 19% versus the prior year. New products like Pringles Dippers, Pringles Prints and the Folgers AromaSeal package upgrade have kept P&G in the innovation lead. These initiatives also helped Snacks and Beverages post mid-single-digit unit volume growth for fiscal year 2004. Folgers faced both rising coffee bean prices and heavy competitive promotional spending for much of the fiscal year. Despite these challenges, Folgers increased its leadership market share in the U.S. to 32%. Pringles posted high-single-digit global volume growth for the year, led by North America and Western Europe, which both grew doubledigits. WHAT'S WORKING P&G's Snacks and Beverages business is focused on continuing to strengthen the consumer appeal of its billion-dollar brands - Folgers and Pringles. This starts with leadership innovation. For Pringles, it is products like Prints, Dippers and customer-specific customization initiatives. For Folgers, it is products like the AromaSeal canister initiative and the Home Cafe system. These breakthroughs are being delivered on top of an ongoing stream of new flavors that continue to attract new consumers to these leading brands. In addition to delivering leadership innovation, Pringles and Folgers are relentless at driving out non-value-added costs and improving capacity utilization. This strict cost focus is critical to maintaining superior consumer value. Profit margins for the segment have improved from 7% in fiscal 2001 to over 10% for fiscal 2004. Much of the margin improvement has come from detailed cost-reduction programs and asset-utilization improvements on Pringles. Pringles and Folgers have very scale-driven cost structures, and we are leveraging the scale of these billion-dollar brands better than we have for many years. Enhancing the consumer appeal of the brands and maintaining excellent consumer value is our simple recipe to keep Folgers and Pringles delighting consumers and delivering strong shareholder returns for many years to come.
[GRAPHICS] PRINGLES PRINTS Pringles Prints, our newest technology-driven innovation in snacks, allows us to print right on the chip. One example, [GRAPHICS] FOLGERS AROMASEAL Folgers AromaSeal package innovation gives consumers fresh aroma and taste in every cup in an easier-to-carry [GRAPHICS] PRINGLES DIPPERS Pringles Dippers combines the irresistible taste of Pringles and a stronger chip for dipping. Dippers began shipping in [GRAPHICS] FOLGERS HOME CAFE Folgers Home Cafe is a joint effort with leading coffee appliance manufacturers to bring affordable, convenient and

Pringles Prints with Trivial Pursuit Junior(TM) questions, began shipping in June 2004.

package. This innovation helped Folgers reach an all-time high market share.

Western Europe in February 2004, and are off to a very strong start.

personalized custom-brewing into the home.

17

MARKET DEVELOPMENT ORGANIZATION (MDO) FISCAL YEAR 2004 RESULTS The MDO is focused solely on winning the "First Moment of Truth" - when the consumer is shopping in the store. Our MDO professionals are on the ground in over 80 countries, and we have about 50 dedicated teams working directly with customers around the world. Their challenge is to be the experts at understanding local consumers and customers, and to use this knowledge to build customized business plans for our brands. This clear focus again delivered great results. In fiscal year 2004, P&G's global volume growth was 17%, including the impact of the Wella acquisition. Organic volume growth, excluding acquisition and divestiture impacts, was 10% for the year, and each of P&G's market development regions delivered organic volume growth of 6% or higher. Developing markets, which accounted for about 20% of P&G's sales in fiscal 2004, grew volume by nearly 20% versus the previous year. The growth strength was also broad-based across P&G's biggest brands, countries and customers. P&G grew volume at 9 of our top 10 customers, on all of our top 10 global brands, and in all of our top 10 countries. This established a solid foundation to grow P&G's smaller brands and markets. In fact, the balance of our top brands, countries and customers each grew volume at a double-digit rate - truly outstanding performance. WHAT'S WORKING The MDO is developing new capabilities that are making us better and stronger than ever before - allowing P&G to win the First Moment of Truth more often. We are: - partnering with winning retailers to jointly create value through better understanding shopper habits, providing solutions that meet the retailers' marketing strategies and driving out non-value-added costs; - improving the availability of our products on store shelves with supply system innovations that reduce out-of-stocks while reducing costs and inventories for P&G and retailers; - reaching more of the world's consumers by broadening the distribution of our brands through new channels in developed markets and increasing penetration of smaller stores in developing markets; - ensuring that our brands are priced to provide excellent consumer value by closely monitoring our pricing strategy versus all competitors, including private labels, and acting quickly to keep our flagship brands priced right; - improving the in-store presence of P&G brands through better packaging, shelf layouts and unique customer merchandising events; - improving the impact and success rate of P&G initiatives through holistic in-store marketing and local media relations programs. After only five years in our new organization structure, we have made good progress building our skills to better market to shoppers and jointly create value with retailers. However, true to P&G's culture, we are never satisfied and will keep building on this foundation to ensure the MDO is a sustainable competitive advantage that will continue to get stronger. [BAR CHART] Top Ten Brands (Volume Growth)
2002 2003 2004 3% 8% 9%

[BAR CHART] Top Ten Countries (Volume Growth)


2002 2003 7% 11%

2004

8%

[BAR CHART] Top Ten Customers (Volume Growth)


2002 2003 2004 12% 13% 8%

[PIE CHART] Geographic Sales Split (Fiscal Year 2004 Net Sales)
Developed Markets Developing Markets 79% 21%

18 The Procter & Gamble Company and Subsidiaries MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING Procter & Gamble has been built through the generations by the character of its people. That character is reflected in our Purpose, Values and Principles and in how well we live them as individuals and as a Company. High quality financial reporting is one of our responsibilities - one that we execute with integrity. High quality financial reporting is characterized by accuracy, objectivity and transparency. Management is responsible for maintaining an effective system of internal controls over financial reporting to deliver those characteristics in all material respects. The Board of Directors, through its Audit Committee, provides oversight. They have engaged Deloitte & Touche LLP to audit our consolidated financial statements, on which they have issued an unqualified opinion. Our commitment to providing timely, accurate and understandable information to investors encompasses: Communicating expectations to employees. Key employee responsibilities are reinforced through the Company's "Worldwide Business Conduct Manual," which sets forth the Company's commitment to conduct its business affairs with high ethical standards. Every one of P&G's employees - from senior management on down - is held personally accountable for compliance. The Worldwide Business Conduct Manual is available on our website at www.pg.com. Maintaining a strong internal control environment. Our system of internal controls includes written policies and procedures, segregation of duties and the careful selection and development of employees. The system is designed to provide reasonable assurance that transactions are executed as authorized and appropriately recorded, that assets are safeguarded and that accounting records are sufficiently reliable to permit the preparation of financial statements that conform in all material respects with accounting principles generally accepted in the United States of America. We monitor these internal controls through control self-assessments by business unit management and an ongoing program of internal audits around the world. Executing financial stewardship. We maintain specific programs and activities to ensure that employees understand their fiduciary responsibilities to shareholders. This ongoing effort encompasses financial discipline in our strategic and daily business decisions and brings particular focus to maintaining accurate financial reporting and effective controls through process improvement, skill development and oversight. Exerting rigorous oversight of the business. We continuously review our business results and strategic choices. Our Global Leadership Council is actively involved - from understanding strategies to reviewing key initiatives, financial performance and control assessments. The intent is to ensure we remain objective in our assessments, constructively challenge the approach to business opportunities, identify potential issues and ensure reward and recognition systems are appropriately aligned with results. Engaging our Disclosure Committee. We maintain disclosure controls and procedures designed to ensure that information required to be disclosed is recorded, processed, summarized and reported timely and accurately. Our Disclosure Committee is a group of senior-level executives responsible for evaluating disclosure implications of significant business activities and events. The Committee reports its findings to the CEO and CFO, providing an effective process to evaluate our external disclosure obligations. Encouraging strong and effective corporate governance from our Board of Directors. We have an active, capable and diligent Board that meets the required standards for independence, and we welcome the Board's oversight as a representative of the shareholders. Our Audit Committee comprises independent directors with the financial knowledge and experience to provide appropriate oversight. We review significant accounting policies, financial reporting and internal control matters with them and encourage their independent discussions with our external auditors. Our corporate governance guidelines, as well as the charter of the Audit Committee and certain other committees of our Board, are available on our website at www.pg.com. P&G has a strong history of doing what's right. We know great companies are built on strong ethical standards and principles. Our financial results are delivered from that culture of accountability, and we take responsibility for the quality and accuracy of our financial reporting. We present this information proudly, with the expectation that those who use it will understand our Company, recognize our commitment to performance with integrity and share our confidence in P&G's future.
/s/ A. G. Lafley A. G. Lafley Chairman of the Board, President and Chief Executive /s/ Clayton C. Daley, Jr. Clayton C. Daley, Jr. Chief Financial Officer

The Procter & Gamble Company and Subsidiaries 19

TABLE OF CONTENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS Overview Results of Operations Segment Results Financial Condition Significant Accounting Policies and Estimates Other Information REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AUDITED CONSOLIDATED FINANCIAL STATEMENTS Earnings Balance Sheets Shareholders' Equity Cash Flows Notes to Consolidated Financial Statements

29 32 35 38 40 42 44

45 46 48 49 50

MANAGEMENT'S DISCUSSION AND ANALYSIS Management's Discussion and Analysis The purpose of this discussion is to provide an understanding of our financial results and condition by focusing on changes in certain key items from year to year. Management's Discussion and Analysis (MD&A) starts with an overview of the Company, followed by a review of results of operations and financial condition. Lastly, we provide insight to our significant accounting policies and estimates, and some other information you may find useful. Throughout MD&A, we refer to several measures used by management to evaluate performance including unit volume growth, net outside sales and after-tax profit. We also refer to organic sales growth (net sales growth excluding the impact of acquisitions and divestitures and foreign exchange), free cash flow and free cash flow productivity, which are not defined under accounting principles generally accepted in the United States of America (U.S. GAAP). The explanation of these non-GAAP measures on page 43 provides more details. Management also uses certain market share estimates to evaluate our performance relative to competition - although there are limitations on the availability and comparability of this information. References to market share in MD&A are based on a combination of vendor-reported consumption and market size data, as well as internal estimates. OVERVIEW Our business is focused on providing branded products of superior quality and value to improve the lives of the world's consumers. We believe this will lead to leadership sales, profits and value creation, allowing employees, shareholders and the communities in which we operate to prosper. Procter & Gamble markets over 300 branded products in more than 160 countries. Our products are sold primarily through mass merchandisers, grocery stores, membership club stores and drug stores. We compete in five distinct business segments: Fabric and Home Care, Beauty Care, Baby and Family Care, Health Care and Snacks and Beverages - and we manage the business and report our results on this basis. We have operations in over 80 countries through our Market Development Organization, which leads country business teams to build our brands in local markets and is organized along seven geographic areas: North America, Western Europe, Northeast Asia, Latin America, Central and Eastern Europe/Middle East/Africa, Greater China and ASEAN/Australasia/India. The following charts provide the percentage of net sales and net earnings by business segment for the fiscal year ended June 30, 2004. These exclude information for Corporate, since it is not meaningful. For more information, please refer to the section on Corporate results on page 37 and Note 12 on page 65.

20 The Procter & Gamble Company and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS 2004 Net Sales by Business Segment [PIE CHART]
Fabric and Home Care Beauty Care Baby and Family Care Health Care Snacks and Beverages 27% 33% 20% 13% 7%

2004 Net Earnings by Business Segment [PIE CHART]


Fabric and Home Care Beauty Care Baby and Family Care Health Care Snacks and Beverages 32% 35% 14% 14% 5%

In May 2004, we announced a realignment of some of our business units and associated management responsibilities. These changes are designed to streamline business operations and support further growth of the Company. Beginning with fiscal year 2004/2005, we will realign to three global business units: Beauty Care; Health, Baby and Family Care; and Household Care, which will include the current Fabric and Home Care business and the Snacks and Beverages business. Our financial reporting will continue to include supplemental information on the results of the current five business units. Each of the new Global Business Units and our Market Development Organization will be headed by a vice-chairman reporting to the chief executive officer. There will be no special charges associated with the organization realignment. We completed the divestiture of the Juice business in August 2004. For the fiscal year 2004/2005, results of the Juice business will be included in Corporate. All historical information will also be reflected in Corporate to provide segment results on a comparable basis. Strategic Focus We are focused on strategies that we believe are right for the long-term health of the Company and that will increase returns for our shareholders. Our long-term financial targets include: - Sales growth of 4% to 6% excluding the impact of changes in foreign exchange rates from year-over-year comparisons. On average, we expect approximately 2% of our growth to come from market growth; 1% to 3% of our growth to come from the combination of market share growth, expansion to new geographies and new business creation; and the remaining 1% to come from smaller, tactical acquisitions to access markets or round out our current business portfolios. - Earnings-per-share growth of 10% or better. - Free cash flow productivity greater than 90% (defined as the ratio of operating cash flow less capital expenditures divided by net earnings). In order to achieve these targets, we have focused Procter & Gamble's core strengths of branding, innovation, go-to-market capability and scale against the following growth areas: - Drive our core businesses of Baby Care, Fabric Care, Feminine Care and Hair Care into stronger global leadership positions. - Grow our leading brands in our biggest markets and with our largest customers. - Invest in faster-growing businesses with higher gross margins that are less asset-intensive, primarily in the Health Care and Beauty Care segments. - Build on opportunities in select developing markets and with lower-income consumers. Sustainability

To sustain consistent and reliable sales and earnings growth in line with long-term financial targets, we have identified four key enablers: - Building a diversified portfolio consisting of foundation businesses and higher growth businesses. Foundation businesses include many of our core product categories - those in our Fabric and Home Care, Baby and Family Care and Snacks and Beverages segments. These businesses provide a base for steady growth, strong operating cash flows and an excellent training ground for our future leaders. We are focused on expanding these categories through innovative products, offering our brands in more parts of the world and tailoring our products to meet the needs of more consumers (including lower-income consumers). To complement the steady growth of our foundation businesses, we are also focused on expanding our portfolio of brands and products to businesses with higher expected growth rates, particularly in the Health Care and Beauty Care segments. These segments generally have higher gross margins and lower capital requirements than the balance of the Company's portfolio. Over the past several years, we have increased the size of our Health Care and Beauty Care businesses and expect them to continue to provide a disproportionate percentage of growth for the Company. - Investing in innovation and capability to reach more of the world's consumers with quality, affordable products. This not only includes a strong pipeline of initiatives on the base businesses, but also expansion of our brands to more geographies where we currently

The Procter & Gamble Company and Subsidiaries 21 MANAGEMENT'S DISCUSSION AND ANALYSIS do not have a major market presence. In addition, we are investing in innovation and capability to meet the needs of lower-income consumers, who may find our products unaffordable for daily use. - Leveraging the Company's organizational structure to drive clear focus, accountability and improved go-to-market capability. We have an organizational structure that works together to leverage our knowledge and scale at the global level with a deep understanding of the consumer and customer at the local level. The Global Business Units (GBUs) leverage their deep consumer understanding to develop the overall strategy for our brands and are focused on delivering superior products, packaging and marketing. Working closely with the GBUs, the Market Development Organization (MDO) develops go-to-market plans at the local level, leveraging their understanding of the local consumer and customer. The MDO is focused on winning the "first moment of truth" - when a consumer stands in front of the shelf and chooses a product from among many competitive offerings. The GBU is focused on winning the "second moment of truth" - when the consumer uses the product and evaluates how well the product meets their expectations. Global Business Services (GBS) operates as the "back office" for the GBU and MDO organizations, providing world-class technology, processes and standard data tools to better understand the business and better serve consumers and customers. Services are provided by either GBS personnel or by partnering with highly efficient and effective providers. - Focusing relentlessly to improve costs and generate cash. Each business unit is evaluated on their ability to improve profit margins and generate cash, for example, by increasing capacity utilization and meeting capital spending targets. Summary of 2004 Results For the fiscal year ended June 30, 2004, our sales, earnings and free cash flow grew above our long-term targets. - Every business segment and, within the MDO, every geographic region posted volume growth. - We increased our overall market share, with share growth in categories representing approximately 70% of the Company's net sales. We increased market share in each of our core businesses of Baby Care, Fabric Care, Feminine Care and Hair Care. - Net sales increased 19%, including the impact of the Wella acquisition that was completed in September 2003. Organic sales increased 8%. - Net earnings increased 25% behind higher volume and the completion of the Company's restructuring program, which reduced earnings by $538 million in 2003. - Operating cash flows were $9.36 billion. Free cash flow productivity was 113%. Market Overview and Challenges Our market environment is highly competitive, with both global and local competitors. In many of the markets and industry segments in which we sell our products, we compete against branded products, as well as retailer and private-label brands. Additionally, many of the product segments in which we compete are differentiated by price (referred to as premium, mid-tier and value-tier products). Generally speaking, we compete with premium and mid-tier products and are well positioned in the industry segments and markets in which we operate - often holding a leadership or significant share position. - Our Fabric and Home Care business operates in a global market containing numerous brands in each geography. We generally have the number one or number two share position in the markets in which we compete, with particular strength in North America and Western Europe. Fabric Care is one of our core businesses and we are the global market leader with approximately a 31% share. Three of our billion-dollar brands are part of the Fabric and Home Care business: Tide, Ariel and Downy. - We compete in several categories of the Beauty Care market including Retail and Professional Hair Care, Skin Care, Feminine Care, Cosmetics, Fine Fragrances and Personal Cleansing. The Beauty Care markets in which we compete comprise approximately $170 billion in global sales, resulting in our having an overall share position of about 10%. Hair Care, one of our core businesses, is the market leader with approximately a 20% share of the global market. We are also the global share leader in the Feminine Care category, another core business, with approximately a 35% share of the market. Billion-dollar brands in Beauty Care include Pantene, Wella, Olay, Always and Head & Shoulders. - In Baby and Family Care, we compete primarily in the Diapers, Baby Wipes, Bath Tissue and Kitchen Towel categories. Baby Care is one of our core businesses with a global share of approximately 36% of the market behind the strength of Pampers, a $5 billion-dollar brand. The markets in which we compete generally include two to three global companies, as well as local competitors and retailer brands. Family Care is predominantly a North American business with the Bounty and Charmin brands, each with annual sales over one billion dollars. - Our Health Care business competes in several distinct product categories including Oral Care, Pharmaceuticals, Over-the-counter (OTC) Gastrointestinal and Respiratory Medications and Pet Health and Nutrition. In Oral Care, there are four global competitors in the market, of

which we have the number two share position. Our Pharmaceuticals business has almost 30% of the global bisphosphonates market for the treatment of osteoporosis under the Actonel brand. Actonel, along with Crest and Iams, each have annual sales over one billion dollars.

22 The Procter & Gamble Company and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS - In Snacks and Beverages, we compete primarily in two industry categories: Salted Snacks and Coffee. In Salted Snacks, we compete against both global and local companies. One global company dominates the category. In Coffee, we hold a leadership position of the brands sold predominantly through grocery, mass merchandise and club membership stores in the United States (U.S.). We recently completed the divestiture of our Juice business. Two of our billion-dollar brands are in Snacks and Beverages - Pringles and Folgers. Forward-Looking Statements We discuss expectations regarding our future performance and future events and outcomes, such as our business outlook and long-term objectives, in our annual and quarterly reports, press releases and other written and oral communications. All statements, except for historical and present factual information, are "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Security Litigation Reform Act, and are based on currently available competitive, financial and economic data and our business plans. Forward-looking statements are inherently uncertain, and investors must recognize that events could be significantly different from our expectations. Ability to Achieve Business Plans. We are a consumer products company and rely on continued demand for our products. To achieve our business plans, we must develop and sell products that appeal to our consumers and customers. Our continued success is dependent on leadingedge innovation (with respect to both products and operations) and effective sales, advertising and marketing programs in an increasingly fragmented media environment. Our ability to innovate and execute in these areas will determine the extent to which we are able to grow existing sales and volume profitably despite high levels of competitive activity, especially with respect to the product categories and geographic markets (including developing markets) in which we have chosen to focus. There continues to be competitive product and pricing pressures in the environments in which we operate, as well as challenges in maintaining profit margins. We must manage each of these, as well as maintain mutually beneficial relationships with our key customers, in order to effectively compete and achieve our business plans. Since our long-term goals include a growth component tied to acquisitions, we must manage and integrate key acquisitions, including the Wella acquisition. Cost Pressures. Our costs are not fixed but fluctuate, particularly due to currency and interest rate fluctuations and the cost of labor and raw materials. Therefore, our success is dependent, in part, on our continued ability to manage these fluctuations through pricing actions, sourcing decisions and certain hedging transactions. In the manufacturing and general overhead areas, we need to maintain key manufacturing and supply arrangements, including sole supplier and sole plant arrangements, and successfully implement, achieve and sustain cost improvement plans, including our outsourcing projects. Global Economic Conditions. Economic changes, terrorist activity and political unrest may result in business interruption, inflation, deflation or decreased demand for our products. Our success will depend in part on our ability to manage continued global political and/or economic uncertainty, especially in our significant geographical markets, as well as any political or economic disruption due to terrorist activities. Regulatory Environment. Changes in laws, regulations and the related interpretations, including changes in laws that affect our products, as well as changes in accounting standards, taxation requirements, competition laws and environmental laws, may alter the environment in which we do business. Accordingly, our ability to manage regulatory, tax and legal matters and to resolve pending matters within current estimates may impact our results. RESULTS OF OPERATIONS Volume and Net Sales Unit volume for the 2004 fiscal year increased 17%, with all business segments and geographic regions achieving unit volume growth. Unit volume growth was led by Beauty Care, up 37%, and Health Care, up 18%. Excluding the impact of acquisitions and divestitures, primarily Wella, unit volume for the Company increased 10%. This exceeded prior year results due to the volume growth on our largest brands, doubledigit gains from developing markets, incremental volume from product initiatives and an overall increase in our market share position. - Unit volume in developing markets increased 19%, led by strong gains in Greater China. - Each of our top 16 brands increased volume versus the prior year (representing approximately 55% of total Company volume). - All 16 of our top countries increased volume (representing approximately 85% of total unit volume).

The Procter & Gamble Company and Subsidiaries 23 MANAGEMENT'S DISCUSSION AND ANALYSIS Sales reached a record level of $51.41 billion in 2004, an increase of 19%. Organic sales increased 8%, well above our long-term target. Net sales increased behind volume growth, including the addition of Wella, and a positive foreign exchange impact of 4% due primarily to the strengthening of the Euro, British pound and Canadian dollar. Product mix reduced sales growth by 1%, reflecting higher growth in developing markets, including Greater China and Latin America, which generally have an average unit sales price lower than the Company average. Pricing adjustments reduced sales growth by 1% as we sharpened Family Care and Coffee category pricing to remain competitive on shelf. We also took pricing actions to improve consumer value and stimulate growth in selected product categories, including Fabric Care and Feminine Care. [BAR CHART] Net Sales (in billions of dollars)
2002 2003 2004 40.2 43.4 51.4

2004 Net Sales by Geography [PIE CHART]


North America Western Europe Northeast Asia Developing Geographies 50% 24% 5% 21%

Net sales in 2003 were $43.38 billion, exceeding 2002 sales by $3.14 billion, or 8%. Volume growth of 8% was broad-based, with particular strength in Fabric and Home Care, Beauty Care and Health Care. Net sales included a favorable foreign exchange impact of 2%, as the strength of the Euro was partially offset by weakness in certain Latin American currencies. The foreign exchange impact was offset by pricing of 2% to deliver consistent consumer value, stimulate growth and remain competitive in key categories, including Diapers, Tissue, Hair Care, Feminine Care, Teeth Whitening and Coffee. Operating Costs Gross margin in 2004 was 51.2%, an increase of 220 basis points versus the previous year. Charges for the restructuring program that was substantially completed in 2003 accounted for 80 basis points of the improvement. Of the remaining gross margin expansion, approximately 90 basis points was driven by the scale benefit of increased volume and 40 basis points was due to the addition of Wella, which has a higher gross margin than the balance of the Company. Supply chain savings and favorable product mix benefits were offset by the impact of higher commodity costs and pricing actions. In 2003, gross margin was 49.0% which was an improvement of 120 basis points versus 2002. Lower restructuring program charges accounted for 40 basis points of the improvement, with the remainder due to lower material costs and the benefits of our supply chain savings programs. Before-tax restructuring program charges included in cost of products sold were $381 million in 2003 and $508 million in 2002. [BAR CHART] Gross Margin Progress (% of sales)
2002 2003 2004 47.8% 49.0% 51.2%

Years ended June 30 ----------------------------------------------------------Basis Basis 2004 2003 point change 2002 point change -------------------------------Comparisons as a percentage of net sales Gross margin Selling, general and administrative Operating margin Earnings before income taxes 51.2% 32.1% 19.1% 18.2% 49.0% 30.9% 18.1% 17.4% 220 120 100 80 47.8% 31.2% 16.6% 15.9% 120 (30) 150 150

Effective tax rate Net Earnings

30.7% 12.6%

31.1% 12.0%

(40) 60

31.8% 10.8%

(70) 120

24 The Procter & Gamble Company and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS Selling, General and Administrative expense (SG&A) in 2004 was 32.1% of net sales, an increase of 120 basis points compared to the previous year. The majority of the basis point increase is due to Wella, reflecting a higher ratio of SG&A expense to net sales than the base business. Restructuring program charges in the base period, that accounted for an improvement of 90 basis points, were more than offset by increases in marketing spending. Marketing investments were made behind product launches including Prilosec OTC, Crest Whitestrips Premium and the expansion of Olay Regenerist, as well as continued support for the base business. The decrease in SG&A as a percentage of net sales in 2003 versus 2002 was driven by lower restructuring program charges which more than offset additional marketing investments behind new product launches and expansions of existing brands, including Tide with Bleach, Swiffer Duster, Crest Whitestrips and Olay Regenerist. SG&A included before-tax restructuring program charges of $374 million in 2003 and $519 million in 2002. [BAR CHART] Selling, General and Administrative Expenses (% of sales)
2002 2003 2004 31.2% 30.9% 32.1%

Non-Operating Items Non-operating items include interest expense, divestiture gains and losses, as well as interest and investment income. Interest expense increased $68 million to $629 million in 2004, primarily due to additional debt to support the acquisition of Wella. Interest expense was $561 million in 2003 and $603 million in 2002. The decline in interest expense in 2003 versus 2002 was driven by lower debt balances and interest rates. Going forward, we expect interest expense to increase, reflecting both debt levels and rates, as well as the interest associated with the guaranteed dividend payment to Wella minority shareholders. Other non-operating income was $152 million in 2004 compared to $238 million in 2003 and $308 million in 2002. Over the three year period, non-operating income declined primarily due to lower gains from divestitures. During the restructuring program, we divested non-strategic brands. As this activity has declined, other non-operating income has trended lower. Next fiscal year, non-operating income may increase, reflecting the divestiture of the Juice business in August 2004. The effective tax rate for 2004 declined 40 basis points driven primarily by the country mix impact of foreign operations, as earnings increased disproportionately in countries with lower overall tax rates. The country mix impacts of foreign operations reduced the Company's effective tax rate to a larger degree in 2004 and 2003 than in 2002. The tax rate is expected to decline again in 2005, absent any legislative changes that affect current plans. Net Earnings Net earnings in 2004 increased 25% over the prior year. Earnings growth was primarily driven by increased volume and the completion of the Company's restructuring program. Improvements to earnings from gross margin expansion were partially offset by increased marketing spending to support product initiatives and base business growth. The acquisition of Wella had no material impact on earnings. Prior year results include $538 million of after-tax charges related to our restructuring program, which represents approximately 10 percentage points of the earnings growth. These charges covered enrollment reductions, manufacturing consolidations and portfolio choices to scale back or discontinue under-performing businesses and initiatives. The restructuring program was substantially completed in 2003. Beginning this year, we are continuing to take the necessary, on-going actions to maintain a competitive cost structure, but such activities are part of normal operations. In 2003, net earnings increased 19% compared to 2002, representing a 120 basis point increase in earnings margin. Increased earnings were driven by volume growth, the shift in mix to higher profit products in the Health Care and Beauty Care segments, lower restructuring program costs and improved gross margin. After-tax restructuring program charges were down $168 million compared to total charges of $706 million in 2002.

The Procter & Gamble Company and Subsidiaries 25 MANAGEMENT'S DISCUSSION AND ANALYSIS Diluted net earnings per share were $2.32, an increase of 25%, and above our long-term target. Diluted net earnings per share were $1.85 in 2003 and $1.54 in 2002, including restructuring program impacts of $0.19 and $0.26 per share, respectively. [BAR CHART] DILUTED NET EARNINGS (Per common share)
2002 2003 2004 1.54 1.85 2.32

Net Earnings Margins The progressive increase in net earnings margin to 12.6% reflects the scale benefits from higher volume and the completion of our restructuring program, as well as improvements due to cost savings and the shift to businesses with a higher margin than the Company average. SEGMENT RESULTS Product-based segment results reflect information on the same basis we use for internal management reporting and performance evaluation. These segment results exclude certain costs included in the Consolidated Financial Statements (e.g., interest expense, other financing costs, investing activities and certain restructuring costs), which are reported in Corporate. As described in Note 12 of the financial statements, we have investments in certain companies where we do not control the financial and operating decisions and, therefore, do not consolidate them ("unconsolidated entities"). Because these investments are managed as integral parts of the Company's business units, they are accounted for as if they were consolidated subsidiaries for management and segment purposes. This means we recognize 100% of each income statement component to before-tax earnings and eliminate the minority interest to determine segment after-tax earnings. Included in Corporate are entries to eliminate the individual revenue and expense line items, adjusting the method of accounting to the equity method as required by U.S. GAAP. Fabric and Home Care Fabric and Home Care unit volume was up 9% behind growth on established brands such as Tide, Ariel, Gain and Ace and the success of initiatives including Mr. Clean Magic Eraser, Mr. Clean AutoDry, Swiffer Duster, Gain Fabric Enhancer and the expansion of Febreze. Both the Fabric Care and Home Care businesses continue to grow or maintain market share on most key brands. Net sales increased 10%, to $13.87 billion. Sales growth includes a positive 3% foreign exchange impact. Pricing of negative 1% was primarily driven by actions to maintain competitive shelf pricing in key geographies, including North America and Western Europe. Mix reduced sales by 1% driven primarily by double-digit growth in developing markets, including the continued success of initiatives such as Tide Clean White in China and Downy One Rinse in Latin America. Products in developing markets generally have a lower average sales rate per unit than the segment average. Net earnings increased 7% to $2.20 billion. Net earnings margin was down slightly compared to 2003 due to the mix effect of disproportionate growth outside of the U.S. (as we expanded our business in certain geographies including China, India and Eastern Europe) and marketing investments behind new product initiatives. Startup costs for increased liquid detergent capacity in North America to support new product initiative activity and investments in supply chain optimization also contributed to the lower net earnings margin.
Net Sales Change Drivers Versus Year Ago ---------------------------------------------------------------------------Volume Excluding Acquisitions & Foreign Total Volume Divestitures Exchange Pricing Mix/Other Net Sales -----------------------------------------------9% 9% 3% -1% -1% 10% 37% 10% 4% -1% -% 40% 6% 6% 4% -1% -1% 8% 18% 17% 3% -% -% 21% 4% 4% 4% -1% 1% 8% 17% 10% 4% -1% -1% 19%

Fabric and Home Care Beauty Care Baby and Family Care Health Care Snacks and Beverages Total Company

26 The Procter & Gamble Company and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS In 2003, volume grew 9%. Net sales increased 8% to $12.56 billion compared to $11.62 billion in 2002. Foreign exchange contributed a positive impact of 1% to overall sales, driven primarily by the strength of the Euro. Sales were negatively impacted by 1% due to pricing, primarily in North America and Western Europe. Sales were also reduced by 1% from mix due to growth of lower-priced products, including rapid growth in developing markets and broadening of the mid-tier portfolio of brands in major geographies. Net earnings were $2.06 billion, a 12% increase from $1.83 billion in 2002, driven primarily by volume growth and lower manufacturing costs. The impact of volume growth and lower manufacturing costs on earnings was partially offset by increased marketing spending in support of new product launches and expansion of existing brands. Beauty Care Beauty Care unit volume increased 37%. Excluding the impact of the Wella acquisition, unit volume increased 10% behind broad-based growth in the Hair Care, Personal Beauty Care and Feminine Care businesses. Global Hair Care volume increased double-digits, despite low single-digit growth in North America, with particular progress on the Head & Shoulders, Pantene, Herbal Essences and Rejoice brands. In Feminine Care, double-digit volume growth was driven by Always/Alldays, Tampax Pearl in the U.S. and Naturella in Latin America. In Personal Beauty Care, Olay and SK-II delivered double-digit volume growth, as did the Fine Fragrances business. Net sales increased 40% to $17.12 billion. Sales growth includes a positive foreign exchange impact of 4%, partially offset by negative pricing of 1%. Pricing includes actions to support the Hair Care, Colorants and Cosmetics businesses in North America and the Feminine Care business in Western Europe. Overall Beauty Care market share increased, as sales growth out-paced market growth in key categories including Skin Care, Feminine Care and Hair Care products. Net earnings increased 22% to $2.42 billion. Volume benefits, including the addition of Wella, and lower material costs were partially offset by marketing investments to support product initiatives and the base business. Earnings margin decreased due to the impact of the higher SG&A expense ratio for Wella. The Wella acquisition was accretive to Beauty Care earnings and had no material impact on Company earnings after including the impacts of interest and amortization expense, which are included in Corporate. Going forward, we will continue to make progress on collaboration plans designed to deliver synergies and margin progress. Some of these actions will result in additional one-time charges next year largely to be reflected in Corporate as part of the Company's ongoing effort to maintain a competitive cost structure. Excluding these impacts, Wella is expected to be accretive to the Beauty Care segment and about neutral to the Company in 2005. In 2003, unit volume grew 15%. Excluding the impacts of the Clairol acquisition, unit volume increased 8% led by growth in Hair Care. Net sales grew 14% to $12.22 billion, as volume increases and a positive 3% impact from foreign exchange were partially offset by a negative 2% impact from pricing and 2% from mix. Pricing was driven by price reductions taken to expand our portfolio of Hair Care brands to consumers that shop within the category's lower-priced, mid-tier brands. The mix impact was driven by the increased sales of Clairol brands, which carry lower revenue per unit than the Company's base Hair Care brands. Net earnings grew 23% to $1.98 billion. Approximately half of this increase was driven by volume, with the remainder driven by reductions in manufacturing costs through restructuring, base savings programs and lower material costs. Lower overhead spending due, in part, to the Clairol integration, was offset by investments in marketing. In 2002, Beauty Care net sales were $10.72 billion and net earnings were $1.61 billion. Baby and Family Care Baby and Family Care unit volume increased 6% driven primarily by double-digit growth in Baby Care, including gains in Western Europe and developing markets, and low single-digit growth in Family Care. Family Care volume growth reflects a difficult competitive environment marked by increased promotional spending, particularly in North America. Net sales for the segment grew 8% to $10.72 billion including a positive foreign exchange impact of 4%. Sales were negatively impacted by pricing of 1%, primarily due to increased competitive promotional activity in North America Family Care. Mix reduced sales by 1% due primarily to strong Baby Care growth in developing markets, where unit sales prices are generally lower than the segment average. Net earnings were $996 million, an increase of 13% compared to 2003. Baby Care delivered profit growth from higher volume and product cost savings. Family Care earnings declined slightly due to increases in commodity costs (both pulp and natural gas) and increased spending for pricing. We announced North America Family Care increased prices effective in July to partially recover increases in commodity costs. In 2003, Baby and Family Care delivered unit volume growth of 7%. Net sales grew 8% to $9.93 billion compared to $9.23 billion in 2002. Sales growth included a 3% positive foreign exchange impact and 1% positive mix impact, partially offset by a 3% negative impact from pricing. Positive mix was driven by increased sales of higher-priced, premium-tier diapers. The pricing impact was driven by targeted investments to match competitive pricing and merchandising across the segment, primarily in North America and Western Europe. Net earnings were $882 million, an increase of 20% compared to $738 million in 2002.

The Procter & Gamble Company and Subsidiaries 27 MANAGEMENT'S DISCUSSION AND ANALYSIS Earnings growth was primarily achieved through increased scale from volume growth and lower product cost behind base business and restructuring savings. Health Care Health Care unit volume increased 18%. All categories grew volume, with double-digit gains in the Pharmaceutical, Personal Health Care and Oral Care businesses, as well as solid growth in Pet Health and Nutrition. Volume was driven by initiatives, including the successful launch of Prilosec OTC and the continued expansion of Actonel. Developing markets also delivered double-digit volume gains, particularly in China behind Crest. Net sales increased 21% to $6.99 billion. Foreign exchange increased sales 3%. Net earnings increased 36% to $962 million. Earnings growth was primarily driven by sales growth behind initiatives and margin expansion due to product mix, manufacturing cost savings and lower overhead spending as a percentage of sales. Product mix expanded margin as Pharmaceuticals, which has a higher margin than the balance of the business, made up a larger percentage of segment sales. Mix-driven margin expansion was negatively impacted by increased marketing spending behind the strong initiative program and a growing base business. Each category delivered double-digit earnings growth. In 2003, unit volume increased 18% led by Oral Care and Pharmaceuticals. Net sales for the year were $5.80 billion, an increase of 16% as compared to $4.98 billion in 2002. A favorable foreign exchange impact of 2% was more than offset by a negative pricing impact of 2%, primarily driven by lower pricing on Crest Whitestrips in response to a competitive entry, and a negative mix impact of 2%. The negative product mix impact was primarily driven by growth in developing markets and a shift in Actonel volume mix, which is sold under an alliance agreement, to support the global Once-a-week dosage launch. Net earnings for Health Care were $706 million, an increase of 35% compared to $521 million in 2002. The majority of the increase was driven by volume growth and the shift to higher-margin Oral Care and Pharmaceuticals products, partially offset by additional marketing investments to support product initiatives. Snacks and Beverages Snacks and Beverages unit volume increased 4%. Folgers and Pringles, each with sales in excess of one billion dollars, grew volume by midsingle digits. Net sales were $3.48 billion, an increase of 8%. Foreign exchange positively impacted sales by 4%. Product mix increased sales by 1%, primarily driven by faster growth of Folgers, which has a higher unit sales rate than the segment average. Pricing reduced sales by 1% reflecting high promotional spending in the Coffee category. Net earnings were $363 million, an increase of 19%, as volume and base business savings more than offset higher commodity costs. In 2003, unit volume declined 2% reflecting the impact of the business interruption on Snacks shipments caused by tornado damage to the Jackson, Tennessee manufacturing facility, as well as softness in the Juice category. Net sales were $3.24 billion, or essentially flat versus the previous year. Sales growth included a positive 3% impact from foreign exchange and 1% impact from mix, which were partially offset by a negative 2% impact from pricing. Net earnings were $306 million compared to $303 million in 2002. Despite the impact of the tornado and lower volume, net earnings increased due to reductions in cost of products sold, reflecting the impact of both base business and restructuring savings. In August 2004, the Company divested the Juice business. The gain associated with the divestiture will likely be offset by lost contribution within the fiscal year. Effective July 1, 2004, the current and historical results of Juice will be reflected in Corporate. Corporate Corporate includes amounts and activities not allocated to specific business units. These include: the results of incidental businesses managed at the corporate level, financing and investing activities, intangible asset amortization, certain restructuring charges and other general corporate items. In addition, Corporate generally includes the historical results of divested businesses, including the Jif and Crisco businesses, which were spun off from the former Food and Beverage segment. Corporate net sales primarily reflect the adjustment to eliminate the sales of unconsolidated entities included in business segment results. In 2002, Corporate also includes the net sales of Jif and Crisco, which were spun off. Corporate earnings improved in 2004, as the prior year included restructuring program charges. This improvement was partially offset by higher interest and intangible asset amortization charges associated with Wella, hedging impacts and current year charges for projects to maintain a competitive cost structure. Lower Corporate earnings in 2003 primarily reflected the impact of the Jif and Crisco operations in the base period. Corporate earnings were also lower due to increased financing of employee benefit plans and hedging impacts from a stronger Euro, partially offset by decreased restructuring program costs.

28 The Procter & Gamble Company and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL CONDITION We believe our financial condition continues to be of high quality, as evidenced by our ability to generate substantial cash from operations and ready access to capital markets at competitive rates. We do not anticipate material changes to cash flow trends, although actual cash and debt balances will be influenced by a variety of factors, including acquisitions and other investment opportunities. For example, there is currently proposed legislation in the U.S. that could precipitate a substantial short-term change in our cash repatriation patterns under favorable conditions. Such an opportunity, and its implications, would need to be addressed once the provisions of the law are finalized and enacted. Operating cash flow provides the primary source of funds to finance operating needs and capital expenditures. Excess operating cash is used first to fund shareholder dividends. Other discretionary uses include share repurchase activities and acquisitions. As necessary, we may supplement operating cash flow with debt to fund these activities. The overall cash position of the Company reflects our strong business results and a global cash management strategy that takes into account liquidity management, economic factors and tax considerations. This includes the potential tax on repatriating cash balances to the U.S. versus other long-term offshore funding opportunities. Operating Activities In 2004, operating cash flow was $9.36 billion compared to $8.70 billion in 2003, representing an increase of 8%. Higher net earnings were the primary driver of the increase in operating cash flow. Operating cash flow growth trailed earnings growth due to an increase in accounts receivable, cash payments for restructuring program charges accrued last fiscal year and a dividend received from a joint venture in the base period. The impacts of business growth on cash flow have been kept to a minimum as a result of the Company's focus on cash management. Accounts receivable days sales outstanding and inventory days on hand improved from June 30, 2003, excluding the impact of Wella. We view free cash flow as an important measure because it is one factor impacting the amount of cash available for dividends and discretionary investment. It is defined as cash from operating activities less capital expenditures and is one of the measures used to evaluate senior management and determine their at-risk compensation. In 2004, free cash flow was $7.34 billion compared to $7.22 billion in 2003 and $6.06 billion in 2002. Free cash flow in 2004 reflects increased operating cash flow, partially offset by increased capital expenditures, although spending was in line with our target of capital spending at or below 4% of sales. Capital spending in 2003 was well below historical levels and the long-term target. Free cash flow productivity, defined as the ratio of free cash flow to net earnings, was 113%, above the Company's long-term target of 90%. Free cash flow productivity was 139% in 2003. Free Cash Flow and Free Cash Flow Productivity (in billions and as % of net earnings) [BAR CHART] Free Cash Flow and Free Cash Flow Productivity (in billions and as % of net earnings) Investing Activities Acquisitions. Net cash used for acquisitions in 2004 was $7.48 billion. The primary drivers were the acquisition of Wella and the purchase of the remaining stake in our China venture with Hutchison Whampoa China Ltd. (Hutchison). The initial Wella acquisition in September 2003 was approximately $5.10 billion for an 81% interest, funded by a combination of debt and cash. In June 2004, the Company and Wella completed a domination and profit transfer agreement, which provided us full operating control and rights to 100% of future operating results. In exchange, we must pay the remaining Wella shareholders a guaranteed annual dividend payment. Alternatively, the Wella shareholders may elect to tender the shares for a fixed price. The obligation associated with the domination agreement is $1.11 billion and has been recognized as a current liability. The portion of the acquisition related to the domination agreement represents a non-cash transaction. Future payments related to the principal portion of the annual dividend arrangement or acquisition of shares tendered will be reflected as investing activities, consistent with the underlying transaction. The gross cash outlay for Hutchison was $2.00 billion, which also includes the settlement of minority interest and certain other liabilities, for a net cost of $1.85 billion. The acquisition was funded by debt. We also completed certain smaller acquisitions with an aggregate cost of $384 million, including Glide dental floss and Fabric Care brands in Western Europe, Latin America and the Middle East. Net cash for acquisitions was $61 million in 2003 and $5.47 billion in 2002, primarily for the Clairol acquisition.

The Procter & Gamble Company and Subsidiaries 29 MANAGEMENT'S DISCUSSION AND ANALYSIS Capital Spending. Capital spending efficiency continues to be a critical component of the Company's overall cash management strategy. Our goal is to maintain capital spending at or below 4% of net sales. Total capital spending was $2.02 billion in 2004 versus $1.48 billion in 2003 and $1.68 billion in 2002. Capital spending as a percentage of net sales was 3.9% in 2004, in line with the Company's long-term target. Capital spending increased as a percent of net sales in 2004 primarily in support of capacity expansion projects in the Fabric and Home Care and the Baby and Family Care businesses. In 2003, capital spending as a percent of net sales was 3.4%, a significant decline versus 2002, which included considerable spending behind capacity additions. Over the past several years, we have made systemic interventions to improve capital spending efficiencies and asset utilization. While the Company's goal is to maintain capital expenditures at or below 4% of sales on an ongoing basis, there may be exceptional years when specific business circumstances, such as capacity additions, may lead to higher spending. [LINE GRAPH] Capital Spending (% of Net Sales) Financing Activities Dividend Payments. One of our first discretionary uses of cash is dividend payments. Common share dividends grew 13% to $0.93 per share in 2004, representing the 48th consecutive fiscal year of increased common share dividends. Total dividend payments, to both common and preferred shareholders, were $2.54 billion, $2.25 billion and $2.10 billion in 2004, 2003 and 2002, respectively. [BAR CHART] Dividends (per share) Long-Term and Short-Term Debt. The Company maintains debt levels it considers appropriate considering a number of factors, including cash flow expectations, cash requirements for ongoing operations, investment plans (including acquisitions and share repurchase activities) and the overall cost of capital. Total debt increased in 2004 by $7.19 billion to $20.84 billion. The increase was primarily due to the acquisitions of Wella and the Hutchison minority interest, along with discretionary treasury share purchases. Debt due within one year increased to $8.29 billion in 2004, reflecting the decision to finance acquisition and share repurchase activity with commercial paper, given favorable rates. Total debt in 2003 was $13.65 billion compared to $14.93 billion in 2002. The decrease in 2003 was primarily due to the utilization of cash flow from operations to pay down existing balances. Long-term borrowing available under our current shelf registration statement was $8.56 billion at June 30, 2004. The Company's Standard & Poor's (S&P) and Moody's short-term credit ratings are A-1+ and P-1, respectively. Our S&P and Moody's long-term credit ratings are AA- and Aa3, respectively. Liquidity. As discussed previously, our primary source of liquidity is cash generated from operations. We believe internally-generated cash flows adequately support business operations, capital expenditures and shareholder dividends, as well as a level of discretionary investments (e.g., acquisitions and share repurchases). The Company is able to supplement its short-term liquidity, if necessary, with broad access to capital markets and $2.00 billion in bank credit facilities. Broad access to financing includes commercial paper programs in multiple markets at favorable rates given our strong credit ratings (including separate U.S. dollar, Canadian dollar and Euro multi-currency programs). We maintain two bank credit facilities: a $1.00 billion, five-year facility which matures in July 2007 and a $1.00 billion, five-year facility which matures in July 2009. The Company has never drawn against either facility and has no plans to do so in the foreseeable future. The credit facilities available to us do not have cross-default or ratings triggers, nor do they have material adverse events clauses, except at the time of signing. While not considered material to the overall financial condition of the Company, there is a covenant in the credit facilities stating the ratio of net debt to earnings before interest expense, income taxes, depreciation and amortization cannot exceed four at the time of a draw on the facility. As of June 30, we are comfortably below this level, with a ratio of approximately 1.3.

30 The Procter & Gamble Company and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS Treasury Purchases. During the past year, we substantially increased our level of share repurchases. In 2004, treasury share purchases used $4.07 billion compared to $1.24 billion in 2003 and $568 million in 2002. We purchase the Company's common stock on the open market.While the actual level of annual activity can vary, our intent generally is to purchase at least a sufficient number of shares to mitigate the dilutive impact of options. Beyond that, we may make additional discretionary purchases based on cash availability, market trends and other factors. We believe this share repurchase activity represents an alternative vehicle to provide value to shareholders. Lower share purchases in 2003 and 2002 reflect the need to preserve capital ahead of the Wella and Clairol acquisitions, respectively. Although no formal plan exists, we expect to continue to repurchase shares, with the ultimate amount depending on cash flow and alternate investment options. Guarantees and Other Off-Balance Sheet Arrangements. We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, that we believe could have a material impact on financial condition or liquidity. Contractual Commitments. The table below provides information on our contractual commitments as of June 30, 2004. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES In preparing our financial statements in accordance with U.S. GAAP, there are certain accounting policies that are particularly important. These include revenue recognition, income taxes, certain employee benefits and goodwill and intangible assets. We believe these accounting policies, and others set forth in Note 1 to the Consolidated Financial Statements, should be reviewed as they are integral to understanding the results of operations and financial condition of the Company. In some cases, these policies simply represent required accounting. In others, they may represent a choice between acceptable accounting methods or may require substantial judgment or estimation in their application. Due to the nature of our business, these estimates generally are not considered highly uncertain at the time of estimation, meaning they are not expected to result in a change that would materially affect our results of operations or financial condition in any given year. The Company has discussed the selection of significant accounting policies and the effect of estimates with the Audit Committee of the Company's Board of Directors.
Less Than 1 Year --------$8,229 30 1,106 715 186 237 1,640 -----12,143 ====== 1-3 Years ----$3,954 46 1,202 284 465 1,334 -----7,285 ====== 3-5 Years ----$1,935 169 874 185 955 -----4,118 ====== After 5 Years ------$ 6,281 7 4,796 265 1,542 ------12,891 =======

Total ------Recorded liabilities Total debt Capital leases Wella domination and profit transfer agreement Other Interest payments relating to long-term debt Operating leases Minimum pension funding(1) Purchase obligations(2) TOTAL CONTRACTUAL COMMITMENTS $20,399 252 1,106 7,587 920 702 5,471 ------36,437 =======

(1) Represents future pension payments to comply with local funding requirements. The projected payments beyond fiscal year 2007 are not currently determinable. (2) The amounts indicated in this line primarily reflect future contractual payments under various take-or-pay arrangements entered into as part of the normal course of business. Commitments made under take-or-pay obligations represent future purchases in line with expected usage to obtain favorable pricing. Approximately 60% relates to service contracts for information technology, human resources management and facilities management activities that were outsourced in recent years. While the amounts listed represent contractual obligations, we do not believe it is likely that the full contractual amount would be paid if the underlying contracts were canceled prior to maturity. In such cases, we generally are able to negotiate new contracts or cancellation penalties, resulting in a reduced payment. The amounts do not include obligations related to other contractual purchase obligations that are not take-or-pay arrangements. Such contractual purchase obligations are primarily purchase orders at fair value that are part of normal operations and are reflected in historical operating cash flow trends. We do not believe such purchase obligations will adversely affect our liquidity position.

The Procter & Gamble Company and Subsidiaries 31 MANAGEMENT'S DISCUSSION AND ANALYSIS Revenue Recognition Most of our revenue transactions represent sales of inventory, and we recognize revenue when title, ownership and risk of loss transfers to the customer. A provision for payment discounts and product return allowances is recorded as a reduction of sales within the same period that the revenue is recognized. We offer sales incentives through various programs, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons. The cost of these programs is recorded as a reduction of sales. Given the nature of our business, revenue recognition practices do not contain estimates that materially affect results of operations. Income Taxes Our annual tax rate is determined based on our income, statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Tax law requires items to be included in the tax return at different times than the items reflected in the financial statements. As a result, our annual tax rate reflected in our financial statements is different than reported on our tax return (our cash tax rates). Some of these differences are permanent, such as expenses that are not deductible in our tax return and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in future years for which we have already recorded the tax benefit in our income statement. Deferred tax liabilities generally represent tax expense recognized in our financial statements for which payment has been deferred, or expenditures for which we have already taken a deduction in our tax return but have not yet recognized in our financial statements. Inherent in determining our annual tax rate are judgments regarding business plans, planning opportunities and expectations about future outcomes. Realization of certain deferred tax assets is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carry-forward periods. Although realization is not assured, management believes it is more likely than not the deferred tax assets, net of valuation allowances, will be realized. Changes in existing tax laws, tax rates and their related interpretations may also affect our ability to successfully manage the impacts of regulatory matters around the world. The Company establishes reserves for tax positions that management believes are supportable, but are subject to successful challenge by the applicable taxing authority. The Company reviews these in light of the changing facts and circumstances, such as the progress of a tax audit, and will adjust them when significant changes in risk warrant it. The Company has a number of audits in process in various jurisdictions. Although the results of these audits are uncertain, based on currently available information, the Company believes that the ultimate outcome will not have a material adverse effect on the Company's financial position, cash flow or earnings. Our accounting represents management's best estimate of future events than can be appropriately reflected in the accounting estimates. Certain changes or future events, such as changes in tax legislation, geographic mix of earnings, completion of tax audits or modification of cash repatriation plans could have an impact on the Company's estimates and effective tax rate. Employee Benefits We sponsor various post-employment benefits throughout the world. These include pension plans, both defined contribution plans and defined benefit plans, and other post-employment benefit (OPEB) plans, consisting primarily of health care and life insurance for retirees. For accounting purposes, the defined benefit and OPEB plans require assumptions to estimate the projected and accumulated benefit obligations, including discount rate, expected salary increases and health care cost trend rates. These and other assumptions, including the expected return on plan assets, also affect the annual expense recognized for these plans. Our assumptions reflect our historical experiences and management's best judgment regarding future expectations. The expected return on plan assets assumption is important, since many of our defined benefit plans and our primary OPEB plan are funded. The process for setting the expected rates of return is described in Note 9 to the Consolidated Financial Statements. For 2004, the average return on assets assumption for pension plan assets is 7.4%. A change in the rate of return of 1% would impact annual benefit expense by approximately $15 million after tax. For 2004, the return on assets assumption for OPEB assets is 9.5%. A 1% change in the rate of return would impact annual benefit expense by approximately $20 million after tax. Since pension and OPEB liabilities are measured on a discounted basis, the discount rate is a significant assumption. The discount rates used for defined benefit and OPEB plans are set by benchmarking against investment grade corporate bonds rated AA or better. The average rate on the defined benefit plans of 5.2% represents a weighted average of local rates in countries where such plans exist. A 0.5% reduction in the discount rate would increase annual benefit expense by approximately $25 million after tax. The rate on the OPEB plan of 6.1% reflects the higher interest rates generally available in the U.S., which is where a majority of the plan participants receive benefits. A 0.5% reduction in the discount rate would increase annual benefit expense by approximately $5 million after tax.

32 The Procter & Gamble Company and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS Certain defined contribution pension and OPEB benefits in the U.S. are funded by the Employee Stock Ownership Plan (ESOP), as discussed in Note 9 to the Consolidated Financial Statements. We also have employee stock option plans which are accounted for under the intrinsic value recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As stock options have been issued with exercise prices equal to the market value of the underlying shares on the grant date, no compensation expense has resulted. Notes 1 and 8 to the Consolidated Financial Statements provide supplemental information, including pro forma earnings and earnings per share, as if the Company had accounted for options based on the fair value method prescribed by Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." The estimate of fair value requires a number of assumptions, including estimated option life and future volatility of the underlying stock price. Changes in these assumptions could significantly impact the estimated fair value of the stock options, as could a change in valuation methodology (e.g., from Black-Scholes to a different binomial method). Goodwill and Intangible Assets The Company seeks to deliver value from innovation by building brands and businesses. In many cases, brands are created internally, and the costs are expensed as incurred. In other cases, brands and businesses may be acquired, which generally results in intangible assets recognized in the financial statements. These intangibles may represent indefinite-lived assets (e.g., certain trademarks or brands), definite-lived intangibles (e.g., patents) or residual goodwill. Of these, only the costs of definite-lived intangibles are amortized to expense over their estimated life. The classification of intangibles and the determination of the appropriate life requires substantial judgment. Our history demonstrates that many of the Company's brands have very long lives and our objective is to generally maintain them indefinitely. For accounting purposes, we evaluate a number of factors to determine whether an indefinite life is appropriate, including the competitive environment, market share, brand history, operating plan and the macroeconomic environment of the country in which the brand is sold. If it is determined that an intangible does not have an indefinite life, our policy is to amortize the balance over the expected useful life, which generally ranges from 5 to 20 years. We test goodwill and indefinite-lived intangible assets for impairment at least annually, by reviewing the book value compared to the fair value at the reporting unit level. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows. Assumptions used in the Company's impairment evaluations, such as forecasted growth rates and cost of capital, are consistent with internal projections and operating plans. For intangible assets subject to amortization, we review the remaining life of the assets on an annual basis to determine whether events or circumstances warrant a revision to the remaining period of amortization. The value of goodwill and intangible assets from recently-acquired businesses are derived from the current macroeconomic environment and therefore, are more susceptible to a short-term adverse economic change that could require an impairment charge. The Company did not recognize any impairment charges for goodwill, indefinite-lived intangible assets or intangible assets subject to amortization during the years presented. OTHER INFORMATION Hedging and Derivative Financial Instruments As a multinational company with diverse product offerings, we are exposed to market risks such as changes in interest rates, currency exchange rates and commodity prices. To manage the volatility related to these exposures, we evaluate our exposures on a global basis to take advantage of the netting opportunities that exist. For the remaining exposures, we enter into various derivative transactions in accordance with the Company's hedging policies that are designed to offset, in-part or in-whole, changes in the underlying exposures being hedged. We do not hold or issue derivative financial instruments for speculative trading purposes. Note 7 to the Consolidated Financial Statements includes a detailed discussion of our accounting policies for financial instruments. Derivative positions are monitored using techniques including market valuation, sensitivity analysis and value-at-risk modeling. The tests for interest rate and currency rate exposures discussed below are based on a Monte Carlo simulation value-at-risk model using a one year horizon and a 95% confidence level. The model incorporates the impact of correlation (exposures that tend to move in tandem over time) and diversification from holding multiple currency and interest rate instruments and assumes that financial returns are normally distributed. Estimates of volatility and correlations of market factors are drawn from the RiskMetrics(TM) dataset as of June 30, 2004. In cases where data is unavailable in RiskMetrics(TM), a reasonable proxy is included. Our market risk exposures relative to interest and currency rates, as discussed below, have not changed materially versus the previous reporting period. In addition, we are not aware of any facts or circumstances that would significantly impact such exposures in the near-term.

The Procter & Gamble Company and Subsidiaries 33 MANAGEMENT'S DISCUSSION AND ANALYSIS Interest Rate Exposure. Interest rate swaps are used to hedge exposures to interest rate movement on underlying debt obligations. Certain rate swaps denominated in foreign currencies are designated to hedge exposures to currency exchange rate movements on the Company's investments in foreign operations. These currency interest rate swaps are designated as hedges of the Company's foreign net investments. Based on our overall interest rate exposure as of and during the year ended June 30, 2004, including derivative and other instruments sensitive to interest rates, we do not believe a near-term change in interest rates, at a 95% confidence level based on historical interest rate movements, would materially affect our financial statements. Currency Rate Exposure. Because we manufacture and sell products in a number of countries throughout the world, we are exposed to the impact on revenue and expenses of movements in currency exchange rates. The primary purpose of the Company's currency hedging activities is to reduce the risk that our financial position will be adversely affected by short-term changes in exchange rates. Corporate policy prescribes the range of allowable hedging activity. We primarily use forward exchange contracts and purchased options with maturities of less than 18 months. In addition, we enter into certain currency swaps with maturities of up to five years to hedge our exposure to exchange rate movements on intercompany financing transactions. The Company also uses purchased currency options with maturities of generally less than 18 months and forward exchange contracts to hedge against the effect of exchange rate fluctuations on intercompany royalties and to offset a portion of the effect of exchange rate fluctuations on income from international operations. Based on our overall currency rate exposure as of and during the year ended June 30, 2004, including derivative and other instruments sensitive to currency movements, we do not believe a near-term change in currency rates, at a 95% confidence level based on historical currency rate movements, would materially affect our financial statements. Commodity Price Exposure. We use raw materials that are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. In addition to fixed price contracts, we use futures, options and swap contracts to manage the volatility related to the above exposures. Commodity hedging activity is not considered material to our financial statements. Restructuring Program In 1999, concurrent with a reorganization of our operations into product-based Global Business Units, we initiated a multi-year restructuring program. Total restructuring program charges were $538 million and $706 million after tax in 2003 and 2002, respectively. The program was substantially complete at the end of June 2003 with a remaining reserve of $335 million. Substantially all of the liability was settled through cash payments through June 30, 2004. The Company continues to undertake projects to maintain a competitive cost structure, including manufacturing consolidations and work force rationalization, as part of its normal operations. Non-GAAP Financial Measures Our discussion of financial results includes several "non-GAAP" financial measures. We believe these measures provide our investors with additional information about our underlying results and trends, as well as insight to some of the metrics used to evaluate management. When used in MD&A, we have provided the comparable GAAP measure in the discussion. These measures include: Organic Sales Growth. Organic sales growth measures sales growth excluding the impacts of acquisitions, divestitures and foreign exchange from year-over-year comparisons. The Company believes this provides investors with a more complete understanding of underlying results and trends by providing sales growth on a consistent basis. Free Cash Flow. Free cash flow is defined as operating cash flow less capital spending. The Company views free cash flow as an important measure because it is one factor in determining the amount of cash available for dividends and discretionary investment. Free cash flow is also one of the measures used to evaluate senior management and is a factor in determining their at-risk compensation. Free Cash Flow Productivity. Free cash flow productivity is defined as the ratio of free cash flow to net earnings. The Company's target is to generate free cash flow at or above 90% of net earnings. Free cash flow productivity is one of the measures used to evaluate senior management.

34 The Procter & Gamble Company and Subsidiaries REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM [DELOITTE LOGO] To the Board of Directors and Shareholders of The Procter & Gamble Company: We have audited the accompanying consolidated balance sheets of The Procter & Gamble Company and subsidiaries (the "Company") as of June 30, 2004 and 2003 and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended June 30, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2004 and 2003 and the results of its operations and cash flows for each of the three years in the period ended June 30, 2004, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP Deloitte & Touche LLP Cincinnati, Ohio August 6, 2004

The Procter & Gamble Company and Subsidiaries 35 CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended June ------------------------2004 2003 2002 ------- ------- ------$51,407 $43,377 $40,238 25,076 22,141 20,989 16,504 l3,383 12,571 ------- ------- ------9,827 7,853 6,678 ------- ------- ------629 152 ------9,350 ------2,869 ------$ 6,481 ------$ 2.46 $ 2.32 $ 0.93 ------561 238 ------7,530 ------2,344 ------$ 5,186 ------$ 1.95 $ 1.85 $ 0.82 ------603 308 ------6,383 ------2,031 ------4,352 ------$ 1.63 $ 1.54 $ 0.76 -------

Amounts in millions except per share amounts -------------------------------------------Net Sales Cost of products sold Selling, general and administrative expense Operating Income

Interest expense Other non-operating income, net Earnings Before Income Taxes

Income taxes NET EARNINGS

BASIC NET EARNINGS PER COMMON SHARE(1) DILUTED NET EARNINGS PER COMMON SHARE(1) DIVIDENDS PER COMMON SHARE(1)

(1) Restated for two-for-one stock split effective May 21, 2004. See accompanying Notes to Consolidated Financial Statements

36 The Procter & Gamble Company and Subsidiaries CONSOLIDATED BALANCE SHEETS ASSETS
June 30 ---------------2004 2003 ------- ------$ 5,469 423 4,062 1,191 340 2,869 ------4,400 ------958 1,803 ------17,115 ------5,206 19,456 642 ------25,304 (11,196) ------14,108 ------19,610 4,290 ------23,900 ------1,925 ------$57,048 ------$ 5,912 300 3,038 1,095 291 2,254 ------3,640 ------843 1,487 ------15,220 ------4,729 18,222 591 ------23,542 (10,438) ------13,104 ------11,132 2,375 ------13,507 ------1,875 ------$43,706 -------

Amounts in millions ------------------Current Assets Cash and cash equivalents Investment securities Accounts receivable Inventories Materials and supplies Work in process Finished goods Total Inventories Deferred income taxes Prepaid expenses and other receivables TOTAL CURRENT ASSETS Property, Plant and Equipment Buildings Machinery and equipment Land

Accumulated depreciation NET PROPERTY, PLANT AND EQUIPMENT Goodwill and Other Intangible Assets Goodwill Trademarks and other intangible assets, net NET GOODWILL AND OTHER INTANGIBLE ASSETS

Other Non-Current Assets TOTAL ASSETS

See accompanying Notes to Consolidated Financial Statements

The Procter & Gamble Company and Subsidiaries 37 CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY
June 30 ---------------2004 2003 ------- ------$ 3,617 7,689 2,554 8,287 ------22,147 ------12,554 2,261 2,808 ------39,770 ------$ 2,795 5,512 1,879 2,172 ------12,358 ------11,475 1,396 2,291 ------27,520 -------

Amounts in millions ------------------Current Liabilities Accounts payable Accrued and other liabilities Taxes payable Debt due within one year TOTAL CURRENT LIABILITIES

Long-Term Debt Deferred Income Taxes Other Non-Current Liabilities TOTAL LIABILITIES Shareholders' Equity(1) Convertible Class A preferred stock, stated value $1 per share (600 shares authorized) Non-Voting Class B preferred stock, stated value $1 per share (200 shares authorized) Common stock, stated value $1 per share (5,000 shares authorized; shares outstanding: 2004 - 2,543.8, 2003 - 2,594.4) Additional paid-in capital Reserve for ESOP debt retirement Accumulated other comprehensive income Retained earnings TOTAL SHAREHOLDERS' EQUITY TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

1,526 -

1,580 -

2,544 2,425 (1,283) (1,545) 13,611 ------17,278 ------$57,048 =======

2,594 1,634 (1,308) (2,006) 13,692 ------16,186 ------$43,706 =======

(1) Restated for two-for-one stock split effective May 21, 2004. See accompanying Notes to Consolidated Financial Statements

38 The Procter & Gamble Company and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Restated for two-for-one stock split effective May 21, 2004)
Common Shares Outstanding ----------2,591,476 Additional Paid-in Capital ---------$ 762 Reserve for ESOP Debt Retirement ----------$ (1,375)

Dollars in millions/ Shares in thousands ---------------------------------Balance June 30, 2001 Net earnings Other comprehensive income: Financial statement translation Net investment hedges, net of $238 tax Other, net of tax benefits Total comprehensive income Dividends to shareholders: Common Preferred, net of tax benefits Spin-off of Jif and Crisco Treasury purchases Employee plan issuances Preferred stock conversions ESOP debt guarantee reduction Balance June 30, 2002 Net earnings Other comprehensive income: Financial statement translation Net investment hedges, net of $251 tax Other, net of tax benefits Total comprehensive income Dividends to shareholders: Common Preferred, net of tax benefits Treasury purchases Employee plan issuances Preferred stock conversions ESOP debt guarantee reduction Balance June 30, 2003 Net earnings Other comprehensive income: Financial statement translation Net investment hedges, net of $207 tax Other, net of tax benefits Total comprehensive income Dividends to shareholders: Common Preferred, net of tax benefits Treasury purchases Employee plan issuances Preferred stock conversions ESOP debt guarantee reduction Balance June 30, 2004

Common Stock -----$2,591

Preferred Stock --------$ 1,701

(15,363) 16,646 8,781 ----------2,601,540 -----------

(15) 17 9 -----2,602 ------

(67) --------1,634 ---------

25(1,2) 344 58 ---------1,189 ---------36 ----------(1,339) -----------

(28,276) 14,312 6,819 ----------2,594,395 -----------

(28) 14 6 -----2,594 ------

(54) --------1,580 ---------

20(1,2) 377 48 ---------1,634 ---------31 ----------(1,308) -----------

(79,893) 22,678 6,658 ----------2,543,838 -----------

(80) 23 7 -----$2,544 ------

(54) --------$ 1,526 ---------

33(2) 711 47 ---------$ 2,425 ---------25 ----------$ (1,283) -----------

Dollars in millions/ Shares in thousands ---------------------------------Balance June 30, 2001 Net earnings Other comprehensive income: Financial statement translation Net investment hedges, net of $238 tax Other, net of tax benefits Total comprehensive income

Accumulated Other Comprehensive Income ------------$ (2,120)

Retained Earnings -------$ 10,451 4,352

Total ------$12,010 4,352 263 (397) (106)

Total Comprehensive Income ------------$ 4,352 263 (397) (106) ------------$ 4,112

263 (397) (106)

------------Dividends to shareholders: Common Preferred, net of tax benefits Spin-off of Jif and Crisco Treasury purchases Employee plan issuances Preferred stock conversions ESOP debt guarantee reduction Balance June 30, 2002 Net earnings Other comprehensive income: Financial statement translation Net investment hedges, net of $251 tax Other, net of tax benefits Total comprehensive income Dividends to shareholders: Common Preferred, net of tax benefits Treasury purchases Employee plan issuances Preferred stock conversions ESOP debt guarantee reduction Balance June 30, 2003 Net earnings Other comprehensive income: Financial statement translation Net investment hedges, net of $207 tax Other, net of tax benefits Total comprehensive income Dividends to shareholders: Common Preferred, net of tax benefits Treasury purchases Employee plan issuances Preferred stock conversions ESOP debt guarantee reduction Balance June 30, 2004 (1,971) (124) (150) (578) (1,971) (124) (150) (568) 361 36 ------13,706 ------5,186 $ 804 (418) (32)

------------- -------(2,360) 11,980 ------------- -------5,186 804 (418) (32)

5,186 804

(418) (32) ------------$ 5,540 -------------

(2,121) (125) (1,228)

------------- -------(2,006) 13,692 ------------- -------6,481 750 (348) 59

(2,121) (125) (1,236) 391 31 ------16,186 ------6,481 $ 750 (348) 59

6,481 750

(348) 59 ------------$ 6,942 -------------

(2,408) (131) (4,023)

------------- -------$ (1,545) $ 13,611 ------------- --------

(2,408) (131) (4,070) 734 25 ------$17,278 -------

(1) Premium on equity put options totaled $6 and $18 for 2003 and 2002, respectively. (2) Includes impacts arising from stock split. See accompanying Notes to Consolidated Financial Statements

The Procter & Gamble Company and Subsidiaries 39 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30 -----------------------------------2004 2003 2002 ---------------------$ 5,912 $ 3,427 $ 2,306 6,481 1,733 415 (159) 56 625 (88) 299 -------9,362 -------(2,024) 230 (7,476) (121) -------(9,391) -------(2,539) 4,911 1,963 (1,188) 555 (4,070) -------(368) -------(46) -------(443) -------$ 5,469 -------5,186 1,703 63 163 (56) 936 178 527 -------8,700 -------(1,482) 143 (61) (107) -------(1,507) -------(2,246) (2,052) 1,230 (1,060) 269 (1,236) -------(5,095) -------387 -------2,485 -------$ 5,912 -------4,352 1,693 389 96 159 684 (98) 467 -------7,742 -------(1,679) 227 (5,471) 88 -------(6,835) -------(2,095) 1,394 1,690 (461) 237 (568) -------197 -------17 -------1,121 -------$ 3,427 --------

Amounts in millions -----------------------------------------------------------CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR Operating Activities Net earnings Depreciation and amortization Deferred income taxes Change in accounts receivable Change in inventories Change in accounts payable, accrued and other liabilities Change in other operating assets and liabilities Other TOTAL OPERATING ACTIVITIES Investing Activities Capital expenditures Proceeds from asset sales Acquisitions Change in investment securities TOTAL INVESTING ACTIVITIES Financing Activities Dividends to shareholders Change in short-term debt Additions to long-term debt Reductions of long-term debt Proceeds from the exercise of stock options Treasury purchases TOTAL FINANCING ACTIVITIES Effect of Exchange Rate Changes on Cash and Cash Equivalents CHANGE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, END OF YEAR

Supplemental Disclosure Cash payments for: Interest Income taxes Non-cash spin-off of Jif and Crisco businesses

630 1,634 --------

538 1,703 --------

629 941 150 --------

Acquisition of Businesses Fair value of assets acquired, excluding cash Fair value of liabilities assumed ACQUISITIONS

$ 11,954 (4,478) -------7,476 --------

61 -------61 --------

6,042 (571) -------5,471 --------

See accompanying Notes to Consolidated Financial Statements

40 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The Procter & Gamble Company's (the Company) business is focused on providing consumer branded products of superior quality and value. The Company markets approximately 300 consumer products in more than 160 countries around the world. Our products are sold primarily through retail operations including mass merchandisers, grocery stores, membership club stores and drug stores. Basis of Presentation The Consolidated Financial Statements include The Procter & Gamble Company and its controlled subsidiaries. Intercompany transactions are eliminated in consolidation. Investments in certain companies over which the Company exerts significant influence, but does not control the financial and operating decisions, are accounted for as equity method investments. Use of Estimates Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, consumer and trade promotion accruals, pensions, postemployment benefits, stock options, useful lives for depreciation and amortization, future cash flows associated with impairment testing for goodwill and long-lived assets, deferred tax assets, potential income tax assessments and contingencies. Actual results may ultimately differ from estimates, although management does not believe such changes would materially affect the financial statements in any individual year. Revenue Recognition Sales are recognized when revenue is realized or realizable and has been earned. Most revenue transactions represent sales of inventory, and the revenue recorded includes shipping and handling costs, which generally are included in the list price to the customer. The Company's policy is to recognize revenue when title to the product, ownership and risk of loss transfer to the customer, which generally is on the date of shipment. A provision for payment discounts and product return allowances is recorded as a reduction of sales in the same period that the revenue is recognized. Trade promotions, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, are offered through various programs to customers and consumers. Sales are recorded net of trade promotion spending, which is recognized as incurred, generally at the time of the sale. Most of these arrangements have terms of approximately one year. Accruals for expected payouts under these programs are included as accrued marketing and promotion in the accrued and other current liabilities line in the Consolidated Balance Sheets. Cost of Products Sold Cost of products sold primarily comprises direct materials and supplies consumed in the manufacture of product, as well as manufacturing labor and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity. Shipping and handling costs invoiced to customers are included in net sales. Selling, General and Administrative Selling, general and administrative expense primarily includes marketing expenses, including the cost of media, advertising and related costs; selling expenses; research and development costs; administrative and other indirect overhead costs; and other miscellaneous operating items. Other Non-Operating Income, Net Other non-operating income, net primarily includes interest and investment income and gains and losses from divestitures. Currency Translation Financial statements of operating subsidiaries outside the United States of America (U.S.) generally are measured using the local currency as the functional currency. Adjustments to translate those statements into U.S. dollars are recorded in other comprehensive income (OCI). For subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Remeasurement adjustments for financial

statements in highly inflationary economies and other transactional exchange gains and losses are reflected in earnings. Cash Flow Presentation The Statement of Cash Flows is prepared using the indirect method, which reconciles net earnings to cash flow from operating activities. These adjustments include the removal of timing differences between the occurrence of operating receipts and payments and their recognition in net earnings. The adjustments also remove from operating activities cash flows arising from investing and financing activities, which are Millions of dollars except per share amounts

The Procter & Gamble Company and Subsidiaries 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS presented separately from operating activities. Cash flows from foreign currency transactions and operations are translated at an average exchange rate for the period. Cash flows from hedging activities are included in the same category as the items being hedged. Cash flows from derivative instruments designated as net investment hedges are classified as financing activities. Cash flows from other derivative instruments used to manage interest, commodity or currency exposures are classified as operating activities. Cash paid for acquisitions is classified as investing activities. Cash Equivalents Highly liquid investments with maturities of three months or less when purchased are considered cash equivalents and recorded at cost. Investments Investment securities consist of readily-marketable debt and equity securities. These securities are reported at fair value. Unrealized gains or losses on securities classified as trading are charged to earnings. Unrealized gains or losses on securities classified as available for sale are recorded net of tax in OCI. Other investments that are not controlled and over which the Company does not have the ability to exercise significant influence are accounted under the cost method. Inventory Valuation Inventories are valued at cost, which is not in excess of current market prices. Product-related inventories are primarily maintained on the firstin, first-out method. Minor amounts of product inventories, including certain cosmetics and commodities are maintained on the last-in, first-out method. The cost of spare part inventories is maintained using the average cost method. Goodwill and Other Intangible Assets The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, principally on a straight-line basis over the estimated periods benefited. Goodwill and indefinite-lived intangibles are not amortized, but are evaluated annually for impairment. The Company evaluates a number of factors to determine whether an indefinite life is appropriate, including the competitive environment, market share, brand history, operating plan and the macroeconomic environment of the country in which the brand is sold. Due to the nature of the Company's business, there are a number of brand intangibles that have been determined to have indefinite lives. If it is determined that a brand intangible does not have an indefinite life, the Company's policy is to amortize such assets over the expected useful life, which generally ranges from 5 to 20 years. Patents, technology and other intangibles with contractual terms are amortized over their respective contractual lives. Other non-contractual intangible assets with determinable lives are amortized over periods ranging from 5 to 20 years. Where certain events or changes in operating conditions occur, lives on intangible assets with determinable lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts. The annual evaluation for impairment of goodwill and indefinite-lived intangibles is based on valuation models that incorporate internal projections of expected future cash flows and operating plans. Property, Plant and Equipment Property, plant and equipment are recorded at cost reduced by accumulated depreciation. Depreciation expense is recognized over the assets' estimated useful lives using the straight-line method. Machinery and equipment includes office furniture and equipment (15-year life), computer equipment and capitalized software (3 to 5-year lives) and manufacturing equipment (3 to 20-year lives). Buildings are depreciated over an estimated useful life of 40 years. Estimated useful lives are periodically reviewed and, where appropriate, changes are made prospectively. Where certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts. Fair Values of Financial Instruments Certain financial instruments are required to be recorded at fair value. The estimated fair values of such financial instruments, including certain debt instruments, investment securities and derivatives, have been determined using market information and valuation methodologies, primarily discounted cash flow analysis. These estimates require considerable judgment in interpreting market data and changes in assumptions or estimation methods could significantly affect the fair value estimates. However, the Company does not believe any such changes would have a material impact on its financial condition or results of operations. Other financial instruments, including cash equivalents, other investments and short-term debt, are recorded at cost, which approximates fair value. The fair valve of long-term debt is disclosed in Note 6.

Millions of dollars except per share amounts

42 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock-Based Compensation The Company has employee stock option plans, which are described more fully in Note 8. The Company accounts for its employee stock option plans under the intrinsic value recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As stock options have been issued with exercise prices equal to the market value of the underlying shares on the grant date, no compensation expense has resulted. Had compensation expense for the plans been determined based on the fair value of the options on the grant date, consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net earnings and earnings per common share would have been as follows:
Years ended June 30 --------------------------------------2004(1) 2003 2002 ------------------------Net Earnings As reported Pro forma adjustments PRO FORMA $ 6,481 (325) 6,156 --------$ 5,186 (398) 4,788 --------$ 4,352 (442) 3,910 ---------

Net Earnings Per Common Share Basic As reported Pro forma adjustments PRO FORMA Diluted As reported Pro forma adjustments PRO FORMA

2.46 (0.12) 2.34 --------2.32 (0.12) 2.20 ---------

1.95 (0.15) 1.80 --------1.85 (0.15) 1.70 ---------

1.63 (0.17) 1.46 --------1.54 (0.15) 1.39 ---------

(1) During the current year, the timing of the annual grant was moved from September to February resulting in lower expense, as the associated pro forma expense is amortized over the three-year vesting period. Stock Split In March 2004, the Company's Board of Directors approved a two-for-one stock split effective for common and preferred shareholders of record as of May 21, 2004. The financial statements, notes and other references to share and per share data have been restated to reflect the stock split for all periods presented. New Pronouncements and Reclassifications No new accounting pronouncements issued or effective during the fiscal year have had or are expected to have a material impact on the financial statements. Certain reclassifications of prior years' amounts have been made to conform to the current year presentation. NOTE 2 RESTRUCTURING PROGRAM In 1999, concurrent with a reorganization of its operations into product-based Global Business Units, the Company initiated a multi-year restructuring program. Costs included enrollment reductions, manufacturing consolidations and portfolio choices to scale back or discontinue under-performing businesses and initiatives. Total restructuring program charges were $751 in 2003, including $351 in separations related to approximately 5,000 people, $190 in asset write-downs and $87 in accelerated depreciation related to long-lived assets that were taken out of service prior to the end of their normal service period. Total restructuring program charges were $958 in 2002, including $393 in separations related to approximately 7,400 people, $208 in asset write-downs and $135 in accelerated depreciation. At June 30, 2003, the program was substantially complete with a remaining reserve of $335. Substantially all of this liability was settled through cash payments by the end of 2004. The Company continues to undertake projects to maintain a competitive cost structure, including manufacturing streamlining and work force rationalization, as part of its normal operations. NOTE 3 ACQUISITIONS AND SPIN-OFF

Wella Acquisition On September 2, 2003, the Company acquired a controlling interest in Wella AG (Wella). Through a stock purchase agreement with the majority shareholders of Wella and a tender offer made on the remaining shares, the Company acquired a total of 81% of Wella's outstanding shares, including 99% of Wella's outstanding voting class shares. In June 2004, the Company and Wella entered into a Domination and Profit Transfer Agreement (the Domination Agreement) pursuant to which the Company is entitled to exercise full operating control and receive 100% of the future earnings of Wella. As consideration for the Domination Agreement, the Company will pay the holders of the remaining outstanding shares of Wella a guaranteed perpetual annual dividend payment. Alternatively, the remaining Wella shareholders may elect to tender their shares to the Company for an agreed price. The fair value of the total guaranteed annual dividend payments is $1.11 billion, which approximates the cost if all remaining shares were tendered. Because the Domination Agreement transfers operational and economic control of the remaining outstanding shares to the Company, it has been accounted for as an acquisition of the remaining shares, with a liability recorded equal to the fair value of the guaranteed payments. Because of the tender feature, the liability is recorded as a current liability in the accrued and other liabilities Millions of dollars except per share amounts

The Procter & Gamble Company and Subsidiaries 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS line of the Consolidated Balance Sheets. Payments made under the guaranteed annual dividend provisions will be allocated between interest expense and a reduction of the liability, as appropriate. The total purchase price for Wella, including acquisition costs, was $6.27 billion based on exchange rates at the acquisition dates. It was funded with a combination of cash, debt and the liability recorded under the Domination Agreement The acquisition of Wella, with over $3 billion in annual net sales, gives the Company access to the professional hair care category plus greater scale and scope in hair care, hair colorants, cosmetics and fragrance products, while providing potential for significant synergies. The operating results of the Wella business are reported in the Company's Beauty Care business segment beginning September 2, 2003. The following table provides pro forma results of operations for the years ended June 30, 2004, 2003 and 2002, as if Wella had been acquired as of the beginning of each fiscal year presented. The pro forma results include certain adjustments, including adjustments to convert Wella's historical financial information from International Accounting Standards (IAS) into U.S. GAAP, estimated interest impacts from funding of the acquisition and estimated amortization of definite-lived intangible assets. However, pro forma results do not include any anticipated cost savings or other effects of the integration of Wella. Accordingly, such amounts are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the dates indicated or that may result in the future.
Years ended June 30 ------------------------------2004 2003 2002 ------------------$51,958 $46,751 $43,070 6,402 5,222 4,345 $ 2.29 ------$ 1.86 ------$ 1.54 -------

Pro forma results -------------------Net Sales Net Earnings Diluted Net Earnings per Common Share

The Company is in the process of finalizing independent appraisals for certain assets to assist management in allocating the purchase price to the individual assets acquired and liabilities assumed. This may result in adjustments to the carrying values of Wella's recorded assets and liabilities, including the amount of any residual value allocated to goodwill. The Company is also completing its analysis of collaboration plans that may result in additional purchase price allocation adjustments. The preliminary allocation of the purchase price included in the current period balance sheet is based on the current best estimates of management and is subject to revision based on final determination of fair values and collaboration plans. The Company anticipates the valuations and other studies will be completed prior to the anniversary date of the acquisition. The preliminary allocation of the total purchase price of Wella resulted in the following condensed balance sheet of assets acquired and liabilities assumed.
Current assets Property, plant and equipment Goodwill Intangible assets Other non-current assets TOTAL ASSETS ACQUIRED $ 1,825 443 5,864 1,709 225 ------10,066 ------2,114 1,679 ------3,793 ------6,273 -------

Current liabilities Non-current liabilities TOTAL LIABILITIES ASSUMED NET ASSETS ACQUIRED

The Wella acquisition resulted in $5.86 billion in goodwill, all of which was allocated to the Beauty Care segment, and $1.71 billion in total intangible assets acquired with $1.15 billion allocated to trademarks with indefinite lives. The remaining $556 of acquired intangibles have determinable useful lives and were assigned to trademarks of $267, patents and technology of $10, professional customer relationships of $214 and license and other intangible assets of $65. Total intangible assets acquired with determinable lives have a weighted-average life of 11 years (8 years for trademarks, 5 years for patents and technology, 15 years for professional customer relationships and 23 years for license and other intangible assets). China Venture On June 18, 2004, the Company purchased the remaining 20% stake in its China venture from its partner, Hutchison Whampoa China Ltd. (Hutchison), giving the Company full ownership in its operations in China. The net purchase price was $1.85 billion, which is the purchase price of $2.00 billion net of minority interest and related obligations that were eliminated as a result of the transaction. The acquisition was funded by debt. The fair value of the incremental individual assets and liabilities acquired approximates current book value. Accordingly, the

purchase price was recorded as goodwill, which was allocated to multiple business segments. Millions of dollars except per share amounts

44 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Clairol Acquisition On November 16, 2001, the Company completed the acquisition of the Clairol business from The Bristol-Myers Squibb Company for approximately $5.03 billion in cash, financed primarily with debt. The operating results of the Clairol business are reported in the Company's Beauty Care segment beginning November 16, 2001. The following table provides pro forma results of operations for the year ended June 30, 2002 as if Clairol had been acquired as of the beginning of the fiscal year. Pro forma information for 2004 and 2003 is not presented as the results of Clairol are included with those of the Company for the entire year. The pro forma results include adjustments for estimated interest expense on acquisition funding and amortization of definite-lived intangible assets. However, pro forma results do not include any anticipated cost savings or other effects of the integration of Clairol. Accordingly, such amounts are not necessarily indicative of the results that would have occurred if the acquisition had closed on the dates indicated or that may result in the future.
Year ended June 30 -----------------2002 ------$40,780 4,406 $ 1.56 -------

Pro forma results ------------------------------------Net Sales Net Earnings Diluted Net Earnings per Common Share

Jif and Crisco Spin-off On May 31, 2002, the Jif peanut butter and Crisco shortening brands were spun off to the Company's shareholders and subsequently merged into The J.M. Smucker Company (Smucker). The Company's shareholders received one new common Smucker share for every 50 shares held in the Company, totaling 26 million shares, or approximately $900 in market value. This transaction was not included in the results of operations, since a spin-off to the Company's shareholders is recorded at net book value, or $150, in a manner similar to dividends. Other minor business purchases and intangible asset acquisitions totaled $384, $61 and $446 in 2004, 2003 and 2002, respectively. NOTE 4 GOODWILL AND INTANGIBLE ASSETS The change in net carrying amount of goodwill for the years ended June 30, 2004 and 2003 was allocated by reportable business segment as follows:
2004 ------$ 460 148 6 ------614 ------884 19 38 ------941 ------6,600 7,277 580 ------14,457 ------2,908 386 21 ------3,315 ------280 3 ------283 ------2003 ------$ 451 9 ------460 ------830 54 ------884 ------6,542 58 ------6,600 ------2,866 42 ------2,908 ------277 3 ------280 -------

Fabric and Home Care, beginning of year Acquisitions Translation and other END OF YEAR Baby and Family Care, beginning of year Acquisitions Translation and other END OF YEAR Beauty Care, beginning of year Acquisitions Translation and other END OF YEAR Health Care, beginning of year Acquisitions Translation and other END OF YEAR Snacks and Beverages, beginning of year Translation and other END OF YEAR

Goodwill, Net, beginning of year Acquisitions Translation and other END OF YEAR

11,132 7,830 648 ------19,610 -------

10,966 166 ------11,132 -------

For the year ended June 30, 2004, goodwill increased primarily due to the acquisition of Wella and the purchase of the remaining stake in the China venture. Identifiable intangible assets as of June 30, 2004 and 2003 were comprised of:
June 30, 2004 ----------------------------Gross Carrying Accumulated Amount Amortization ------------------------Intangible Assets with Determinable Lives Trademarks Patents and technology Other June 30, 2003 ----------------------------Gross Carrying Accumulated Amount Amortization -------------------------

1,012 518 554 -------------2,084 -------------2,945 -------------5,029 --------------

155 250 165 -----------570 -----------169 -----------739 ------------

499 492 316 -------------1,307 -------------1,666 -------------2,973 --------------

85 204 140 -----------429 -----------169 -----------598 ------------

Trademarks with Indefinite Lives

Millions of dollars except per share amounts

The Procter & Gamble Company and Subsidiaries 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The amortization of intangible assets for the years ended June 30, 2004, 2003 and 2002 was $165, $100 and $97, respectively. Estimated amortization expense over the next five years is as follows: 2005 - $171; 2006 - $169; 2007 - $119; 2008 - $106; and 2009 - $104. Such estimates do not reflect the impact of future foreign exchange rate changes. NOTE 5 SUPPLEMENTAL FINANCIAL INFORMATION Selected components of current and non-current liabilities were as follows:
June 30 ----------------2004 2003 ----------Accrued and Other Current Liabilities Marketing and promotion Liability under Wella Domination Agreement Compensation expenses Other $1,876 1,106 1,049 3,658 -----7,689 -----$1,798 142 868 -----2,808 -----$1,802 804 2,906 -----5,512 -----$1,301 181 809 -----2,291 ------

Other Non-Current Liabilities Pension benefits Other postretirement benefits Other

Selected Operating Expenses Research and development costs are charged to earnings as incurred and were $1,802 in 2004, $1,665 in 2003 and $1,601 in 2002. Advertising costs are charged to earnings as incurred and were $5,504 in 2004, $4,373 in 2003 and $3,773 in 2002. Both of these are components of selling, general and administrative expense. NOTE 6 SHORT-TERM AND LONG-TERM DEBT
June 30 ----------------2004 2003 ----------Short-Term Debt USD commercial paper Non-USD commercial paper Current portion of long-term debt Other $6,059 149 1,518 561 -----8,287 -----$ 717 147 1,093 215 -----2,172 ------

The weighted average short-term interest rates were 1.5% and 3.6% as of June 30, 2004 and 2003, respectively. The rate decrease reflected an increase in commercial paper within short-term debt.
June 30 ---------------------2004 2003 --------------Long-Term 6.60% USD 4.00% USD 5.75% EUR 1.50% JPY 3.50% CHF 5.40% EUR 4.75% USD 6.13% USD 4.30% USD 3.50% USD Debt note note note note note note note note note note due due due due due due due due due due December, 2004 April, 2005 September, 2005 December, 2005 February, 2006 August, 2006 June, 2007 May, 2008 August, 2008 December, 2008 $ 1,000 400 1,827 503 240 365 1,000 500 500 650 $ 1,000 400 1,725 459 222 1,000 500 500 -

6.88% USD note due September, 2009 2.00% JPY note due June, 2010 9.36% ESOP debentures due 2007-2021(1) 4.85% USD note due December, 2015 8.00% USD note due September, 2024 6.45% USD note due January, 2026 6.25% GBP note due January, 2030 5.25% GBP note due January, 2033 5.50% USD note due February, 2034 Debt assumed by acquiring non-cash capital leases All other long-term debt Current portion of long-term debt

1,000 458 1,000 700 200 300 906 363 500 252 1,408 (1,518) -------12,554 --------

1,000 417 1,000 200 300 827 331 146 2,541 (1,093) -------11,475 --------

(1) Debt issued by the ESOP is guaranteed by the Company and must be recorded as debt of the Company as discussed in Note 9. Long-term weighted average interest rates were 4.0% and 3.7% as of June 30, 2004 and 2003, respectively, and included the effects of related interest rate swaps discussed in Note 7. The fair value of the long-term debt was $13,168 and $12,396 at June 30, 2004 and 2003, respectively. Long-term debt maturities during the next five fiscal years are as follows: 2005 - $1,518; 2006 - $2,625; 2007 - $1,433; 2008 - $972; and 2009 - $1,150. The Company has no material obligations that are secured. Millions of dollars except per share amounts

46 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 RISK MANAGEMENT ACTIVITIES As a multinational company with diverse product offerings, the Company is exposed to market risks, such as changes in interest rates, currency exchange rates and commodity pricing. To manage the volatility related to these exposures, the Company evaluates exposures on a consolidated basis to take advantage of logical exposure netting. For the remaining exposures, the Company enters into various derivative transactions. Such derivative transactions, which are executed in accordance with the Company's policies in areas such as counterparty exposure and hedging practices, are accounted for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended and interpreted. The Company does not hold or issue derivative financial instruments for speculative trading purposes. At inception, the Company formally designates and documents the financial instrument as a hedge of a specific underlying exposure. The Company formally assesses, both at inception and at least quarterly on an ongoing basis, whether the financial instruments used in hedging transactions are effective at offsetting changes in either the fair value or cash flows of the related underlying exposure. Fluctuations in the derivative value generally are offset by changes in the fair value or cash flows of the exposures being hedged. This offset is driven by the high degree of effectiveness between the exposure being hedged and the hedging instrument. Any ineffective portion of an instrument's change in fair value is immediately recognized in earnings. Credit Risk The Company has established strict counterparty credit guidelines and normally enters into transactions with investment grade financial institutions. Counterparty exposures are monitored daily and downgrades in credit rating are reviewed on a timely basis. Credit risk arising from the inability of a counterparty to meet the terms of the Company's financial instrument contracts generally is limited to the amounts, if any, by which the counterparty's obligations exceed the obligations of the Company. The Company does not expect to incur material credit losses on its risk management or other financial instruments. Interest Rate Management The Company's policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage this risk in a cost efficient manner, the Company enters into interest rate swaps in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. Interest rate swaps that meet specific conditions under SFAS No. 133 are accounted for as fair value hedges. Changes in the fair value of both the hedging instruments and the underlying debt obligations are immediately recognized in earnings as equal and offsetting gains and losses in the interest expense component of the income statement. The fair value of the Company's interest rate swap agreements was a net asset of $45 and $322 at June 30, 2004 and 2003, respectively. All existing fair value hedges are 100% effective. As a result, there is no impact to earnings due to hedge ineffectiveness. Foreign Currency Management The Company manufactures and sells its products in a number of countries throughout the world and, as a result, is exposed to movements in foreign currency exchange rates. The purpose of the Company's foreign currency hedging program is to reduce the risk caused by short-term changes in exchange rates. The Company primarily utilizes forward exchange contracts and purchased options with maturities of less than 18 months and currency swaps with maturities up to 5 years. These instruments are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases, intercompany royalties and intercompany loans denominated in foreign currencies and are therefore accounted for as cash flow hedges. The fair value of these instruments at June 30, 2004 and June 30, 2003 was $47 and $27 in assets and $140 and $92 in liabilities, respectively. The effective portion of the changes in fair value for these instruments are reported in OCI and reclassified into earnings in the same financial statement line item and in the same period or periods during which the hedged transactions affect earnings. The ineffective portion, which is not material for any year presented, is immediately recognized in earnings. Certain instruments used by the Company for foreign exchange risk do not meet the requirements for hedge accounting treatment. In these cases, the change in value of the instruments is designed to offset the foreign currency impact of intercompany financing transactions, income from international operations and other balance sheet revaluations. The fair value of these instruments at June 30, 2004 and 2003 was $71 and $113 in assets and $26 and $26 in liabilities, respectively. The gain or loss on these instruments is immediately recognized in earnings. The net impact of such instruments, included in selling, general and administrative expense, was $80, $264 and $50 of gains in 2004, 2003 and 2002, respectively, which substantially offset foreign currency transaction losses of the items being hedged. Millions of dollars except per share amounts

The Procter & Gamble Company and Subsidiaries 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net Investment Hedging The Company hedges certain net investment positions in major currencies. To accomplish this, the Company borrows directly in foreign currency and designates a portion of foreign currency debt as a hedge of net investments in foreign subsidiaries. In addition, certain foreign currency swaps are designated as hedges of the Company's related foreign net investments. Under SFAS No. 133, changes in the fair value of these instruments are immediately recognized in OCI, to offset the change in the value of the net investment being hedged. Currency effects of these hedges reflected in OCI were a $348 and $418 after-tax loss in 2004 and 2003, respectively. Accumulated net balances were a $586 aftertax loss in 2004 and a $238 after-tax loss in 2003. Commodity Price Management Raw materials used by the Company are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. To manage the volatility related to certain anticipated inventory purchases, the Company uses futures and options with maturities generally less than one year and swap contracts with maturities up to five years. These market instruments are designated as cash flow hedges under SFAS No. 133. Accordingly, the mark-to-market gain or loss on qualifying hedges is reported in OCI and reclassified into cost of products sold in the same period or periods during which the hedged transaction affects earnings. Qualifying cash flow hedges currently recorded in OCI are not considered material. The mark-to-market gain or loss on non-qualifying, excluded and ineffective portions of hedges is immediately recognized in cost of products sold. Commodity hedging activity was not material to the Company's financial statements for any of the years presented. NOTE 8 EARNINGS PER SHARE AND STOCK OPTIONS Net Earnings Per Common Share Net earnings less preferred dividends (net of related tax benefits) are divided by the weighted average number of common shares outstanding during the year to calculate basic net earnings per common share. Diluted net earnings per common share are calculated to give effect to stock options and assuming conversion of preferred stock (see Note 9). Net earnings and common share balances used to calculate basic and diluted net earnings per share were as follows:
Years ended June 30 ------------------------------2004 2003 2002 ------------------$ 6,481 $ 5,186 $ 4,352 (131) (125) (124) ------------------6,350 5,061 4,228 ------------------131 125 124 (4) (9) (12) ------------------6,477 5,177 4,340 ------------------Years ended June 30 ----------------------------2004 2003 2002 ------------------2,580.1 2,593.2 2,594.8 164.0 46.0 ------2,790.1 ------170.2 39.2 ------2,802.6 ------177.6 37.5 ------2,809.9 -------

Net Earnings Preferred dividends, net of tax benefit NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS Preferred dividends, net of tax benefit Preferred dividend impact on funding of ESOP DILUTED NET EARNINGS

Shares in millions ------------------------------------------------Basic weighted average common shares outstanding Effect of dilutive securities Conversion of preferred shares(1) Exercise of stock options(2) DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

(1) Despite being included currently in diluted net earnings per common share, the actual conversion to common stock occurs pursuant to the repayment of the ESOP debt through 2021. (2) Approximately 38 million in 2004, 66 million in 2003 and 72 million in 2002 of the Company's outstanding stock options were not included in the diluted net earnings per share calculation because to do so would have been antidilutive (i.e., the exercise price exceeded market value). Stock-Based Compensation

The Company has a primary stock-based compensation plan under which stock options are granted annually to key managers and directors with exercise prices equal to the market price of the underlying shares on the date of grant. Grants were made under plans approved by shareholders in 1992, 2001 and 2003. Grants issued since September 2002 are vested after three years and have a ten-year life. Grants issued from July 1998 through August 2002 are vested after three years and have a fifteen-year life, while grants issued prior to July 1998 are vested after one year and have a ten-year life. The Company also makes other minor grants to employees, for which vesting terms and option lives are not substantially different. Millions of dollars except per share amounts

48 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Had the provision of SFAS No. 123 expensing been applied, the Company's net earnings and earnings per common share would have been impacted as summarized in the discussion of the Company's stock-based compensation accounting policy in Note 1. In calculating the impact for options granted, the Company has estimated the fair value of each grant using the Black-Scholes option-pricing model. Assumptions are evaluated and revised, as necessary, to reflect market conditions and experience. The following assumptions were used:
Years ended June 30 ---------------------2004 2003 2002 ---------3.8% 3.9% 5.4% 1.8% 1.8% 2.2% 20% 20% 20% 8 8 12

Options Granted ---------------------Interest rate Dividend yield Expected volatility Expected life in years

The following table summarizes stock option activity during 2004, 2003 and 2002:
June 30 ------------------------------2004 2003 2002 ------------------------------259,598 240,326 208,392 40,866 35,759 50,080 1,622 (22,307) (13,904) (16,297) (1,864) (2,583) (3,471) ------------------276,293 259,598 240,326 ------------------151,828 165,399 118,202 203,593 92,664 229,071

Options in Thousands -------------------------------------Outstanding, beginning of year Granted Jif and Crisco spin-off adjustment Exercised Canceled OUTSTANDING, END OF YEAR

Exercisable Available for grant Average price Outstanding, beginning of year Granted Exercised Outstanding, end of year Exercisable, end of year Weighted average fair value of options granted during the year

$ 35.75 51.06 24.88 38.85 35.39 12.50

$ 33.34 45.68 19.35 35.75 35.44 10.99

$ 31.82 35.09 14.53 33.34 28.50 10.57

Stock options outstanding at June 30, 2004 were in the following exercise price ranges:
Outstanding Options ----------------------------------------------Weighted Avg. Number Remaining Outstanding Weighted Avg. Contractual (Thousands) Exercise Price Life in Years ------------------------------------36,863 $ 24.07 2.6 95,260 32.72 11.5 82,825 43.70 6.9 61,345 50.69 9.9

Range of Prices --------------$16.43 to 30.11 31.01 to 34.84 35.10 to 46.24 48.73 to 52.98

Stock options exercisable at June 30, 2004 were in the following exercise price ranges:
Exercisable Options ----------------------------Number Weighted Exercisable Average (Thousands) Exercise Price -----------------------36,863 $ 24.07 48,426 31.06 43,624 42.36 22,915 49.49

Range of Prices --------------$16.43 to 30.11 31.01 to 34.84 35.10 to 46.24 48.73 to 52.98

The Company repurchases common shares to mitigate the dilutive impact of options. Beyond that, the Company may make additional

discretionary purchases based on cash availability, market trends and other factors. In limited cases, the Company also issues stock appreciation rights, generally in countries where stock options are not permitted by local governments. The obligations and associated compensation expense are adjusted for changes in intrinsic value. The impact of these adjustments is not material. NOTE 9 POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK OWNERSHIP PLAN The Company offers various postretirement benefits to its employees. Defined Contribution Retirement Plans The most prevalent employee benefit plans offered are defined contribution plans, which cover substantially all employees in the U.S., as well as employees in certain other countries. These plans are fully funded. Millions of dollars except per share amounts

The Procter & Gamble Company and Subsidiaries 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Under the defined contribution plans, the Company generally makes contributions to participants based on individual base salaries and years of service. In the U.S., the contribution is set annually. Historically, the Company has contributed approximately 15% of total participants' annual wages and salaries. The Company maintains The Procter & Gamble Profit Sharing Trust (Trust) and Employee Stock Ownership Plan (ESOP) to provide a portion of the funding for the U.S. defined contribution plan, as well as other retiree benefits. Operating details of the ESOP are provided at the end of this Note. The fair value of the ESOP Series A shares reduces the Company's cash contribution required to fund the U.S. defined contribution plan. Defined contribution expense, which approximates the Company's cash contribution to the plan that is funded in the subsequent year, was $274, $286 and $279 in 2004, 2003 and 2002, respectively. Defined Benefit Retirement Plans and Other Retiree Benefits Certain other employees, primarily outside the U.S., are covered by local defined benefit pension plans as well as other retiree benefit plans. The Company also provides certain other retiree benefits, primarily health care and life insurance, for substantially all U.S. employees who become eligible for these benefits when they meet minimum age and service requirements. Generally, the health care plans require cost sharing with retirees and pay a stated percentage of expenses, reduced by deductibles and other coverages. These benefits primarily are funded by ESOP Series B shares, as well as certain other assets contributed by the Company. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 was signed into law on December 8, 2003. This Act introduces a Medicare prescription-drug benefit beginning in 2006 as well as a federal subsidy to sponsors of retiree health care plans that provide a benefit at least "actuarially equivalent" to the Medicare benefit. Management has concluded that the Company's plans are at least "actuarially equivalent" to the Medicare benefit and, accordingly, has included the federal subsidy from the Act in the normal year-end measurement process for other retiree benefit plans. The impact is a reduction to the benefit obligation of $195 as of June 30, 2004. The impact to net periodic pension cost and to benefits paid in future years is not expected to be material. Obligation and Funded Status. The Company uses a June 30 measurement date for its defined benefit retirement plans and other retiree benefit plans. The following provides a reconciliation of benefit obligations, plan assets and funded status of these plans:
Years ended June 30 ------------------------------------------------Pension Benefits Other Retiree Benefits ------------------------------------------2004 2003 2004 2003 ------------------------------CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year (1) Service cost Interest cost Participants' contributions Amendments Actuarial loss (gain) Acquisitions Curtailments and settlements Special termination benefits Currency translation Benefit payments BENEFIT OBLIGATION AT END OF YEAR (1) $ 3,543 157 204 14 50 5 590 (39) 12 288 (208) ------4,616 ------$ 2,970 124 173 7 (33) 138 42 (29) 1 305 (155) ------3,543 ------$ 2,914 89 172 31 (258) (460) 7 (8) 41 5 (133) ---------2,400 ---------$ 2,135 62 150 27 (2) 645 7 13 (123) ---------2,914 ----------

CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year Actual return on plan assets Acquisitions Employer contributions Participants' contributions Settlements Currency translation Benefit payments FAIR VALUE OF PLAN ASSETS AT END OF YEAR FUNDED STATUS

$ 1,558 194 185 412 14 (21) 129 (208) ------2,263 ------(2,353) -------

$ 1,332 (36) 1 337 7 (27) 99 (155) ------1,558 ------(1,985) -------

2,277 651 18 31 (1) (133) ---------2,843 ---------443 ----------

2,347 1 25 27 (123) ---------2,277 ---------(637) ----------

(1) For the pension benefit plans, the benefit obligation is the projected benefit obligation. For other retiree benefit plans, the benefit obligation

is the accumulated postretirement benefit obligation. Millions of dollars except per share amounts

50 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended June 30 ----------------------------------------------Pension Benefits Other Retiree Benefits ----------------------------------------2004 2003 2004 2003 ----------------------------CALCULATION OF NET AMOUNT RECOGNIZED Funded status at end of year Unrecognized net actuarial loss (gain) Unrecognized transition amount Unrecognized prior service cost NET AMOUNT RECOGNIZED $(2,353) 902 12 38 ------(1,401) ------$(1,985) 930 13 (9) ------(1,051) ------$ 443 (344) (259) --------(160) --------$ (637) 435 (2) --------(204) ---------

CLASSIFICATION OF NET AMOUNT RECOGNIZED Prepaid benefit cost Accrued benefit cost Intangible asset Accumulated other comprehensive income NET AMOUNT RECOGNIZED

253 (1,872) 75 143 ------(1,401) -------

173 (1,407) 31 152 ------(1,051) -------

1 (161) --------(160) ---------

2 (206) --------(204) ---------

The underfunding of pension benefits is primarily a function of the different funding incentives that exist outside of the U.S. In certain countries where the Company has major operations, there are no legal requirements or financial incentives provided to companies to pre-fund pension obligations. In these instances, benefit payments are typically paid directly from the Company's cash as they become due, rather than through the creation of a separate pension fund. The accumulated benefit obligation for all defined benefit retirement plans was $3,822 and $2,850 at June 30, 2004 and June 30, 2003, respectively. Plans with accumulated benefit obligations in excess of plan assets and plans with projected benefit obligations in excess of plan assets as of June 30, consist of the following:
Years ended June 30 -----------------------------------------------------------Accumulated Benefit Projected Benefit Obligation Exceeds Fair Obligation Exceeds Fair Value of Plan Assets Value of Plan Assets ------------------------------------------------------2004 2003 2004 2003 --------------------------------------------$ 2,809 $ 2,945 $ 4,059 $ 3,179 2,396 2,310 3,320 2,492 638 979 1,676 1,186 ---------------------------------------------

Projected benefit obligation Accumulated benefit obligation Fair value of plan assets

Net Periodic Benefit Cost. Components of the net periodic benefit cost were as follows:
Years ended June 30 ----------------------------------------------------Pension Benefits Other Retiree Benefits ----------------------------------------------2004 2003 2002 2004 2003 2002 ----------------------$ 157 $ 124 $ 114 $ 89 $ 62 $ 49 204 173 153 172 150 116 (153) (127) (133) (329) (333) (320) 3 4 7 (1) (1) (1) 5 1 (1) 28 13 9 1 (27) (64) ----------------------239 192 151 (68) (149) (221) ----------------------(73) (74) (76) ----------------------239 192 151 (141) (223) (297) -----------------------

Service cost Interest cost Expected return on plan assets Amortization of deferred amounts Curtailment and settlement loss (gain) Recognized net actuarial loss (gain) GROSS BENEFIT COST Dividends on ESOP preferred stock NET PERIODIC BENEFIT COST

Millions of dollars except per share amounts

The Procter & Gamble Company and Subsidiaries 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Assumptions. The Company determines its actuarial assumptions on an annual basis. These assumptions are weighted to reflect each country that may have an impact on the cost of providing retirement benefits. The weighted-average assumptions for the defined benefit and other retiree benefit calculations, as well as assumed health care cost trend rates, for the years ended June 30, are as follows:
Years ended June 30 ---------------------------------Other Pension Benefits Retiree Benefits ---------------- ---------------2004 2003 2004 2003 -------------

Actuarial assumptions --------------------Assumptions used to determine benefit obligations(1) Discount rate Rate of compensation increase Assumptions used to determine net periodic pension cost(2) Discount rate Expected return on plan assets Rate of compensation increase Assumed health care cost trend rates Health care cost trend rates assumed for next year(3) Rate that the health care trend rate is assumed to decline to (ultimate trend rate) Year that the rate reaches the ultimate trend rate

5.2% 3.1% ---

5.1% 3.1% ---

6.1% ----

5.8% ----

5.1% 7.4% 3.0% ---

5.6% 7.7% 3.5% ---

5.8% 9.5% ----

7.0% 9.5% ----

---

---

9.7% 5.1% 2010 ----

11.4% 5.0% 2010 ----

(1) Determined as of end of year. (2) Determined as of beginning of year. (3) Rate is applied to current plan costs net of Medicare; estimate initial rate for "gross eligible charges" (charges inclusive of Medicare) is 7.7% for 2004 and 8.8% for 2003. Several factors are considered in developing the estimate for the long-term expected rate of return on plan assets. For the defined benefit plans, these include historical rates of return of broad equity and bond indices and projected long-term rates of return from pension investment consultants. The expected long-term rates of return for plan assets are 8%-9% for equities and 5%-6% bonds. The rate of return on other retiree benefit plan assets, comprised primarily of Company stock, is based on the long-term projected return of 9.5% and reflects the historical pattern of favorable returns on the Company's stock relative to broader market indices (e.g., S&P 500). Assumed health care cost trend rates could have a significant effect on the amounts reported for the other retiree benefit plans. A onepercentage point change in assumed health care cost trend rates would have the following effects:
One-Percentage Point increase -------------$ 51 323 ---One-Percentage Point Decrease -------------$ (46) (268) -----

Effect on total service and interest cost components Effect on postretirement benefit obligation

Plan Assets. The Company's target asset allocation for the year ending June 30, 2005 and actual asset allocation by asset category as of June 30, 2004, and 2003, are as follows:
Target Allocation -------------------------------Other Retiree Pension Benefits Benefits ---------------------------2005 2005 ---------------------------64% 99% 32% 1% 4% -%

Asset Category -------------Equity securities(1) Debt securities Real estate

TOTAL

--100% ---

--100% ---

Asset Category -------------Equity securities(1) Debt securities Real estate TOTAL

Plan Asset Allocation at June 30 -------------------------------Pension Benefits Other Retiree Benefits ------------------------------------2004 2003 2004 2003 ------------64% 62% 99% 99% 32% 35% 1% 1% 4% 3% -% -% --------100% 100% 100% 100% ---------

(1) Equity securities for other retiree plan assets include Company stock, net of Series B ESOP debt (See Note 6), of $2,744 and $2,182, as of June 30, 2004 and 2003, respectively. Millions of dollars except per share amounts

52 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company's investment objective for defined benefit plan assets is to meet the plans' benefit obligations, while minimizing the potential for future required Company plan contributions. The investment strategies focus on asset class diversification, liquidity to meet benefit payments and an appropriate balance of long-term investment return and risk. Target ranges for asset allocations are determined by matching the actuarial projections of the plans' future liabilities and benefit payments with expected long-term rates of return on the assets, taking into account investment return volatility and correlations across asset classes. Plan assets are diversified across several investment managers and are generally invested in liquid funds that are selected to track broad market equity and bond indices. Investment risk is carefully controlled with plan assets rebalanced to target allocations on a periodic basis and continual monitoring of investment managers performance relative to the investment guidelines established with each investment manager. Cash Flows. Management's best estimate of its cash requirements for the defined benefit plans and other retiree benefit plans for the year ending June 30, 2005 is $237 and $20, respectively. For the defined benefit plans, this is comprised of expected benefit payments of $71, which are paid directly to participants of unfunded plans from employer assets, as well as expected contributions to funded plans of $166. For other retiree benefit plans, this is comprised of expected contributions that will be used directly for benefit payments. Expected contributions are dependent on many variables, including the variability of the market value of the assets as compared to the obligation and other market or regulatory conditions. In addition, the Company takes into consideration its business investment opportunities and resulting cash requirements. Accordingly, actual funding may differ greatly from current estimates. Total benefit payments expected to be paid to participants, which include payments funded from the Company's assets, as discussed above, as well as payments paid from the plans are as follows:
Years ended June 30 --------------------------------Other Retiree Pension Benefit Benefit --------------------------EXPECTED BENEFIT PAYMENTS 2005 2006 2007 2008 2009 2010 - 2014 $ 191 177 193 207 207 1,180 $ 144 152 166 176 185 1,058

Employee Stock Ownership Plan The Company maintains the ESOP to provide funding for certain employee benefits discussed in the preceding paragraphs. The ESOP borrowed $1.00 billion in 1989 and the proceeds were used to purchase Series A ESOP Convertible Class A Preferred Stock to fund a portion of the defined contribution retirement plan in the U.S. Principal and interest requirements were paid by the Trust from dividends on the preferred shares and from advances from the Company. The final payment for the original borrowing of $1.00 billion was made in 2004 and the remaining debt of the ESOP consists of amounts owed to the Company. Each share is convertible at the option of the holder into one share of the Company's common stock. The dividend for the current year was $0.93 per share. The liquidation value is $6.82 per share. In 1991, the ESOP borrowed an additional $1.00 billion. The proceeds were used to purchase Series B ESOP Convertible Class A Preferred Stock to fund a portion of retiree health care benefits. These shares are considered plan assets, net of the associated debt, of the Other Retiree Benefits plan discussed above. Debt service requirements are funded by preferred stock dividends and cash contributions from the Company. Each share is convertible at the option of the holder into one share of the Company's common stock. The dividend for the current year was $1.02 per share. The liquidation value is $12.96 per share. As permitted by Statement of Position (SOP) 93-6, "Employers Accounting for Employee Stock Ownership Plans," the Company has elected, where applicable, to continue its practices, which are based on SOP 76-3, "Accounting Practices for Certain Employee Stock Ownership Plans." ESOP debt, which is guaranteed by the Company, is recorded as debt (see Note 6). Preferred shares issued to the ESOP are offset by the reserve for ESOP debt retirement in the Consolidated Balance Sheets and the Consolidated Statements of Shareholders' Equity. Interest incurred on the ESOP debt is recorded as interest expense. Dividends on all preferred shares, net of related tax benefits, are charged to retained earnings. Millions of dollars except per share amounts

The Procter & Gamble Company and Subsidiaries 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As required by SOP 76-3, the preferred shares of the ESOP are allocated based on debt service requirements, net of advances made by the Company to the Trust. The number of preferred shares outstanding at June 30, was as follows:
June 30 -----------------------------2004 2003 2002 ---------62,511 64,492 66,191 28,296 31,534 35,374 ----------------90,807 96,026 101,565 ----------------21,399 20,648 19,738 48,528 50,718 52,908 ---------------69,927 71,366 72,646 ----------------

Shares in Thousands ------------------Allocated Unallocated TOTAL SERIES A Allocated Unallocated TOTAL SERIES B

For purposes of calculating diluted net earnings per common share, the preferred shares held by the ESOP are considered converted from inception. Diluted net earnings are calculated assuming that all preferred shares are converted to common, and therefore are adjusted to reflect the incremental ESOP funding that would be required due to the difference in dividend rate between preferred and common shares (see Note 8). NOTE 10 INCOME TAXES Under SFAS No. 109, "Accounting for Income Taxes," income taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax liabilities and assets, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using the enacted statutory tax rates and are adjusted for changes in such rates in the period of change. Earnings before income taxes consisted of the following:
Years ended June 30 -------------------------------2004 2003 2002 ---------$6,023 $ 4,920 $ 4,411 3,327 2,610 1,972 -----------------9,350 7,530 6,383 ------------------

United States International

The income tax provision consisted of the following:


Years ended June 30 -------------------------------2004 2003 2002 ---------CURRENT TAX EXPENSE U.S. Federal International U.S. State and Local $1,508 830 116 -----2,454 -----$ 1,595 588 98 ------2,281 ------$ 975 551 116 ----1,642 -----

DEFERRED TAX EXPENSE U.S. Federal International and other

348 67 415 -----2,869 ------

125 (62) 63 ------2,344 -------

571 (182) 389 ----2,031 -----

The Company's effective income tax rate was 30.7%, 31.1% and 31.8% in 2004, 2003 and 2002, respectively, compared to the U.S. statutory rate of 35.0%. The country mix impacts of foreign operations reduced the Company's effective tax rate to a larger degree in 2004 than the previous fiscal years: 4.1% in 2004, 3.8% in 2003 and 3.1% in 2002. The Company's higher effective tax rate in 2002 also reflected the impact of restructuring costs. Taxes impacted shareholders' equity with credits of $351 and $361 for the years ended June 30, 2004 and 2003, respectively. These primarily relate to the tax effects of net investment hedges and tax benefits from the exercise of stock options.

The Company has undistributed earnings of foreign subsidiaries of $16.75 billion at June 30, 2004, for which deferred taxes have not been provided. Such earnings are considered indefinitely invested in the foreign subsidiaries. If such earnings were repatriated, additional tax expense may result, although the calculation of such additional taxes is not practicable. Millions of dollars except per share amounts

54 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred income tax assets and liabilities were comprised of the following:
June 30 ------2004 ---DEFERRED TAX ASSETS Unrealized loss on financial instruments Loss and other carryforwards Advance payments Other postretirement benefits Other Valuation allowances $ 381 365 226 95 1,169 (342) -----1,894 -----$ 2003 ---287 311 182 93 820 (158) -----1,535 ------

DEFERRED TAX LIABILITIES Fixed assets Goodwill and intangible assets Other

(1,350) (1,281) (352) -----(2,983) ------

(1,175) (410) (287) -----(1,872) ------

Net operating loss carryforwards were $1,398 and $1,222 at June 30, 2004 and June 30, 2003, respectively. If unused, $299 will expire between 2005 and 2014. The remainder, totaling $1,099 at June 30, 2004, may be carried forward indefinitely. NOTE 11 COMMITMENTS AND CONTINGENCIES Guarantees In conjunction with certain transactions, primarily divestitures, the Company may provide routine indemnifications (e.g., retention of previously existing environmental, tax and employee liabilities) whose terms range in duration and often are not explicitly defined. Generally, the maximum obligation under such indemnifications is not explicitly stated and, as a result, the overall amount of these obligations cannot be reasonably estimated. Other than obligations recorded as liabilities at the time of divestiture, historically the Company has not made significant payments for these indemnifications. The Company believes that if it were to incur a loss in any of these matters, the loss would not have a material effect on the Company's financial condition or results of operations. In certain situations, the Company guarantees loans for suppliers and customers. The total amount of guarantees issued under such arrangements is not material. Off-Balance Sheet Arrangements The Company does not have off-balance sheet financing arrangements, including variable interest entities, under FASB Interpretation No. 46, "Consolidation of Variable Interest Entities," that have a material impact on the financial statements. Purchase Commitments The Company has purchase commitments for materials, supplies, services and property, plant and equipment as part of the normal course of business. Due to the proprietary nature of many of the Company's materials and processes, certain supply contracts contain penalty provisions for early termination. The Company does not expect potential payments under these provisions to materially affect results of operations or its financial condition in any individual year. Operating Leases The Company leases certain property and equipment for varying periods under operating leases. Future minimum rental commitments under noncancellable operating leases are as follows: 2005 - $186; 2006 - $150; 2007 - $134; 2008 - $99; 2009 - $86; and $265 thereafter. Litigation The Company is subject to various lawsuits and claims with respect to matters such as governmental regulations, income taxes and other actions arising out of the normal course of business. The Company is also subject to contingencies pursuant to environmental laws and regulations that in the future may require the Company to take action to correct the effects on the environment of prior manufacturing and

waste disposal practices. Accrued environmental liabilities for remediation and closure costs were $36 and $34 at June 30, 2004 and 2003, respectively. Current year expenditures were not material. While considerable uncertainty exists, in the opinion of management and Company counsel, the ultimate liabilities resulting from such lawsuits and claims will not materially affect the Company's financial condition. Millions of dollars except per share amounts

The Procter & Gamble Company and Subsidiaries 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 SEGMENT INFORMATION The Company is organized into five product-based Global Business Units. The segments, which are generally determined by the product type and end-point user benefits offered, manufacture and market products as follows: - Fabric and Home Care includes laundry detergents, dish care, fabric enhancers and surface cleaners. - Beauty Care includes retail and professional hair care, skin care, feminine care, cosmetics, fine fragrances and personal cleansing. - Baby and Family Care includes diapers, baby wipes, bath tissue and kitchen towels. - Health Care includes oral care, personal health care, pharmaceuticals and pet health and nutrition. - Snacks and Beverages includes coffee, snacks, commercial services and juice. In August 2004, the Company divested the juice business. Effective July 1, 2004, the Company realigned its businesses and associated management responsibilities to three business units: Beauty Care; Health, Baby and Family Care; and Household Care, which will include the current Fabric and Home Care business as well as the Snacks and Beverages business. The accounting policies of the operating segments are generally the same as those described in Note 1, Summary of Significant Accounting Policies. Differences from these policies and U.S. GAAP primarily reflect: income taxes, which are reflected in the business segments using estimated local statutory rates; the recording of fixed assets at historical exchange rates in certain high inflation economies; and the treatment of unconsolidated investees. Unconsolidated investees are managed as integral parts of the Company's business units for management and segment reporting purposes. Accordingly, these partially owned operations are reflected as consolidated subsidiaries in segment results, with 100% recognition of the individual income statement line items through before-tax earnings, while after-tax earnings are adjusted to reflect only the Company's ownership percentage. Entries to eliminate the individual revenues and expenses, adjusting the method of accounting to the equity method as required by U.S. GAAP, are included in Corporate. Corporate includes certain operating and non-operating activities that are not reflected in the operating results used internally to measure and evaluate the operating segments, as well as eliminations to adjust management reporting principles to U.S. GAAP. Operating activities in Corporate include the results of incidental businesses managed at the corporate level along with the elimination of individual revenues and expenses generated by companies over which the Company exerts significant influence, but does not control. Operating elements also comprise intangible asset amortization, certain employee benefit costs and other general corporate items. The non-operating elements include financing and investing activities. In addition, Corporate includes the historical results of certain divested businesses of the former Food and Beverage segment. Corporate assets primarily include cash, investment securities, goodwill and other non-current intangible assets. The Company had net sales in the U.S. of $23,688, $21,853 and $21,198 for the years ended June 30, 2004, 2003 and 2002, respectively. Assets in the U.S. totaled $23,687 and $23,424 as of June 30, 2004 and 2003, respectively. The Company's largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for 17%, 18% and 17% of consolidated net sales in 2004, 2003 and 2002, respectively. These sales occurred primarily in the U.S. Millions of dollars except per share amounts

56 The Procter & Gamble Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fabric and Home Care --------$ 13,868 12,560 11,618 ---------3,287 3,080 2,728 ---------2,203 2,059 1,831 ---------331 332 326 ---------5,512 5,174 ---------538 357 368 ---------Beauty Care ---$17,122 12,221 10,723 ------3,662 2,899 2,354 ------2,422 1,984 1,610 ------393 345 339 ------7,869 5,389 ------433 343 354 ------Baby and Family Care ----------$ 10,718 9,933 9,233 ----------1,623 1,448 1,272 ----------996 882 738 ----------550 558 503 ----------7,229 6,974 ----------714 548 702 ----------Health Care ---$6,991 5,796 4,979 -----1,448 1,034 795 -----962 706 521 -----153 156 163 -----2,639 2,642 -----164 144 158 -----Snacks and Beverages --------$ 3,482 3,238 3,249 ---------557 460 476 ---------363 306 303 ---------119 125 121 ---------1,831 2,040 ---------134 125 125 ----------

Net Sales

2004 2003 2002 ---2004 2003 2002 ---2004 2003 2002 ---2004 2003 2002 ---2004 2003 ---2004 2003 2002 ----

Corporate --------$ (774) (371) 436 --------(1,227) (1,391) (1,242) --------(465) (751) (651) --------187 187 241 --------31,968 21,487 --------41 (35) (28) ---------

Total ----$51,407 43,377 40,238 ------9,350 7,530 6,383 ------6,481 5,186 4,352 ------1,733 1,703 1,693 ------57,048 43,706 ------2,024 1,482 1,679 -------

Before-Tax Earnings

Net Earnings

Depreciation and Amortization

Total Assets

Capital Expenditures

NOTE 13 QUARTERLY RESULTS (UNAUDITED)


Quarters Ended ------------------------------------------------------------Sept 30 Dec 31 Mar 31 Jun 30 Total Year ----------------------------------$ 12,195 $13,221 $13,029 $12,962 $51,407 10,796 11,005 10,656 10,920 43,377 -------------------------------2,643 2,742 2,303 2,139 9,827 2,179 2,248 1,957 1,469 7,853 -------------------------------1,761 1,818 1,528 1,374 6,481 1,464 1,494 1,273 955 5,186 -------------------------------$ 0.63 $ 0.65 $ 0.55 $ 0.50 $ 2.32 0.52 0.53 0.46 0.34 1.85 --------------------------------

Net Sales

2003-2004 2002-2003 2003-2004 2002-2003 2003-2004 2002-2003 2003-2004 2002-2003

Operating Income

Net Earnings

Diluted Net Earnings Per Common Share (1)

(1) Restated for two-for-one stock split effective May 21, 2004. Millions of dollars except per share amounts

The Procter & Gamble Company and Subsidiaries 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL SUMMARY (UNAUDITED)
2004 2003 2002 ---------$ 51,407 $ 43,377 $ 40,238 9,827 7,853 6,678 6,481 5,186 4,352 12.6% 12.0% 10.8% -------- -------- -------$2.46 2.32 0.93 -------$ 1,802 5,504 57,048 2,024 12,554 17,278 -------$1.95 1.85 0.82 -------751 1,665 4,373 43,706 1,482 11,475 16,186 -------$ $ 1.63 1.54 0.76 -------2001 ---$39,244 4,736 2,922 7.4% ------$ 1.08 1.03 0.70 ------2000 1999 ------$39,951 $38,125 5,954 6,253 3,542 3,763 8.9% 9.9% ------- ------$ 1.30 1.23 0.64 ------$ 1.38 1.29 0.57 ------1998 ---$37,154 6,055 3,780 10.2% ------1.37 1.28 0.51 ------1,546 3,801 31,042 2,559 5,774 12,236 ------$ $ 1997 1996 ------$35,764 $ 35,284 5,488 4,815 3,415 3,046 9.5% 8.6% ------- -------1.22 1.14 0.45 ------1,469 3,574 27,598 2,129 4,159 12,046 ------$ $ $ 1.07 1.00 0.40 --------

Net Sales Operating Income Net Earnings Net Earnings Margin

Basic Net Earnings Per Common Share (1) Diluted Net Earnings Per Common Share (1) Dividends Per Common Share (1)

Restructuring Program Charges (2) Research and Development Expense Advertising Expense Total Assets Capital Expenditures Long-Term Debt Shareholders' Equity

958 1,601 3,773 40,776 1,679 11,201 13,706 --------

$ 1,850 1,769 3,612 34,387 2,486 9,792 12,010 -------

814 1,899 3,793 34,366 3,018 9,012 12,287 -------

481 1,726 3,639 32,192 2,828 6,265 12,058 -------

1,399 3,374 27,762 2,179 4,678 11,722 --------

(1) Restated for two-for-one stock split effective May 21, 2004. (2) Restructuring program charges, on an after-tax basis, totaled $538, $706, $1,475, $688 and $385 for 2003, 2002, 2001, 2000 and 1999 respectively. Millions of dollars except per share amounts

58 The Procter & Gamble Company and Subsidiaries DIRECTORS NORMAN R. AUGUSTINE Retired Chairman and Chief Executive Officer, Lockheed Martin Corporation and Chairman of the Executive Committee, Lockheed Martin (aerospace, electronics, telecommunications and information management). Director since 1989. Also a Director of Lockheed Martin Corporation, Black and Decker Corporation and ConocoPhillips. Age 69. Chairman of the Compensation Committee and member of the Executive and Innovation and Technology Committees. BRUCE L. BYRNES Vice Chairman of the Board - Global Household Care. Director since 2002. Also a Director of Cincinnati Bell Inc. Age 56. R. KERRY CLARK Vice Chairman of the Board - Global Health, Baby and Family Care. Director since 2002. Also a Director of Textron Inc. Age 52. SCOTT D. COOK Chairman of the Executive Committee of the Board, Intuit Inc. (a software and web services firm). Director since 2000. Also a Director of Intuit Inc. and eBay Inc. Age 52. Member of the Compensation and Innovation and Technology Committees. DOMENICO DESOLE Retired President and Chief Executive Officer and Chairman of the Management Board, Gucci Group N.V. (multibrand luxury goods company). Director since 2001. Also a Director of Bausch & Lomb, Gap, Inc. and Telecom Italia. Age 60. Member of the Audit and Governance and Nominating Committees. JOSEPH T. GORMAN Retired Chairman and Chief Executive Officer, TRW Inc. (automotive, aerospace and information systems) and Chairman and Chief Executive Officer, Moxahela Enterprises LLC (venture capital). Director since 1993. Also a Director of Alcoa Inc., National City Corporation and Imperial Chemical Industries plc. Age 66. Chairman of the Finance Committee and member of the Compensation and Executive Committees. A.G. LAFLEY Chairman of the Board, President and Chief Executive. Director since 2000. Also a Director of General Electric Company and General Motors Corporation. Age 57. Chairman of the Executive Committee. CHARLES R. LEE Retired Chairman of the Board and Co-Chief Executive Officer, Verizon Communications (telecommunication services). Director since 1994. Also a Director of The DIRECTV Group, Marathon Oil Corporation, United Technologies Corporation and US Steel Corporation. Age 64. Chairman of the Governance and Nominating Committee and member of the Audit and Compensation Committees. LYNN M. MARTIN Former Professor, J.L. Kellogg Graduate School of Management, Northwestern University and Chair of the Council for The Advancement of Women and Advisor to the firm of Deloitte & Touche LLP for Deloitte's internal human resources and minority advancement matters. Director since 1994. Also a Director of CORPORATE OFFICERS A.G. LAFLEY Chairman of the Board, President and Chief Executive BRUCE L. BYRNES Vice Chairman of the Board - Global Household Care

R. KERRY CLARK Vice Chairman of the Board - Global Health, Baby and Family Care SUSAN E. ARNOLD Vice Chairman - Global Beauty Care ROBERT A. MCDONALD Vice Chairman - Global Operations WERNER GEISSLER Group President - Central and Eastern Europe, Middle East and Africa HEINER GURTLER Group President - Global Prestige and Professional Care DIMITRI PANAYOTOPOULOS Group President - Global Fabric Care PAUL POLMAN Group President - Western Europe ROBERT A. STEELE Group President - North America JEFFREY P. ANSELL President - Global Pet Health and Nutrition CHARLES V. BERGH President - ASEAN, Australasia and India RAVI CHATURVEDI President - Northeast Asia MARK A. COLLAR President - Global Pharmaceuticals PAOLO DE CESARE President - Global Skin Care and Global Personal Cleansing CHRISTOPHER DE LAPUENTE President - Global Hair Care CARSTEN FISCHER President - Professional Care FABRIZIO FREDA President - Global Snacks MICHAEL J. GRIFFITH President on Special Assignment(1) DEBORAH A. HENRETTA President - Global Baby and Adult Care MICHAEL E. KEHOE President - Global Oral Care MARK D. KETCHUM President on Special Assignment(2) (1) Retires January 2, 2005 after more than 23 years of service.

(2) Retires November 1, 2004 after more than 33 years of service.

The Procter & Gamble Company and Subsidiaries 59 SBC Communications, Inc., Ryder System, Inc., Dreyfus Funds and Constellation Energy Group. Age 64. Member of the Finance and Public Policy Committees. W. JAMES MCNERNEY, JR. Chairman of the Board and Chief Executive Officer, 3M Company (diversified technology). Director since 2003. Also a Director of 3M Company and The Boeing Company. Age 55. Member of the Audit, Finance and Governance and Nominating Committees. JOHNATHAN A. RODGERS President and Chief Executive Officer, TV One, LLC (media and communications). Director since 2001. Age 58. Member of the Innovation and Technology and Public Policy Committees. JOHN F. SMITH, JR. Chairman of the Board, Delta Air Lines, Inc. and retired Chairman of the Board and CEO, General Motors Corporation (automobile and related businesses). Director since 1995. Also a Director of Delta Air Lines, Inc. and Swiss Reinsurance Company. Age 66. Chairman of the Audit Committee and member of the Governance and Nominating and Public Policy Committees. RALPH SNYDERMAN, M.D. Chancellor Emeritus, James B. Duke Professor of Medicine at Duke University. Director since 1995. Also a Director of Axonyx Inc. and Cardiome Pharma Corporation. Age 64. Chairman of the Innovation and Technology Committee and member of the Finance Committee. ROBERT D. STOREY Retired partner in the law firm of Thompson Hine, L.L.P., Cleveland, Ohio. Director since 1988. Also a Director of Verizon Communications. Age 68. Chairman of the Public Policy Committee and member of the Finance Committee. MARGARET C. WHITMAN President and Chief Executive Officer, eBay Inc. (a global online marketplace for the sale of goods and services). Director since 2003. Also a Director of eBay Inc. and Gap, Inc. Age 48. Member of the Compensation and Governance and Nominating Committees. ERNESTO ZEDILLO Former President of Mexico and Director of the Center for the Study of Globalization and Professor in the field of International Economics and Politics at Yale University. Director since 2001. Also a Director of Alcoa Inc. and Union Pacific Corporation. Age 52. Member of the Finance and Public Policy Committees. The Board of Directors has seven committees: Audit Committee Compensation Committee Executive Committee Finance Committee Governance and Nominating Committee Innovation and Technology Committee Public Policy Committee HARTWIG LANGER President - Prestige Products JORGE S. MESQUITA President - Global Home Care JORGE P. MONTOYA President on Special Assignment(3) MARTIN J. NUECHTERN

President on Special Assignment(4) LAURENT L. PHILIPPE President - Greater China CHARLES E. PIERCE President - Global Family Care MARC S. PRITCHARD President - Global Cosmetics and Hair Colorants MARTIN RIANT President - Global Feminine Care and Global Deodorants/Old Spice JORGE A. URIBE President - Latin America RICHARD L. ANTOINE Global Human Resources Officer G. GILBERT CLOYD Chief Technology Officer CLAYTON C. DALEY, JR. Chief Financial Officer STEPHEN N. DAVID Chief Business-to-Business Officer(5) R. KEITH HARRISON, JR. Global Product Supply Officer JAMES J. JOHNSON Chief Legal Officer and Secretary MARIANO MARTIN Global Customer Business Development Officer CHARLOTTE R. OTTO Global External Relations Officer FILIPPO PASSERINI Chief Information and Global Services Officer RICHARD G. PEASE Senior Vice President - Human Resources, Global Household Care NABIL Y. SAKKAB Senior Vice President - Research and Development, Global Fabric and Home Care JAMES R. STENGEL Global Marketing Officer JOHN P. GOODWIN Treasurer JOHN K. JENSEN Vice President and Comptroller (3) Retires October 1, 2004 after more than 33 years of service. (4) Retires June 30, 2005 after more than 26 years of service.

(5) Retires January 2, 2005 after more than 34 years of service.

60 The Procter & Gamble Company and Subsidiaries SHAREHOLDER INFORMATION IF... - You need help with your account - You need automated access to your account - You are interested in our certificate safekeeping service - You want to arrange for direct deposit of dividends - You have a lost, stolen or destroyed stock certificate CONTACT P&G - 24 HOURS A DAY - Visit our Web site at www.pg.com/investing - E-mail us at shareholders.im@pg.com - Call for financial information at 1-800-764-7483 (call 1-513-945-9990 outside the U.S. and Canada) CALL PERSON-TO-PERSON - Shareholder Services representatives are available Monday - Friday, 9 - 4 EST at 1-800-742-6253 (call 1-513-983-3034 outside the U.S. and Canada) - Automated service available after U.S. business hours OR WRITE The Procter & Gamble Company Shareholder Services Department P.O. Box 5572 Cincinnati, OH 45201-5572 CORPORATE HEADQUARTERS The Procter & Gamble Company P.O. Box 599 Cincinnati, OH 45201-0599 TRANSFER AGENT/SHAREHOLDER SERVICES The Procter & Gamble Company Shareholder Services Department P.O. Box 5572 Cincinnati, OH 45201-5572 REGISTRAR The Fifth Third Bank Stock Transfer Administration Corporate Trust Department, MD 10AT60 38 Fountain Square Plaza Cincinnati, OH 45263 EXCHANGE LISTING

New York, National, Amsterdam, Paris, Basle, Geneva, Lausanne, Zurich, Frankfurt, Brussels SHAREHOLDERS OF COMMON STOCK There were approximately 1,426,000 common stock shareowners, including shareholders of record, participants in the Shareholder Investment Program, participants in P&G stock ownership plans and beneficial owners with accounts at banks and brokerage firms, as of July 30, 2004. FORM 10-K Shareholders may obtain a copy of the Company's 2004 report to the Securities and Exchange Commission on Form 10-K by going to P&G's investor Web site at www.pg.com/investing or by calling us at 1-800-764-7483. This information is also available at no charge by sending a request to Shareholder Services at the address listed above. SHAREHOLDERS' MEETING The next annual meeting of shareholders will be held on Tuesday, October 12, 2004. A full transcript of the meeting will be available from Linda D. Rohrer, Assistant Secretary. Ms. Rohrer can be reached at One P&G Plaza, Cincinnati, OH 45202-3315. PG.COM/INVESTING You can access your Shareholder Investment Program account, including your account balance and transactions, 24 hours a day at pg.com/investing. And pg.com is your connection to stock purchase information, transaction forms, information about the 2004 stock split, Company reports and webcasts, as well as product information, newsletters and samples. CORPORATE SUSTAINABILITY REPORT Sustainable development is a simple idea: ensuring a better quality of life for everyone, now and for generations to come. P&G embraces sustainable development as a potential business opportunity, as well as a corporate responsibility. For more information, please find our Corporate Sustainability Report at pg.com/sr. GLOBAL CONTRIBUTIONS REPORT P&G strives to make a difference beyond our brands to help improve people's everyday lives. P&Gers around the world are engaged in their communities as volunteers and as partners in important community activities. See P&G's Global Contributions report to learn more about these efforts, including P&G's financial support, at pg.com/contributionsreport. P&G GALLERIA You can order imprinted P&G merchandise from the P&G Galleria. Shop online for umbrellas, business accessories and clothing through pg.com in Try and Buy, or call 1-800-969-4693 (1-513-651-1888 outside the U.S.). Common Stock Price Range and Dividends (Restated for two-for-one stock split effective May 21,2004)
Price Range ------------------------------------------------------2003 - 2004 2003 - 2004 2002 - 2003 2003 - 2002 HIGH LOW High Low ----------------------------------------$46.72 $43.26 $ 46.75 $37.04 49.97 46.41 46.18 41.00 53.61 48.89 45.00 39.79 56.34 51.64 46.27 43.80 Dividends -----------------------2003 - 2004 2002 - 2003 ----------$ 0.228 0.228 0.228 0.250 ----------$0.205 0.205 0.205 0.205

Quarter Ended ------------September 30 December 31 March 31 June 30

Design. Landor Associates

P&G AT A GLANCE
Net Sales by Segment(1) (in Global Business Unit Product Lines Key Brands billions) -------------------------------------------------------------------------------------------------------------------------Fabric and Home Care Laundry detergent, fabric Tide, Ariel, Downy, Lenor, Dawn, Fairy, $ 13.9 conditioners, dish care, Joy, Gain, Ace Laundry and Bleach, Swiffer, household cleaners, Dash, Bold, Cascade, Mr. Clean/Proper, fabric refreshers, bleach Febreze, Bounce, Cheer, Era, Bonux, Dreft, and care for special Daz, Flash, Vizir, Salvo, Viakal, Maestro fabrics Limpio, Rindex, Myth, Alomatik ---------------------------------------------------------------------------------------------------------------------Beauty Care Hair care/hair color, Pantene, Olay, Head & Shoulders, Clairol's 17.1 skin care and cleansing, Herbal Essences, Nice `n Easy, Natural cosmetics, fragrances and Instincts and Hydrience, Cover Girl, SK-II, antiperspirants/deodorants Max Factor, Hugo Boss, Safeguard, Rejoice, Secret, Old Spice, Zest, Vidal Sassoon, Pert, Ivory, Lacoste, Aussie, Infusium 23, Camay, Noxzema, Infasil, Joy Parfum, Valentino, Sure, Wash&Go, Wella, Koleston, Wellaflex, Shockwaves, Rochas, Escada, Gucci Feminine protection pads, Always, Whisper, Tampax, Lines Feminine tampons and pantiliners Care, Naturella, Evax, Ausonia, Orkid ---------------------------------------------------------------------------------------------------------------------Baby and Family Care Baby diapers, baby and Pampers, Luvs, Kandoo, Dodot 10.7 toddler wipes, baby bibs, baby change and bed mats Paper towels, toilet Charmin, Bounty, Puffs, Tempo tissue and facial tissue ---------------------------------------------------------------------------------------------------------------------Health Care Oral care, pet health and Crest, Iams, Eukanuba, Actonel, Vicks, 7.0 nutrition, Asacol, Prilosec OTC, Metamucil, Fixodent, pharmaceuticals and PUR, Scope, Macrobid, Pepto-Bismol, personal health care Didronel, ThermaCare, Blend-a-med ---------------------------------------------------------------------------------------------------------------------Snacks and Beverages Snacks and beverages Pringles, Folgers, Millstone 3.5 ----------------------------------------------------------------------------------------------------------------------

Fabric and Home Care Beauty Care Baby and Family Care Health Care Snacks and Beverages

27% 33% 20% 13% 7%

RECOGNITION P&G is the only company to appear on all seven Fortune magazine company lists in 2003, including: - Best Companies to Work For - Most Admired - Best Companies for Minorities - MBA's Top Employers P&G ranks among the top companies for Executive Women (National Association for Female Executives), African Americans (Family Digest magazine) and Best Corporate Citizens (Business Ethics magazine). [GRAPHICS] RISING TIDE - LESSONS FROM 165 YEARS OF BRAND BUILDING AT P&G combines the history of P&G with case studies on topics like the invention of Tide and the start of P&G's business in Eastern Europe. For a 30% discount, shareholders can order the book through HBS Press at www.hbspress.org or call 1-888-500-1016. Mention promotional code LPEMIP4. (1) Offset by $0.8 billion of net sales generated by companies for which P&G exerts significant influence but does not consolidate, and other miscellaneous activities.

P&G 2004 Annual Report [LOGO] TOUCHING LIVES, IMPROVING LIFE. P&G (C) 2004 Procter & Gamble 0038-7122

EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant Adipar Ltd. [New York] AG fur Aetherische Oele [Switzerland] Alejandro Llauro E. Hijos S.A.I.C. [Argentina] Anjali (HK) Corporation Limited [Hong Kong] An-Pro Company [Ohio] Atkinsons of London Ltd. [U.K.] B&C International Co. (BVI) Ltd. [British Virgin Islands] B.E.A.U.T.Y Hair Shop GmbH [Germany] Belcosa Distribuidora de Cosmeticos Ltda. [Brazil] Belmed Ltda. [Bolivia] Belvedere USA Corp. [Illinois] Betrix Cosmetic GmbH [Germany] Blaugold-Wella-Versicherungsvermittlungs GmbH [Germany] Blendax Unterstutzungskasse GmbH [Germany] California Lines UK Ltd. [U.K.] CAMADA Grundstucks-GmbH & Co. OHG [Germany] Capella GmbH [Russia] Carlos BT [Hungary] CE Verwaltungs GmbH [Germany] Celtic Insurance Company Limited [Bermuda] Cheladerm, Inc. [Delaware] Chemlog LLC [Ohio] Chemo Laboratories Manufacturing Sdn. Bhd. [Malaysia] Clairol (China) Ltd. [China] Clairol Brasil Higiene e Cosmeticos Ltda [Brazil] Clairol Limited [U.K.] Clairol Peru S.R.L. [Peru] Clivia Publicidade Ltda. [Brazil] Colonia Distribution GmbH [Germany] Colonia S.p.A. [Italy] Compania Procter & Gamble Mexico, S. de R.L. de C.V. [Mexico] Compania Quimica S.A. [Argentina] Computehair Ltd. [U.K.] Comunivers sa [Morocco] CONTAKTE GmbH, Friseur Management Centrum [Germany] Corpydes S.A. de C.V. [Mexico] Corvatsch Trust reg. [Liechtenstein] CosCos Inc. [New Jersey] CosMedica C.A. [Venezuela] Cosmetic Products Pty. Ltd. [Australia] Cosmetic Suppliers (S.A.) Pty. Ltd. [Australia] Cosmetic Suppliers Pty., Ltd. [Australia] Cosmetics Beauty Inc. [New York] Cosmital S.A. [Switzerland] Cosmochem Chemische Vertriebsges. mbH [Germany] Cosmonor Distribuidora de Cosmeticos Ltda. [Brazil] Cosmopolitan Cosmetics (Fragrances and Cosmetics) Ltd. [Taiwan] Cosmopolitan Cosmetics (Pty) Ltd. [South Africa] Cosmopolitan Cosmetics (UK) Ltd. [U.K.] [ ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant Cosmopolitan Cosmetics AG [Switzerland] Cosmopolitan Cosmetics Austria Ges.m.b.H. [Austria] Cosmopolitan Cosmetics B.V. [Netherlands] Cosmopolitan Cosmetics Batics [Lithuania] Cosmopolitan Cosmetics China Ltd. [Hong Kong] Cosmopolitan Cosmetics GmbH [Germany] Cosmopolitan Cosmetics Inc. [Florida] Cosmopolitan Cosmetics K.K. [Japan] Cosmopolitan Cosmetics KFT [Hungary] Cosmopolitan Cosmetics Korea Co., Ltd [Korea] Cosmopolitan Cosmetics LLC [Russia] Cosmopolitan Cosmetics Ltd. [Hong Kong] Cosmopolitan Cosmetics N.V./S.A. [Belgium] Cosmopolitan Cosmetics Polska Sp.z.o.o. [Poland] Cosmopolitan Cosmetics Prestige GmbH [Germany] Cosmopolitan Cosmetics Pte. Ltd. [Singapore] Cosmopolitan Cosmetics Pty Ltd [Australia] Cosmopolitan Cosmetics S.A. [Argentina] Cosmopolitan Cosmetics S.A. [France] Cosmopolitan Cosmetics S.A. [Portugal] Cosmopolitan Cosmetics S.A. [Spain] Cosmopolitan Cosmetics S.p.a. [Italy] Cosmopolitan Cosmetics s.r.o. [Czech Republic] Cosmopolitan Cosmetics Scandinavia A/S [Denmark] Cosmopolitan Cosmetics USA, Inc. [New Jersey] Cosmopolitan Cosmetics, S.A. de C.V. [Mexico] Cosmopolitan Cosmetics, s.r.o. [Slovakia] Cosmoresearch Co. Ltd. [Japan] Crest Toothpaste Inc. [Canada] Detergent Products A.G. [Switzerland] Deutsche Procter & Gamble Unternehmensbeteiligungs GmbH [Germany] Dicosma Distribuidora de Cosmeticos Ltda. [Brazil] Dictus Grundstucks-Verwaltungsges. mbH & Co. KG [Germany] District Pet Imaging, LLC [Ohio] Eastern European Supply Company [Ukraine] Eau de Cologne- & Parfumerie-Fabrik Glockengasse No. 4711 gegenuber der Pferdepost von Ferd. Mulhens GmbH [Germany] Ecopan Inc. [Panama] Elysee BT [Hungary] Emil Kiessling GmbH [Germany] Ensambles de Silleria Mexicana S.A. de C.V. [Mexico] Escada Cosmetics Ltd [Korea] Eurocos Cosmetic GmbH [Germany] Eurocos Ltd [U.K.] EURO-Juice G.m.b.H. Import und Vertrieb [Germany] European Beauty Products (U.K.) Limited [U.K.] Europeenne Distribution Parfumerie Edipar S.A.R.L. [France] Faweco Cosmetics GmbH [Germany] FBV Friseurbetriebe-Verwaltungsgesellschaft mbH [Germany] [ ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant FBV Service GmbH & Co. Beteiligungs-OHG [Germany] FBV Service GmbH & Co. Holding OHG [Germany] Ferraris BT [Hungary] FINCO DO BRASIL FOMENTO COMERCIAL Ltda. [Brazil] FINCO HOLDINGS (BVI) Inc. [British Virgin Islands] Fine Beauty Care (Pte) Ltd. [Namibia] FINPAR-Finco do Brasil Participacoes Ltda. [Brazil] Finusa S.A. [Argentina] FKB Friseur- und Kosmetik-Bedarf GmbH [Germany] Foreign Company "Procter & Gamble" [Belarus] Fountain Square Music Publishing Co., Inc. [Ohio] Frank BT [Hungary] Fruehling Cosmetics Co. Ltd. [Thailand] Gala Cosmetics International Limited [U.K.] Gala Marketing [Ukraine] Gala of London Limited [U.K.] Giorgio Beverly Hills, Inc. [Delaware] Global Business Services de Costa Rica Limitada [Costa Rica] Graham Webb International [California] Gresham Cosmetics Pty Ltd [Australia] GS Friseurversand GmbH [Germany] Handelsonderneming K. Kwakkenbos B.V. [Netherlands] Herman Lepsoe A/S [Norway] Herve Leger Parfums GmbH [Germany] Humatro Corporation [Delaware] Hyginett KFT [Hungary] Iams Argentina S.A. [Argentina] Iams Australia/New Zealand Pty. Ltd. [Australia] Iams Chile Limitada [Chile] Iams do Brasil Comercial, Exportadora e Importadora Ltda. [Brazil] Iams Europe B.V. [Netherlands] Iams Global, Inc. [Ohio] Iams Japan K.K. [Japan] Iams Mexico, S. de R.L. de C.V. [Mexico] Iams New Zealand Limited [New Zealand] Iams Pet Food International N.V. [Netherlands] Iams Pet Imaging, Inc. [Ohio] Iams Pet Imaging, LLC [Ohio] Iams S. Africa Pty. [South Africa] Iams Servicios, S. de R.L. de C.V. [Mexico] Iams U.K. Limited [U.K.] Industrial Catenation Services (Pty.) Ltd. [South Africa] Industrias Modernas, S.A. [Guatemala] Inmobiliaria Procter & Gamble de Venezuela, S.C.S. [Venezuela] Inmobiliaria Procter & Gamble de Venezuela, S.R.L. [Venezuela] Intercosmetic S.A. [Belgium] Interkosmetik Gesellschaft m.b.H. [Austria] Intpropco Inc. [Delaware] [ ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant Intpropco S.A. [Switzerland] Inversiones Industrias Mammi, S.C.A. [Venezuela] Inversiones Industrias Mammi-1, S.R.L. [Venezuela] Inversiones Procter & Gamble de Venezuela, S.C.A. [Venezuela] Inversiones Procter & Gamble de Venezuela-1, S.R.L. [Venezuela] Inverta Verwaltungsgesellschaft mbH [Germany] Ipse Beteiligungsgesellschaft mbH [Germany] Johann Maria Farina & Cie. zur Stadt Rom e.K. [Germany] Johann Maria Farina Dr. E. Meitzen am Dom zu Coln e.K. [Germany] Johann Maria Farina gegenuber dem Neumarkt e.K. [Germany] Junge + Michaelis GmbH [Germany] Junger&Gebhardt Verwaltungs-GmbH [Germany] Juvian Fabric Care Corporation [Ohio] Kadabell GmbH [Austria] Kadabell GmbH & Co. KG [Germany] Kadabell GmbH [Germany] Kadabell Italiana S.P.A. [Italy] Kadus Schweiz AG [Switzerland] Kasmare Ltd. [U.K.] KMS Kramm + Scholten GmbH [Germany] Komal Manufacturing Chemists Ltd. [India] Kosinus Beteiligungs GmbH [Germany] Les Parfums Charles Jourdan S.A. [France] Liberty Street Music Publishing Company, Inc. [Ohio] LLC "Procter & Gamble Novomoskovsk" [Russia] LONDA Cosmetics S.R.L. [Romania] Londa GmbH [Germany] Londa Kosmetika s.r.o. [Czech Republic] Londa Kosmetika SAO [Russia] Londa Kosmetikai Kft. [Hungary] Londa Kosmetyki sp. z.o.o. [Poland] Londa Rothenkirchen Produktions GmbH [Germany] Loreto y Pena Pobre, S.A. de C.V. [Mexico] Malabar (HK) Corporation Limited [Hong Kong] Marcosma Distribuidora de Cosmeticos Ltda. [Brazil] Marcvenca Inversiones, C.A. [Venezuela] Max Factor & Co. (U.K.) Ltd. [Bermuda] Max Factor & Co. [Delaware] Max Factor K.K. [Japan] Max Factor Limited [U.K.] Max Mara Parfums France S.A.S. [France] Max Mara Parfums S.r.l. [Italy] Mercona (G.B.) Ltd. [U.K.] Merveille S.A. [Switzerland] Metropolitan Cosmetics GmbH [Germany] Metropolitan Cosmetics Grand Stores JV UAE [United Arab Emirates] Metropolitan Cosmetics Pte. Ltd. [Singapore] Midway Holdings Ltd. [Cayman Islands] [ ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant Millstone Coffee, Inc. [Washington] Modern Hairdressing Supplies (Pty) Ltd. [South Africa] Modern Holdings (Pty) Ltd. [South Africa] Modern Industries Company - Dammam [Saudi Arabia] Modern Industries Company - Jeddah [Saudi Arabia] Modern Products Company - Jeddah [Saudi Arabia] Moroccan Modern Industries [Morocco] Muelhens GmbH & Co. KG [Germany] MULHENS International GmbH & Co. oHG [Germany] N.V. Handelmaatschappij van Ravensberg [Netherlands] Neoblanc-Produtos de Higiene e Limpeza Lda. [Portugal] Noon-in-China, LLC [New York] Noxell Corporation [Maryland] Olay Company, Inc. [Delaware] Olga BT [Hungary] Ondabel S.A. [Argentina] Ondal France E.u.r.l. [France] Ondal Industrietechnik GmbH [Germany] Ondal USA Inc. [Virginia] Ondawel (G.B.) Ltd. [U.K.] Ondelle S.A.(Pty) Ltd. [South Africa] OOO Procter & Gamble Services Company [Russia] P&G Consultoria E Servicos Ltda. [Brazil] P&G Holding B.V. [Netherlands] P&G Holding Company S.R.L. [Argentina] P&G Indochina [Vietnam] P&G Industrial Peru S.R.L. [Peru] P&G Inversiones S.A. [Argentina] P&G Investments Limited [Costa Rica] P&G Israel M.D.O. Ltd. [Israel] P&G K.K. [Japan] P&G Northeast Asia Pte. Ltd. [Singapore] P&G Prestige Beaute Cosmetic Warenvertrieb GmbH [Austria] P&G Prestige Beaute GmbH [Germany] P&G Prestige Beaute S.A.R.L. [Switzerland] P&G Servicios S.A. [Argentina] P&G-Clairol, Inc. [Delaware] P. T. Procter & Gamble Indonesia TbK [Indonesia] P.T. Kosmindo [Indonesia] P.T. Mawar Sejati [Indonesia] P.T. Procter & Gamble Home Products Indonesia [Indonesia] Pacific Beauty Care Pte. Ltd. [Singapore] PADOS Grundstucks-Vermietungsgesellschaft mbH & Co. Objekt Darmstadt KG [Germany] Palo Co. Ltd. [Japan] Papierhygiene GmbH [Germany] Parfums Rochas GmbH [Germany] Parfums Rochas S.A. [France] Patent-und Lizenzverwertungsgesellschaft mbH [Germany] [ ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant Percol Beteiligungen GmbH [Germany] Person Verwaltungs-GmbH & Co. OHG [Germany] PFX Pet Supply, Inc. [Ohio] PGV Chile S.A. [Chile] PPProducts SARL [Switzerland] PPS Hairwear Australia Pty Ltd [Australia] Procter & Gamble (Chengdu) Ltd. [PRC] Procter & Gamble (China) Ltd. [PRC] Procter & Gamble (Cosmetics and Fragrances) Limited [U.K.] Procter & Gamble (East Africa) Limited [Kenya] Procter & Gamble (Egypt) Industrial and Commercial Company [Egypt] Procter & Gamble (Egypt) Manufacturing Company [Egypt] (Partnership) Procter & Gamble (Enterprise Fund) Limited [U.K.] Procter & Gamble (Guangzhou) Ltd. [PRC] Procter & Gamble (Health & Beauty Care) Limited [U.K.] Procter & Gamble (Ireland) Limited [Ireland] Procter & Gamble (Malaysia) Sdn. Berhad [Malaysia] Procter & Gamble (Manufacturing) Ireland Limited [Ireland] Procter & Gamble (NBD) Pty. Ltd. [Australia] Procter & Gamble (Shanghai) International Trade Company Ltd. [PRC] Procter & Gamble (Vietnam) Ltd. [Vietnam] Procter & Gamble (Yemen) Ltd [Yemen] Procter & Gamble A/S [Norway] Procter & Gamble Algeria EURL [Algeria] Procter & Gamble Amiens S.N.C. [France] Procter & Gamble Argentina Sociedad Colectiva [Argentina] Procter & Gamble Asia Pacific Ltd. [Hong Kong] Procter & Gamble Asia Pte. Ltd. [Singapore] Procter & Gamble Australasia Holdings Pte. Ltd. [Singapore] Procter & Gamble Australia Proprietary Limited [Australia] Procter & Gamble Austria GmbH [Austria] Procter & Gamble Bangladesh Private Ltd. [Bangladesh] Procter & Gamble Belize Ltda. [Belize] Procter & Gamble Beteiligungs GmbH [Germany] Procter & Gamble Beverages GmbH [Germany] Procter & Gamble Blois S.A.S. [France] Procter & Gamble Bolivia S.R.L. [Bolivia] Procter & Gamble Bulgaria EOOD [Bulgaria] Procter & Gamble Business Services Canada Company [Canada] Procter & Gamble Canada Holding B.V. [Netherlands] Procter & Gamble Central & Eastern Europe GmbH [Germany] Procter & Gamble Central Europe Holding B.V. [Netherlands] Procter & Gamble Chile, Inc. [Ohio] Procter & Gamble Colombia Ltda. [Colombia] Procter & Gamble Color, S.C.A. [Venezuela] Procter & Gamble Commercial de Cuba, S.A. [Cuba] Procter & Gamble Czech Holding B.V. [Netherlands] Procter & Gamble Czech Republic [Czech Republic] [ ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant Procter & Gamble d.o.o. za trgovinu [Croatia] Procter & Gamble Danmark AS [Denmark] Procter & Gamble de Nicaragua y Compania Ltda. [Nicaragua] Procter & Gamble de Venezuela, S.C.A. [Venezuela] Procter & Gamble de Venezuela, S.R. L. [Venezuela] Procter & Gamble Detergent (Beijing) Ltd. [PRC] Procter & Gamble Development Company A.G. [Switzerland] Procter & Gamble Distributing (Philippines) Inc. [Philippines] Procter & Gamble Distributing Limited [U.K.] Procter & Gamble Distributing New Zealand [New Zealand] Procter & Gamble Distribution Company (Europe) BVBA [Belgium]
Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter Procter & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble Gamble do Brasil S/A [Brazil] do Brazil, Inc. [Delaware] do Nordeste S/A [Brazil] Eastern Europe, Inc. [Ohio] Ecuador Compania Anonima [Ecuador] Egypt [Egypt] Energy Company LLC [Ohio] Espana S.A. [Spain] Eurocor N.V. [Belgium] Europe N.V. [Belgium] Europe SA [Switzerland] European Services SARL [Switzerland] European Supply Company BVBA [Belgium] European Technical Center BVBA [Belgium] Export Operations SARL [Switzerland] Export-FZE [U.A.E.] Far East, Inc. [Ohio] Finance (Canada) Limited Partnership [Canada] Finance (U.K.) Ltd. [U.K.] Financial Services [Ireland] Finland OY [Finland] Food Products SARL [Switzerland] France S.N.C. [France] FSC (Barbados) Inc. [Barbados] Ghana, Ltd. [Ghana] GmbH [Germany] Gulf FZE [United Arab Emirates] Hair Care, LLC [Delaware] Health and Beauty Care-Europe Limited [U.K.] Hellas A.E. [Greece] Higiene e Cosmeticos Limitada [Brazil] Holding (HK) Limited [Hong Kong] Holding (Thailand) Limited [Thailand] Holding Denmark ApS [Denmark] Holding GmbH & Co. Operations oHG [Germany] Holding GmbH [Germany]

[ ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant Procter & Gamble Holding S.r.l. [Italy] Procter & Gamble Holdings (U.K.) Ltd. [U.K.] Procter & Gamble Holdings Limited [Ireland] Procter & Gamble Holdings Singapore Pte. Ltd. [Singapore] Procter & Gamble Home Products Limited [India] Procter & Gamble Hong Kong Limited [Hong Kong] Procter & Gamble Hungary Holding B.V. [Netherlands] Procter & Gamble Hungary Wholesale Trading Partnership (KKT) [Hungary] Procter & Gamble Hygiene & Health Care Limited [India] Procter & Gamble Inc. [Ontario, Canada] Procter & Gamble India Holdings, Inc. [Ohio] Procter & Gamble Industrial 1, S.R.L. [Venezuela] Procter & Gamble Industrial de Guatemala, S.A. [Guatemala] Procter & Gamble Industrial e Comercial Ltda. [Brazil] Procter & Gamble Industrial S.C.A. [Venezuela] Procter & Gamble Interamericas de Costa Rica Ltda. [Costa Rica] Procter & Gamble Interamericas de El Salvador, Limitada de Capital Variable [El Salvador] Procter & Gamble Interamericas de Guatemala Ltda. [Guatemala] Procter & Gamble Interamericas de Honduras, S. de R.L. [Honduras] Procter & Gamble Interamericas de Panama, S. de R.L. [Panama] Procter & Gamble Interamericas LLC [Delaware] Procter & Gamble International Operations Pte. Ltd. [Singapore] Procter & Gamble International Operations S.A. [Switzerland] Procter & Gamble Investment Company (UK) Ltd. [U.K.] Procter & Gamble Investment Subsidiary Inc. [Canada] Procter & Gamble Investments (UK) Limited [U.K.] Procter & Gamble Investments Limited [Ireland] Procter & Gamble Italia, S.p.A. [Italy] Procter & Gamble Jamaica Ltd. [Jamaica] Procter & Gamble Kazakhstan [Kazakhstan] Procter & Gamble Korea IE, Co. [Korea] Procter & Gamble Korea Inc. [Korea] Procter & Gamble Korea S&D Co. [Korea] Procter & Gamble Laundry & Cleaning Products Limited [U.K.] Procter & Gamble Leasing LLC [Ohio] Procter & Gamble Levant S.A.L. [ Lebanon] Procter & Gamble Limited [U.K.] Procter & Gamble Limited Liability Company [Uzbekistan] Procter & Gamble Luxembourg Finance Sarl [Luxembourg] Procter & Gamble Luxembourg Holding S.a.r.l. [Luxembourg] Procter & Gamble Luxembourg Investment Sarl [Luxembourg] Procter & Gamble Manufactura, S. de R.L. de C.V. [Mexico] Procter & Gamble Manufacturing (Thailand) Limited [Thailand] Procter & Gamble Manufacturing (Tianjin) Co. Ltd. [PRC] Procter & Gamble Manufacturing Belgium N.V. [Belgium] Procter & Gamble Manufacturing GmbH [Germany] Procter & Gamble Manufacturing Istra [Russia] Procter & Gamble Manufacturing Pty. Ltd. [Australia] [ ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant Procter & Gamble Manufacturing Ukraine [Ukraine] Procter & Gamble Marketing & Commercial Activities d.o.o. [Slovenia] Procter & Gamble Marketing and Services d.o.o. [Serbia and Montenegro] Procter & Gamble Marketing DOOEL Skopje [Macedonia] Procter & Gamble Marketing Latvia Ltd. [Latvia] Procter & Gamble Marketing Romania SRL (Romania) Procter & Gamble Maroc [Morocco] Procter & Gamble Mataro, S.L. [Spain] Procter & Gamble Materials Management Romania S.R.L. [Romania] Procter & Gamble Materials Management s.r.o. [Czech Republic] Procter & Gamble Mexico Holding B.V. [Netherlands] Procter & Gamble Moldova SRL [Moldova] Procter & Gamble N.S. Holding Company [Canada] Procter & Gamble Nederland B.V. [Netherlands] Procter & Gamble Netherland Services B.V. [Netherlands] Procter & Gamble Neuilly S.A.S. [France] Procter & Gamble Nigeria Limited [Nigeria] Procter & Gamble Nordic Inc. [Ohio] Procter & Gamble Norge AS [Norway] Procter & Gamble NPD, Inc. [Ohio] Procter & Gamble O.O.O. [Russia] Procter & Gamble Operations Polska-Spolka z o.o. [Poland] Procter & Gamble Orleans S.A.S. [France] Procter & Gamble Overseas Ltd. [U.K.] Procter & Gamble Pakistan (Private) Limited [Pakistan] Procter & Gamble Personal Cleansing (Tianjin) Ltd. [PRC] Procter & Gamble Peru S.R.L. [Peru] Procter & Gamble Pharmaceuticals Canada, Inc. [Canada] Procter & Gamble Pharmaceuticals Espana, S.L. [Spain] Procter & Gamble Pharmaceuticals France [France] Procter & Gamble Pharmaceuticals Longjumeau S.A.S. [France] Procter & Gamble Pharmaceuticals N.V. [Belgium] Procter & Gamble Pharmaceuticals Nederland B.V. [Netherlands] Procter & Gamble Pharmaceuticals Puerto Rico, Inc. [Delaware] Procter & Gamble Pharmaceuticals SARL [Switzerland] Procter & Gamble Pharmaceuticals U.K. Limited [U.K.] Procter & Gamble Pharmaceuticals, Inc. [Ohio] Procter & Gamble Pharmaceuticals-Germany GmbH [Germany] Procter & Gamble Philippines, Inc. [Philippines] Procter & Gamble Platform, Inc. [Ohio] Procter & Gamble Polska-Spolka z o.o [Poland] Procter & Gamble Porto, Lda. [Portugal] Procter & Gamble Portugal S.A. [Portugal] Procter & Gamble Product Supply (U.K.) Limited [U.K.] Procter & Gamble Productions, Inc. [Ohio] Procter & Gamble Quimica Ltda. [Brazil] Procter & Gamble reflect.com, Inc. [Delaware] Procter & Gamble RHD, Inc. [Ohio] [ ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant Procter & Gamble RSC Regional Service Company Ltd. [Hungary] Procter & Gamble S.A. [Chile] Procter & Gamble S.r.l. [Italy] Procter & Gamble Service GmbH [Germany] Procter & Gamble Services (Switzerland) SA [Switzerland] Procter & Gamble Services Company N.V. [Belgium] Procter & Gamble Services France S.A.S. [France] Procter & Gamble Servicios Latinoamerica, S.C.A. [Venezuela] Procter & Gamble Servicios Latinoamerica-1, S.R.L. [Venezuela] Procter & Gamble Singapore Investment Pte. Ltd. [Singapore] Procter & Gamble Singapore Pte. Ltd. [Singapore] Procter & Gamble South Africa Proprietary Limited [South Africa] Procter & Gamble Sri Lanka Private Ltd. [Sri Lanka] Procter & Gamble Sverige AB [Sweden] Procter & Gamble Switzerland SARL [Switzerland] Procter & Gamble Taiwan Limited [Taiwan] Procter & Gamble Technical Centers Limited [U.K.] Procter & Gamble Technology (Beijing) Co., Ltd. [PRC] Procter & Gamble Tenedora, S.A. [Venezuela] Procter & Gamble Trading (Thailand) Limited [Thailand] Procter & Gamble Trgovaeko Drustvo d.o.o. Sarajevo [Bosnia] Procter & Gamble Tuketim Mallari Sanayii A.S. [Turkey] Procter & Gamble U.K. [U.K.] (Partnership) Procter & Gamble Ukraine [Ukraine] Procter & Gamble Valores, S.A. [Venezuela] Procter & Gamble, Spol. s r.o. (Ltd.) [Slovak Republic] Procter & Gamble-Rakona, s.r.o. [Czech Republic] Productora de Cosmeticos S.A. de C.V. [Mexico] Productos Sanitarios Sociedad Colectiva [Argentina] Productos Cosmeticos S.A. [Spain] Progam Realty & Development Corporation [Philippines] Progasud S.r.l. [Italy] Promotora de Bienes y Valores, S. de R.L. de C.V. [Mexico] PT Cosmopolitan Cosmetics Indonesia Limited [Indonesia] Publicitaria Combla Ltda. [Chile] PUR Water Purification Products, Inc. [Ohio] Richardson-Vicks do Brasil Quimica e Farmaceutica S.A. [Brazil] Richardson-Vicks Real Estate Inc. [Ohio] Riverfront Music Publishing Co., Inc. [Ohio] Rochas Paris Inc. [New York] Rohm Pharma GmbH Wien [Austria] Rosemount Corporation [Delaware] Russwell GmbH [Russia] R-V Chemicals Holdings Ltd. [Ireland] S.C. Detergenti S.A. [Romania] S.P.F. Beaute S.a.r.l. [France] Salon Service Genova SrL [Italy] Scannon GmbH [Germany] [ ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant Scannon S.A. [France] Sebastian Australia Pty., Ltd. [Australia] Sebastian de Mexico S.A. de C.V. [Mexico] Sebastian Deutschland GmbH [Germany] Sebastian Europe GmbH [Germany] Sebastian France S.A.S. [France] Sebastian International Inc. [California] Sebastian Suisse GmbH [Switzerland] Secato Friseurbedarf GmbH [Germany] Serventi (Design) Ltd. [U.K.] Shulton (Great Britain) Ltd. [U.K.] Shulton S.A. [Guatemala] Shulton, Inc. [New Jersey] Sigma Cosmetica International S.A. [Uraguay] Sistema Espansione s.r.l. [Italy] Societe Immobiliere Les Colombettes, S.A. [Switzerland] SsangYong Paper Co. Ltd. [Korea] Star Parfums GmbH [Germany] Sulcosma Distribuidora de Cosmeticos Ltda. [Brazil] Sundor Brands Inc. [Florida] Sundor Brands Limited [U.K.] Surfac S. R. Ltda. [Peru] Sycamore Productions, Inc. [Ohio] Tambrands (Continental) Ltd. [U.K.] Tambrands Dosmil, S.A. de C.V. [Mexico] Tambrands France S.A.S. [France] Tambrands Inc. [Delaware] Tambrands Industria e Comercia Ltda. [Brazil] Tambrands Investments Ltd. [U.K.] Tambrands Ireland Limited [Ireland] Tambrands Limited [U.K.] Tambrands Ukraine Ltd. [Ukraine] Temple Trees Impex & Investment Private Limited [India] The Dover Wipes Company [Ohio] The Folger Coffee Company [Ohio] The Iams Company [Ohio] The Malabar Company [Delaware] The Procter & Gamble Commercial Company [Ohio] The Procter & Gamble Company of South Africa (Proprietary) Limited [South Africa] The Procter & Gamble Distributing Company [Ohio] The Procter & Gamble GBS Company [Ohio] The Procter & Gamble Global Finance Company [Ohio] The Procter & Gamble International Insurance Company, Limited [Ireland] The Procter & Gamble iVentures Company [Ohio] The Procter & Gamble Manufacturing Company [Ohio] The Procter & Gamble Paper Products Company [Ohio] The Procter & Gamble U.S. Business Services Company [Ohio] The Wella Corporation [California] [ ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant Thomas Hedley & Co. Limited [U.K.] Tondeo-Werk GmbH [Germany] Transcosmetics Holdings Sdn. Bhd. [Malaysia] TRAPOFA Leonhard-Speditions GmbH I.L. [Germany] Unidisbell Ltda. [Colombia] Universal Beauty Supply Corp. [Puerto Rico] Uschi Friseur-Fachversand GmbH [Austria] Uschi Friseur-Fachversand GmbH [Germany] Uschi Verwaltungsgesellschaft mbH [Germany] Valbonne S.A. [Switzerland] Vick International Corporation [Delaware] Vick Nigeria Limited [Nigeria] Vidal Sassoon (Shanghai) Academy [PRC] Vidal Sassoon Co. [Ohio] Vita Cientifica S.L. [Spain] Wella (Ireland) Ltd. [Ireland] Wella (Thailand) Co. Ltd. [Thailand] Wella (U.K.) Holdings Ltd. [U.K.] Wella (U.K.) Ltd. [U.K.] Wella AB [Sweden] Wella AG [Germany] Wella Asia Pacific Co. [Malaysia] Wella Beteiligungen AG [Switzerland] Wella Canada Inc. [Canada] Wella Chile S.A. [Chile] Wella Colombiana S.A. [Colombia] Wella Cosmetics China Ltd. Co. [China] Wella CZ s.r.o. [Czech Republic] Wella Danmark A/S [Denmark] Wella France S.A.S. [France] WELLA HELLAS SA [Greece] Wella Hongkong Limited [Hong Kong] Wella India Haircosmetics Private Limited [India] Wella Intercosmetic GmbH [Germany] Wella International Finance B.V. [Netherlands] Wella Italia Labocos S.p.A. [Italy] Wella Japan Co. Ltd. [Japan] Wella Korea Co. Ltd. [Korea] Wella Kozmetik Sanayi ve Ticaret A.S. [Turkey] Wella Laboratories Inc. [California] Wella Magyaroszag Kft. (Wella Hungary Ltd.) [Hungary] Wella Malaysia Sdn. Bhd. [Malaysia] Wella Manufacturing of Virginia Inc. [Virginia] WELLA NEW ZEALAND LIMITED [New Zealand] Wella Paraguay S.A. [Paraguay] Wella Personal Care of North America Inc. [New Jersey] Wella Philippines Inc. [Philippines] Wella Polska Sp.z.o.o. [Poland] [ ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21) THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES Subsidiaries of the Registrant Wella Portugal Sociedade Unipessoal Lda. [Portugal] Wella Romania s.r.l. [Romania] Wella Slovensko, s.r.o. [Slovakia] Wella Suisse GmbH [Switzerland] Wella Taiwan Co. Ltd. [Taiwan] Wella Ukraina [Ukraine] Yardley of London Ltd. [U.K.] [ ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (23) Independent Auditors' Consent

DELOITTE & TOUCHE LLP 250 East Fifth Street Post Office Box 5340 Cincinnati, Ohio 45202 Telephone: (513) 784-7100 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the following documents of our report dated August 6, 2004 incorporated by reference in the Annual Report on Form 10-K of The Procter & Gamble Company for the year ended June 30, 2004. 1. Amendment No. 1 on Form S-8 Registration Statement No. 33-31855 on Form S-4 (now S-8) for the 1982 Noxell Employees' Stock Option Plan and the 1984 Noxell Employees' Stock Option Plan; 2. Post Effective Amendment No. 1 to Registration Statement No. 33-49289 on Form S-8 for The Procter & Gamble 1992 Stock Plan; 3. Registration Statement No. 33-47656 on Form S-8 for The Procter & Gamble International Stock Ownership Plan; 4. Registration Statement No. 33-50273 on Form S-8 for The Procter & Gamble Commercial Company Employees' Savings Plan; 5. Registration Statement No. 33-51469 on Form S-8 for The Procter & Gamble 1993 Non-Employee Directors' Stock Plan; 6. Registration Statement No. 333-05715 on Form S-8 for The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan; 7. Post Effective Amendment No. 2 to Registration Statement No. 33-59257 on Form S-3 for The Procter & Gamble Shareholder Investment Program; 8. Registration Statement No. 333-14381 on Form S-8 for Profit Sharing Retirement Plan of The Procter & Gamble Commercial Company; 9. Registration Statement No. 333-14397 on Form S-8 for Procter & Gamble Subsidiaries Savings Plan; 10. Registration Statement No. 333-21783 on Form S-8 for The Procter & Gamble 1992 Stock Plan (Belgian Version); 11. Registration Statement No. 333-37905 on Form S-8 for The Procter & Gamble Future Shares Plan;

12. Registration Statement No. 333-51213 on Form S-8 for Group Profit Sharing, Incentive, and Employer Contribution Plan (France); 13. Registration Statement No. 333-51219 on Form S-8 for Procter & Gamble Ireland Employees Share Ownership Plan; 14. Registration Statement No. 333-51221 on Form S-8 for Employee Stock Purchase Plan (Japan); 15. Registration Statement No. 333-51223 on Form S-8 for Savings and Thrift Plan (Saudi Arabia); 16. Registration Statement No. 333-34606 on Form S-8 for The Procter & Gamble Future Shares Plan; 17. Registration Statement No. 333-40264 on Form S-8 for Savings and Thrift Plan Saudi Arabia; 18. Registration Statement No. 333-44034 on Form S-8 for The Procter & Gamble International Stock Ownership Plan; 19. Registration Statement No. 333-47132 on Form S-8 for Employee Stock Purchase Plan (Japan); 20. Registration Statement No. 333-49764 on Form S-3 for The Procter & Gamble U.K. Share Investment Scheme; 21. Registration Statement No. 333-75030 on Form S-8 for The Procter & Gamble 2001 Stock and Incentive Compensation Plan; 22. Registration Statement No. 333-100561 on Form S-8 for The Procter & Gamble (U.K.) 1-4-1 Plan; 23. Registration Statement No. 333-108753 on Form S-8 for The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan; 24. Registration Statement No. 333-108991 on Form S-8 for The Procter & Gamble 1992 Stock Plan (Belgian Version); 25. Registration Statement No. 333-108992 on Form S-8 for Savings and Thrift Plan (Saudi Arabia); 26. Registration Statement No. 333-108993 on Form S-8 for Employee Stock Purchase Plan (Japan); 27. Registration Statement No. 333-108994 on Form S-8 for Procter & Gamble Ireland Employees Share Plan;

28. Registration Statement No. 333-108995 on Form S-8 for Group Profit Sharing, Incentive, and Employer Contribution Plan (France); 29. Registration Statement No. 333-108997 on Form S-8 for The Procter & Gamble International Stock Ownership Plan; 30. Registration Statement No. 333-108998 on Form S-8 for The Procter & Gamble 1993 Non-Employee Directors' Stock Plan; 31. Registration Statement No. 333-108999 on Form S-8 for The Procter & Gamble 1992 Stock Plan; 32. Registration Statement No. 333-111304 on Form S-8 for The Procter & Gamble 2003 Non-Employee Directors' Stock Plan; 33. Registration Statement No. 333-111305 on Form S-8 for The Procter & Gamble U.K. Share Investment Scheme; and 34. Amendment No. 1 to Registration Statement No. 333-113515 on Form S-3 for The Procter & Gamble Company Debt Securities and Warrants. DELOITTE & TOUCHE LLP Deloitte & Touche LLP September 7, 2004

EXHIBIT (31) Rule 13a-14(a)/15d-14(a) Certifications

RULE 13a-14(a)/15d-14(a) CERTIFICATIONS I, A.G. Lafley, certify that: (1) I have reviewed this annual report on Form 10-K of The Procter & Gamble Company; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; (4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and (5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. A.G. LAFLEY (A.G. Lafley) Chairman of the Board, President and Chief Executive September 7, 2004 Date

RULE 13a-14(a)/15d-14(a) CERTIFICATIONS I, Clayton C. Daley, Jr., certify that: (1) I have reviewed this annual report on Form 10-K of The Procter & Gamble Company; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; (4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and (5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. CLAYTON C. DALEY, JR. (Clayton C. Daley, Jr.) Chief Financial Officer September 7, 2004 Date

EXHIBIT (32) Section 1350 Certifications

SECTION 1350 CERTIFICATIONS Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of The Procter & Gamble Company (the "Company") certifies to his knowledge that: (1) The Annual Report on Form 10-K of the Company for the year ended June 30, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in that Form 10-K fairly presents, in all material respects, the financial conditions and results of operations of the Company. A.G. LAFLEY (A.G. Lafley) Chairman of the Board, President and Chief Executive September 7, 2004 Date

SECTION 1350 CERTIFICATIONS Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of The Procter & Gamble Company (the "Company") certifies to his knowledge that: (1) The Annual Report on Form 10-K of the Company for the year ended June 30, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in that Form 10-K fairly presents, in all material respects, the financial conditions and results of operations of the Company. CLAYTON C. DALEY, JR. (Clayton C. Daley, Jr.) Chief Financial Officer September 7, 2004 Date

EXHIBIT (99-2) Directors and Officers (First) Liability Binder of Insurance

COMPANY: Corporate Officers & Directors Assurance Limited ACE Global Headquarters 17 Woodbourne Avenue Hamilton HM 08 Bermuda Corporate Officers and Directors Assurance Ltd. (CODA) is pleased to confirm binding the following:
POLICY PERIOD: LIMIT OF LIABILITY: AGGREGATE: PREMIUM: June 30, 2004 to June 30, 2005 Primary $25,000,000 $25,000,000 $985,000

PREMIUM:
June 30, 2004 to June 30, 2005 .... Year 2 (Deposit) .................. Year 3 (Deposit) .................. Total ............................. Less Cash on Hand ................. Amount Due ........................ $ 985,000 $ 345,000 $ 350,000 ----------$ 1,680,000 $ (695,000) ----------$ 985,000 ===========

SPECIAL CONDITIONS 1. The cover provided will continue to be Side A D&O only (no Corporate Reimbursement). 2. Cover will continue on Policy Form CODA Premier 01 ED 10/00 with existing endorsements except as provided for herein. Policy Number continues to be PG-106C. 3. Definition of Manager amended by insetting the numbers 1), 2) and 3). 4. Unless otherwise agreed to prior to the premium due date, CODA requires payment of 90% of the above quoted premium. 5. The appropriate premium must be received by Corporate Officers & Directors Assurance Ltd. by July 9, 2004. 6. Please note that for regulatory reasons all payments relating to U.S. based insureds must be transacted through a resident Bermuda broker. Best Regards,
/s/ DAVID GUTTERIDGE ---------------------------------------David Gutteridge Corporate Officers & Directors Assurance Ltd.

EXHIBIT (99-3) Directors and Officers (Second) Liability Binder of Insurance

COMPANY:

XL Insurance (Bermuda) Ltd. XL House One Bermudiana Road P.O. Box HM 2245 Hamilton HM JX Bermuda The Procter & Gamble Company Directors and Officers Liability 16-1 XLD+O-00364 June 30, 2004 to June 30, 2005 12.00% Yes

COVERAGE BINDER FOR: TYPE: OUR REFERENCE: POLICY NO: POLICY PERIOD: BROKERAGE: NEW AGGREGATE:

GROSS WRITTEN LIMIT ATTACHMENT PREMIUM -------------------------------------------------------USD 25,000,000 D+O USD 25,000,000 D+O USD 738,750

SPECIAL CONDITIONS A) XL coverage to follow form of: CODA binder dated June 28, 2004. B) Issue standard XL Policy: D+O-003B Plus the following endorsements: 1) Unilateral Discovery Period: 12 months at 150 percent annual premium. 2) Cancellation period: as per CODA 3) Policy Interpretation Endorsement 4) Incorporation of CODA's Application Endorsement 5) Incorporation of Underlying Terms Endorsement, which is worded as follows: "In consideration of the premium charged, it is hereby understood and agreed that this Policy is issued in reliance upon all statements and warranties made and

information furnished to the Insurer and to the issuers of the Underlying Insurance. It is further agreed that there shall be no coverage under this Policy for any claim, loss or other matter that is not covered, or is excluded, by any underlying policy, other than by reason of the exhaustion of the limits of such underlying policy." 6) XL is not in a position to follow form of CODA Section 8(a) (i), (b) and (c). 7) Directors' and Officers' Coverage Endorsement 8) Insured VS Insured Endorsement C) Underlying Policies: CODA: $25m D) Subject to premium payment within 10 days of binding. E) XL Policy No. XLD&O-00364-04. STANDARD CONDITIONS 1) The above binder does not include any amount with respect to Insurance Premium Tax. The terms of this binder include the obligation of the insured to reimburse XL for any Insurance Premium Tax incurred by it with respect to the premiums received from the insured. All terms and conditions as per wording of Policy and appropriate endorsements. Regards,
/s/ MARGARET LEWIS ---------------------------------------Margaret Lewis XL Insurance (Bermuda) Ltd.

EXHIBIT (99-4) Directors and Officers (Third) Liability Binder of Insurance

COMPANY: ACE Bermuda Insurance Ltd.

ACE Global Headquarters 17 Woodbourne Avenue Hamilton HM 08 Bermuda ACE Bermuda Insurance Ltd. Confirms binding the following:
INSURED: POLICY PERIOD: LIMIT OF LIABILITY: ATTACHMENT: AGGREGATE LIMIT: PREMIUM: Procter & Gamble Co. June 30, 2004 to June 30, 2005 $25,000,000 $50,000,000 $25,000,000 $1,050,000

STRUCTURE:
NAME ---CODA D&O $25,000,000 LIMITS -----C.R. Nil. (Retention of 0/0/$50,000,000 for each Separate Loss) Nil $25,000,000

XL BDA ACE BDA

$25,000,000 $25,000,000

SPECIAL CONDITIONS 1. Cover will be issued on Policy Form ACE D&O 03/00. Policy Number PG-10151D. 2. Followed Policy is CODA as per binder dated June 28, 2004. 3. Coverage is D&O and Corporate Reimbursement. 4. Endorsements to be included effective this Policy Period inception: - Unilateral Discovery Period, 12 months at 150%. No new aggregate limit for Discovery Period. - Prior and/or Pending Litigation Exclusion Endorsement as per expiring Endorsement Number 2. - Incorporation of Application Endorsement as per expiring Endorsement Number 3. - Incorporation of Warranty Endorsement as per expiring Endorsement Number 4. - Incorporation of Underlying Terms Endorsement as per expiring Endorsement Number 5. - Non follow form of CODA exclusions (c), (d), (e) Endorsement as per expiring Endorsement Number 6. - Retention Endorsement as per expiring Endorsement Number 8. - Insured v Insured exclusion Endorsement as per expiring Endorsement Number 9. - Non follow form of CODA Section 8(a)(i), (b) and (c). Non follow form of CODA Section 18 (b) except for Side A. - BI/PD exclusion Endorsement as per expiring Endorsement Number 11.

- Pollution exclusion Endorsement as per expiring Endorsement Number 12. - Directors' and Officers' Coverage Endorsement as per expiring Endorsement Number 13. - Cancellation Clause Endorsement as per expiring Endorsement Number 14. - Order of Payments Endorsement. 5. Unless otherwise agreed to prior to the premium due date, ACE requires payment of 88% of the above bound premium. 6. ACE requires receipt, review, and underwriting acceptance of the following by the dates specified otherwise this coverage is void ab initio: - An assignment letter assigning CODA extension application to ACE Bermuda by July 9, 2004. - Applicable premium by July 9, 2004. 7. Please note that for regulatory reasons all payments relating to U.S. based insureds must be transacted through a resident Bermuda broker. Best Regards,
/s/ DAVID GUTTERIDGE ---------------------------------------David J. Gutteridge Ace Bermuda Insurance Ltd.

EXHIBIT (99-5) Directors and Officers (Fourth) Liability Binder of Insurance

COMPANY: Allied World Assurance Company, Ltd.

The Bermuda Commercial Bank Building 43 Victoria Street Hamilton HM 12 Bermuda It is hereby understood and agreed that in reliance upon the application and all statements therein, which form a part of this policy, coverage is bound as follows:
Insured Name: Insured Address: Insurance Company: Insurance Carrier: Underwriter: Type of Insurance: Policy Form: AWAC Policy Form: Policy Trigger: Policy No: Policy Period: Currency: Coverage Layer Limits: Procter & Gamble Company (The) One Procter & Gamble Plaza, Cincinnati, OH 45202, USA Allied World Assurance Company Ltd. Allied World Assurance Company Ltd. James Perry Directors and Officers Insurance Follow Form Excess D&O (1/03) Claims Made C000539/003 6/30/2004 to 6/30/2005 United States Dollars USD $25,000,000 per claim USD $25,000,000 annual aggregate Excess of USD $75,000,000 per claim USD $75,000,000 annual aggregate

Pending or Prior Litigation Date: 6/30/2002 AWAC Participation of Covered Layer Limits: 100%
AWAC Limits: AWAC Premium: $25,000,000 $892,500

Commission: Binder Expiry Date: Applicable Endorsements:

12% Coverage held by binder until AWAC layer issued. Reliance Endorsement (removed if Assignment Letter completed) a) b) c) d) Company Policy No.: Policy Period: Policy Limits: ACE Bermuda PG-10151D 6/30/2004 to 6/30/2005 $25,000,000 Per Claim $25,000,000 Annual Aggregate e) f) g) Premium: Policy Form: Endorsements: $1,050,000 ACE D&O 03/00 Follow the primary binder on endorsements

Follow Form:

ENDORSEMENTS AWAC WILL NOT FOLLOW: 1. State Amendatory, Choice of Law, or Arbitration Endorsements; 2. Underlying sub-limits, however we will recognize erosion; TERMS AND CONDITIONS 1. This binder is strictly conditioned upon no material change in the risk occurring between the date of this letter and the inception date of the policy period listed on page one (including any claim or notice of circumstances which may he reasonably expected to give rise to a claim under any policy of which the policy being proposed by this letter is a renewal, replacement or excess of). In the event of such change in risk, the Insurer may at its sole discretion, whether or not this binder has already been accepted by the Insured, modify and/or withdraw this binder. 2. In the event any Underlying Policy contains terms and conditions more restrictive than the Followed Policy, then the Insurer's coverage shall under no circumstances be broader than the most restrictive terms and conditions contained in the Followed Policy or any Underlying Policy. (Premium Payment) 3. Binding is subject to payment of premium on or before 15 calendar days after the inception of the Policy Period listed on page one or the policy will be canceled automatically retroactively to the inception date.

(Taxes) 4. With respect to United Kingdom Insurance Premium Tax, any tax due is payable by the Insured, but collection is required by the Insurer as its agent. We are unable to determine what UKIPT, if any, is due. Please complete the UKIPT Questionnaire and return to us prior to binding the insurance contract. If we do not receive same, the Insured shall be responsible to the United Kingdom authorities for any UKIPT monies and penalties due. 5. The premium payable to the insurer does not include any amount with respect to insurance premium taxes or excise taxes. Under the terms of the proposal, it is the obligation of the Insured to be liable for and pay any insurance premium taxes or excise taxes either itself or through its broker. Allied World Assurance Company, Ltd will be indemnified and fully reimbursed by the Insured for any premium taxes (and costs associated with collection, including legal costs) in the event the insured or its broker fails to pay. (Extended Reporting Period) 6. Unless specifically stated otherwise in the comments section of this document, the Extended Reporting Period will be 150% of the annual premium for 12 months. The cost of discovery, as a percentage of the annual premium, shall in no event be less than the highest percentage of any Underlying Policy.
SUBJECTIVITIES: This binder is subject to receipt, review and acceptance of the following information: 1. Final review and acceptance of prospective changes to underlying language. Copy of the underlying policies when issued. We will be able to issue our policy upon receipt of materially correct primary and followed policies. We would accept our properly executed Assignment Letter instead of the Reliance Endorsement at the client's option. DUE DATE:

7/7/2004

2.

6/30/2005

3.

7/7/2004

ADDITIONAL COMMENTS This is follow form of ACE BDA's $25x50MM layer, and is excess of: CODA primary $25MM limit for $985,000 annual premium (6/28/04 bdr, DIC cover only), XL $25x25MM for $738,750 (6/29/04 bdr, excess DIC), and ACE BDA $25x50MM for $1,050,000 (6/29/04 bdr, ABC coverage, $50MM retention, we follow this)
/s/ JAMES PERRY ------------------James Perry

EXHIBIT (99-6) Directors and Officers (Fifth) Liability Binder of Insurance

COMPANY: Arch Insurance (Bermuda) Victoria Hall, 4th Floor 11 Victoria Street P.O. Box HM 129 Hamilton HM AX Bermuda Arch Insurance (Bermuda) is pleased to bind as follows:
Insured: Policy Form: Coverage: Policy Period: Policy Limits: Policy Attachment: Premium: Commission: The Procter & Gamble Company Arch Reinsurance Ltd Follow Form Excess D&O June 30, 2004 to June 30, 2005 $25,000,000 $100,000,000 $758,625 12%

Underlying Program:
INSURER ------CODA (Side A only) XL (follow form CODA) Ace Bermuda* AWAC* LAYER ----$25,000,000 $25M x/s $25M $25M x/s $50M $25M x/s $75M

*A & B D&O coverage Policy Number: B4-DOX-01824-02 TO THE EXTENT THAT THE UNDERLYING POLICIES HAVE THE FOLLOWING FEATURES, ARCH WILL NOT FOLLOW: 1. Sublimits in the underlying policies although we will recognize erosion. 2. State Amendatories. 3. Service of Suit Conditions. 4. Panel Counsel Endorsements. SPECIAL CONDITIONS: 1. Followed policy is Ace Bermuda. 2. Arch will provide cover no wider than the narrowest underlying policy. 3. Pending and Prior Litigation date: as expiring. 4. Discovery: 12 months at 150%. 5. Cancellation: as per followed policy.

6. New York Law and London Arbitration. 7. No carrier in any layer excess of Arch Insurance (Bermuda) is to receive a higher rate per million or more advantageous terms and conditions. This is to be confirmed prior to binding. SUBJECTIVITIES: This binder is subject to the receipt, review and acceptance of the following items in the time specified or coverage is cancelled ab initio: 1. Copies of final, signed underlying binders, within 5 days of binding. 2. Resolution of Special Condition No. 7, prior to binding. 3. Receipt by Arch Insurance (Bermuda) of the net premium will be required within 10 days of binding. The premium does not include any amount for I.P.T. or for any other taxes or similar charges. These are in addition to the premium and are the responsibility of the Insured to pay. Yours sincerely,
/s/ MATT SMITH ---------------------------Matt Smith

EXHIBIT (99-7) Directors and Officers (Sixth) Liability Binder of Insurance

COMPANY: Starr Excess International American International Building 29 Richmond Road Pembroke HM 08 Bermuda POLICY NUMBER: 6461464
Date: Contact: Brokerage: Named Corporation: Address: State of Incorporation: Policy Period: Prior Acts Date: Prior & Pending Litigation Date: Prior Notice Date: Type of Coverage: Policy Form: Aggregate Policy Limits: Excess of Total Underlying Aggregate Limit: Policy Premium: Brokerage Commission: Currency: Policy Cancellation Period: Extended Discovery Period: Extended Discovery Premium: Attaching Endorsements: June 29, 2004 Mark Simons Park Limited Procter & Gamble One Procter & Gamble Plaza, Cincinnati, OH 45202 Ohio From: June 30, 2004 To: June 30, 2005 N/A June 30, 2001 June 30, 2004 Excess Directors and Officers Liabilities STARR DO (07/00) shortform $25,000,000 (inclusive of defense costs) $125,000,000 $645,000 12% US Dollars Same amount of days as per expiring 365 Days 150% 100.01 Non-follow form of underlying sublimits with recognition of erosion; Non-follow form of State Amendatory, Panel Counsel, Choice of Law, Service of Suit, or Arbitration Endorsements Prior Notice Exclusion; Prior & Pending Litigation Exclusion More Restrictive Underlying Terms

101.02

129.03 145.03 171.01 UNDERLYING CARRIERS Followed Policy: Company: Policy No: Policy Period: Policy Limits:

CODA TBA June 30, 2004 to June 30, 2005 $25,000,000

Policy Premium: Policy Form:

$985,000 CODA Premier 01 ED 10/000

Underlying Policies:
CODA XL Ace AWAC Arch $25,000,000 $25,000,000 $25,000,000 $25,000,000 $25,000,000 Primary Excess of Excess of Excess of Excess of

$25,000,000 $50,000,000 $75,000,000 $100,000,000

SUBJECTIVITES - THE ABOVE IS SUBJECT TO RECEIPT, REVIEW & ACCEPTANCE OF THE FOLLOWING ITEMS: 1. Copies of all underlying binders within five (5) days of binding; 2. Completion of the UKIPT Form 3. Copies of any information requested by or provided to any program participant within thirty days of binding; 4. Payment of premium within ten (10) days of binding; 5. Copies of all underlying policies, as soon as available TERMS AND CONDITIONS 1. Binders are subject to confirmation that any excess follow form layer does not attract a higher premium per million than Starr's lower layer except where the excess policy provides Difference in Conditions coverage. 2. All other terms and conditions are as per Starr's Excess Liability Policy Form STARR DO (07/00) shortform and endorsements referenced above. 3. The above binder does not include any amount with respect to Insurance Premium Tax. The terms of our proposal include the obligation of the Insured to reimburse Starr for any Insurance Premium Tax incurred by it with respect to the premiums received from the Insured. We require this information no later than thirty (30) days after binding. 4. As respects UKWT, we are unable to determine what UKIPT, if any, is due. Please have the enclosed UKIPT Questionnaire completed and returned to Starr Excess within thirty (30) days of binding. If we do not receive same, the Insured shall be responsible to the UK authorities for any UXIPT monies and penalties due. 5. Please advise your client that we cannot release policy documentation without receipt of the required signed Followed Policy. If we do not have a signed and completed policy we will not issue our policy documentation. Once the Followed Policy is received, our policy will be issued as soon as possible. In addition, please note and inform your client that the provisions of this binder and the subsequent binding contract require copies of all underlying policies and applicable endorsements to be supplied to this office. 6. In the event any Underlying Policy contains terms and conditions more restrictive than the Followed Policy, then the Insurer's coverage shall under no circumstances be broader than the most restrictive terms and conditions contained in any Underlying Policy.

7. Terrorism Coverage has not been selected by the Insured. 8. This binder is a statement concerning the above insurance as of the date of the issuance of this binder. This binder is subject to policy conditions of any binder(s)/policy(ies) which may be issued by Starr Excess International Liability Insurance Company Ltd. and shall be automatically cancelled and superceded by such binder(s)/policy(ies) upon issuance. 9. Except to such extent as may otherwise be provided herein, the coverage of this binder is limited generally to liability for only those claims that are first made against the insureds during the policy period and reported in writing to the insurer pursuant to the terms of this binder. Please read the documentation carefully and discuss the coverage thereunder with your client. 10. The limit of liability available to pay judgments or settlements shall be reduced by amounts incurred for legal defense. Amounts incurred for legal defense shall be applied against the retention amount. Additionally, the insurer does not assume any duty to defend. Yours sincerely,
/s/ ADAM KLEINMAN ---------------------------------------Adam Kleinman Vice President Financial Lines

EXHIBIT (99-8) Directors and Officers (Seventh) Liability Binder of Insurance

COMPANY: Axis Specialty Limited 106 Pitts Bay Road Pembroke, HM 08 Bermuda
INSURER: PARENT COMPANY AND ADDRESS: Axis Specialty Limited Bermuda The Procter & Gamble Company One Procter & Gamble Plaza Cincinnati, OH, 45202 USA PARK000021 1126350104QA Excess Form Number AXIS BM03 Directors and Officers Liability Insurance

BINDER NUMBER: POLICY NUMBER: POLICY FORM: LINE OF BUSINESS:

POLICY PERIOD: From 12:01 AM (Local time at the address stated in Item 1) on 30 June, 2004 To 12:01 AM (Local time at the address stated in Item 1) on 30 June, 2005 LIMITS/PREMIUM:
Limit of Liability Inclusive of Defense Costs $25M EACH CLAIM; $25M POLICY AGGREGATE Excess of $150M Policy Period Premium $548,250*

*Plus any applicable surplus lines taxes and fees UNDERLYING INSURANCE: 1. Primary Policy
INSURER ------CODA - Side A LIMITS -----$25,000,000 PREMIUM ------$985,000 POLICY PERIOD ------------30-June-04 to 30-June-05

2. Other Underlying Policies


Insurer XL - Side A ACE AWAC Limits $25m xs $25m $25m xs $50m $25m xs $75m Premium $738,750 $1,050,000 $892,500

ARCH Starr

$25m xs $100m $25m xs $125m

$758,625 $645,000

PENDING & PRIOR CLAIM DATE: As expiring ENDORSEMENTS EFFECTIVE AT INCEPTION: - Schedule of Underlying - Reliance endorsement - Prior Notice - Unilateral Discovery 1 year @ 150% - Followed Policy is ACE Bermuda COMMISSION PAYABLE IS 12% Receipt, review and acceptance in writing by Axis Specialty Limited underwriters of the following additional information: 1. Copy of Underlying Policies as soon as possible If any of the above requested Items are not received, reviewed, and accepted by Axis Specialty Limited underwriters, and acknowledge as such in writing, by the above specified date then this Conditional Binder and any policy issued pursuant thereto will be automatically deemed null and void ab initio (as if it had never existed) and have no effect. The payment of premium or the issuance of any policy shall not serve to waive the above requirements. Further, a condition precedent to coverage afforded by this Conditional Binder is that no material change in the risk occurs and no submission is made to the Insurer of a claim or circumstances that might give rise to a claim between the date of this Conditional Binder and the inception of the proposed Policy Period. Compliance with applicable laws including filings and payment of taxes and fees is the responsibility of the insured, the Insurance agent or Insurance broker. Premiums must be remitted thirty (30) days after the issuance of this binder. This Conditional Binder is valid thru ninety (90) days from the date of this document. AXIS PAYMENT TERMS - As a reminder, premium payments to AXIS Specialty Limited are due 30 days after the issuance of this binder. Best Regards,
/s/ HILLARY WILLIAMS ----------------------------Hillary Williams Senior Vice President AXIS Specialty Limited

EXHIBIT (99-9) Directors and Officers (Eighth) Liability Binder of Insurance

COMPANY: XL Insurance (Bermuda) Ltd. XL House One Bermudiana Road P.O. Box HM 2245 Hamilton HM JX Bermuda
COVERAGE BINDER FOR: TYPE: The Procter & Gamble Company Directors and Officers Liability including Company Reimbursement Liability 16-2 XLD+O-00364 June 30, 2004 to June 30, 2005 12.00% Yes

OUR REFERENCE: POLICY NO: POLICY PERIOD: BROKERAGE: NEW AGGREGATE:

GROSS WRITTEN LIMIT ATTACHMENT PREMIUM -------------------------------------------------------------------------------USD 10,000,000 D+O/CR USD 175,000,000 D+O/CR USD 180,000

SPECIAL CONDITIONS A) XL coverage to follow form of: ACE, as per their 06/29/04 binder. B) Issue standard XL Policy: D+O-005; XL Policy No. XLDCR-00364-04. Plus the following endorsements: 1) Unilateral Discovery Period: 12 months at 150 percent annual premium. 2) Cancellation period: as per ACE. 3) Policy Interpretation Endorsement 4) Prior/Pending Litigation Exclusion effective: 06/30/02 5) Incorporation of Application Endorsement 6) Incorporation of Warranty Endorsement

7) Reliance Endorsement 8) Incorporation of Underlying Terms Endorsement C) Underlying Policies:


CODA: XL: ACE: AWAC: Arch: Starr: Axis: $25m (A only) $25m (A only) $25m $25m $25m $25m $25m

D) Within 10 days of binding we require satisfactory receipt, review and acceptance of the following: i) A copy of all underlying binders. E) Subject to premium payment within 10 days of binding. STANDARD CONDITIONS 1) The above binder does not include any amount with respect to Insurance Premium Tax. The terms of this binder include the obligation of the insured to reimburse XL for any Insurance Premium Tax incurred by it with respect to the premiums received from the insured. All terms and conditions as per wording of Policy and appropriate endorsements. Regards,
/s/ MARGARET LEWIS ---------------------------------------Margaret Lewis XL Insurance (Bermuda) Ltd.

EXHIBIT (99-10) Directors and Officers (Ninth) Liability Binder of Insurance

COMPANY: Max Re Managers Ltd.

2 Front Street P.O. Box HM 2565 Hamilton HM KX Bermuda Max Re is pleased to bind the following for the above reference client. COVERAGE INFORMATION
Type: CLIENT INFORMATION Name: Address: The Procter & Gamble Company One Procter & Gamble Plaza Cincinnati, OH 45202 Binder

POLICY INFORMATION Policy Form: Policy Number: Policy Period: Limit of Liability: Policy Attachment: Max Re Ltd Professional Liability Follow Form Excess 4654-376-XSCLM-2004 June 30th, 2004 - June 30th, 2005 $15,000,000 in the aggregate for the policy period. $185,000,000 excess of the following schedule of

underlying insurance:
CODA XL ACE AWAC Arch Starr Axis Insured's Retention: Followed Policy: $25M $25.0M $25.0M $25.0M $25.0M $25.0M $25.0M Primary $ 25.0M $ 50.0M $ 75.0M $100.0M $125.0M $150.0M

$50,000,000 each and every claim ACE

PREMIUM INFORMATION Premium: $260,000

Commission: Payment Terms:

12% Premium payment is due in full within 10 days of binding

SPECIAL CONDITIONS 1. Coverage disputes are referred to mandatory arbitration in London. 2. Policy follows most restrictive underlying coverage. 3. This policy does not follow form of sublimited coverages, but shall recognize erosion SUBJECTIVITIES 1. Receipt of premium as per payment terms above. In the event net premiums of $228,800 are not received on or before July 12th, 2004 this binder is void ab initio. ENDORSEMENTS 1. Endorsement backdating prior and pending dates (please advise) 2. Reliance Endorsement GENERAL CONDITIONS 1. Any and all taxes or fees incurred in the placement of the proposed insurance are the sole and exclusive responsibility of the Insured, and it is acknowledged that Max Re has no payment or filing responsibilities of any kind relating to such any taxes or fees. 2. All amounts are in United States Dollars unless otherwise indicated. 3 All subjectivities must be provided within 30 days (unless a different date is provided in the subjectivity) of the date of this letter. If such subjectivities are not cleared by that time, then any policy bound may be cancelled ab initio by the insurer. 4. All changes, modifications and extensions of this proposal shall be made only in writing by the underwriter. Yours truly,
/s/ JONATHAN EVANS -------------------------Jonathan Evans Professional Liability

End of Filing 2005 | EDGAR Online, Inc.

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